A new style of luxury has taken hold reflected in consumers' preference for high-quality brands, but without paying the premium for marketing-generated prestige.
The United States may be in a post-recession period, but many of the consumer values developed during the time have become an established way of life for affluent consumers, creating headwinds for luxury brands hoping that the market will return to its pre-recession norm, according to a report from Unity Marketing entitled Marketing in New Luxury Style in 2015: What Affluents Buy, How They Spend, Where They Shop & How They Feel about their Wealth & Finances.
In Unity Marketing's latest survey among n=1,200 high-income consumers (average income $266.9k), affluent consumer confidence as measured by the Luxury Consumption Index (LCI) rose while spending declined by 26.5% from the previous quarter.
"This is the 'luxury drought,'" says Pam Danziger, president of Unity Marketingand author of the new report. "People with high income have changed their shopping habits, focusing on brands that represent a good value, rather than high-status brands."
The conventional wisdom is that as people feel wealthier, they tend to spend more money on consumer goods and services. But today a reverse wealth effect is taking hold. "In the current economy, with so many uncertainties and the memory of the effects of the recession and the damage it did to affluents' investments and home values, the affluent are holding back on their spending despite the fact that their wealth is increasing," Danziger says.
"I suspect that we will continue to see this reverse wealth effect put the brakes on luxury spending in the U.S. until the overall economic environment, not just in the U.S. but globally, starts to show signs of strength and stability. But we are already one fourth of the way into 2015, and the global outlook continues to be troubling."
Austerity is the mood of affluent consumers and luxury marketers must 'make rain' in this drought period in the U.S. luxury market
Part of the issue facing luxury marketers is consumers' distrust of the term luxury. The belief is that instead of communicating quality, it is selling high-cost but over-rated items.
"To appeal to affluent consumers, marketers must recognize that simply calling their product 'luxury' doesn't necessarily make it so," Danziger says. "Further, luxury has gotten a negative connotation, with public opinion turning against income inequality. Being rich and enjoying the privileges of wealth simply isn't something that the wealthy feel comfortable showing."
Conspicuous consumption has turned to conscientious consumption in a new style of luxury
Affluents aren't afraid to spend, nor are they unwilling to, but marketers have to convince them that what you are selling is worth the price. Asking them to pay a huge premium for a luxury-brand logo won't work anymore, when so much really good quality product is readily available through the internet.
"Technology is leveling the playing field for competitors. It is the ultimate democratic force for consumers. It equalizes all through the power of information," Danziger explains. "By contrast the whole concept of luxury brands is based upon a plutocratic idea, or power and influence based upon wealth and prestige. With the idea of luxury brands the ultimate 'smoke and mirrors' of marketing, techno-powered consumers can now pull back the curtain and uncover the myths behind these brands."
"Further thanks to enterprising entrepreneurs that are capitalizing on this and disrupting tradition, consumers can gain access to products that are every equal in quality to the luxury brands, if not in marketing-generated prestige."
For example, affluents are choosing function and performance over ostentatious style, giving emerging luxury brands like outdoor marketer Canada Goose a foothold. Affluents are valuing a personal connection with the artists and designers, driving growth for such brands as Alex and Ani jewelry and platforms such as Etsy offering handcrafted goods. And a desire for responsible consumerism is creating opportunity for fair-trade marketers like Ten Thousand Villages.
Danziger concludes, "The internet will continue to change luxury brand marketing because of this new transparency. Luxury brands need to tell new stories to their target customers that reflect a responsible face of luxury focused on values and substance, rather than simply ostentatious style."
The Marketing in New Luxury Style report profiles new stories of luxury that resonate with today's affluent consumers. Those branding stories focus on concepts of performance luxury; create-your-own luxury; collectible luxury; connected luxury; luxury for the moment; feel-good luxury; and luxury emerging in unexpected places.
About Pam Danziger & Unity Marketing
Pamela N. Danziger is an internationally recognized expert specializing in consumer insights for marketers targeting the affluent consumer. She is president of Unity Marketing, a marketing consulting firm she founded in 1992. Pam received the 2007 Global Luxury Award for top luxury industry achievers presented at the Global Luxury Forum by Harper's Bazaar. Luxury Daily named Pam to its list of "Women to Watch in 2013." She is a member of Jim Blasingame: The Small Business Advocate's Brain Trust and a contributing columnist to The Robin Report, a monthly newsletter for senior executives in the retail, fashion, beauty, consumer products and related industries.