Luxury Institute News

Affluent consumers are joining in the national skittishness about spending money during a deep recession

Nov 2, 2009
Mark Dolliver

(Last week, Part 1 of this story looked at how wealthy consumers’ appetite for luxury goods has held up during the recession, and at whether the typical affluent person was keen on conspicuous luxuries in the first place. This week, in Part 2, we examine some other aspects of the luxury-buyer mind-set, including attitudes toward discounting and brands’ use of the Internet, as well as the post-recession outlook.)

With affluent consumers joining in on the national skittishness about spending money during a deep recession, discounts have become a fact of life in the luxury sector. But while this may have kept sales from grinding to a halt, the ploy is not without its long-term costs.

For some retailers, says Luxury Institute chief executive officer Milton Pedraza, offering discounts “was a matter of survival.” And, indeed, the institute’s August polling shows wealthy consumers are not immune to the lure of a bargain (relatively speaking). Twenty-eight percent said discounting has increased their overall expenditures on luxury goods and services, while 14 percent said it has decreased their outlays.
 
The Luxury Institute’s polling numbers were quite different, though, when affluent consumers were asked how discounting has affected their “perception of the value of luxury goods and services.” While 17 percent said their perception of luxury brands’ value has been “improved” by such discounting, 29 percent said it has been “lowered.” (The rest said their perception hasn’t changed either way.)

“It does dilute the value in the minds of luxury consumers,” Pedraza says of discounting. “If an item that used to cost $1,200 is suddenly on sale for $800, you’ll never pay $1,200 for it again.” The marketer may get a sale now, “but you lose your opportunity to price in the future,” Pedraza adds. Greg Furman, chairman of the Luxury Marketing Council, concurs: “Radical discounting is a disaster,” he says. “It tells people how big the margins were.”

DEVALUING THE ‘BRAND CACHET’
Moreover, promiscuous discounting may be especially off-putting to the people luxury marketers can least afford to lose these days: the really, really wealthy. Brands that indulge in such discounting “have added insult to injury because they are diminishing and devaluing their brand cachet, brand experience and brand value,” says Mathew Evins, chairman and CEO of Evins Communications, a marketing firm that focuses on affluent consumers and the luxury market. “And in so doing they have disenfranchised their most valuable clientele — high-net-worth and ultra-high-net-worth individuals.”

Though it may sound odd to people who don’t make a practice of buying luxuries, those who do so are inclined to believe (unless price fluctuations give them reason to wonder about it) that such items are worthwhile at their ordinary prices. In the Luxury Institute’s August polling, for instance, 74 percent of respondents agreed with the statement, “I buy luxury items for quality. Luxury products last longer and keep their value.” That far exceeded the number agreeing that “I buy luxury items purely for the enjoyment of it. I like to surround myself with beautiful, exclusive and unique products” (39 percent) or that “I buy luxury items as a reminder that I’ve made it” (19 percent). Likewise, more than eight of 10 affluent consumers surveyed for a recent Ipsos Mendelsohn report agreed that “When it comes to quality, I believe you get what you pay for.”

Affluent consumers also reject the notion that they make luxury purchases in order to flaunt their wealth or to impress other people. Sixty-two percent of the Luxury Institute’s respondents endorsed the statement, “I buy expensive items for myself, not to show off.” By contrast, just 20 percent agreed that “Owning luxury items gives me a leg up in social and business situations.”

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