Highlights
Marketing Expert Says Luxury Sales to be Slow Till 2019
November 4, 2010

The luxury market will experience a slow period for the next ten years and the current economic conditions only serve as a partial reason, says marketing expert Pam Danziger.

 

There’s a gap between older affluent households and younger folks who are eager to purchase life’s better things but don’t quite have the earning power. Add to this a broad division between very high net worth households and those who are modestly well off and the recent recession that has changed buying habits, and you are looking at a foundation of slow growth in the luxury sector for the next ten years, according to Danziger president of Unity Marketing, Stevens, Pa.

 

“Demographics is destiny in lots of ways,” Danziger, told an audience of luxury professionals at a Luxury Marketing Council meeting October 26 in New York. She then explained how demographic trends are creating a slow period in luxury spending.

 

The main consumers of luxury goods and services are affluent households, she explained. They are the top 20 percent of households in terms of income with average earnings of about $170,000.

 

Danziger divides affluent households into three groups: 25-34 (made up of Millennials) who are “not quite there,” in terms of earnings; 35-44, “younger affluents” (mostly Generation X), the “most prolific consumers;” she said; and the 45-54, “mature affluents” (mostly Baby Boomers), who don’t spend as much on luxury as their younger counterparts. The older affluents is the dominate age group in the luxury market today and will be the dominate group until at least 2019. The recession plays into this but the main reason is because the younger affluent group is a relatively small compared to the other two age groups. In other words, their parents had fewer babies.

 

“Mature affluents are going to dominate the market between now and 2020,” she said. “The Gen Xers are just a mere hiccup. We’ve got to wait for the Millennials, the babies of the baby boomers, to come on board and they’re not going to reach middle age and reach that window of affluence until about 2019 and 2020.”

 

To make her point, Danziger showed a chart of population projections of by age. One line which curves in an upward manner consists of mature affluents who “are really peaking.” Another line, which started high but then went on a downward curve represents the young affluents. The space in between is what she calls “the luxury drought.”

 

“This period is going to be dominated by more mature affluents who just do not spend as much or have as heavy an appetite for luxury as the younger affluents,” she said.  

 

“I call it a drought because it doesn’t mean that it’s drying up,” she continued. “It doesn’t mean the luxury market is going away, but it does mean you’re going to have to work harder to make ready in this marketplace. You’re going to have to work harder and be smarter than the next guy because there aren’t as many people that you can sell to.”

 

Danziger said marketers need to target the 25- to 34-year-old group by providing products and services geared for that demographic and engaging them with social media so that when they gain affluence, they will look toward your products and serivces.

 

“We knows these people have a heavy appetite for luxury,” she said. “We know they are friending all the luxury brands on Facebook. But guess what? They don’t have the money to buy those brands yet so there’s going to be a lot of opportunity for marketers to figure out how to connect luxury brands with 25 to 34 years old before they get money in their pockets.”

 

Danziger says that selling to affluent consumers is a different game than it was just few years ago. Consumers have more access to information and are using it to make better decisions in how they buy. In addition, according to her research, these consumers are pairing down their purchases and are looking to economize, choosing value over extravagance. “Smart is the new rich,” she said.

 

“Today, consumers get power by how smart they are as consumers,” she said. “In the culture, people are really getting hip to hey it’s better to have less. It’s better to save.”

 

She told the audience that when given a choice of good, better, best, the majority of affluent consumers are choosing better and that’s where marketing efforts should be focused.

 

“While you are wanting to sell the best-of-the-best and focus on the customers who are buying the best-of-the-best, there really is a lot more opportunity in customers who are buying better products and only going for the occasional best,” she said. “What that means is you really want to give your customers a choice. You want to give them a good, a better, and a best option. In today’s economy and how the value system is working, better quality products like Ann Taylor and Banana (Republic) offered at a good price is going to do a whole lot better than the best-of the-best.”

 

She continued: “The fact is no matter where the consumer is in terms of their income, they are learning new ways to economize. And they really are ready to make changes in their lifestyle. And one of the biggest changes they are making they’re asking what do I need versus what do I want.”

 

She said in this new austere environment, luxury companies need to focus on “superior quality and performance.”

 

“We have to think more like consumer reports then we do Vogue magazine. We really need to focus on substance,” she said.

 

“We’ve got to stop selling the sizzle,” she concluded. “We’ve got to go back to selling the steak because what people really want is value. It’s all about a new proposition market. There is a new math that has come into the luxury market. They’re not willing to pay 10 times more for product that is only three times better.”

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