In September, the U.S. Census Bureau announced that median household income dipped slightly in 2001 â€” the first decline since 1991. Amid such gloomy reports, however, there was some good news: The number of households with an annual income of $100,000 or more has been growing steadily during the past decade. Today, there are 15.1 million U.S. households that earn $100,000 or more, up from 8.7 million in 1990. What's more, the upper middle class (defined as those who earn $75,000 to $99,999) numbers 11.8 million households today, up from 8.9 million in 1990.
While it's true that the recession has cut into income levels this past year, it's also true that a larger proportion of Americans today have higher incomes than in years past. In fact, the percentage of households with incomes of $100,000 or more has grown to 14 percent in 2001 from 9 percent in 1990. That growth has not gone unnoticed by luxury marketers. While the primary purchasers of traditional luxury goods (think Gucci) and services (think at-home seaweed wrap) are highly affluent Americans (those making $200,000 or more), businesses have begun to infuse elements of luxury in even the most ordinary of categories (think $4 Starbucks latte).
In fact, over the past decade, brands that were once available exclusively to the wealthiest among us have created more affordable product extensions, giving a far broader range of consumers a taste of the good life. Jaguar, for instance, recently launched its X-type sedan, which starts at $30,000 and is meant for the â€œalmost richâ€? consumer who aspires to live in luxury. Tiffany promotes $50 sterling silver key chains in addition to its $100,000 diamond engagement rings.
Some call the increasing availability of luxury products and services at lower price points â€” and Americans' increasing ability to purchase those products â€” the â€œdemocratization of luxury.â€? Upscale kitchen appliance company Viking Range Corporation, based in Greenwood, Miss., for example, has expanded its product line over the past decade to include everything from cookware to cutlery at various prices, in an effort to interest more of these almost-rich consumers in the luxury lifestyle, says Terry Tanner, vice president and media director at The Ramey Agency in Ridgeland, Miss., which handles the Viking account. â€œA consumer may not be able to afford a Viking range [about $8,000], but she can afford a carving knife,â€? says Tanner. â€œEven if they aren't super rich, many consumers aspire to be, and we want to provide an opportunity for everyone with the desire to live the luxury lifestyle to get a taste of it through using our products.â€?
With more money in more people's hands, luxury companies are wise to reach out to the â€œmass affluent,â€? upper-middle-class and middle-class targets, says Michael J. Silverstein, head of the worldwide consumer and retail group at the Boston Consulting Group in Chicago. Despite today's recession â€” and perhaps even because of it â€” consumers are looking for more affordable luxuries, or what Silverstein calls â€œnew luxuryâ€? products.
â€œNew luxury goods range in price from a $6 Tuscan chicken sandwich at Panera to a $26,000 Mercedes CLK,â€? he says. â€œWhat they have in common is that they enable less affluent consumers to trade up to higher levels of quality, taste and aspiration. These are the luxuries that continue to sell even when the economy is shaky, because they often meet very powerful emotional needs.â€?
In fact, a new attitude toward luxury â€” one that values substance over style and quality over conspicuous consumption â€” seems to have intensified over the past year, as the recession and uncertainty about the attacks on Sept. 11 have caused consumers to think more carefully about where they spend their dollars. Whether because of tight budgets or guilt about extravagant spending, people are feeling they have to rationalize their purchasing even more today. â€œIn the past, many people would buy according to status and brand, but now it's more about relevancy,â€? says Brenda G. Saget, publisher of the upscale shelter magazine House & Garden. â€œMarketers today need to explain better what exactly makes their products so wonderful and what benefits having them will bring to a person's life.â€?
Understanding what consumers are looking for from luxury products and services is increasingly important today. â€œIn the late 1990s, when the luxury sector was strong and sales were high, things were pretty steady. You could do consumer research yearly and see very little change,â€? says Christopher Owens, account planning director for the Dallas-based ad agency The Richards Group, whose accounts include Sub-Zero Freezer Company and The Home Depot Expo Design Center.
â€œToday, between stock market plunges and terrorist threats, we're seeing week-to-week shifts in attitudes and behaviors,â€? says Owens. â€œIt has become so much more important to know your customer.â€?
Indeed, demographic and psychographic factors as well as life stage all play a part in the type of â€œluxury consumerâ€? businesses attract these days. Not only is the number of people with the means for making luxury purchases today much larger, it is a much more demographically varied group than ever before. For instance, the percentage of minority households with $100,000 or more in annual income increased to 16 percent in 2001, from 11 percent in 1990. In a post-Sept. 11 climate of uncertainty, where consumer attitudes shift as quickly as the headlines, it's critical for businesses to know how different consumers define â€œluxuryâ€? and the value propositions that motivate each consumer to purchase such products and services.
Pam Danziger, president of Unity Marketing in Stevens, Pa., recently conducted a series of focus groups among luxury purchasers for House & Garden magazine and was surprised to find how much the definition of luxury varied among different consumers. â€œGoing into this, I really thought luxury purchasing was all about brand names, but many consumers don't even recognize brands,â€? she says. â€œLuxury today is really about the ability to pursue one's own passions, and those passions are very different for everyone.â€?
In September, American Demographics commissioned an exclusive survey to uncover some of these passions and motivations. Encino, Calif.-based online research firm E-Poll conducted the survey among a nationally representative sample of 876 adults. The findings: There are significant differences in consumers' definition of luxury by gender, race and age. For instance, and contrary to popular belief, women are actually less brand conscious than their male counterparts: while 39 percent of men define luxury by the brand name of a product, just 28 percent of women do. Men are also more likely to say they aspire to live a lifestyle of luxury (45 percent) than are women (38 percent). Even so, 51 percent of men, compared with 38 percent of women, say they have recently cut back on luxury purchases.
The reasons for purchasing luxury items also differ slightly by gender. Overwhelmingly, both men and women say their most recent luxury purchase was made because â€œI wanted to treat myself to something specialâ€? (68 percent of men versus 72 percent of women), or because â€œI liked the quality of the merchandiseâ€? (45 percent versus 43 percent, respectively). However, women are much more likely than men to say they bought their last luxury purchase because â€œIt made me feel good about myselfâ€? (36 percent versus 23 percent, respectively).
When it comes to defining luxury goods, race and ethnicity do matter. Black and Hispanic consumers are almost twice as likely to look at a label as are white consumers, according to the American Demographics/E-Poll survey. Almost half of blacks (48 percent) and Hispanics (47 percent) say that â€œluxury is defined by the brand of a product,â€? compared with just 27 percent of white consumers. Interestingly, Hispanics are more likely than either blacks or whites to say that they aspire to live a lifestyle of luxury (49 percent, compared with 37 percent of blacks and 40 percent of whites). They are also the most likely to agree that â€œluxury means high statusâ€? (63 percent, compared with 49 percent of blacks and 47 percent of whites).
A consumer's age also influences how he or she defines luxury. Older consumers (here defined as those age 55 and older) are the biggest fans of luxury products. Fully 74 percent of them say they associate â€œluxuryâ€? with â€œelegance.â€? And while 37 percent of the Gen X/Y group (in this study, 18 to 34) and 22 percent of Baby Boomers (in this study, 35 to 54) define luxury as being â€œflashyâ€? or â€œelitist,â€? just 10 percent of the older consumer group says the same.
In fact, the supposed â€œMe Generation,â€? Baby Boomers are actually the most likely to think of luxury as being â€œwastefulâ€? or â€œunnecessary.â€? Over a quarter (28 percent) of Boomers say so, compared with 19 percent of each of the other two age groups. Gen X/Y on the other hand, seems to be in awe of the lap of luxury. Fully 61 percent of the youngest group aspire to live a â€œlifestyle of luxury,â€? while only 38 percent of Boomers and 36 percent of the older consumers have similar aspirations. Interestingly, almost a quarter of Gen X/Y (23 percent) already think they live a luxurious lifestyle, more than twice the percentage of Boomers who think the same (10 percent).
PSYCHOGRAPHICS OF LUXURY CONSUMERS
A consumer's motivation for luxury spending has as much to do with personality and state of mind as with his or her demographics. Three distinct mind-sets drive the majority of luxury spending, according to SRI Consulting Business Intelligence (SRIC-BI), a Menlo Park, Calif.-based firm that analyzes consumer psychographics. Each group responds to different value propositions and marketing messages, says Kristen Thomas, an SRIC-BI consultant. SRIC-BI breaks its consumers out into three groups.
Luxury Is Functional
These consumers tend to buy luxury products for their superior functionality and quality. Consumers in this segment, the largest of the three, tend to be older and wealthier, and are willing to spend more money to buy things that will last and have enduring value. These consumers buy a wide array of luxury goods, from luxury automobiles to artwork to vacations. They conduct extensive prepurchase research and make logical decisions rather than emotional or impulsive decisions. Messages that highlight product quality and are information-intensive are powerful with this group.
Luxury Is a Reward
These consumers tend to be younger than the first group but older than the third group. They often use luxury goods as status symbols or to say â€œI've made it.â€? The desire to be successful and to demonstrate their success to others motivates these consumers to purchase conspicuous luxury items, such as luxury automobiles and homes in exclusive communities. Luxury brands that have widespread recognition are popular with this segment. And yet, this segment is also concerned that owning luxury goods might make them appear lavish or hedonistic, especially in these economic times. They want to purchase â€œsmartâ€? luxury that demonstrates their importance, while not leaving them open to criticism. Marketing messages that communicate acceptable exclusivity resonate with this group.
Luxury Is Indulgence
This group is the smallest of the three, and tends to include younger consumers and slightly more males than the other two groups. To these consumers, the purpose of owning luxury is to be extremely lavish and self-indulgent. This group is willing to pay a premium for goods that express their individuality and make others take notice. These consumers are not overly concerned with product quality or longevity, or with the possibility that others might criticize their purchases. Rather, they enjoy luxury for the way it makes them feel â€” if a product makes them feel good, they will likely make the purchase. These consumers have a more emotional approach to luxury spending, and are more likely than the other two groups to make impulse purchases. They respond well to messages that highlight the unique and emotional qualities of a product.
â€œAs consumers face emotional and economic stresses, they may modify some specific behaviors â€” for instance, delaying the purchase of a second home or new car â€” but their fundamental personalities don't change,â€? says SRIC-BI's Thomas. â€œThe different facets of luxury goods that consumers found attractive before the recession will continue to appeal to them during this recession and into recovery.â€?
WHAT'S IT TO YOU?
White consumers are more likely to define â€œluxuryâ€? as something â€œprestigiousâ€? or â€œexclusiveâ€? than are blacks or Hispanics (53 percent, compared with 43 percent and 41 percent, respectively). On the other hand, minorities are almost twice as likely as whites to define luxury as â€œtrendyâ€? or â€œfashionableâ€? (30 percent of blacks and 33 percent of Hispanics, compared with 18 percent of whites).
WHICH OF THE FOLLOWING ADJECTIVES DO YOU ASSOCIATE WITH THE TERM â€œLUXURYâ€??
|**Sample size too small|
|Note: Columns do not sum to 100 percent because more than one answer was allowed.|
|Source: American Demographics/E-Poll|
Shopping Attitudes by Life Stage
Marketing luxury is not necessarily about marketing to the affluent but about marketing to those most predisposed to buying luxury products.
In addition to demographics and psychographics, businesses must think about their consumers' life stage when developing marketing strategies. For instance, it isn't enough to target â€œsingle women,â€? because there are at least five different types of single women. As the chart below shows, a savvy career woman like â€œElizabeth,â€? and an upscale mature woman like â€œVirginia,â€? both have quite a bit of money to spend, but they have very different attitudes toward spending. They may both be a good customer for certain luxury goods, but the sales pitch necessarily must differ to resonate with each.
The chart below illustrates the subtle differences in shopping
attitudes across five types of single-female-headed households. For
this analysis, New York City-based Simmons Market Research Bureau,
using a tool called Cohorts, analyzed data from its spring 2002
survey. We have limited this chart to the 1,310 female households
in the â€œaffluentâ€? and â€œmiddle classâ€?
cohorts, as defined by SMRB.
SHOPPING ATTITUDES, BY INDEX*:
|CONSUMER DESCRIPTION:||SAVVY CAREER WOMEN||UPSCALE MATURE WOMEN||EDUCATED WORKING WOMEN, NO KIDS||SINGLE WORKING MOMS||ACTIVE GRANDMAS|
|I am very happy with my life as it is||94||103||87||92||95|
|I enjoy entertaining people at home||108||112||92||98||103|
|It is worth paying extra for quality goods||115||127||76||75||79|
|Home decor is a particular interest||131||139||103||123||123|
|I can't resist expensive perfume/cologne||172||**||151||218||**|
|I like other people to think I'm rich||116||98||91||97||83|
|I tend to spend money without thinking||143||81||121||132||102|
|Most everything I wear is the highest quality||150||121||86||124||101|
|I spend more than I can afford for clothes||201||**||164||136||127|
|I plan far ahead to buy expensive items||93||95||109||100||97|
|Price isn't most important, what's most important is getting what I want||120||108||84||101||103|
|Options on a car impress me||111||75||84||121||71|
|I prefer driving a luxury car||106||95||59||83||70|
|I try to keep up with changes in style/fashion||152||101||114||125||111|
|* An index of 100 is the national average. For
example, an index of 125 means that members of that consumer group
are 25 percent more likely to agree with the statement than the
average adult is.
**Sample size too small
|Source: Simmons Market Research Bureau|
Still in the Lap of Luxury
Research shows that the recession and Sept. 11 have had a negligible impact on spending by the wealthiest Americans.
Money cannot buy happiness, it cannot buy immunity from the emotional effects of the past year, and contrary to popular belief, it cannot buy a bubble in which to live out the current recession. Certainly, luxury spending by the more affluent income groups has been less affected by the economic downturn and by Sept. 11 than that of lower income groups. In fact, according to an August survey of luxury consumers by Unity Marketing for House & Garden magazine, 67 percent of consumers with household incomes of $200,000 or more say that their spending on luxury items and services has been only slightly affected or not at all affected by the recession, and 85 percent of them say Sept. 11 has not affected their spending, compared with 60 percent and 77 percent, respectively, of those in the $50,000 to $75,000 income group.
Even so, the attitudes of the wealthy toward shopping and the types of luxury items on which they choose to drop their dough has shifted somewhat. â€œWhat is different about today's affluent consumers versus those in the past is that today they have much less debt, so they are more insulated from economic downturns than they were from past recessions,â€? says Henry Welt, president of H. Welt & Co., a consultancy for the luxury market.
Even if some of the most affluent consumers' portfolios have gone down a little, it has not had a heavy impact on their spending, says Welt. â€œWhat is different, though, is that affluent people are looking for different kinds of qualities from their products and services. Today they are looking for things that give them privacy, more experiences, more time at home.â€?
American Demographics compared findings from New York City-based Mediamark Research Inc.'s Spring 2001 and 2002 surveys, each of which polled about 4,500 adults with incomes of $100,000 or more. Interestingly, spending by this group on fine jewelry ($1,000 or more in the past year), home computers ($3,000 or more), domestic vacations ($3,000 or more), and foreign vacations ($3,000 or more) remained flat. Yet the percentage of affluent Americans who spent $30,000 or more on their last vehicle actually increased to 14 percent in 2002, from 12 percent in 2001, and the share who spent $5,000 or more on home remodeling also grew, to 10 percent in 2002, from 8 percent in 2001.
But knowing where the money has gone is only half the story. The
charts below show that purchasing habits and attitudes have
HEY, BIG SPENDER
Almost all Americans with household incomes of $200,000 or more (97 percent) say they have purchased at least one luxury* product in the past year. Of those, 45 percent have bought luxury beauty products.
|Any luxury product||89%||92%||97%|
|Any luxury service||85%||87%||93%|
|Electronics (computers, home entertainment, etc.)||56%||59%||66%|
|Fragrance & beauty products||43%||46%||45%|
|Apparel & accessories||41%||44%||49%|
|Furniture & floor coverings||35%||39%||48%|
|Jewelry & watches||34%||40%||56%|
|Fabrics, wall & window coverings||28%||33%||45%|
|Housecleaning or maid service||37%||45%||63%|
|Spa, massage, beauty treatments, or cosmetic surgery||31%||37%||**|
|*The definition of what constituted a
â€œluxuryâ€? product or service was self-defined by the
**Sample size too small
|Note: Survey was conducted in August 2002 with 343 adults with incomes of $100k+|
|Source: Unity Marketing/House & Garden|
THEN AND NOW
Seventy-four percent of Americans making $250,000 or more say they enjoy entertaining at home, compared with just 57 percent who said so prior to Sept. 11 and the start of the recession.
PERCENTAGE OF AMERICANS WHO AGREE WITH THE FOLLOWING, BY HOUSEHOLD INCOME:
|HHI $100K-$150K||HHI $150K-$250K||HHI $250K+|
|I enjoy entertaining people at home||52%||60%||54%||62%||57%||74%|
|I indulge my kids with little extras||46%||44%||45%||44%||49%||55%|
|I'm looking for new ideas to improve my home||52%||53%||47%||55%||45%||57%|
|I often buy clothes I don't need||23%||24%||22%||23%||26%||32%|
|I can afford to buy expensive designer clothes||18%||20%||22%||26%||32%||41%|
|I prefer driving a luxury vehicle||28%||28%||34%||36%||44%||47%|
|Note: â€œPre-Recession/9/11â€? data is from SMRB'S Fall 2001 Survey (Fielded October 2000-September 2001, with 6,392 adults with HHI $100k+). â€œTodayâ€? data is from SMRB's Spring 2002 Survey (Fielded January 2002-May 2002, with 2,433 adults with HHI $100k+)|
|Source: Simmons Market Research Bureau|