Ultra-affluent consumers spent 14.1pc less on luxury 2009-2012: Unity Marketing

Ultra-affluent consumer spending reached its lowest level in five years in 2012 when this group spent 14.1 percent less on luxury since 2009, while other consumers upped their purchases, according to new research from Unity Marketing.

The new “Luxury Report 2013” found that consumers who are increasing their spending are in the "high earnings, not rich yet” or “HENRY” group and make $100,000-249,999 per year. Marketers should target the HENRY group since they are more likely to buy luxury products.

“The most important finding is that the affluent, even the ultra-affluent at the top 2 percent of U.S. household incomes, are still showing lethargy when it comes to luxury consumption,” said Pam Danziger, president of Unity Marketing, Stephens, PA.

“2010 was ultra-affluent [consumers'] banner year as measured by their level of luxury goods and services spending, which we credit toward the release of pent-up demand from the world of the recession,” she said. “Their spending has been on the decline ever since.

“In 2012, we saw a sharp drop in their overall purchase of luxury brands in clothing, fashion accessories, jewelry, watches and beauty, suggesting that they are trading down to more premium or even mass brands in these categories.”

Unity Marketing surveyed 5,221 consumers with a household income of more than $100,000 who bought luxury products in 2012. The research was compiled and compared to previous surveys from 2008-2011 to create the Luxury Report 2013.

Driving force

The middle class and lower-income groups have greatly reduced spending due to declining household incomes, tax changes and unemployment. Therefore, affluent consumers have become the driving force behind retail and spending growth, per Ms. Danziger.

Specifically, it is those consumers in the HENRY group who are driving the improvement in the luxury market.

This group has a lower spending threshold, but there are 10 HENRY households for every ultra-affluent household, which makes it a good target for luxury marketers.

When targeting affluent consumers, luxury marketers need to understand their audience to get the most out of campaigns since not every consumer is going to be willing to spend.

“Just because people have high levels of income does not mean they are necessarily inclined to spend,” Ms. Danziger said.

“Luxury marketers need to include consumer psychology or psychographics as an important component of who to target,” she said.

Some luxury marketers are targeting emotional campaigns to a specific set of customers to encourage them to buy.

For instance, Swedish mattress manufacturer Duxiana pushed mattress and bed sales through an emotional message in print, digital and radio advertisements.

The brand took an alternative route to mattress marketing by showing consumers why it is a good time to replace their mattress (see story).

Duxiana ad

Also, the age of the consumer combined with income is the best predictor of strong purchase intent.

“Young affluent [consumers], from 24-44 years old with incomes of more than $100,000, have the strongest propensity and willingness to buy luxury,” Ms. Danziger said.

“Older affluent [consumers], on the other hand, are just not that indulgent across many categories of luxury goods,” she said.

Strategic spending
Affluent consumers are predicted to continue to be strategic in their purchasing, per Unity Marketing. This means that affluent consumers will be making trade-offs in their purchases.

They will also continue to make purchases based on which goods and services will give them the most pleasure and if it calls for a true luxury purchase or not.

For instance, the data found that in 2012 ultra-affluent consumers purchased more mass-market beauty products than luxury brands.

Also, affluent consumers' purchases of mass-market beauty brands reached its highest level in 2012 since 2008.

This could be due to mass-market and premium brands competing better in the marketplace.

“Many of these premium and mass brands are getting better such as Coach, Ann Taylor, L’Oreal and Olay,” Ms. Danziger said.

“Luxury consumers are being more strategic in their choices, trading up where it really matters and trading down when it is not so important,” she said.

“Premium and mass brands are competing more effectively in the current market.”

Final take

Erin Shea, editorial assistant on Luxury Daily, New York