THE RICH

 

The Changing Face of the Affluent Consumer

While the travel preferences of the super rich and those who come from "old money" are well understood by the hospitality industry, the "emerging rich," younger affluent people, usually have a different mindset toward travel. This article explores their travel expectations and the approach that marketers should take to capture their business.

Despite fluctuations in the economy, much of the world has spent the past few years in the midst of a luxury consumption boom. Luxury spending in the United States is growing more than four times as rapidly as spending overall, and there is an increasingly large appetite for luxury goods throughout Asia and Europe. In what Fortune magazine terms the "Goldilocks" economy, new wealth is being created at an unprecedented rate, and as a result, the face of the affluent consumer has changed. The challenge now posed to marketers of luxury goods and services is defining the demographics and psychographics of affluent consumers. Who are they? What are their buying habits

And what is the most effective means to reach them?

According to the book Luxury Fever, by Robert H. Frank, luxury travel (trips with per-diem spending of at least $350) grew by 130 percent between 1990 and 1995 and the occupancy rates for luxury hotels, which stood at 69 percent a decade ago, now stand at 76 percent. Luxury cars accounted for about 12 percent of all vehicles sold in the in United States in 1996, up from 7 percent in 1986. Luxury "status symbols" are popping up everywhere across America from restaurant-style stoves in home kitchens to ultrapremium wines, choice real estate, and even cosmetic surgery. But this growing taste for luxury is not indicative of purely American values. According to Frank, "Japan, with fewer than half as many people as the United States, consumes more than half the U.S. volume of luxury goods."

And while multi-millionaires are clearly prominent among the purchasers of these luxury products and services, recent large sales volumes imply the vast majority of buyers have less than six figure incomes. As puzzling as this may seem, it can be traced to human nature in that once basic needs for food and shelter are met, and as incomes continue to grow, it is instinctive for people to indulge their inner "desires" for the finer things in life.

The Affluent Consumer Grows Younger

Therefore, with the recent booming economy, one can no longer draw a picture of the typical affluent consumer as having "old family money." The face of the affluent consumer is changing across age, economic, and racial spectrums. Today, the affluent consumer can be anyone from an heir to a family fortune to an e-commerce millionaire who spends his days in Gap jeans and T-shirts. Moreover, when these individuals purchase a luxury good or service, they want more than just the product, they want "an experience." And in particular when it comes to travel, the affluent consumer wants to collect vivid and meaningful "experiences" to store as memories and exchange as "conversational currency." 

In a recent presentation at the annual convention of The Leading Hotels of the World, Ltd., Pamela Fiori, editor in chief, Town & Country Magazine, clearly defined who the luxury customer is, pointing out that she classifies four primary groups: 1) The Super-rich: those who live on an entirely different level, travel on private planes, collect works of the Old Masters; belong to royalty, etc; 2) The Bill Gates types/Industrialists/Rock Stars whose fortunes are less certain; money was earned fairly recently but in staggering amounts nonetheless, and there is nothing they cannot buy; 3) The Comfortably Rich, not royalty, but extremely well-off and well-traveled. They make their money the old-fashioned way, they earn it—but they want to reap the rewards. They are demanding and know the services they want and are extremely brand conscious; and 4) The Emerging Rich/Emerging Affluent who comprise the top-level of Generation X. According to Fiori, this is the most difficult group to define. They made their money fast. The way they live, everything is fast. They are venture capitalists and are diverse ethnically and racially. 

Fiori believes there has never been a better time in history to market a luxury product. "As the majority of 'The Emerging Rich' did not grow up surrounded by the finer things, it is important for luxury travel marketers to enlighten them and expose them to the wonderful hotel experiences awaiting them, because once they experience the good life, they are not going to go backpacking again." 

Dr. Lalia Rach, dean, Preston R. Tisch Center for Hospitality, Tourism and Travel Administration, New York University, concurs. "Today change is the dominant feature of the affluent travel market. With the rise of the new economy, the Wall Street 'whiz kids' and the Internet revolutionaries have created a new generation of young entrepreneurs who have taken their ideas and skills and become millionaires seemingly overnight. The most dramatic change in the affluent traveler's profile is the decrease in the average age and their different mindset toward travel." Dr. Rach continues to profile the new affluent traveler as follows: 

"They are exceedingly absorbed by their work providing a true example of a 24 hours a day and 7 days a week lifestyle. They work exceedingly hard and expect their relaxation to be as challenging and demanding. When they do take time to relax and enjoy themselves, they want to do so in an atmosphere that reflects their earning status, provides a reward, and is fun and unusual. Exclusivity is but one aspect that interests them while on vacation. They are looking for products and services that allow them to define themselves and to celebrate their success, but in a manner that is not traditionally defined and in many cases is not understated. So whether the choice of a rental car, theatre tickets, or an afternoon activity, they want an unusual, out-of-the-ordinary experience. The affluent 20 somethings may wish to blend simplicity with extreme luxury such as a picnic with sandwiches, fruit, cheese, and a 100-year-old bottle of wine. Of course the picnic setting would be an exclusive island or the top of a mountain accessible only by helicopter. The scope of their interest is boundless, and they are looking for suggestions—but not what the traditional affluent traveler likes unless it is with a modern explosive twist." 

Dr. Rach concludes by noting that "it is unusual to have a new niche develop within a narrowly defined market segment. The dichotomy of the new affluent traveler is captured in a single statement—the more they make, the more they expect from life, including their travel experience." 

Selling the Dream 

When it comes to luxury goods and services, you are selling the dream and therefore cannot always approach marketing to the affluent consumer with a basic scientific approach. Hérmes, perhaps the consummate luxury brand, is living proof of this belief. Addressing The Leading Hotels of the World Annual Convention, Christian Blanckaert, president, Hérmes-Sellier, spoke about "Marketing to the Luxury Customer." He believes that "Luxury is often associated with anything that gives attention, care, respect of the individual, and culture. The explanation of luxury itself is a paradox—it is a word of feeling, word of mouth, spirit, dreams, talent—and nothing to do with a marketing book. Today and tomorrow if we want to approach products and services in luxury, we should forget marketing and concentrate on dreams, magic, the irrational, rather than market research. If there is no concentration on magic and hopes, there will be no delivery of luxury." Blanckaert was also quick to point out that "Hérmes is not in the luxury business, Hérmes is in the dream business. Our object is to charm, to surprise, not to market." 

With this in mind, how do luxury marketers identify and sell to the affluent consumer? At The Hotels of the World, for example, management has long believed that affluent consumers naturally gravitate toward luxury brand names that consistently deliver quality. Guests at a Leading Hotel undoubtedly drive luxury cars, purchase Louis Vuitton handbags and luggage, wear Christian Dior fragrance, and consume any number of high-end products. Would it not be more prudent for the world's finest purveyors of luxury goods and services to come together and create a luxury brand network to jointly market to the affluent consumer? 

Seeing no such marketing initiative in place, the management of The Leading Hotels of the World, Ltd. developed the concept of the "Luxury Alliance" and partnered with Relais & Chateaux as the two founding members. Launched in August 2000, the Luxury Alliance has already welcomed Crystal Cruises, eLuxury.com, and Vivre as partners. The objective of the Luxury Alliance is to conduct joint marketing programs to an exclusive group of high-end clientele who already consume member products or would have a strong predisposition to do so. The goal is to share customers, conduct cross-selling and promotional marketing efforts, and thereby create increased revenue opportunities for all Luxury Alliance partners. 

The Leading Hotels of the World, Ltd. also formed a joint venture partnership with consumer trend research expert Peter Yesawich, president & CEO of Yesawich, Pepperdine & Brown of Orlando to create Leading Marketing Services, a full-service marketing, advertising, and public relations firm. The Leading Hotels cf the World, Ltd. has a 73-year history of marketing to the affluent consumer, while YP&B is the recognized leader in full-service hospitality marketing communications as well as monitoring the trends and buying habits of consumers. As partners in this new joint venture, Leading Marketing Services is now in a unique leadership position to write the rules for affluent consumer marketing. 

YP&B, in fact, recently conducted a survey entitled "Portrait of Affluent Travelers" which debuted in conjunction with the launch of Leading Marketing Services. The survey polled the opinions of a nationally representative sample of 500 U.S. adults who took at least one trip that required overnight accommodations in 1999, half of whom had annual household incomes between $150,000 and $199,999; the other half of whom enjoyed annual household incomes in excess of $200,000. One key finding of the survey is that fully eight out of every ten wealthy adults state that they always look for the best prices when making purchases. But don't expect them to be scouring the mall in search of the best bargains; they are far more likely to look online, and "prefer to buy brands with a reputation for quality." 

Further research into the psychographics of the new affluent consumer creates a distinctive profile that is much different from the "typical" affluent consumer to whom many of us have marketed in years past. It would be wise to keep these facts in mind when you are planning your marketing efforts: the younger affluent consumer seeks life-enriching experiences; wants to be assured of style and quality; is stimulated by new and different situations; wants to be recognized as knowledgeable and worldly; is not afraid of the unfamiliar, offbeat, or exotic; has a global perspective; enjoys regionally authentic products; has a certain predisposition to nostalgic designs; does not purchase luxuries purely for materialistic reasons; has a social conscience and appreciates doing business with organizations that have a true social commitment; frequently socializes and therefore has a strong influence on the buying decisions of peers; considers spirituality and religion as an integral part of life; is quick to seek out information online; desires ways to simplify life; and is always pursuing more of life's most essential luxury—time. 

When it comes to marketing travel to this new, younger affluent consumer, Rach notes "an active, coordinated marketing effort is necessary to inform and entice this segment. Advertising and communications should relate to their situation in life. An understated approach will most likely turn them off. Marketing that is bold, aggressive, colorful, emphasizes relationships, fun, and imparted with some irony are concepts that attract this cohort. As well, the manner in which communications are distributed is important. Advertisements must be placed in publications that they read (business, specialized, and technology magazines), at events they attend (music concerts, sporting events), and on targeted Web sites (finance, trading, entertainment). 

Affluent consumers—young and old—are purchasing in record numbers and they continue to seek information on the newest luxury goods and services available. Luxury marketers, however, need to recognize that a blanket marketing approach will no longer suffice. Much like the way the Internet has changed our marketing strategies, those targeting the "affluent consumer" must recognize that cookie-cutter campaigns will no longer work and a more targeted approach speaking to the various audiences within this niche must be applied if marketing efforts are to be effective.    - By Jane Collocia – HSMAI Marketing Review 

2004 INVESTMENT OUTLOOK
Bargains At Either End Of The Retail Spectrum

The best shopping advice for retail-stock investors: Stay away from the crowded middle and focus on luxury-good merchants or value-price stores. The strongest chains in these fast-growing sectors stand to gain the most from the economic recovery.

On the high end, Neiman Marcus is a standout. Unlike Saks Inc. (SKS ), which operates department stores such as Carson Pirie Scott as well as the swankier Saks Fifth Avenue, and Nordstrom (JWN ), which sells both designer and moderately priced apparel, Neiman Marcus concentrates solely on the upper end, says Salomon Smith Barney (C ) analyst Deborah Weinswig. At $52, its stock is trading at 17 times forecast earnings for 2004, making it a better value than Saks, with a p-e of 21, and Nordstrom, at 18. For the same pure-play reasons, Lauren Cooks Levitan, retail analyst at SG Cowen Securities Corp., recommends Tiffany & Co. (TIF ), the upscale jeweler that benefits from its distinctive brand image.  - By Robert Berner  Business Week    29 Dec 2003

WHO'S WEALTHY NOW?   TODAY's ELITE

According to an article by Laurie Freeman in Advertising Age, the new face of luxury is being redefined.   Who's wealthy now?  Today's elite: they're young, flush with cash and breaking the rules.    Consider the following:

  • About 30% of the world's 7 million millionaires live in North America, according to a study by Merrill Lynch & Co. & Gemini Consulting.  The total wealth held by these millionaires increased 18% to $25..5 trillion in 1999, driven by a strong global economy and stock market, says the "2000 World Wealth" report
  • Another class of  wealthy individuals, a group Merrill Lynch calls "ultrahigh net-worth individuals" defined as those with personal financial assets of more than $30 million (US), increased by 18% to 55,000 in 2000
  • About 40,000 Americans have $10 million or more in assets as of 1995.  Of that number 27,000 had a net worth of $10 million to $20 million, while 13,000 had a net worth of $20 million or more
  • The Internet  IPO spawned a boon of dotcom millionaires who have not a clue how to handle their  newfound wealth.  For this audience especially, a premium value is placed on recreation.   Whistler, for example, is a popular place for real estate investment
  • What separates the old rich from the new is the newcomers have tremendous appetite for information".  They want to learn what it means to be truly wealthy and affluent
  • "Luxury today is not about the accumulation of goods (implicit understanding that these indviduals could purchase anything they wish but choose not to), its about pampering and self indulgence
  • Old money looks at the new money and thinks conspicuous consumption associated with the '80's coming back, but new money has a different set of consumption criteria  
THE ELITE

 


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