Consumer Insights - February 2007

Why People Buy "Luxury"
By Wanda Jankowski

Sometimes luxury customers buy to possess an item that is "exclusive" or rare, such as Sferra's limited edition Burano sheet set, which sells for $14,000. The ensemble, which celebrates Sferra's 115th anniversary, is intended to be an heirloom set. It is made from long-staple Egyptian cotton, spun into hairbreadth yarn in Switzerland and then woven into sheets with a 1,020 thread count in northern Italy. The lace for the pillowcases and top sheets is made in Burano, Italy, and is inserted by artisans near Milan into the ivory sateen sheets.

Three experts explore who affluent clients are and how to drive them into your store

hough affluent clients possess the means to purchase luxury products, it doesn’t mean they will run to posit their disposable income in your store. What are affluent consumers really like? What drives them to purchase luxury goods? What can you do to attract the affluent consumer to your store? For the answers, we turn to three experts, each of whom has a different point of view to offer:

*Pam Danziger, through her company, Unity Marketing (717-336-1600, unitymarketingonline .com), located in Stevens, PA, helps companies understand their customers through research. Here, she offers insights on assessing types of affluent customers.

*Steen Kanter, CEO and Chief Business Consultant at Kanter International (215-413-2686, kanterinternational.com), a firm based in Philadelphia, PA, that assists client companies with branding and marketing, outlines what the retailer can do to understand the affluent customer and drive the luxury buy.

*Lisa Rosenberg, co-owner with her husband, Robert, of Arrelle Fine Linens (800-288-3696, arrelle.com) in Chicago, IL, reveals first-hand experiences in creating a luxury store that is well-branded in the eyes of its patrons.

Pam Danziger defines the affluent as those households with incomes at a minimum of $75,000—the top 25% of U.S. households. There are different ways to analyze your affluent customers in order to understand them and, in turn, develop methods to sell to them. Though they can be categorized by gender, age, income and demographics, Danziger groups them into four categories which reflect the customers’ attitudes about luxury purchases:

  1. Aspirational luxury consumers: They haven’t achieved the level of luxury they wish to aspire to; they want more.
  2. Xffluents: These are the extremely affluent and want luxuries in all aspects of their lives.
  3. Luxury cocooners: These consumers, rather than purchasing designer handbags or expensive jewelry, confine their spending on luxury items to home furnishings.
  4. Butterflies: These affluent consumers are the most “evolved” in their attitudes toward luxuries—hence, the name “butterflies.” They know that a luxury purchase in itself won’t make them happy, so the emphasis for them is on the experience of luxury.

The largest percentage of affluent consumers falls into the butterfly category. The smallest category is the Xffluents.

Myths Versus Reality

Some luxury products need to be experienced to be appreciated. Israeli bedmaker Hollandia offers total packages-which can include high-quality mattresses, beds that massage, dual-position controls and speaker systems-that run up to $50,000. Hollandia held a Sleep Concert this past December in Tel-Aviv. A 45-piece orchestra and Israeli songstress Rita entertained 288 guests as they relaxed on Hollandia luxury beds. Kanter International is the U.S. retailer for Hollandia.

Whatever categories your customers fall into, there are common misconceptions about how and why the affluent purchase in general. “There is a misconception that the affluent always buy the best or most expensive,” says Danziger. “Frankly, they wouldn’t be wealthy if they always bought the most expensive items. An affluent customer who makes $135,000-$140,000 per year, is comfortable, but hardly rich. People who are considered rich are those who make $250,000+ a year and that is less than 2% of the U.S. population.

“Often overlooked is that 98% of the affluent come from middle class backgrounds. They didn’t inherit their money,” Danziger notes, “but worked to make it. Many are shrewd in business and will look out for good values.”

Another misconception is that the affluent are attracted mainly by brand names. “Affluent consumers are savvy,” says Danziger, “and buy because of good quality, design and service.

“A good brand is a reputation that sends a message to the consumer about product quality. As a retailer, you help to brand the luxury products you sell. That’s why luxury manufacturers are careful about whom they allow to sell their goods and where to place them,” she says. “For the retailer, his/her store is also a brand and customer service is key in that regard.”

The concept of luxury to the affluent consumer is also related to the enjoyment of creature comforts. “They want to experience and to feel the sensual aspects of luxury goods. That’s why linens and bedding are the #2 category of best-selling luxury items,” Danziger notes.

Real Versus Perceived Affordability

Arrelle owner Lisa Rosenberg stays away from products that rely on "snob appeal" and concentrates on goods that are based on high quality.

Affluent consumers don’t “need” much of anything. So what attracts an affluent consumer to purchase? Product features can attract and be a powerful draw. However, attitudes about affordability and perceived value also affect the power of the draw to purchase.

There is a difference between what the consumer can truly afford financially and what they perceive is affordable in the sense of being worth paying for. “The customer might think, ‘I want an $18,000 handbag, but I can’t afford it. I can afford a $1,800 Chanel bag, but I don’t see the value in that. I’d rather get a $180 handbag at a Coach outlet’,” Danziger says.

“Value for their money is important to the affluent consumer,” she concludes. “They can spend a lot, but they won’t spend more than they have to.”

The luxury customer can stretch affordability further than those who have less income, but emotion is ultimately what drives the buy. “Emotion is a ‘people’ feature. Material things—such as the way your store looks—can influence the sale, but relationships between people are the more powerful drivers,” says Danziger.

“Put salespeople on the floor who have a sparkle in their eyes and who have it in their hearts to care about the customer. It’s critical to hire people who really enjoy the shopping experience with their customers,” she says.

Steen Kanter also believes in the driving power of emotion and takes our analysis of the affluent consumer one step further by exploring ways to use an understanding of your client’s attitudes—and perceptions about your store—to dominate the market in your area.

“A key component in creating market domination is not only to understand the customer, but to see everything through their eyes. You must understand what motivates them to buy—their feelings and drives. Do they buy things for themselves, for example, or for others to see and appreciate?

“There are two ways people make decisions—through their hearts and through their minds. Most luxury purchases are ‘heart-based’ decisions—it’s emotional,” says Kanter. “Depending on the type of product, the emotions at play can vary. The product can play to their egos, for example, or to their feelings about achievement.”

Most Overlooked Asset

Above Your store brand can be a powerful draw to the affluent. The Doris Leslie Blau Gallery, known for its antique carpet collection, Custom Carpet Department and 20th Century Decorative Arts Division, has enhanced its image by linking it with the names of two famous fashion designers. Its new Fashion Designer Collection of custom-made rugs includes one by Nanette Lepore (shown) and two by Tommy Hilfiger.

“Market research—secondary and primary—is the cheapest insurance policy you can buy to protect your business,” says Kanter. He suggests creating a focus group of representative customers and asking them questions that reveal their attitudes toward your business.

In addition, it’s also important to study your competition. “All too often,” he says, “retailers visit a competitor and criticize what they see them doing wrong. Instead of looking at your competitor’s negatives, find out what they do well and you’ll know how to win the battle.”

When it comes to dealing one-on-one with customers, Kanter says, “Create an emotional bond, which will encourage loyalty. Make sure people feel that you did something good for them.”

Keep up to date on what’s happening in home furnishings overall. “You are dealing with intelligent people,” Kanter says. “They look to you for expertise and want to trust that you’re ahead of the curve in what your store offers.”

The brand image your store projects requires constant attention and maintenance. “A strong brand isn’t a right; it has to be constantly earned,” says Kanter. “You must create a cachet, earn loyalty and continue to keep on earning it.”

Expressing Your Brand

Establishing your brand involves the “expression” of what you stand for in every communication that takes place between you and your customers. “When customers have no feeling about or attitude toward your store, their perception is that it doesn’t make a difference in their lives. If your store doesn’t make a difference, it is a failure,” says Kanter. “So you need to cultivate an emotional reaction to your brand.

“For example, when people give you their credit cards to pay for purchases, it’s a perfect opportunity for you to address them by name and make them feel acknowledged and special,” Kanter says. “It’s really loving the customer.”

Quality Is Key

Lisa and Robert Rosenberg have been earning the respect and love of their customers for more than 26 years as the owners of Arrelle Fine Linens. The 2,000-square-foot store has three full-time employees in addition to the Rosenbergs. The owners also work with independent contractors for custom sewing.
Over the years, Arrelle has amassed about 15,000 names in its customer database. “It’s a clean list of those who have purchased here and others who have signed the on-site guest book—most of those have been purchasers as well,” says Lisa Rosenberg.

“We target the high-end customer who wants high-quality products and those who deliberate about how to decorate their homes,” she says. “We want to be the epitome of good quality in bedding, bath accessories and table linens. Our specialty is being a resource for white-good fabrics, but in addition to certain specific looks for which we are known, we are an umbrella for a lot of high-end lines that feature baroque and bold patterns, and vibrant colors.”

With a Bloomingdale’s only a few blocks away, rather than carrying only four or five patterns as they do, Arrelle opts for variety. “We are like a couture dress shop customizing and offering a wide range of goods,” says Rosenberg.

The store, with a client base of 50% consumer and 50% trade professionals, is also located near the Merchandise Mart. “Despite the options that the Mart affords, we offer good customer service, which plays well with our customer base,” she says.

“There is attention to detail on our part to make sure that things move smoothly to maintain our quality image. For every customer that complains, there are 26 who want to complain, but don’t make the effort,” Rosenberg explains. “On the other hand, if someone has made a large purchase and they are happy with their experience here, they often bring in business. They tell their friends and family about the store.”

Her merchandise has changed over time. “Anichini grew as we did, but as it got more ambitious, it became available in department stores and so a competitive situation developed,” she says. “When we co-brand and feature a designer or vendor in our advertising and promotion, if their brand develops and the product becomes more widely available, it could backfire on my store. Customers might view my store as less exclusive if they can go somewhere else to get the product. Our goal in the future is to create an even stronger identity for our store.”

Rosenberg does private label goods. “The packaging for my product conveys a sense of the quality level of product that I carry,” she says. There are half a dozen companies that Arrelle works with very closely, but Rosenberg is constantly looking for fresh resources. “We attend trade shows. Often companies hear of us and approach us,” she says. “With each new supplier, we wonder how the expediting is going to be. How will they be to work with?

“Successfully running a luxury store is a lot like theater,” Rosenberg sums up. “When you see a musical, you sit there and take it all in. You don’t worry about the problems the director had or how the scenery was created. Knowing the stressful circumstances behind the scenes would take the magic away. Your customer is like the attendee at a musical. He or she has to have a stress-free experience and not be exposed to what problems you might have with coworkers or behind the scenes with stock or vendors.”
As with those theatergoers, who are eager to return to the theater again after a great perfjormance, delighting your affluent customers with high-quality products and services that respond to their needs and emotions will have them coming back for more time and again.

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