Nine key luxury consumer trends for 2006
The highly-profitable and sought-after luxury consumer is being monitored by many brand marketing agencies, one of which is the US-based Luxury Institute, which has identified what it sees as being the nine key luxury market trends for 2006.
According to Milton Pedraza, CEO for The Luxury Institute, the research and analysis conducted for the study focused solely on the spending behaviours of top 10% of America's wealthiest consumers. The report examines trends, consumer rankings and ratings of luxury brands, and best practices for luxury providers. The nine key trends identified for 2006 are:
- The emergence of 'Friendly Luxury' Many luxury firms, while delivering excellent products, sometimes treat their best luxury customers in a less than friendly manner. But as product differentiation continues to blur, the smarter luxury goods and services providers will start taking note of what Neiman Marcus, Bessemer Trust, Ritz-Carlton, Maybach, Giorgio Armani and Ed Mitchell already know - that the customer relationship is the most critical aspect of the luxury business model. Pedraza predicts that an increasing number of luxury goods and services providers will begin to make customer service and customer relationship skills a top priority.
- Experiences slice-by-slice As wealthy consumers get richer, older and wiser, they are increasingly foregoing ownership of luxury assets, while still getting what they want slice-by-slice through luxury membership programmes. According to Pedraza, many companies see 'fractionals' as the way ahead but they are too cumbersome for these wealthy consumers who know exactly what they want, and when they want it. Membership programmes are already popular in jets and luxury real-estate. Pedraza predicts that innovators in this arena will proliferate in more categories such as yachts, ultra-luxury vehicles, vineyards, fine art, fine jewellery, watches, and so on. This is also the time to watch for the decline of the traditional country club and golf club models, as the wealthy opt for membership clubs that offer truly inclusive affinity, rather than the "snobbery and exclusion" image.
- First Class Air Travel regains its meaning According to Pedraza, the airline industry will soon begin to segment itself into first-class only, business-class-only, and economy-class only carriers. This will undoubtedly bring further strife to the industry during the transition period, but from that will emerge some rational segmentation and improved economics as outsiders infiltrate the industry with pure-breed offerings. This in turn will force dramatic changes that focus on true value for the flying customer. Pedraza hopes that new players entering the industry will focus on value rather than price alone.
- Luxury corporate pruning More and more large luxury goods and services conglomerates are expected to accelerate the pruning of unprofitable units that are either not in the same customer segment, or that have failed to deliver long-term profits. Even family-owned and family-controlled firms that carry losing businesses will have to forego what Pedraza terms "creative losers". And as more private equity firms get into the luxury industry, this process will accelerate.
- 'Made in China' no longer an issue Heated debates about luxury apparel and accessories being produced in China, and what they will do to the luxury industry's image, will come to an end as more and more firms set up shop in China. The top artisans of Europe will adapt and co-exist. It's already happened in the electronics and automotive industries, and the high-quality luxury goods industry will be no exception, Pedraza says.
- Word-of-mouth recommendations grow In a world where you can't always believe exactly what you're told by advertisers, the wealthy consumer already relies more and more on word-of-mouth recommendations from their wealthy peers when making luxury purchases. These well-informed consumers realise that any sense of objectivity in the media and in industries such as financial services is eroding, and will look for objective, non-conflicting sources of information - and they will even be willing to pay for that kind of advice. This is evident from wealth management services, where private investment corporations provide objective and independent knowledge to wealthy clients in return for a significant fee.
- Wealthy women rule Luxury providers in Financial Services, Private Jets, Yachts, Ultra-Luxury Autos, Art, and other major luxury goods and services will begin to understand the vast buying power of wealthy women, and begin to communicate with them on their own terms. This will be driven by the 'boomer' generation of women who have achieved independence and economic power (and will outlive the men). But this wave has an even more powerful female force of economic power coming right behind it, as women vastly outperform men in academic achievement and career progress in fields that have traditionally been the exclusive province of men.
- Branded luxury services As wealthy consumers continue to enjoy fully-active lives, Pedraza expects 'branded luxury services' to emerge from previously fragmented industries. Wealthy consumers will begin to demand more trusted, branded and proven landscaping, maid, nanny, concierge, medicine, interior design, and other specialist luxury services. They will no longer tolerate poor service, rip-offs, or finding themselves at the mercy of unreliable suppliers. The smarter marketers and franchisers will organise these services into reliable, predictably-priced packages for the wealthy.
- More exclusive, more unique As wealth and luxury proliferates, the wealthiest consumers will begin to look for the next level of luxury in more unique products and services from the best providers that can truly differentiate them. For example, the US$70,000-US$90,000 luxury sedan car just doesn't have the same appeal it once did. Instead, the luxury consumer's next generation of everyday car is likely to be something like the US$120,000 Maserati Quattroporte or equivalent.
The Luxury Institute is an independent research institution that offers a portfolio of publications and research to help guide and educate high net-worth individuals and the companies that cater to them. Its publications include the monthly Wealth Report, Luxury Brand Status Index surveys, Luxury Best Practices surveys, and the Luxury Customer Experience Index.