July 15, 2008
THE NEW LUXURY CONSUMERS
Zahid Adil, Strategic Marketing & Brand Consultant at Thinkmor™ . He is one of the top 10 MarketingProfs experts, recognised by its strategic marketing knowledge and professionalism. The company he works for – Thinkmor (London, UK) has 45 years of combined experience, most from well known brands or corporate backgrounds, working together to help B2B & B2C companies in Services, Retail, NPD, Fashion, IT to deliver higher profits, streamline costs and secure future growth.
Thank you Zahid, for sharing your opinion!
How the habits of the luxury consumers are changing and how the luxury brands adapt to these changes?
Before addressing the habits of Luxury Consumers it’s important to briefly summarize the Luxury Brand perception over the last 50 years.
Traditionally Luxury Brands/Items were mainly bought by the Rich, Aristocratic and Royalty. Luxury was all about status and separation from the masses. Luxury used to be defined by brands such as Rolls Royce, Bentley, Yves St Laurent, Dior, Chanel, and even travel in the 1960-1970’s was seen as a Luxury. Luxury brands used to be rare and only accessible within controlled channels.
Today, Luxury for one person maybe a commodity to another. Luxury brands are widely available and distributed through multiple channels. Brands like Starbucks, BMW, Mercedes are examples today that define Luxury for a lot of consumers but not all (see http://www.luxist.com). Brands have introduced mid-levels product brands, at the expense of the Brand Name, to appeal to a wider audience and provide ‘trading up’ propositions to move consumers from one level to another. These can be seen through the Brands like Mercedes, BMW cars and even Bentley have added their Baby Bentley versions to widen their customer base.
Starbucks is interesting as it is quite ridiculous that a cup of coffee, which used to be £0.50p, has been re-positioned and branded and is now acceptable to purchase for £2.25 – £2.75!
It’s also important to understand within ‘Luxury Consumers’ varying segments exist. To keep jargon to a minimum and a simplistic example, we can segment Luxury Consumers in 3 groups:
1. Fringe – these are made of Mass consumers with disposable income and access to credit
2. Aspirational – Mid-Level+ management professionals, business owners, entrepreneurs, Windfall consumers, Baby Boomers, Minor Celebrity
3. Ultra Rich – Nouveau Rich, Brand Celebrities, Inherited wealth, Tech, Serial & Opportunist Entrepreneurs, Property Magnates, Oil Barons, Dubai & UAE Sheikhs, Financial Investors
The segment spectrum is not obviously exclusive and there are always overlaps but the mindsets differ vastly from the Fringe to the Ultra Rich.
As the Global economic slow down deepens further through business and impacts on end consumers, it is clear there are signs of an activation of a ‘Cost Awareness Mindset’ beginning to set in within both the Fringe and Aspirational segments. A year ago ‘cost’ would not have been seen let alone enter their minds. Today they are both checking for price and actively comparing alternatives.
As credit and mortgages are tightened, oil prices increase and food prices escalate, both segments are becoming more conscious how they use luxury brands for everyday, regular and seasonal purchases. The changes are starting to be seen with brands like Starbucks which have closed 500 stores and considering laying off 12,000 employees, report from BBC http://news.bbc.co.uk/1/hi/business/7484646.stm
The habits on a day-to-day basis will probably start with fewer branded coffees, stricter cost Food choices and an assessment of luxury brand regular use for Personal Hygiene (shampoos, cleansing etc) use. There will be expected product dips within Luxury branded Make-up, Fragrance and Skin Care products and it will be interesting to see next quarters figures.
Both Fringe & Aspirational segments will either stop (the most dependent may not be able to) the use of their current Luxury Hygiene and Skin Care products or drastically ‘eek’ brands out for a longer period. Repeat purchases will only be driven by dependency and sacrificing products/services elsewhere.
Staple Food items (egg, milk, rice etc) have seen drastic increases in the last 6 months in the UK and supermarkets confirm ‘customers are feeling the pinch’ across the World. Luxury Brands M&S rely heavily on their flagship Food Stores for overall health of their M&S brand. Current report from BBC http://news.bbc.co.uk/1/hi/business/7484700.stm
Regular Luxury Brand choices like Gym Memberships for Fringe & Aspirational segments will be effected with either reduction or termination of their memberships. Both segments will actively filter their level of monthly ‘Luxury Can’t Do Without’ preferences and think of the real value their Luxury Brand choices contribute with a view to sacrifice some in exchange to keep others.
Luxury Brands have not anticipated a Global Slow Down (except maybe Financial Brands were aware) and will consider cost efficiencies, closing outlets, reducing staff, reducing and promoting low & mid level products through alternative channels and as a last resort reduce pricing in the Premium Luxury Brand. Reaction depends on many factors but largely it will be dictated how committed Luxury Brands have become relying on Mid-Level or Sub Brands markets, aimed at Fringe & Aspirational customer segments, and at what % level these Brands and Products deliver profit as a whole to the Luxury Brand’s P&L.
Tags: brand, consulting, consumers, luxury, marketing, P&L, segment, strategic, value
Posted in Luxury marketing