Life Style Marketing

Survival Strategies for the Upper Middle Class

Translating income into more productive forms of capital.

We have conducted enough research among affluent people (Househild income above $150,000) to recognize that, statistically speaking, there are two general strategies for redeploying current income into assets that will increase long term value.

One strategy is the reinvestment of current money into cultural capital. Cultural capital includes advanced education, broader understanding of the arts and sciences, greater interaction with other intelligent and educated people, etc. This strategy (stated in very simple terms) leads to positions of greater responsibility in corporations and to greater influence on the deployment of corporate capital. Along the way the successful person increases their wealth through rewards from the corporation.

The other strategy, again broadly speaking, is more individualistic, less reliant on cultural inputs and models, more oriented to concrete aspects of current human existence.This strategy is demonstrated in personal interests (e.g., more kinetic and measurable; less abstract and theoretical) as well in economic activities This strategy leads to greater accumulations of economic capital with less social or organizational intermediation.

These two broad strategies each have subsets but, in toto, are significantly different and based on very different values which translate into very different behavioral patterns.

We have spent most of our effort translating our research into strategies for organizations. We are now considering articulating the individual-level implications. If you would be interested in more information, please let us know. richard.baker@premiumknowledge.net

The Dilemma of the Upper Middle Class: The Adam Smith Problem

Towards the end of the 20th century it was clear to leading economists and sociologists that capitalism as it was experienced in the United States had taken a turn and was heading into uncharted waters. On the positive side, as it were, Jay Galbraith referred to entering The Affluent Society. On the less positive side Daniel Bell described The Cultural Contradictions of Capitalism. A key element of this change was the shift in the economy from dependence on production to the dependence on consumption; from a spirit of asceticism to a spirit of acquisitiveness (Bell, p 283).

Two facts confirm the persistence of this trend: The continued out-sourcing of production to developing countries and the increasing share of GDP represented by consumer discretionary spending.

Ironically this turn of events has become a double-edged sword for a portion of the population originally believed to benefit the most: The Upper Middle Class. (For sake of argument consider this segment to include anyone living in a household with $150,000 or more of annual income and $1.5M in assets.). The dilemma is that if they continue discretionary spending they are pillioried in the popular press; if they don't the economy enters (or stays in) a recession and there is an increased possibility that their position will be eliminated .

In the near term upper middle class consumers are avoiding the problem by using any excess cash to pay down debt and/or to increase savings. As the rate of savings and the rate of indebtedness return to more tolerable (or at least more historic) level, the question about spending will become more insistent. We already see this in the automotive category where the age of the vehicle parc is at abnormally high levels and for sheer safety and maintenance reasons replacement by new vehicles are worth rational consideration. The last time they bought a new vehicle it might have been to "keep up with the Jones." Today it will be to keep on the road.

What is the solution that will allow this segment to resume discretionary spending without fearing social criticism? Even though they constitute only a small fraction of the population they are responsible for a much larger portion of the GDP. If they continue saving (as recommended historically by classical economists who favor capitalism) they will further lower production, create unemployment and reduce the attractiveness of investment overall. If they spend they will be accused of hedonism.

This is a strange version of what has been called "The Adam Smith Problem." Smith is known for two books. One has been interpreted as promoting self-interest (Wealth of Nations) and the other for promoting moral conduct (The Theory of Moral Sentiments). It was not immediately clear to his readers how to reconcile the two objectives. What decision-process would affluent consumers use to make personal decisions about the acquisition and eventual allocation of their discretionary economic capital that would enable them to balance the apparently conflicting needs of society? How could they reconcile the attainment of rewards justly deserved by their individual effort with the social criticism they received when they dispersed those rewards on anything other than charity?

Our research into the motives of affluent consumers provides very useful insight into this question. It provides guidelines for individuals as well as the companies (and philanthropies) that market to them.

Marketing to Gen X: The Importance of Authenticity

Recently an automotive manufacturer asked what trends would have the greatest
influence on the premium-priced market in the next decade. Our response was (a)
the shift from the Boomer Generation to Gen X and (b) the increasing importance
of authenticity as a brand attrbute.

In many ways the two trends are correlated. Gen X places great importance on
authenticity. I think it is related to their need to validate trust they place
(sparingly) in anyone or anything. Being authentic inherently requires a
consistency between a person's inner character and external behavior. The same
could be said of a brand: It must walk it own talk. And it should not attempt
to "put on airs" or pretend to be capable of something it cannot do
really well.

In the automotive sector than have been a few classic cases of a brand not
being authentic. The experience of the Jaguar brand under Ford Motor Company
specifically comes to mind. (Hopefully this can be overcome under Tatta.) Or
what General Motors did to Cadillac a decade ago. A current question is how
Mercedes is handling SMART. Or maybe that question has already been answered.

Toyota was very intelligent when it launched the Lexus brand. It knew that
"Toyota" as a brand at the product level would never see seen as
authentic luxury. It also knew that for "Lexus" to be an authentic
luxury brand it would have to "walk the talk" at every step in the
business process, from product design through distribution, sales and service.
It set up an entirely new franchise next work of very limited (i.e., exclusive)
scope and has held its dealers to the highest standards of performance.

But Lexus was for Boomers. We are waiting to see if Toyota is as successful
with brands it is launching aimed directly at Gen X.

Luxury and Gen X

Anyone thinking that marketing luxury to Gen X will be easy should read what Lexus is experiencingDownload is_lexus_losing_young.doc

As the very well written article indicates marketing to Gen X requires a new start-to-finish thought process. We're not talking just advertising. We're talking product and service, promotion and sales, positioning and process: The entire process.

These adjustments are required because the underlying hopes, fears and values of Gen X have been shaped by a milleu vastly different than that which shaped the preceeding generation (Boomers). In recent presentations I've been using a table to summarize the differences (drawn from a variety of sources). Download comparison_of_boomer_andgen_x_v_4.doc

Great brands like Lexus realize that these differences make a difference in how to attact and keep this next generation.

It's 2010. Do you know where your customers are?

Designing Luxury Experiences, Part II

Gen X is prone to deconstructing things, seeing how they work. They are particularly alert to inconsistency and incongruity. Events have made them skeptical and less forgiving than Boomers. For this reason, attempts to create luxury experiences must be well thought out, well engineered.

The luxury experience has six intervals: Prolog, Entry, Escalation, Encounter, Resolution and Review.

Prolog involves the definition of desire and the setting of expectations. It most often occurs before the Gen X consumer arrives at the scene. It can be as simple as an invitation or a phone call. The authenticity and uniqueness of the Prolog sets the stage. A false move here results in a non-starter.

Entry is the time and space of the Gen X consumer's first moments at the scene. Think of it as the lobby to the experience. The physical setting, the signs, symbols and messaging (including body language and dress) must reinforce and heighten the expectation. The actors (staff) appear on stage. Gen X has a short attention span. It must look like something interesting will happen.

Escalation involves meeting the conscious expectations of the Gen X consumer. It involves movement from the "lobby" to main suite of activity. At this stage the Gen X consumer becomes involved in tasting, feeling, hearing and seeing the elements of the experience. He or she goes from room to room, apprehending and evaluating. For Gen X these sensations must occur concurently and require some level of multi-tasking or they will be perceived as boring.

The Encouter is the moment of seeing the jaguar, of looking into the Grand Canyon, of hearing the chorus in Ode to Joy  or the crescendo in Freebird. The sun setting on the ocean. The Merlot complimenting the lamb. The encounter creates the awareness of awareness. Awe sets in. Multi-tasking stops. The Encounter must etch an indelible, integrated imprint on the jaded Gen X soul.

Resolution is separation of the stimulus from the stimulated. The jaguar returns to the savana, the sun dips below the horizon. The traveller flies home. Gen X cynicism can return or be replaced by the sense of privledge at having encountered the rare. The authenticity of the staff will make the difference.

Review is the recollection of the full experience in a form that facilitates retelling. Digital images, links to websites, networking with other guests: A choice will extend the enjoyment.

These six intervals are at the heart of what Gen X considers a superb bike tour, golf outing, or camera safari. The challenge to the luxury marketer is ensuring both the quality and integrity of the  process.   

 

Designing Luxury Experiences

The emerging luxury customer has a different mentality and sensibility than the Boomer luxury customer. This necessitates a different approach to designing luxury products and, more importantly, luxury experiences.

At a minimum the emerging luxury customers are at a different stage in their lives. The issues and interests for a 35 year-old are different from those of a 55 year-old. They are trying to create a life and a matching LifeStyle rather than trying to maintain, refresh or extend a life and LifeStyle. A quick review of Daniel Levinson will confirm that men's issues in mid-life are unique. Gail Sheehy (Passages) provides a similar insight for women.

There is a level of competitiveness at mid-life that has often faded at later years. Is there luxury in (a) getting better at competing, (b) getting a break from competing, or (c) doing both in a unique setting?

There are family pressures at mid-life that are different than those of later years. Is there luxury in (a) getting closer to the family,  (b) getting a break from the family, or (c) doing both in a unique way?

Wealth is often achieved at a younger age today. This is one of the features of "democratic capitalism." Is the luxury learning how to (a) achieve wealth, (b) enjoy wealth, or (c) a combination of the two?

Experiences the mid-life affluent will consider a luxury are inherently different from those a Boomer will consider a luxury. They will be more integrative in nature. They will resolve and reconcile as well as astound and amaze.

(My apologies to the readers for being absent for a short period.) 

Aspirational Affluents

Several years ago Infiniti launched in the U.S. with an ad campign aimed at the psyche of Boomers. It featured Zen-like commercials with beautiful images but no vehicles. The campaign bombed.

This week Hyundai launches a campaign  that features biting copy, Oz (as in the prision)-like visuals but no vehicles.

Is history repeating itself? Or will the campaign demonstrate how different Gen X really is and how different the marketing and advertising to the aspirational affluents in this generation really has to be?

Karl Greenberg at MediaPost has written an article that points out Hyundai is not benchmarking other auto brands's advertising. They are "emulating" Target, Jet Blue and Apple. (And we know from personal experience that Jet Blue was heavily influenced by Cooper Mini advertising,)

But the Hyundai effort is pushing the historical envelope. It will be important to luxury marketers to notice the results. Hyundai is moving upmarket and more luxuorious Hyundais (perhaps an oxymoron) are on the way.