Business leaders are facing an increasingly challenging environment. Yet throughout the past several years, the luxury market has offered businesses and investors safe haven with the affluent consumer segment remaining resilient and aggressive shoppers. However, according to a recent Wall Street Journal article, even the luxury market may be facing a crisis point, as "soaring luxury-goods prices test wealthy's will to pay."
The question is whether today's affluent customers have reached a tipping point in which their desire for luxury no longer exceeds the price they are asked to pay. New consumer research from Unity Marketing suggests that 2014 may be the year when luxury marketers must confront that tipping point which will challenge their traditional branding and marketing strategies and their underlying assumptions about their target customers.
"While income and wealth demographics are frequently used by luxury marketers to identify their best prospects, knowing that a prospective customer has enough money to pay luxury brand's high prices isn't enough to predict who is most willing to spend that money to buy. Unity Marketing's recent study points to the fact that the age of the customer, rather than income, is a more important predictor to identify a brand's best prospects," says Pam Danziger, president of Unity Marketing.
MANY AFFLUENTS ARE TRADING DOWN TO LESS EXPENSIVE BRANDS
As past consumer behavior is often the best predictor of future behavior, the new report examines recent trends in affluent consumer behavior. For example, affluents' overall demand for luxury goods such as clothing, fashion accessories, jewelry, watches, beauty, personal electronics, wine and spirits and other personal luxuries rose at the end of 2013, but spending is off by 31% from same period in 2012. Such a pattern — a spike in demand, but a decline in spending — points to luxury shoppers taking advantage of sales, discounts and trading down to less prestigious brands.
This is the pattern which the recent survey shows. It sends a clear signal that luxury brands can't keep doing the same things and expecting to succeed. Marketers need to build connections with the young affluents, ages 24–44 years with incomes over $100,000, that are more willing than their seniors to trade up to luxury brands.
Danziger says, "Demand for high-end luxury goods and services is greater across the board among young affluents than matures, 45 years and older. What's more, young affluents consistently spend about 50% more than mature affluents on luxury. Understanding this young consumer and what they value is critical to find growth in 2014 and in coming years."
Ad-ology Research has discovered 34% of affluent adults, those earning incomes over $100,000 per year, have recently visited a winery or vineyard and 20% intend to visit a day spa in the next year. These visit rates are both higher than average. Television advertising, followed by newspaper ads, (print, online mobile or tablet) and Daily Deals (like Groupon or Living Social) have the most influence on this audience and may be a good way for marketers to connect with affluents.
AudienceSCAN data is available as part of a subscription to Ad-ology PRO. Media companies can access AudienceSCAN data through the Audience Intelligence Reports in AdMall.