Luxury Market Research Smackdown

A number of media outlets have picked up on the debate between Pam Danziger of Unity Marketing and Ron Kurtz of the American Affluence Research Center (AARC) concerning the future of the luxury market.  Let me boil it down for you.

In a recent AARC report Kurtz recommends that: “Luxury brands and luxury marketers should be focused on the wealthiest one percent because they are the least likely to be cutting back and are the most knowledgeable about the price points and brands that are true high-end luxury.”

Danziger fired back “This is just plain dumb advice for luxury marketers.” She goes on to suggest that “the top one percent of the market (about 1.2 million households with average incomes of $500,000 and above) simply can’t carry the entire weight of the luxury industry.” Instead, she recommends that the luxury industry cast a much wider net, aggressively going after the so-called HENRY’s (High Earners Not Yet Rich) to energize significant future growth.

So who’s right?  Well, neither one, exactly.

Kurtz is right that the most elite segment has the greatest capacity and willingness to spend on luxury. But for virtually all but the most rarefied luxury brands, it would be an unmitigated disaster to focus only on the top 1%.  As the former head of strategy and marketing at Neiman Marcus, I can assure you that customers outside the top 1% contribute a very significant percentage of sales and profits.   And if you are Saks, Net-a-Porter, Gilt Group, Louis Vuitton or Gucci, I doubt it’s much different. Most luxury brands need the truly rich and the merely affluent.

So Danziger is right that most luxury marketers need to attract a wider demographic. But she goes too far.  First, while there are many more of the HENRY’s–and their aggregate spending is significant–as you move lower in income the number of potential customers goes up, but their spending on luxury drops dramatically.  Trust me on this: I’ve seen actual, recent spending data by percentile, and the difference between a 99% percentile and a 90th percentile customer’s luxury spending is vast.

The second issue is one of positioning.  The more a brand’s target customer group becomes diffused, the harder it is to be relevant, differentiated and compelling across each distinct consumer segment.  As brands aggressively court a wider demographic they risk alienating their historically strong elite core.

Like most things in life, the answer is not black and white.  It is rarely true that brands need to focus on only one segment.  A compelling customer growth strategy can be built on multiple customer groups.  The needs and value of each segment must be well understood and segment specific strategies designed and integrated to create a powerful blend.

But the starting point is a solid understanding of your customer base.  And apparently that starts with sifting through what the facts actually say.

I’m reminded of the lyrics from the Talking Heads song “Cross-eyed and Painless.”

Facts are simple and facts are straight
Facts are lazy and facts are late
Facts all come with points of view
Facts don’t do what I want them to