One must keep in mind that although the recession has hit the world hard and still continues in a descending spiral, there is still a segment of the population that has not felt the impact yet. These are the high-end spenders with a net worth of millions and billions of dollars and they form the support group to the luxury brands of the world. These high net worth individuals are still travelling, purchasing high-ticket items and seeking out services that enrich their lives while they do not cut back on their lifestyles. Their spending patterns are a bit different these days but although prestige products (i.e. Bentley coupé) remains on the shopping list of the ultra-affluent, they are also devoting more money to satisfy their non-material needs such as diving with a world-ranked scuba diver or having a world-renowned chef preparing meals for private dinner parties at their abodes. They continue to spend on what is most vital to them i.e. their health, families, pets and charities.
The world’s population of HNWI’s (high net-worth individuals) increased to 8.3% in 2010 compared to the 17.1% in 2009. The growth of financial wealth of the HNWI’s was 9.7% compared to the 18.9% jump in 2009 after the recession crisis losses of 2008. Although the population of HNWI’s expanded in 2010 along with their wealth, was the growth more moderate compared to 2009.
According to the latest report, LVMH announced a 25% increase in profits in the first quarter of 2012 to 6.6 billion Euros.
Have a look at the following stats from China:
Generation Y is a powerful emerging demographic that should be mentioned here, as they are highly educated and they do tap into the good life. This segment consist of approximately 70 million people that were born between 1983 and 1997 and they are extremely comfortable anything hi-tech. This demanding group are willing to spend in those areas that lend to individualism, such as designer cars and clothes.
Luxury brands are not for everyone, but for a certain individual who has reached a higher level in their lifestyle. Even with the economic downturn in the world today, the wealthy consumers amongst us are still willing to pay for access to exclusive experiences as well as luxury brand products. These high net-worth individuals would rather cut their spending in order to afford a single exclusive valuable purchase that they believe will better their lives (‘trade up/down’ phenomenon). If you approach any luxury brand company such as Vespa, Jaguar Land Rover or Bentley with a discounted proposition, you will be requested to make your future purchases at Toyota or Honda etc. Reason being, luxury brands are very reluctant and unlikely to discount their products or merchandise, not even during an economic downturn but rather include extra services such as an extra year to the motor plan! Why may you ask? Luxury brands believe that they will lose their niche market appeal to the high-end consumer market, as it is detrimental to their brand reputation. They would rather refocus their current marketing strategies to establish a better and more loyal customer base than trying to extend their offerings to a lower LSM group by discounting their product offerings. Therefore, the luxury brands of the world will focus on brand awareness and differentiation.
In the end, luxury brands need to decide what will be in the best interest of their brand and ensure that the strategy stays fool-proof. There is always a risk discounting the brand to accommodate the lower income level consumers desire to own a piece of the brand and on the other hand, keeping the brand exclusive to the traditional market and not comprimising the image. Brands do work hard to keep the prestige on a certain level and by generally speaking, should a Bently be discounted just to ensure that the sales do not decline, the brand image will be damaged to a certain extend that it will not be percieved as an exclusive and elite product.
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