Luxury for the Masses - trends in luxury item spending, marketing - Statistical Data Included

Brandweek, June 25, 2001 by Bob Francis

with fewer Americans able to afford luxury items, companies from car makers to jewelers are marketing their products to broader audiences--without the fancy-shmancy approach.

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On an episode of the HBO series Sex and the City, which chronicles the lifestyles of the young, beautiful and highly materialistic, a robber held Sarah Jessica Parker's character Carrie at gunpoint last year and demanded her purse. "It's a baguette," she corrected, referring to her $300 Fendi handbag shaped like a loaf of French bread. Instead, the thief ran off with her pricey Manolo Blahnik shoes.

Such was the ubiquitous nature of luxury during the prolonged boom of the past decade. But what happens to luxury brands when that ever-rising balloon of prosperity inevitably goes "pop"? Do the chic names prized by the likes of Carrie--Jimmy Choo, Fendi, Gucci and Prada--fall by the wayside like so many Sasson jeans?

Not exactly. "The luxury market is shrinking, but it'll take some time," said Gerald Celente, director at the Trends Research Institute in Rhinebeck, New York. "The dot-com millionaires and paper-rich investors are going to slowly come to the realization that they don't have the money they used to. But it's hard to break the luxury habit"

Celente said that as many as one in four Americans purchased luxury products during the last boom cycle. "I estimate that figure has dropped by about 2% since we last looked at it, and it's going to continue dropping as people wait for the economy to come back," he said. "It won't evaporate, but it's not going to expand either. A lower tide strands more economic boats."

Economic swings have also prompted significant demographic shifts in the luxury marketplace. "The luxury consumer of today is not the same as the luxury consumer of 10 years ago," said Donald Ziccardi, president of Ziccardi & Partners, New York, and author of the upcoming book, Influencing the Affluent: Reaching the New Luxury Consumer in a Volatile Economy.

In a recent study, Ziccardi identified the new luxury consumer as belonging to one of two groups: "new money" (self-made successes, or corporate top-management types); and "millennium money" (dot-com millionaires, athletes and entertainers). With a solid job market and the investment boom of the late '90s, luxury aspirations--everything from $50 socks to $50,000 automobiles--encroached further into mainstream society. Thus, even traditional upper middle-class consumers participated in the "mass to class" movement, Ziccardi argued. Now, he said," many will lever age their credit to maintain a luxury lifestyle."

With the U.S. economy in a seemingly prolonged "down-turn," luxury vendors have adapted their marketing strategies to cast a wider net and draw consumers who now are thinking twice about their discretionary purchases.

Some companies, like Mercedes, are taking the slumping economy head-on. In a recent television ad for the German car maker, a bull and a bear are at war. Neither emerges a victor; the winner is the customer who chooses a Mercedes E-class sedan. The not-so-subtle message is that despite the turmoil in the stock market, making an investment in Mercedes is a solid one.

"That ad makes a perfect statement for luxury brands during difficult economic times," said Martyn Straw, president of consultancy Interbrand, New York. "Luxury brands need to demonstrate a value proposition in tougher times. During good times people want to reward themselves; the value is secondary. But during tough times you need to reassure customers that they're getting a good value, to give them a reason to purchase your product."

Perhaps nowhere is that more true than the hyper-competitive auto market, where both vehicles and their ad messages are being tweaked to fit the times. Many luxury car makers have introduced leaner versions at eyebrow-raising sticker prices below $30,000. At the New York Auto Show in April, Jaguar ushered in its X-Type with ads touting: "You're under 40. We're under $30K." Earlier, Mercedes launched its C-class sport coupe vehicles starting at $26,000.

The auto advertising landscape, meanwhile, has been dominated of late by companies pushing their fuel-efficiency and maintenance messages. Mercedes has ramped up ads for its after-care services, recognizing that today's customers might be hanging onto their wheels a little longer. As for the bull and bear commercial, said Ken Enders, vp-marketing at Mercedes. "We wanted to stand behind our value message. And basically, we wanted to have a little fun with the troubles on Wall Street."

Jaguar has taken a similar tack in its ads. "We're putting starting prices and leasing terms in our advertising," said Michelle Cervantez, vp-marketing at Ford Motor's Jaguar group. Jaguar is also touting its No. 1 service rating from J.D. Power and Associates. "Clearly we understand that we have some reliability issues from the past, and we want to make sure the consumer knows that our ratings on quality have improved. That's a very important part of our message and all of our advertising makes mention of that," said Cervantez.