Despite an uncertain economy, sales of luxury goods remain steady. The number of affluent Americans (households with $100,000 annual income or more) continues to grow, up 75 percent in this past decade. And nearly 20 percent of Americans earned $100,000 or more in 2007 compared to just nine percent in 1990.
Businesses have taken note. While the primary purchasers of luxury goods (think Armani) and services (think at-home avocado wrap) remain among the truly rich, several companies have taken ordinary items and super-riched them successfully (think $5 Starbucks mocha cappuccinos).
Many luxury brand names have begun offering affordable models in an effort to present wealthy "wannabes" with less pricey alternatives. Land Rovers Discovery, Hummer's H2, and Jaguar's X-type sedan come to mind. Upscale kitchen appliance maker Viking Range Corporation has expanded its product line to include cookware and cutlery at affordable price points.
How to Recession-Proof Your Company
Historically, luxury goods weather the dips in the economy better than mainstream goods. In uncertain economic times, consumers face financial and often emotional stress.
And while they may modify their expectations—putting off the purchase of a new car or second home—they don't change their fundamental behavior. The small indulgences that got them through the day (the ice cream cone, the gourmet cookies) before the recession will still be the small indulgences that get them through the day after the recession and into recovery.
So how do you adapt your product mix to include luxury buyers?
Simply raising prices, of course, could cost you customers. But a quality product with a quality reputation will continue to be in demand despite hard times. If your firm offers a broad range of products or services, offering several in a luxury category will help blunt the effects of a poor economy.
Who Will Buy?
Preparing for a recession is best done during a robust economy; developing and introducing new products or a luxury line during a recession is risky. Consumers are more cautious and skeptical. So as the economy improves, you should begin developing your luxury lines.
A strong economy, however, does not guarantee success. Understanding the motivations of luxury buyers is crucial. According to research conducted at SRI-BI, a Menlo Park, Calif.-based marketing research firm, three distinct motivations fuel luxury spending:
1. Luxury is functional. The customer buys the product because it's of better quality: It lasts longer, has more bells and whistles, or is more dependable. These are the older, wealthier consumers who are in their peak earning years—empty nesters with large disposable incomes. They want things of enduring value, built to last ("like the good old days"). They make logical decisions when they make a purchase, as opposed to emotional or impulsive ones. To reach them, use print. They're skeptical of television, and even more so of the Internet. Use lots of facts in your ads. Information-intensive messages work best with this group.
2. Luxury is reward. These customers buy luxury goods as status symbols. It's a way to satisfy ego and say, "I've made it." These are younger, often "newly rich" individuals who buy conspicuous luxuries. They are making a statement about who they are and their level of importance, so brands with widespread recognition work well with them. To reach this group, use both television and Web-based advertising. Make "prestige" or "exclusivity" the primary benefits.
3. Luxury is indulgence. Buyers willing to pay a premium in order to express their individuality and make others take notice. More male than female, these consumers are younger and frequently come from wealthy families. They enjoy luxuries for the way they make them feel. Far more likely to make impulse purchases, they respond well to emotional messages. Use ads that promote the unique qualities of a product.
While the over-55 group can most afford it (and make up the largest portion of the "luxury is functional" group), it's the Gen X and Y groups who seem to desire the lap of luxury most. Interestingly, research shows the "Me Generation" of Baby Boomers is most likely to find luxury items "wasteful" or "unnecessary."
Understanding the luxury market, their buying motivations and lifestyles, will help you sell your whole line of products. Having at least one group of luxury products can create an image of quality for your company. And crucially, it can also help maintain your profitability during lean times.
SMM columnist Robert Grede, author of "Naked Marketing: The Bare Essentials," is president of The Grede Company, consultants in marketing and strategic planning. Subscribe to his weekly e-mail, "101 Marketing Tips," by sending a request to rg@TheGredeCompany.com.