L U X U R Y M A R K E T I N G

A industry report from Point to Point

LUXURY MARKETING

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Luxury items have been defined as anything people buy that they don’t need. Need is not a precursor to purchase in the luxury market. Luxury consumers buy based upon desire—they aren’t buying a “thing”, they are buying to achieve a feeling, to enhance an experience or to get an emotional lift.

Luxury is about achieving a comfortable lifestyle in the material realm—having those things that make life easier, more pleasant and more satisfying. Having a luxury lifestyle is not about money; it is about the experiences and feelings that having enough money can bring. People want to surround themselves with things that reflect their personality and things that they enjoy.

In the United States, luxury observers note that there are 4 million households that have an income of more than $1 million (ultra high-end luxury sector), and an estimated 48 million households earning between $50,000-$150,000 (driving force behind democratization of luxury).

Th E L UXURY

M ARKET D Ef INED

Mov ING fRoM ThE M AssEs To ThE C LA ssEs In the past, when luxury was first introduced to the classes it, slowly moved to the masses. Nowadays, this happens right away. The notion of luxury has entered people’s vocabulary in large part because of the media. The increased availability of celebrity magazines and TV, as well as additional coverage in more traditional consumer publications means that more people know what is available. Because of this increased awareness, luxury consumers now have the desire to be a part of something more glamorous—not to distinguish themselves from others, but to feel part of the group.

“Consumers are bombarded with stimuli encouraging them (to buy luxury items)—stores are dream palaces; websites are windows; advertisements have perfected the vision and language of dreaming; and dreaming is the source of innovation. The constant bombardment leads to people being able to visualize themselves as better for purchasing a particular luxury good.”

Pressure from the most affluent consumers stimulates and accelerates innovation at the high end, which cascades downward to lower-priced products—making innovation more affordable and available to more people.

A LUCRATI vE oppoRTUNITY The luxury market space is a lucrative category because many manufacturers and marketers do not understand how to reach this market, or they do it inadequately. Additionally, luxury purchases transcend the volatility of the market.

According to The Boston Consulting Group, the global market for new luxury goods is currently estimated to be $500 million and will reach $1 trillion by 2010.

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In the past, the theory of “cocooning” has dominated the way of thinking about luxury consumers. A large portion of old luxury purchasers were empty nesters who put a premium on time and on their home. Traditionally, the luxury consumer profile was: traditional, old, rich, white, male, and inherited wealth.

Old luxury was about having and owning—it was a very materialistic view. Luxury equaled exclusivity, which is no longer valid with today’s democratically minded luxury consumer. It was defined by attributes, qualities and product features, and much of the appeal was derived by status and prestige. It focused on the “thing” being bought.

The old view of luxury is dying out.

LUXURY

CoNsUMER T Yp Es

NEW vIEW of LUXURY New luxury is completely defined from the point of view of the consumer. It is no longer about the “thing” people are buying; it is about the experience and feeling the luxury product delivers. How the product delivers or performs experientially is key with today’s luxury consumers.

The new luxury consumer is better educated and more sophisticated in taste. The Internet, home shows, and affordable travel have exposed more people to other global lifestyles that are not as fast-paced.

New luxury consumers:

| Want it all but are exhausted trying to get it.

| Are influenced by friends and cultural figures but have strong tastes of their own.

| Don’t believe in debt, but don’t let money stand in the way of buying what they want.

| Need a lot of understanding. When they get it, they are not only appreciative they are also likely to open up their pocket books and spend money.

A large portion of the new luxury generation is baby boomers that are known for challenging authority, rejecting the status quo, and making their own paths. There are 76 million baby

boomers age 38-57 entering the empty-nesting stage, which corresponds with increased luxury spending.

Some other types of new luxury consumers are: Silicon Valley, entertainers, professional athletes, entrepreneurs, trust fund babies, aspirational buyers, even generation X and Y who are willing to save in order to buy the best. America’s middle market is also part of this group as they are trading up to luxury items.

DEMoCRATICALLY MINDED, NoT INTo EXCLUsIvITY

New luxury consumers are not into the idea of exclusivity; they are more democratically minded these days. They are only into exclusivity coming from their ability to express a personal point of view, an attitude or their own uniqueness.

New luxury avoids class distinctions; it appeals more to a value system (i.e. buying new luxury fixtures in the bath doesn’t say “I make big bucks;” it communicates “I am intelligent and discerning.”)

Today’s luxury consumers believe everyone is entitled to luxury (democratic approach); they believe “luxury is for everyone and different for everyone.”

According to a recent survey of luxury consumers, 90% of these consumers agree that “luxury doesn’t have to be the most expensive thing or be the most exclusive brand.”

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New luxury consumers believe that “if you don’t understand it, or can’t say why it is worth it, you don’t want to own it, or experience it, even if you can afford it.” Marketers must give people a reason to believe why it is worth it to them.

New luxury consumers want products that deliver real technical, functional and emotional benefits. According to recent research on luxury consumers (based on a two-year longitudinal study on luxury consumers with incomes of $75,000 and above), there are four groups that make up this market space. They are:

“X-f LUENT s” = E XTREMELY Aff LUENT This group spends the most on luxury and are the most highly invested in luxury living. “The super rich have always distanced themselves from others, but the distance has shrunk. They want to continue to distance themselves.” The way to reach this group is through continual innovation.

“Co C ooNER s” = oLD LUXURY Forty percent of luxury consumers are “Cocooners” who are inwardly directed and focus their time and attention on making their homes more luxurious. They are disconnected from others and the outside world. More than 50% of their luxury spending is on home-related luxuries. They only spend about 65% of what “Butterflies” do.

“B UTTER fL IE s” = N EW LUXURY Twenty-five percent of luxury consumers are “Butterflies”. They are called butterflies because they are coming out of their homes and starting to reconnect with the outside world. They define their personal identity by connecting with the outside world.

| They spend nearly as much on luxury items as X-fluents.

| They are less materialistic than Cocooners or Aspirers, and they understand that things don’t bring happiness.

| They have the highest average income of any of the types (excluding X-fluents), and they live in the most expensive homes.

| One-third of their luxury spending is on home-related luxuries.

| They spend the most buying luxuries, about $14K on average per year.

| They have a deep desire to find new meaning and establish new equilibrium in their lives.

| They feel conflicted between roles they play in their inner and external worlds.

| They feel blessed they have so much success and have a need to give back to society, e.g. Bill Gates, Ted Turner.

| They are not motivated by status or exclusivity when they buy luxury goods.

| They are democratic in their view of luxury.

| They seek connections in all areas of life: political, social, etc.

| They spend the most on personal services that free them from the drudgery of day-to-day life, so they can spend time out connecting.

Eventually they will evolve into “Cocooners.”

LUXURY “Asp IRER s” Thirty percent of luxury consumers are “Aspirers.” This group is highly attuned to brands and believes luxury is best expressed in what they buy and what they own.

| They are driven to buy and display, but are not at the level that they’d like to be.

| They are driven by the need to have and to own.

| Aspirers spend less than half of what Butterflies do.

BREAKoUT of ThE LUXURY

MARKET BY TYpE

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According to current luxury marketing theory and surveys, emotions are behind 100% of consumer spending on luxury items. There are four emotional spaces that influence the buying habits of new luxury consumers:

1. Take Care of Me: well-being, relaxation 2. Connecting: membership, attractiveness 3. Questing: adventure, learning through play 4. Individual Style: status, uniqueness

TAKE C ARE of M E A new trend in the luxury market is “self-actualization”—buying enhanced life experiences. The way marketers tap into this is by focusing on selling a feeling or an experience. Cultural icons like Oprah Winfrey encourage this by telling viewers to “take care of themselves.”

Co NNECTING Marketing to luxury consumers is all about connecting with the consumer—knowing them, understanding them and getting inside their heads and hearts.

Consumers are reconnecting with the outside world and reaching out to establish true connections with others. Because of easy accessibility to the Internet, tv shows and

affordable travel, consumers are connecting to different global styles, which affect their desires, and ultimately the luxury goods they pursue.

QUEs TING Questing is defined as “finding fulfillment through knowledge.” Today’s luxury consumers research products thoroughly before buying. Again, they are exposed to so much more knowledge in today’s world and are going out more and seeing what other people have. New luxury consumers are drawn to new products and quest for new experiences.

INDIv IDUAL sTYLE Consumers seek products that express their individuality (i.e. finishes, designs, etc.). American luxury consumers value exclusivity that comes from their ability to express a personal point of view, an attitude and their own uniqueness. Exclusivity for the sake of exclusivity is a European luxury ideal, not an American ideal.

Here is an example of how the emotional drivers come together…A woman soaking in a tub is taking care of herself, while also preparing for a moment of connecting, wanting to feel, look and smell good before her dinner date.

UNDERsTANDING

L UXURY B UYING

B Eh AvIoR

Today’s luxury marketing and behaviors are driven by a strong sense of “me”. It is all about the feeling consumers get from purchasing, owning and enjoying a product. Luxury consumers want more “specialness” in their experience of luxury. They focus on the experience of luxury embodied in the good or service they buy, not in the ownership or possession itself.

Luxury is tied up with creature comforts and feelings of comfort. Consumers will pay a premium to recreate a wonderful emotional experience. All luxury consumers, up and down the income scale, gain their greatest luxury thrills from experiences.

When a consumer purchases a luxury item, there is an expectation of better quality, fine details, and better material. This makes the luxury consumer willing to dig deeper into their pocketbooks to buy that extra feeling of confidence.

Luxury consumers don’t buy luxury for status or social advancement and won’t buy things they clearly can’t afford. The differences within the luxury market are more behavioral than motivational.

ThE RELATIoNshIp

BETWEEN EMoTIoNs AND

LUXURY pURChAsEs

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Based on consumer research from The Boston Consulting Group, a major shift has occurred in the retail market. America’s middle market is “trading up” to new luxury products (products that possess higher levels of quality, taste and aspiration). “There are 48 million households in America with incomes more than $50K that have the means and desire to trade up to new luxury products.” People are willing to spend a large amount of their income for products that have greater technical and emotional benefits.

Consumers continually seek to achieve greater levels of luxury. Once they have reached a level, it becomes ordinary and they seek out new luxury fulfillment (questing). Once they have experienced luxury they can’t go back.

Luxury consumers appreciate superior quality, but they get a thrill out of paying less for the best. According to a recent survey: 80% of luxury consumers agree that they enjoy the

feeling of buying luxuries on sale and usually search out the lowest price or best value. They are savvy shoppers that know how to find a bargain.

LUXURY CoNsUMERs L IKE ThE

IDEA of pAYING LEss

TRADING-Up ThEoRY

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Consumers connect with brands on an emotional level. Luxury consumers buy luxury brands because they want to, and because they desire it emotionally (right-brain controlled). The consumer’s passion, loyalty, dreams and desires are all tied up with the brand. Connecting to the consumer on an emotional level is the key to a brand’s success.

Marketers need to understand their consumers. They should be asking themselves: What are our consumers drives and desires? How does our brand fulfill their fantasies?

Luxury product performance is now defined as the quality, design and uniqueness, as well as how it makes the consumer “feel,” and how they experience luxury.

LUXURY B RAND Lo YALTY Brands that create the strongest connection with the luxury consumer have a higher brand loyalty. Brand loyalty is about how effectively and completely the company’s brand satisfies the consumer’s needs, desires and dreams.

“Marketers make mistakes in assuming that brand loyalty is something a consumer does for them, when in reality, brand loyalty is something the company and the brand do for the consumer (the consumer knows what to expect from the purchase).” The brand is the “contract” between the company and the consumer written in emotions.

BRAND AND ThE

EMoTIoNAL CoNNECTIoN

It is important that the quality in luxury brands must be very good. However, the level of service, the experience and the customer interaction differ greatly between products. This provides a great opportunity for insightful marketers to position their brand.

sTATI sT IC s A survey of 866 affluent customers done in conjunction with Home & Garden Magazine showed:

| While brand doesn’t define luxury, it is the #1 most powerful influencer on the luxury consumer when they buy. The brand and/or representative of the store where the luxury product is sold comes in at #2.

| When asked what encouraged people to buy their last luxury item: 82% said company brand and rep 78% said store or dealer brand and rep 60% said word-of-mouth

| In luxury marketing these three things working together most strongly influence the consumer to buy: 1. Product brand 2. Dealer/store brand/reputation 3. Price/value relationship

L UXURY pRoDUCT s

AND B RANDING

Luxury is not defined by brand; if the product carries a luxury label it doesn’t mean it is part of the new luxury market. It is only part of the new luxury market if consumers desire it, but don’t need it, and want a personal or experiential connection to it.

The brand of the luxury item is not the primary reason luxury consumers buy it; it only justifies the purchase. So, branding still plays a critical role in luxury purchases. The more extravagant the purchase, the more justifiers needed (good name, in fashion, last longer, etc.).

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hoW To M ARKET

L UXURY pR oDUCT s

Many manufacturers are having trouble successfully reaching the new luxury market because they fail to understand the infor-mation listed below. For those marketers who “get it,” there is a ton of untapped potential in the luxury market. It is essential for manufacturers, retailers and marketers to find ways to connect with consumers.

sUGGE sT I oNs oN hoW To Co NNECT

| Create two-way dialogues with consumers, potential consumers and future ones.

| Build consumer feedback into marketing plans (e.g., cable companies talk with viewers, viewers participate in polls, etc.).

| Must have two-way interconnectedness at every point of contact for the consumer. Company websites, retail stores, and the brands the stores carry are all connected in the consumer’s mind, so make sure the marketing strategy encompasses all these areas.

| Manufacturers must upgrade the caliber and quality of any and all people who represent the company and interact with customers, especially when picking retailers.

| Implement strategies that will predispose customers to talk and share positive things about the brand (i.e. word-of-mouth campaigns).

| Must connect why the consumer buys with how to reach them and where to reach them.

“It’s about connecting with the consumer and the things they care about. Connecting means talking less and listening more, giving more value rather than increasing price, it’s about being involved and passionate about the consumer, rather than waiting for the consumer to come to you.”

A great example of “connecting” is Progressive Insurance. They offer consumers the ability to get quotes online. If a consumer is having trouble filling out the required information, they can click on a button that enables them to talk to a Progressive representative. Once they click on the button, a representative calls them within moments.

ThE EMoTIoNAL CoNNECTIoN,

MAKING ThE CoNsUMER

fEEL spECIAL

Marketing a luxury good is not about selling a thing; it is about selling an experience, and ultimately enhancing the consumer’s pleasure and enjoyment. Marketers must deliver greater exclusivity by making luxury consumers feel special and unique, but not to the point of class snobbishness or arrogance.

The consumer’s “passion” for the product is connected to their experience using the product, so marketers need to connect with the consumer’s passion by digging deep into the

consumer’s psyche to understand their emotional dreams and desires. Then they need to deliver that to the consumer with their product.

Manufacturers must look at the world and their products totally from the consumer’s point of view. They need to ask themselves:| How does this product help the consumer?

| How does the product create, support or enhance an experience?

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| Into what feelings, emotion or enjoyment does it translate?

| How does it make the person feel to use the product?

| Look at product features—what experience do they bring to individuals?

The founder of Revlon once said, “In the factory we make cosmetics, in the stores we sell hope.”

There needs to be a balance between emotional and rational selling. Because new luxury consumers justify their

purchases and won’t buy it if they don’t understand it. Marketers need to focus on demonstrating the emotional benefits as well as giving consumers a reason to believe why it is worth it to purchase the luxury good/service. Again, consumers buy things to achieve a feeling, enhance an experience, get an emotional lift, and fulfill a fantasy.

Lure customers with emotion, and then “close the deal” by creating a rationale for the purchase.

KEEpING ThE pRoDUCTs fREsh

AND BRINGING MoRE vALUE

Luxury marketers must continually extend the bar of luxury higher and higher to bring freshness, newness and something extraordinary to the ever-aspiring luxury consumer. To maintain the luxury allure, they must pump up the luxury value of their brand.

Some of the key elements to tapping into new luxury are: high quality, attainable price point, sought-after design and advanced technology.

KEY ELEMENTs To BUILDING

A LUXURY BRAND

Luxury marketing is based on building a brand, communicating its value, and using the brand as a conduit to connect to the consumer. Brands succeed when they tap into what consumers want as much as what they need. Marketers must understand why people buy their brand so they can connect with their consumers emotionally. The brand conveys a promise to the consumer that the product will satisfy their emotional desire.

K EY s To B UILDING A LUXURY B RAND

| A Luxury Brand must be expansive—big ideas give marketers places to venture/opportunities to meet in consumers’ personal lives.

| A Luxury Brand must tell the story behind a product to make the emotional connection (use rich and graphic consumer targeting).

| A Luxury Brand must be relevant to consumer’s needs— meet passions and desires emotionally and physically.

| A Luxury Brand must align with consumer’s values— today’s consumers want their consumerism to provide a greater meaning and they look to “do good” when they shop.

| A Luxury Brand must perform for the consumer—it is luxury if it makes the consumer feel special and unique, as well as performing its material purpose.

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ADvERTIsING To ThE LUXURY MARKET (BAsED

oN A sTUDY of AffLUENT LUXURY CoNsUMERs)

| Brand ads should tell a story that will be so involving that the consumer becomes part of the brand story.

| Brand ads should be relevant (deliver meaning to consumers’ lives today) to passions, desires and fantasies of the consumer.

| The story must continually be reused, refined, reinvented as values of the consumer change.

| The message must relate to many people’s lives and be expansive enough that it can change with the times.

Traditional advertising and marketing does not always work for new luxury products. Marketers need to pay attention to cultural icons like Oprah, who say “take care of yourself, spend money on yourself,” when creating messages for consumers.

K EY s To C REATING Eff ECTI vE

WoRD -of-Mo UT h A DvERTI s ING

| Have a new, innovative concept—what’s hot.

| Make it a simple concept—dumb it down so ordinary people can understand the concept immediately.

| Identify and develop dialogue with the most likely prospects to be your brand ambassadors (those that are most passionate about your product).

Manufacturers need to find creative ways to meet the needs of their best customers and make them feel special. One idea for connecting to plumbing customers is to send a gift at 1 mo., 3 mo., 6 mo., and a year—towel, massage brush, etc.—

to their luxury customers. Connecting to the customer encourages repeat purchases/upgrades, and encourages word-of-mouth. Those customers will tell their friends and create a desire for their friends to get the same treatment.

hIG h-END f oCUs G R oUps Conducting tactical research is a great way to better understand consumers’ passions and desires. It is important to be creative and to think outside the box. First get a sense of the decisions your target market is making across categories and segments, and then design the high-end focus group accordingly.

Some examples of high-end focus groups are:

| Invite affluent consumers in for a private showing and cocktail reception of an exciting new line at a favorite boutique/specialty store. Get feedback by showing products with different technical features, different finishes, etc.—think outside the box.

| Give away a complimentary gift with an unrelated purchase. For example, a store like Coach, who wants to decide what new color to start making accessories, can give away a leather keychain in the various the colors they are considering. Let the consumers pick which color they want. Leverage retail relationships to conduct qualitative research—make sure to reward retailer partners for their help.

| Survey customers at retail locations (i.e. decorative plumbing/hardware) to determine their satisfaction levels. Assess degrees of customer satisfaction, causes of customer pain, and reasons for dynamic retail experiences.

T Ips oN ADvERTIs ING

To ThE LUXURY MARKET

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f INDING Aff LUENT s There tend to be more liberals under 40 and more conservatives over 40, so focus on subscriber lists of conservative publications to reach Affluents.

To reach Affluents consider Architectural Digest and Bon Appetit. To reach Mass-Affluents consider these publications:

| Condè Nast Traveler

| Gourmet

| Vanity Fair

| Food & Wine

| Martha Stewart Living

| Martha Stewart Living Children

| Kids: Fun Stuff to Do Together

MIs CELLANEoUs M ARKETING T Ips

foR ThE L UXURY M ARKET

| Showrooms/Displays: Showroom/displays need to be visually stunning. Sixty percent of consumer decisions to purchase were influenced by the retail environment and displays.

| Internet Sales: Internet sales do not play a significant role in the new luxury home market. Today’s consumers are smarter and more prepared. They often use the Internet to do research, but less than 15% of new luxury products purchased for the home are sold online. Online retailing as yet does not deliver the emotional gratification that new luxury consumers demand.

| Promotions: Consumers like to get luxury items on sale; luxury consumers want to feel like they’ve won or achieved special status by saving money. Think of creative ways to inspire shoppers (e.g., giving shoppers a special goodie bag gives an emotional lift).

| Satisfaction: Total customer satisfaction is another key to winning in the new luxury market.

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| “Luxury k&b Collection Show: Branding Luxury: Tips on Marketing Brands Affluent” – www.kitchenbathpros.com

| “Metrics for Marketing to Luxury Buyers” by Andrew Grossman

| “Know-How Exchange—Customer Behavior” – www.marketingprofs.com

| “Luxury Buyer Is Still Hot Prospect in Volatile Times” by Alf Nucifora

| “Luxury for the Masses—Trends in Luxury Item Spending, Marketing” by Bob Francis

| “Luxury’s Long Tail” by Tim Manners

| “Paradise by the Bathroom Light” – www.kitchenbathdesign.com

| “The Good Brand” by Linda Tischler

| “The Comfort Zone” – www.kitchenbathdesign.com

| “Bathrooms to Feed the Soul” – www.moen.com

| “Opportunity Knocks as Consumers Embrace ‘Trading Up’” – www.kitchenbathdesign.com

| “Special Bathroom Suite Series Part II—Impulse Buying” – www.pmmag.com

| “Fall Bath Remodeling Report” – www.kitchenbathdesign.com

| “Marketing to the Mass -Affluent” by Dan Kennedy

| “Intelligent Bathroom” by Philips Research

| “Understanding Your Brand – Aligning Brand Equity to

Drive Business Value” by Ray George

| “Business Spotlight: Why Do People Buy What They Don’t Need” by Michael Rubinkam

| “20 Ways to Enhance Your Bathroom” – House Beautiful Magazine

| “Splash Out Your Bathroom” – The Journal

| “Danbury Business Changes American Design” – Fairfield County Business Journal

| “Bathrooms Make a Splash…These Days Anything Goes” – The Independent

| “High-Tech Bathrooms: Electronic’s Final Frontier” – Electronic Design

| “America’s Take on ‘New’ Luxury” – International Herald Tribune

| “A Stimulating Experience: Today’s Whirlpools, Air Baths…Without Ever Leaving Home” – Kitchen & Bath Design News

| “Escape to the Bathroom for a Shower of Amenities” – Denver Rocky Mountain News

| “American Standard Study Reveals What Americans Love and Hate About Their Bathrooms” – PR Newswire

| “Research and Markets: Future Trends in Luxury Market Analyzed” – M2 Presswire

REsoURCEs

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| Articles by Pam Danzinger (Widely published author and authority on Luxury Marketing www.unitymarketing.com)

| “Connecting Replaces Cocooning as New Butterfly Consumers Emerge”

| “Eight Things That Every Marketer Needs to Know About the New Luxury Market”

| “Meet the Butterfly Consumers: The Evolving New Affluent Consumer”

| “The Lesson In Retailing—Let the Consumer Win”

| “Word of Mouth Advertising: Entirely Too Powerful to Leave up to Chance”

| “Brand Loyalty Starts and Ends With the Consumer”

| “Tabletop Companies: Are You Tapping Into the Consumers’ Passion”

| “The Six Myths of Luxury Branding”

©2006 Point to Point | 23240 Chagrin Blvd, Suite 200, Cleveland, Ohio 44122 Tel: 216 831-4421 pointtopoint .com

p o I N T o p o I N T

23240 Chagrin Blvd, Suite 200Cleveland, Ohio 44122 216 831-4421 pointtopoint .com

Point to Point is an advertising and interactive marketing firm that helps our clients identify, bring into focus and overcome complex marketing challenges. Our expertise in branding, interactive marketing, social media, SEO and media planning allows us to solve each client’s unique problems in ways that maximize results. Our goal is always to be a catalyst of change for our clients by moving them from where they are to where they want to be.

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