Understanding Today’s Luxury Consumer

Michael SolomonMarch 8, 20217 min

Luxury marketing is largely about exclusivity. If everyone has it, it’s not luxury. The popular bumper-sticker slogan, “He who dies with the most toys, wins,” summarizes the desire to accumulate these badges of achievement.

Many marketers try to target affluent, upscale buyers. This makes sense, because these consumers obviously have the resources to spend on costly products that command higher profit margins. And our current economic system tends to encourage the accumulation of wealth among the relatively few: the 80 richest people in the world are worth $1.9 trillion. This is about the same amount shared by the 3.5 billion people who are in the bottom half of the world’s income. The most affluent one percent of people worldwide control more than half the globe’s total wealth.

So, even in dire economic times we’ll continue to see elite products and services that only the well-off can afford. For example, if you go to school in London and you happen to have “a few pounds” to rub together, you can join The Luxury Student. This is a subscription service designed for affluent students; it’s “…a truly unique service for those who seek the finer things in life.” Members get a “VIP” student experience that includes a free Nespresso machine, a blogger photoshoot, surprise luxury gifts and access to Quintessentially Travel, a “luxury lifestyle travel management company. Who says college has to be about living on ramen noodles? How dreary…

The market continues to roll out ever-pricier luxury goods and services, from $12,000 mother–baby diamond tennis bracelet sets to $600 jeans, $800 haircuts, and $400 bottles of wine. Although it seems that almost everyone can flaunt a designer handbag (or at least a counterfeit version with a convincing logo), America’s wealthiest consumers employ 9,000 personal chefs, visit plastic surgeons, and send their children to $400-an-hour math tutors.

A luxury brand is a complex platform that conveys messages about quality, lineage, status, and taste. It often encompasses a set of visual icons, such as a distinctive logo, monograms, patterns and images. A good example is Bottega Veneta (pictured), whose leather goods display no visible symbols or logo. Those who are “in the know” recognize them by their distinctive weaved pattern.

Compare a discreet luxury brand like this to, say, the very prominent repeating logo pattern you might find on a Louis Vuitton bag or perhaps a pair of sunglasses emblazoned with a very large Dolce and Gabbana label that runs across the front. This contrast demonstrates that luxury brands vary in the type of status signaling they employ. As a rule, those who are wealthier and don’t have a high need for status rely on “quiet signals” and likely will be put off by excessive displays. Luxury brand marketers need to understand these distinctions, because their customers may or may not value products with explicit logos and other highly visible cues that signal conspicuous consumption.

Segmentation Within The “Haves”

How do we know whether customers value loud signals or eschew them? At the least it’s useful to focus on another familiar dichotomy: Old money vs. new money. People who have had money for a long time tend to use their fortunes a lot differently. Old money families (e.g., the Rockefellers, DuPonts, Fords, etc.) live primarily on inherited funds. One commentator called this group “the class in hiding.”

Following the Great Depression of the 1930s, moneyed American families became more discreet about exhibiting their wealth. Many fled from mansions such as those we still find in Manhattan (the renovated Vanderbilt mansion now is Ralph Lauren’s flagship store) to hideaways in Virginia, Connecticut, and New Jersey.

Mere wealth is not sufficient to achieve social prominence in these circles. You also need to demonstrate a family history of public service and philanthropy, and tangible markers of these contributions often enable donors to achieve a kind of immortality (e.g., Rockefeller University, Carnegie Hall, or the Whitney Museum). “Old money” consumers distinguish among themselves in terms of ancestry and lineage rather than wealth. Furthermore, they’re secure in their status. In a sense, they have trained their whole lives to be rich.

In contrast to people with old money, today there are many people—including high-profile billionaires such as Bill Gates, Mark Zuckerberg, and Sir Richard Branson—who are “the working wealthy.” The Horatio Alger myth, where a person goes from “rags to riches” through hard work and a bit of luck, is still a powerful force in our society. That’s why a commercial that showed the actual garage where the two cofounders of Hewlett-Packard first worked struck a chord in so many.

Although many people do in fact become “self-made millionaires,” they often encounter a problem (although not the worst problem one could think of!) after they have become wealthy and change their social status. The label nouveau riche describes consumers who recently achieved their wealth and who don’t have the benefit of years of training to learn how to spend it.

Pity the poor nouveau riches; many suffer from status anxiety. They monitor the cultural environment to ensure that they do the “right” thing, wear the “right” clothes, get seen at the “right” places, use the “right” caterer, and so on. In major Chinese cities such as Shanghai, some people wear pajamas in public as a way to flaunt their newfound wealth. As one consumer explained, “Only people in cities can afford clothes like this. In farming villages, they still have to wear old work clothes to bed.”

Obviously, income is the way many of us “keep score” in our consumer society. Even a person’s credit score sometimes doubles as an admission card when dating sites like Datemycreditscore.com use it to screen potential suitors.

Understanding The “Haves”

When we take a closer look at the basic Haves vs. Have Nots dichotomy, it’s not that difficult to identify counterexamples that illustrate just how permeable these categories can be:

The abdication of Edward III to marry the commoner Wallis Simpson in 1936, and more recently the “stepping back” of Meghan Markle and Prince Harry as they transitioned from Royals to Commoners.

The practice of parody display, whereby affluent consumers deliberately adopt symbols we associate with people who don’t have such deep pockets, such as ripped jeans and trucker hats.

Historically, people associated tattoos with social outcasts. For example, authorities in 6th-century Japan tattooed the faces and arms of criminals to identify them, and these markings served the same purpose in 19th-century prisons and 20th-century concentration camps.

Marginal groups, such as bikers or Japanese yakuza (gang members), often use these emblems to express group identity and solidarity. Today in contrast a tattoo is a fairly risk-free way to express an adventurous side of the self – even when that self belongs to a middle-class adolescent. Getting inked is commonplace around the world; at least according to one survey Italy leads the pack with 48% of respondents claiming to have at least one tattoo. Hardly marginal, right?

Organizations that target “the rich” may fall into the trap of assuming that all affluent consumers are the same. Despite our stereotype of rich people who just party all day long, one study found that the typical millionaire is a 57-year-old man who is self-employed, earns a median household income of $131,000, has been married to the same wife for most of his adult life, has children, has never spent more than $399 on a suit or more than $140 for a pair of shoes, and drives a Ford Explorer (the humble billionaire investor Warren Buffett comes to mind).

Indeed, many affluent people don’t consider themselves to be rich. One tendency researchers notice is that these people indulge in luxury goods while they pinch pennies on everyday items; they buy shoes at Neiman Marcus and deodorant at Walmart, for example.

These revelations at the least remind us that the simple dichotomy of Haves vs Have Nots deserves more nuance and probably some psychographic work as well. In fact, SRI Consulting Business Intelligence divides consumers into three groups based on their attitudes toward luxury.

1. Luxury Is Functional: These consumers use their money to buy things that will last and have enduring value. They conduct extensive pre-purchase research and make logical decisions rather than emotional or impulsive choices.

2. Luxury Is A Reward: These consumers tend to be younger than the first group but older than the third group. They use luxury goods to say, “I’ve made it.” The desire to be successful and to demonstrate their success to others motivates these consumers to purchase conspicuous luxury items, such as high-end automobiles and homes in exclusive communities.

3. Luxury Is Indulgence: This group is the smallest of the three and tends to include younger consumers and slightly more males than the other two groups. To these consumers, the purpose of owning luxury is to be extremely lavish and self-indulgent. This group is willing to pay a premium for goods that express their individuality and make others take notice. They have a more emotional approach to luxury spending and are more likely than the other two groups to make impulse purchases.

Contributed to Branding Strategy Insider by: Michael Solomon, excerpted from his book The New Chameleons: How to Connect with Consumers Who Defy Categorization

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