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Alf's Articles

Luxury Buyer is Still Hot Prospect in Volatile Times

by Alf Nucifora

There are few consumer markets subject to more confusion or lack of familiarity than the luxury segment. For that reason, most marketers steer a wide berth away from this lucrative category. Conventional wisdom also decrees that the luxury buyer comes out of the woodwork when times are flush but disappears when the marketplace tightens as it is doing today. The reality is that the luxury buyer represents unparalleled opportunity for most consumer marketers, and that opportunity transcends the volatility of the marketplace. Good times or bad, luxury buyers like to spend. What's important is how you ask for the order.

More of them.

In sheer numbers and girth, the category is growing in leaps and bounds:

  • Three million Americans control half of the $10 trillion in invested funds.
  • Billionaires in 1982…12; in 2000…170.
  • Americans with a net worth of more than a million dollars…5 million plus.
  • Top 5% of earners represented 16% of all income earned in1976; in 1999…24%.
  • Luxury travel up 130% since 1990. ($350 per person per day)
  • The rich are building bigger houses (average of 2800 square feet) and more of them. Most own two homes. One in four own three or more.
  • Luxury cars ($40,000+) account for 12% of vehicles sold, up from 7% in 1986.

The splintering of the once homogeneous luxury sector reveals a fundamental shift in how the category is now comprised. Historically, the "traditional rich" were old, white, male and of inherited wealth. Today, this group represents the minority having been supplanted by the "new affluents". These include the options-rich of Silicon Alley and Valley (even after the dot.com failures), entertainers, professional athletes (Pro Magazine targets the top 25,000 athletes in the US making more than a million dollars a year), the new entrepreneurs, the new upper class, an exploding group of trust fund babies ($3 trillion will be passed on to this group in the next ten years), aspirational buyers (those hungry for symbols of wealth, passionate connoisseurs and even Gen X and Gen Y up-and-comers who are willing to save in order to buy the very best.

Luxury Redefined

Luxury used to be defined according to traditional, European-influenced standards. More was better. Conspicuous consumption was in. J.P. Morgan spoke for class when he opined, "if you have to ask how much it costs, you can't afford it."

Luxury today is a different story. Greg Furman, Founder and Chairman of the Luxury Marketing Council, an international organization serving more than 150 elite purveyors of luxury products and services including the likes of Mercedes Benz, Cartier, Dunhill, Rolls Royce/Bentley and Sotheby's maintains that there is a new luxury ethic at play. "The new ethic," says Furman, "states that if you don't understand or can't say why it's worth it, you don't want to own it or experience it, even if you can afford it."

Furman foresees a number of trends influencing the luxury sector that offer fair warning for the marketer:

  • The "Luxury Rub" or "Gilt by Association": No longer can sales staff take on the outdated and self-destructive pretense of snobbery. The tell-tale symptoms e.g., social x-raying and eyeball inventorying, are fast disappearing.
  • Empty nesters empowered and enriched: These are the time-deprived, dual-income baby boomers who have just had their children leave the family payroll and are now ready to spend. They put a premium on time and the home. With this comes an explosion of services to the home many of them Internet driven. Says Furman, "we are returning to the conventions of a hundred years ago when it was ordinary of the middle class to use servants and almost all merchandise was delivered to the home."
  • Product Blur…Class looks Mass/Mass goes Class: Traditional luxury vendors will increasingly have to contend with mass retailer incursions into the luxury market. For example, The Gap, Banana Republic and Target have succeeded by providing the perception, if not the reality, of luxe value at mass price. The challenge for the luxury marketer will be to maintain the aura of the brand while seeking to extend it…to maintain quality and premium perception while remaining sensitive to price.
  • Brand Reciprocity: Luxury consumers will only be respectful of luxury brands if the favor is reciprocated. "For marketers of luxury products and services, this will mean raising the bar on customer education, justifying the value behind the price and understanding the consumer at a level of intimacy not on the radar of most luxury brands," says Furman.

With the luxury market predicted to grow 25-30% a year, those wishing to gain a share of that burgeoning market, or protect what they already have, would be advised, notes Furman, to follow classic marketing practice:

  • Constantly educate best customers as to the price/value equation.
  • See marketing as an investment, not a cost.
  • Stay sensitive to the equity inherent in the brand…be careful not to dilute brand identity by over-extending with new products and services.
  • Appreciate the "loyalty" factor…the impact of long-term profitability from retaining and growing your best customers.
  • Heighten service and intelligent "one-to-one" contact with best customers. Find creative ways to meet their needs and make them feel special.
  • Build collaborations and partnerships with like-minded marketers.



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