The seven key luxury consumer trends for 2007

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By: Wise Marketer Staff |

Posted on October 9, 2006

The seven key luxury consumer trends for 2007

There are seven key trends that will characterise the luxury consumer market throughout 2007, according to Milton Pedraza of the US-based Luxury Institute, who begins his look ahead with the cultural differences in 'luxury minorities'.

The seven luxury consumer trends foreseen by the Luxury Institute are:

  1. Luxury minorities cause specialised products & marketing Innovative luxury goods and services firms are already beginning to realise that African-Americans, Hispanic-Americans, and Asian-Americans are emerging in large numbers to form potent and profitable demographic segments of the wealthy consumer population. While wealthy actors, athletes, and entertainers from minority groups are the most conspicuous consumers of luxury goods, smart luxury purveyors understand that most rich minorities are actually conservative entrepreneurs, executives and professionals.

    These so-called "wealthy minorities" actually represent "new money", wanting to consume and experience top luxury brands - and they expect genuinely friendly customer service. The really smart luxury players will not only embrace conservative, wealthy minority consumers on their own terms, but will begin to tap their authentic (not stereotyped) cultural roots for new product and service lines that will generate loyalty, affinity, and profits. Many initiatives geared toward minority segments are bound to have crossover appeal among mainstream wealthy and international consumers as well.

    Look for 2007 to be the start of this trend toward cultural luxury marketing, particularly as the top luxury brands finally learn to segment their customers more surgically. The top luxury firms will grasp that a bit of outreach to wealthy minorities, in terms of product design and customization - such as, perhaps, an Armani wardrobe branded "Brazil" or "Mexico" - will catch on as legitimate fashion trends in their own right. These product offerings will drive sales globally in these countries, and in the US, where ethnically inspired luxury goods and services will deliver dramatically higher sales and profits to companies that do it right.  

  2. The luxury access revolution, phase two A few years ago, the Luxury Institute predicted the advent of the "Luxury Access Revolution", an accelerating phenomenon at every price point on the luxury-spending spectrum. From early large assets like jets, yachts, vacation homes, autos, vineyards, and golf courses, the newest entrants are less expensive items such as handbags, jewellery, watches, and so on. Perhaps the latest wave is more like Netflix and less like Nordstrom for the moment, but membership-based access programmes are breaking new ground in giving access to pure experiences - selling utility without the hassles of ownership.

    The institute also predicted that brash entrepreneurs would drive the first phase of innovation but, as happens historically, they were eventually overrun by bigger, better-capitalised, established luxury brands. "In 2007, we will see many of the entrepreneurial providers of these membership models merge, consolidate, or disappear, due to lack of resources, flawed business models, or worse," said Pedraza.

    Next, in the third phase, established providers and original equipment will manufacturers take over, leveraging their trusted brands, synergistic offerings, and vast resources to legitimize these access models for the mainstream affluent and wealthy.  

  3. Diffusionals are delusional The true luxury fashion brands that want to retain their luxury status in the minds of wealthy consumers will retreat from - or avoid all together - using their prestigious names to launch low-margin "second-tier" lines (so-called "diffusionals"). Uniqueness and exclusivity are qualities that wealthy individuals rate highly when making a purchase decision.

    "Luxury firms cannot afford to squander their brand equity pursuing a move down-market," warned Pedraza. "It's delusional to think that luxury firms can make such a move without losing their luxury standing among their best customers - wealthy consumers. None of these diffusional brands can compete with the business model of Gallicia's Inditex Group, the company behind Zara's rapid fashion cycle and quick adaptations to meet changing customer demands quickly. Another best practitioner who's hard to beat is Sweden's H&M Hennes & Mauritz AB."

    True luxury brands will realise that the sub-optimal economics are definitely not worth the risk of sacrificing their high-margin business for the thinly profitable move to less prestigious offerings.  

  4. The new "alms race" heats up The philanthropy industry is being transformed. Gates and Buffet, Gates and Clinton, Clinton and Branson - these are just a few permutations of the numerous philanthropic cross-pollinations going on around the globe already. Many new philanthropic conglomerates are forming, and these new charitable entities will shake up and transform the world of philanthropy.

    The titans of business and politics are taking over charitable institutions, making these not just hobbies but second careers where they remain relevant by raising money. This trend will uproot the traditional model of charitable giving in three ways: First, these entrepreneurial business giants - notably including ex-politicians - are creating mega-brands that will carry their family names and legacies on for generations to come, creating brand equity and credibility to attract an accelerating flow of dollars from the coffers of their wealthiest donors. Second, these mega-brands will bring in best-in-class professional managers from other industries to run these new colossal entities. And third, they will demand - and receive - measurable efficiency and effectiveness improvements.

    "This drive toward efficiency in philanthropy will create a hyper-competitive landscape in the normally staid domain of philanthropy. The up-side is that many of the less efficient charities will have to deal with market forces or risk losing out on donations to those who deliver better charitable value," warned Pedraza. Fortunately, of course, the poor and destitute around the world are likely to be the ultimate winners.  

  5. Technological prowess enhances luxury brand appeal According to Pedraza, "Many luxury brands are starting to look tired and old-fashioned due to a lack of investment. But there is no excuse after the recent luxury boom". Indeed, if you stay at some of the world's finest luxury hotels, test drive the most luxury cars, or buy a new pair of shoes from the best craftsmen, you can all too easily find old and tired brands that need major reinvestment in facilities, new models, and product enhancements. Luxury brands need to deliver the most up-to-date technology, modern design, all with the greatest of comfort and style.

    Expect the best hotels to upgrade to high-definition, flat-screen TVs, get rid of bulky furniture, and dramatically upgrade bathrooms. Look for upstart ultra-luxury cars that use technology and comfort to burnish their brands to replace tired brands that simply aren't keeping up. Service providers, such as wealth managers, also need to stay on top of technology upgrades to provide the best of security and convenience for their increasingly tech-savvy wealthy customer base. So even if the economy slides backward in 2007, the best luxury brands will still invest in new systems and business models to remain competitive.  

  6. Luxury communities and services spring up online The celebrated phenomenon of "Web 2.0" (including web sites such as MySpace, Yelp, Facebook and YouTube) are for the young and restless who have nothing to lose, Pedraza asserts. In 2007, internet entrepreneurs are likely to discover that mature, affluent and wealthy consumers are more tech-savvy and more valuable customers than low-end browsers.

    Look for a new wave of online peer-to-peer style affinity communities that cater to the needs of affluent and wealthy consumers. Many of these models will be subscription and membership-based - essentially they will be online, ad-free "gated communities". Thoroughly safe, thoroughly secure, and thoroughly useful.

    Publishers and entertainment firms will also compete increasingly on a number of non-traditional media platforms. The emphasis will continues to shift from traditional media such as broadcast television and print magazines to emerging venues for reaching the viewer or reader (such as online communities, video-on-demand, and even satellite radio). Some will deliver far better traditional luxury services for less. They will challenge the old guard of luxury in ways that will flatten major players who fail to adapt.  

  7. The science of customer experience Luxury firms should have been among the first to use sophisticated technological and analytical tools to target and customise offers for their clients. So far, however, most luxury goods and services firms are performing less than perfectly at CRM. A worrying number fail even to implement targeted and measured referral programmes. And it doesn't help that many lack strong marketing departments and even the quantitative and analytical staff to create such programmes.

    Having understood the power of optimizing customer experience in the creative and artistic sense, luxury marketers will begin to develop the personnel, analytics, and data management skills, as well as the testing and learning methodologies, required to operate a highly adaptive, customized marketing and selling operation - akin to the prowess shown by companies like Capital One and Harrah's at segmenting their customer base and implementing highly-targeted marketing efforts. It will be a very difficult transformation to this level of business intelligence, but it will happen with quickening frequency in 2007.

The Luxury Institute is focuses its research on the top 10% of America's wealthy consumers, and produces a range of publications that aim to educate high net-worth individuals and the companies that cater to them about trends, consumer ratings of luxury brands, and best practices. Its publications include the monthly Wealth Report, the Luxury Brand Status Index surveys, the Luxury Best Practices surveys, and the Luxury Customer Experience Index surveys.

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