Affluent consumers face not just stagnant, but declining incomes — which challenges marketers at the upper-end of the market
The latest news cycle carriedÂ a story that caught my eye â€“ Jay Leno, host of The Tonight Show, Â just took a 50 percent pay cut!Â While his adjusted annual salary of $15 million still puts him among the very highest earners in the country, it points to an unsettling trend that is happening among the affluent:Â a trend toward downward income mobility. Â
Once unheard of, the downward mobility of the luxury class presents special challenges to marketers that target this elite group of upper-income customers.Â What happens when affluent customers just arenâ€™t willing to â€˜pay to playâ€™ in the luxury market any longer?Â
Research shows the fortunes of the affluent are not so fortunate any longer
The Census Department provides the authoritative look at the American peopleâ€™s income and it presents a sobering view of where the American population stands in terms of income.Â Under a link entitled Income Inequality, youâ€™ll find the latest data on the key income segments in the population.Â For example, in 2010 dollars, the incomeÂ that defines the affluent top 20 percent has declined nearly 5 percent in the five-year period from 2006 to 2010 and it was basically flat in the preceding five years from 2001 to 2005. Â By contrast the income limit grew 10 percent from 1996 to 2000 for the top quintile.Â At the top 5 percent of incomes, the trends are basically the same, rising rapidly from 1996-2000, flattening out from 2001-2005, then moving down from 2006-2010.Â
The average income for the affluent 20 percent and top 5 percent tells an even more explicit story of downward mobility among the affluent.Â Average income for a household at the top 20 percent dropped 7.5 percent from 2006 to 2010 and 12.7 percent for the top 5 percent in the same period.Â For the five preceding years, average income for both the top 20 and top 5 percent was flat, after having risen a stunning 14.3 percent from 1996-2000 for the top 20 percent and 17.1 percent for the top 5 percent.
I apologize for reciting all those numbers (call me at 717.336.1600 if youâ€™d like to see the data) but the picture that it paints is an affluent consumer segment, the prime target for luxury marketers, that is experiencing a real drop in their income.Â Because these same consumers are significantly invested in their high-end lifestyle with income committed to a wide-range of fixed expenses to maintain that lifestyle, itâ€™s in discretionary spending where they are going to take their cuts.Â So that translates into less money to spend each month for clothes, shoes and handbags, jewelry and home decorative accessories.Â These folks have plenty of all that stuff already, so it is the easiest, most painless way to adjust oneâ€™s budget when there is less money coming in each month.
Â That said, while the average income of a household at the top 5 percent may have declined from $358,700 in 2006 to $313,298 in 2010 â€“ a painful 13 percent drop â€“ those $300k+ households still have tremendous spending potential.Â That just brings into focusÂ luxury marketers’ new challenge:Â to compete more aggressively for the remaining discretionary spending power of those top 5 percent.
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Research-based insights into the minds and motivations of luxury consumers is key to beating the competition
Gaining new insights into the purchase motivation and spending power of the affluent consumer market is critical for luxury marketers to create a marketing strategy that will position their brand to beat the competition.Â The days where the affluent 5 percent could â€˜shop till they dropâ€™ are over â€“ Reduced income means consumers, even the affluent, have to be more selective about where and how much they spend.Â That is one reason a value-oriented marketer like Costco is so successful today.Â
Unity Marketing can help luxury marketers gain new research-based consumer insights that can be used to find a new path to success in an increasingly competitive marketplace for luxury spending.Â
- The Luxury Report 2012: The Ultimate Guide to the Luxury Consumer Market:Â This annual report gives you a top-level view of the behavior of affluent consumers over the past four years, including their favorite brands and retail destinations and the amount spent on luxury in a variety of home, personal, and experiential categories.Â It probes into key demographic segments in the affluent consumer market, including differences in purchase behavior by gender, age, income and wealth.
- Unity Marketingâ€™s Luxury Tracking Study & LCI:Â Providing the source data for the annual luxury report, this customized quarterly survey of 1,200+ affluent luxury consumers gives marketers detailed tracking information about current luxury purchases and spending, as well as forward-looking guidance on future shifts in luxury consumer behavior in Unity Marketingâ€™s proprietary Luxury Consumption Index (LCI), a measure of affluent consumer confidence that historically predicts shifts in luxury consumer spending in subsequent quarters.
- Wealth Wave:Â Millennials and their Luxury Aspirations:Â This in-depth report, which includes an executive summary of key findings and take action strategies, plus the detail focus group report with quotes and summary of the discussion, gives marketers new insights into the future direction of the next generation of luxury consumers that will come to the fore in the consumer market starting about 2018 or so.Â Get ahead of the curve by studying the differing needs and desires of your future luxury customers.Â This report will be especially valuable to luxury brands in these key core segments which were discussed in the groups:Â luxury jewelry; fine dining; luxury hotels and hospitality; luxury fashion, apparel and fashion accessories; luxury wine; and luxury retail including online and internet shopping destinations.