• by Erica Martinez , February 12, 2014

Luxury goods. Luxury travel. Luxury apartments. An idea is brought to mind of something special, timeless, exclusive. Something that is not for everyone. But those that can, will.

While luxury conjures a very clear image in your mind, premium goods are a different story. Perhaps you’re thinking of top-shelf liquor, or outlet shopping.

Or – because you’re reading this newsletter – you’re thinking about a class of products and brands that fall below the top, yet still provide a desirable experience. And this class of products got a lot of attention over the holidays. On one hand, data indicated that affluents were feeling good about the economy and that spending was going to be up over 2012. But on the other hand, we also heard about a lack of consumer confidence, a perception that the state of the economy was inconclusive at best, and that the “Mass Affluent” (defined by Mendelsohn as households with income $100k+) were looking at high-quality premium brands instead of high-priced luxury brands. Why spend 10 times the money when what you are getting is not 10 times the quality? Is great good enough?

Consideration of Luxury and Premium Brands

Our definition of affluents as marketers is very broad. Using the Mendelsohn definitions, we have the previously mentioned Affluents, the Ultra-Affluents (with HHI $250K+) and the Wealthy (with HHI $500K+). While we can agree on these in general terms, some researchers skew lower for Affluents in order to capture aspirational buyers, and others include investable income in order to get a deeper picture of net worth.

The wealthy can afford luxury goods and services, and will spend accordingly. Luxury items are known for their quality, including the materials used, the construction, and even the method of packaging. When we consider brands like Chanel or Bugatti, the quality of their products exists in tandem with the years of stories, associations, celebrity (in the truest sense of the word) that give them their complete identity. Their history and legacy are part of the experience. It’s not to say that new luxury brands can’t be launched. But those that come to mind first do so because they have been wonderful for so long.

Premium brands, on the other hand, are generally seen as more accessible, more rational. They are not seen as inferior to luxury brands overall; they provide a different experience for buyers. 

Why do consumers that could be buying luxury goods opt instead for premium goods? Affluents – as opposed to the Wealthy – are looking to tell different personal stories. Uncomfortable with conspicuous consumption and with the legacies of historic luxury brands, they are building a more rational buying identity. This is what is reflected in the holiday shopping reports. Some shoppers selected Michael Kors bags over Gucci, because it’s a perfectly acceptable, premium purchase – even if it’s not as good as the Gucci piece. 

There is a good deal of thought that goes into these considered purchases. Our wealthy customer has no problem choosing to spend $3,250 on a pair of Swarovski crystal-encrusted Jimmy Choo flats. But our affluent customer is not as comfortable with the expenditure. She has more to consider. Though she is optimistic about the economy, she will do her research online and in store and make a more rational choice. She’ll go with the Tory Burch. Or, a less expensive pair of Jimmy Choos. (Rational is very much in the eye of the beholder!)

Just because a consumer is part of your target audience doesn’t mean that he is your perfect customer. The numbers only tell a part of the story. A family making $200,000/year with $500,000 in liquid financial assets might feel like a luxury shopper in Des Moines, but not in New York. Unfortunately, they may be lumped together in your segmentation. You need to understand who is ready to make a purchase now, and market to that customer. One of these families could buy the luxury item now. The other doesn’t feel they can afford it. But they might be ready for luxury a little further down the line.