Why luxury consumers are turning to the internet

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By: Wise Marketer Staff |

Posted on July 17, 2006

In little more than a decade since its transformation into a widespread vehicle for commerce and communications, the internet has become the channel of choice for wealthy consumers in dealing with the firms that serve them, according to a report from The Luxury Institute.

In compiling its Enhancing the Customer Experience of the Wealthy 2006 survey, the Luxury Institute polled US consumers with a net worth of at least US$750,000 and a minimum annual income of US$150,000. Most of these wealthy individuals said that the internet is their preferred channel for correspondence and transactions with providers of both luxury goods and services.

As a sales channel, the internet is growing in popularity among the wealthy. Well over one-third (38%) said they prefer to purchase luxury goods online, compared to only 33% who favour face-to-face transactions. A significantly smaller proportion - only 20% - said they prefer to purchase both goods and services by telephone.

Digital preference
When it comes to researching luxury companies, products, and services, the wealthy now overwhelmingly prefer digital channels, with 88% citing a preference for using the internet (web and e-mail) to research a luxury provider, and 85% preferring these channels to learn more about a particular service.

More than half said they prefer using internet and e-mail to contact a services firm about both new and existing services, while only two out of five said they prefer to use the telephone.

In the luxury goods sector, nearly 80% of consumers said they turn first to the internet or email to learn about companies and the products they sell, with 53% preferring to contact goods providers online about new products, and only 38% preferring to use the telephone). When finding out about an existing product, online and telephone channels were found to be equally popular among wealthy consumers for contacting luxury goods firms.

Demographics versus technology
While enthusiasm and acceptance certainly run high for internet and email channels among luxury consumers overall, older and wealthier consumers still prefer the telephone. Wealthy consumers aged 50+ told the Luxury Institute that telephone chats with real people, not machines, are much preferred when dealing with firms that provide luxury goods or services.

Also preferring the telephone to the internet and email were individuals with an annual household income of more than US$1 million, as well as those with a net worth north of US$5 million.

Although men generally prefer the internet, their second-favourite channel preference was the telephone. For these customers, the apparent convenience of the internet still does not beat the immediacy and accountability of speaking directly to a company representative on the telephone.

Keeping the right focus
For luxury firms, while there is need to continuously bolster the brand by increasing the functionality and usability of the company web site, it is important that they do not lose sight of the importance of maintaining the telephone channel.

According to the Luxury Institute's report, this has been a lesson lost on many mainstream firms that have pursued cost savings by outsourcing telephone communications to offshore call centres, or by implementing automated touch-tone systems that only frustrate customers instead of fostering a long-term relationship.

Problems change the balance
The internet is not always the best channel, though. The survey found that when there is a problem wealthy consumers are much more inclined to pick up the telephone or to pay a personal visit to put the problem right. For example, 68% said they would prefer a face-to-face meeting when trying to resolve a major problem with a luxury goods firm, and 14% said they prefer to use the telephone. But for luxury services firms, the balance is different yet again: when rectifying major issues concerning luxury services, the telephone is more popular (65%) than face-to-face meetings (15%).

Perhaps not surprisingly, only 9% said they would seek resolution of major problems with luxury goods or services firms by e-mail, although 44% reported that internet and e-mail channels would suffice for resolving minor problems. The telephone - cited by slightly fewer than half of the wealthy - was found to be the preferred method for resolving small problems with providers of both luxury goods and services, and also the most popular channel for filing complaints with luxury goods and services firms.

Interestingly, one-third (32%) said they prefer delivering "gripes" (minor complaints) to service companies through online channels, compared to 28% for goods providers.

Preferred solicitation channels
Surprisingly, the internet and e-mail channels were cited as being the best ways for luxury firms to reach out to the wealthy and present offers for goods or services. Telephone solicitations were the least popular.

So, while there is a fine line between 'spam' and tasteful invitations to spend, almost three-quarters of luxury consumers said they wanted offers from goods and services providers with whom they already have a relationship to arrive via e-mail. Fewer than one-in-five said they would prefer such offers to arrive via the traditional postal service.

But the propensity of the wealthy to welcome unsolicited email from firms with whom they have no existing relationship drops to 56%, and their inclination to receive these offers through the US mail doubles to just below 40%. Only 6% welcome a telephone pitch from any source.

An extreme wealth bias
Wealthier consumers may prefer the telephone to online channels when dealing with providers of luxury goods and services, but they were also found to be the most avid users of the internet, for both shopping and research purposes.

Nearly all consumers (93%) worth US$10 million or more said they had purchased a luxury product over the internet during the past 12 months, compared to only 55% of all wealthy consumers surveyed who had bought luxury goods online. Seven out of ten of the wealthiest consumers had made online purchases of luxury services, while only half of the wealthy overall had done so.

Nearly all (86%) of those worth at least US$10 million said they had used the internet to conduct research on goods and services providers, while only 57% of the overall group had done so in the past year. The same proportion (86%) said they also did online research about a luxury product, compared to 73% of wealthy consumers overall.

Older and wiser
Older wealthy Americans, despite their stated preference for dealing with firms by telephone, were no less likely to use the internet for shopping and research than younger wealthy consumers. In fact, the wealthy aged 25 - 34 were found to be the laggards in going online to conduct research on companies, goods, and services. They were also the least likely to have purchased luxury services online at 42%, compared to 52% for the 35+ age group.

Overall, those earning between US$500,000 and US$1 million a year were by far the most likely to use the internet for research and shopping:

  • 80% have researched goods and services online;
  • 73% have gathered information on firms using the internet (compared to 57% overall);
  • 71% have purchased luxury goods online;
  • 62% have purchased luxury services online.

Slight gender bias
There also appears to be a slight gender divide when it comes to internet usage, particularly for research. While 78% of men said they have gone online to research a luxury service and 77% have researched a luxury product, those figures drop to 70% and 68% respectively for women.

Nearly two-thirds of wealthy men (64%) said they have researched luxury goods and services firms online, but only half (51%) of women have done so. While it was men who generally cited the telephone as their second-favourite channel for dealing with companies (after the internet), women generally cited e-mail as their second-favourite channel.

The Luxury Institute produces a range of publications and research that examine the habits and desires of high net-worth consumers and the companies that service them. Its publications include the monthly Wealth Report, Luxury Brand Status Best Practices surveys, and Luxury Consumer Experience Index surveys.

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