Life Style Marketing

Signaling Social Status With Luxury Brands

A recent (2010) article summarizes research regarding the motivation of people at various levels of "wealth" towards the "need for status." The article provides some interesting insights and acknowledges some short-comings. For example, the authors point out that the merchandise samples used, taken from the websites of the brands, were based on what the brands were offering and did not necessarily reflect what was actually selling.

We noticed a few other points that the authors might consider in any follow up studies:

1. Wealth was defined in terms of income. This, one supposes, would be contrasted with net worth, which was not measured.
2. Status was defined as "tendency to purchase goods and services for the status or social prestige value that they confer on their owners." This definition, on examination, is somewhat circular since the term "status" is included in its own definition.
3. The authors suggest that wealth and status have been "inextricably linked" since the 18th century yet assure us that the dimensions of their taxonomy, the same wealth and status, are two distinct characteristics.
4. The primary sample for the study was apparently taken during "intercepts" at shopping malls. One might question if people who are shopping at a mall are a random sample of all people, or more likely, a random sample of people to whom shopping is more important.

One point (to use a metaphor) of the research was the relative importance of "brand prominence," defined at the relative size of the logo, in the consumer's decision process. Less knowledgeable customers are seen as preferring larger ("loud")logos. More knowledgeable customers are seen as preferring the information conveyed by smaller (quiet) logos and the "subtle design features" they recognize. This ability to "recognize" quiet and subtle signals is determined to be one of the characteristics of the "Patrician" segment's ability to predict the price of an item.

An interesting question is the possible relationship between a person's ability to read subtle signals and his/her ability to achieve higher levels of income. For example, there is a general relationship between levels of education and income. Which brings us back to the question of the two axes of the taxonomy are truly independent.

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.

The Mind of the Affluent Consumer: Intrapersonal Conflict

Durkheim proposed that society imposes restraints that limit the behavior of individuals. This proposal was part of the rationale for believing that society has a reality independent of the wills of individuals.

We have just completed a review of our data from this perspective. Our surveys ask affluent consumers to rate the relative importance of almost 2 dozen motives related to the acquisition of discretionary goods and services. One statistical group of these "personal drivers" describe how important a purchase is to, in effect, "being oneself." The two other group of persoal drivers describe (a) various types of feedback that a person might get from others and (b) reactions the individual might have to that feedback.

In a stratistical test that observes the relationship among these various personal drivers it was determined that there are signficant negative relationships bewteen satisfying a driver related to "being myself" and the majority of drivers related to feedback from others and the response to that feedback.

We interpret these results that Durkheim's premise is correct at least to the extent that a consumer anticipates how others will react and how the consumer him/herself will respond to that feedback.

The implication for merchants is to recognize that each potential choice of a good or service carries with it a consideration of others reactions. Anything that can be done to mitigate anticipated negative feedback, or the impact of that feedback, will be useful. (This phenomenon is also related to the issue of "avoidance of regret" mentioned by Thaler in his research.)

Our next step is to look at consumer preferences in brands in light of their sensitivity to feedback from others. One interesting note is that the personal driver of "show good taste" was not in opposition to any of the drivers associated with "being myself."

Customer Capital and Quasi Rational Marketing

The information in this blog entry summarizes new information about what individual customers value in a firm's products and services. This information (called "customer capital") will be used to calculate the value of customers on a much more accurate and actionable basis .

For some time sociologists have known that affluent people purchase discretionary goods and services for symbolic as well as practical value. Some have argued that the primary value of these goods and services is their effectiveness in communicating status. The benefits of these insights have been available to marketers of luxury brands in the form of marketing consulting and/or market research.

Economists have also studied luxury goods and recognize that these goods provide "utilities" in addition to their functionality. Economists recognize the importance of "personal taste" in influcing these decisions at the individual level. As a result they have not attempted to measure the decision making process of affluent individuals due to the lack of reliable "preference" metrics. In this case "reliable" means metrics that are repeatable over multiple purchases and are applicable across multiple product categories. The classic economic problem might be identifying and measuring the preferences of individuals for using the same amount of money for the purpose of making a down payment on an automobile versus taking a vacation. Some economists (Richard Thaler, for example) refer to this type of decision as "quasi rational" since factors other than economic play such an important role.(https://www.russellsage.org/publications/quasi-rational-economics).

We are very pleased that our research regarding "personal drivers of consumption" may provide a set of preference metrics that economists can include in their designs. These preference metrics claerly differentiate the "tastes" of individuals and correlate with spending behavior across multiple product and service categories. We are looking for a University that would like to have access to our data base. And we are working with several clients to help them achieve the benefits of what we may call Quasi Rational Marketing.

Aligning Organizational Culture and Brand Identity

Senior Executives of companies providing products and services know that their company's brand is a core asset. They know that their organization's "culture" should reflect (enact) the brand. How do they convey this imperative to the people they lead?

Clearly the executive's personal behavior is an essential demonstration. If a brand attribute is being "customer-centric" then how much time do they spend asking about customer-related information (other than revnues and costs)? How often do they interact with customers.

If "passion" is a brand attribute, how do they display the appropriate level if intensity in caring about the product and its delivery? Since "passion" is about unsatisfied desires, how much time do they have the organization spend identiying latent customer desires?

These are simple questions intended to illustrate how senior managers can and in many cases do use their personal behavior to enact their brand throughout their organization.

But what if the brand is not clear? What if it is not clear how to enact the brand's attributes? What if it is not clear to an employee how he/she can maintain their individual identity (key to knowledge workers) and also be an active part of a corporate "brand personality?"

Based on our research these 'gaps" will erode the customer's loyalty. Brand is very important to the most loyal customers. Your brand, by their choice, is part of their personal identity. If the organization blurs its brand personality it has a similar and disturbing effet on the consumer's person. There is a price to be paid.

What is the solution? Organizations must articulate how their brand's personality translates (literally) into behavior. That is the organization must articulate the thought process that enables a person to generate the translation from "attribute" to "behavior." This thought process is a useful tool for employees.

So, what exactly is the process? Please check back for our next entry, or, as always, contact us at info@premiumknowledge.net.

Customer Experience Management: Imagining the Customer's Point of View

There is a famous study of the affluent classes of France (http://en.wikipedia.org/wiki/La_Distinction) which provides great detail into affluent consumers' motives for the acquisition of disretionary goods and services. Distinction is a wonderful demonstration of how to present the point of view and behavior of different segments of the affluent market.

The point is made that each affluent consumer has an internal process, formed over time (a "habitus"), that guides their selection of activities and possessions. This "habit" forms the consumer's taste. The consumer's objective is to consistently add to their social capital in a manner they consider tasteful. There are significantly different "tastes" which produce different life styles.

Bourdieu (the author) points out that it is important for marketers to understand these habitual workings of the consumer's "mind" and the resulting life styles in order to present goods or services in a meaningful way.

Distinction not only reinforces the validity of our research capturing the LifeStyles of affluent U.S. consumers. It also sets the standard for writing up the results. This will be our objective in updating Material Differences.In the meantime, you will really enjoy Distinction.

Underconsumption and Underemployment

We are having difficulty getting our economy growing. One way to describe this phenomenon is "under consumption," an idea espoused by John A. Hobson, the English economist. (http://en.wikipedia.org/wiki/Underconsumption). His is an observation worth reviewing today in light of the increasingly unequal distribution of income and the concurrent out-sourcing of jobs to other economies.

Hobson points out that even when the rich have more money than they know what to do with, they physically cannot consume enough to replace the demand that would have been created by several other people with lesser incomes. A family with an income of $10M does not consume (i.e., spend) as much as one hundred families with $100,000 income each. Take automobiles as an example. The average $10M household may have 5-6 vehicles. One hundred families with $100,000 income would have an average of 2.5 vehicles each, or a total of 250 vehicles. That's a fifty-times increase in consumption based on the same total income.

As a result Hobson pointed out that the increasing disparity of wealth in a capitalistic system would, ironically, end up decreasing demand and initiating a down (read recession) business cycle. It appears this is where we are. The executives have earned their $10M salaries and bonuses by outsourcing or eliminating middle management and skilled positions. As a result they have fewer customers to serve in the US and have even more reason to focus on international markets for growth. They executives will point out they are required to do this by shareholders' relentless pressure to generate profits (potential dividends), or growth or both. This is today's Hobson's choice.

Income and Wealth Inequality: What are the Marketing Implications?

http://www.pbs.org/newshour/rundown/2011/09/a-broader-view-of-americas-wealth-ineqaulity.html

Recent stories regarding the inequality of wealth (and income) in the U.S. should have profound impact on marketers. Putting aside the issues of social policy, more specific attention must be paid to marketing to the affluent versus marketing in general. The affluent buy for very different reasons than the "mass" population. And they buy in different ways

For some time this blog (and our website www.premiumknowledge.net) has pointed out that the most significant variable in the affluent consumer's decision to purchase is the semiotic (social signaling) content of the good or service. That is, the consumer asks him/herself "Does the article communicate to others (and reinforce for me) the identity that I want in this society?" Notice we use the word "identity" as distinguished from "social status" or "image."

To the person whose identity is heavily rooted in "personal frugality" it is important that the article convey (and reinforce) this image. This person will not buy a Rolls Royce motor car or a Hermes scarf even for an impossibly low sale price. It's not about price, it's about symbolism.

Likewise the individual whose identity is heavily rooted in being (and being seen as) affluent will buy a luxury car or designer purse instead of something more functional and less expensive in either category. Again, it is not about price. it is about symbolism.

Based on our research the top 25% of households (those with at least $100,000 in income) place great emphasis on the social signals that their purchases convey to themselves and others. We have identified 10 different sets of these values and identified the impact each set has on product preferences, pricing, channel selection, service expectations, etc by category (i., automotive, finance, travel, apparel, etc.). Again, these differences are WITHIN the top 25% who are responsible for the vast majority of profitable sales for today's mechant. In today's economy, instead of running sales and offering discounts to everyone, we recommend merchants understand the real value they are already offering to these afluent and price accordiningly.

For more information contact info@prmiumknowledge.net.

Do the Math

The New York Times reported today that the vast majority (42%) of the increase in personal income in recent years (up to 2006) has accrued to the 1-in-400 taxpayers (or, at least, tax filers) who report $1 Million or more in personal income.

This is one more fact that highlights the wisdom for luxury merchants in paying particular attention to their best customers. While we should expect that the results for 2007 and especially 2008 may not be quite so rosy, especially among those households attached to Wall Street, we also should expect that those with assets accumulated over the years will continue to spend.

At the high end of the market, spending is inspired by assets more than by income. Pay attention to the asset classes that are increasing in value (e.g., commodities, energy, etc.) and prospect among those who hold these assets.

Strike while the iron (and the steel and the cooper, etc.) is hot.

What Luxury Market Down Turn?

The Institute for Luxury Home Marketing maintains a blog with frequent updates on the luxury real estate market. A review of their postings (especcially December 21, 2007) says that the wealthy are still buying. In Dallas, accoring to the President of one local luxury real estate firm, the most active part of the market is homes over $3M.

The same blog carrries a link to lore magazine. It contains an article about how our research is being used by the Institute to train luxury real estate agents in LifeStyle marketing and selling. We can't claim responsibility for the strength of the market. We just claim helping agents capitalize on it.

We are doing the same thing in financial services. A version of LifeStyle Marketing training is being applied by the Wealth Management divison of a leading firm.  This firm knows that the fastest growing segment of their market is households with over $10M in assets.

The next application will probably be in private jet travel. Firms in this industry are serving the same clients. And its forecast that there will be 1,000,000 households at this level of wealth within 2 years.

While aspirational luxury pauses, real luxury moves ahead. And we are pleased to move ahead supporting providers of true luxury.