Shifting Attitudes Towards Wealth


Christopher Koller | October 27, 2009

Christopher Koller, group managing director of Interbrand Sampson, summarizes research conducted by the renowned branding consultancy firm on how consumers’ newfound perceptions of wealth are impacting shopping habits.

Christopher Koller, group managing director of Interbrand Sampson, summarizes research conducted by the renowned branding consultancy firm on how consumers’ newfound perceptions of wealth are impacting shopping habits.

Across the globe, a considerable amount of wealth has evaporated during the past months, a substantial part of it having shown to be debt in disguise. The so-called wealthy consumers have disappeared, negatively affecting the luxury sector. The impact on these producers may not yet have been correctly estimated as it is momentarily hidden by no-refund cancellation policies and long waiting lists.

The shift has helped boost discount brands, which are seeing new opportunities in the market. Many consumers are making the switch to cheaper alternatives such as private label brands, low cost airlines, factory outlets, and increasing online research and online shopping. Many are simply trading down, buying when items are on promotion, or delaying purchases. Some markets have even seen consumers take advantage of declines in currency valuations. South Korea’s currency has fallen so dramatically against the Japanese yen that thousands of Japanese consumers are regularly taking the two and-a-half-hour flight to Seoul.

In Western markets, the rise of the hi-lo consumers-people who save on what is less relevant to them so they can indulge in what they find to be truly meaningful-has made discount shopping not a sad compromise, but a joyful form of smart allocation. By improving store environments and offering better service, hard discounters have found new consumers who are comfortable and even proud of "buying at a low price.’ While discount has always existed, it is no longer a question of budget, but cleverness. And yet, the current economic climate shouldn’t be viewed as a cause, but a catalyst for change. Even before the crisis, consumers were increasingly growing more cost-conscious and aware, carefully thinking about spending and becoming more discriminating about their choices. For some now, the concepts of value (what your brand does) and values (what your brand believes in) have been strongly connected. In the current marketplace especially, it is no longer enough for a business to seem ethical and authentic to secure a brand’s future – it must actually deliver.

The rise of the new consumer

What has emerged over the past years in Western markets is a new consumer whose attitude towards wealth has shifted from a question of “what to buy” to “why buy,” and from purchasing power to an empowered purchase. Economic, social, and environmental concerns have brought issues such as sustainability, wealth distribution, and resource protection to the top of the agenda. As a result, an ostentatious form of luxury appears completely out of sync with a global quest for sobriety, wisdom, and a greater sense of purpose. In Western markets, even consumers who can afford luxury goods are refraining from purchasing, in fear of being ostracized for their lavish spending.

The wave of accessible luxury and the new rich have forced longstanding European luxury brands to find ways to emerge from this democratization-mainly by engaging with customers who can afford them not just economically, but also intellectually. By catering to an elite that doesn’t just have the power to buy, but is also fully aware of the authenticity, legacy, and excellence that sets these brands apart, it is no longer about the wealthy, but wealthy connoisseurs. This marks a return to 19th century French and Italian luxury, which was about craftsmanship, unique “savoir faire,” and selling a lot to the few. This is a reversal from the recent past, which saw many luxury brands selling more to more people for less.

Asia: the lasting desire for luxury

It is important to note that while Asia’s luxury market has also been impacted by the recession, this trend is less pronounced in the region. In Asia, sensitivity towards wealth generally applies more to notable public figures who are expected to act as role models, rather than the average wealthy individual. (The one exception here is Japan, where owning luxury items may not be quite as special as it used to be.) Unlike in Western markets, the change in spending habits may not reflect real attitude changes across Asia. Instead it reflects circumstantial changes, as consumers indicate their intention to resume spending once the recession is over. Although consumers are trading down and choosing house brands over branded items when it comes to functional items such as groceries and basic needs, quality remains important when it comes to personal items that demonstrate social status. Rather than refraining from spending, Asian consumers are taking advantage of the economic downturn or merely delaying their purchase until the economies feel more secure.

How to adjust to the realities of the economic environment

Just as discount labels have been affected by the recession and shifts in consumer spending, luxury retailers and manufacturers have also been impacted negatively. The brands that did not see these signs before the crisis or make moves to adjust are struggling the most. The luxury brands that made measurements and consumer tracking a priority before to the crisis are the ones surviving. They have already predicted shifts in spending ahead of time and, in many cases, already addressed the issue of how to woo the elusive, average consumer, who sits between the discount consumer and the high-end target group. They have also shown why it is necessary to adjust to changes in consumer spending habits in a tough economy. Some of these adjustments include:

1. Positioning for authenticity and value

Brands need to position themselves as providing genuine value and real benefits to consumers. They need to focus on physical or tangible differences, as opposed to intangible messages. Luxury brands should focus on heritage or craftsmanship. They need to re-emphasize the brand’s real value to customers. They need to entice consumers, rather than make price cuts.

Says Gucci CEO Patrizio di Marco,“Leading brands define themselves through the experience they afford their customers. Over the coming years that experience will need to become even more distinctive.”

2. Strike the right balance

This is critical, both in communications, and execution such as product lines and staff training. Brands must be sensitive to the changes in the consumer mindset and economic environment. They need to defend their position and take advantage of the situation to reach out to a wider consumer base.

However, at the same time, it is perhaps even more important for brands to be empathetic and reassuring to their existing customers. This is essential to sustaining brand loyalty at a time when consumers are more likely to switch to cheaper alternatives. This might involve over-investment in customer relationship management, with an even greater focus on customer service, or enhancing loyalty programs, rather than discounting.

While the two points may seem to contradict one another, it is possible to strike the right balance. Many luxury brands are successfully investing in their retail networks with the ultimate goal of reaching a wider audience, while also offering an outstanding experience to their core aficionados.

3. Avoiding limbo

Striking the right balance between accessibility and premium status has proven to be quite a challenge for luxury brands. Brands that diversified to a larger audience when times were good are suffering. Tiffany & Co. initially benefited from opening stores in malls across America but is to day seeing the effects of brand dilution. Wealthy consumers are more likely to purchase their jewelry from a brand that has maintained its exclusivity, like Cartier. The average consumers have cut out luxury spending altogether. Too high end to be mass, too mass to be high end-this is a difficult limbo to reemerge from.

4. The importance of communities

Google symbolizes how communities reshape the way we see, investigate, and rationalize our world. As a result, it is also a symbol of the way we discuss, choose, and reject brands-even luxury brands. For many decades, luxury brands influenced popular consensus. Today, luxury does not hold that same power. Communities, not necessarily the elite, create influence and consensus. These same communities will refuse luxury as a dogma. Think of Apple’s iPhone, possibly the first non-exclusive brand in history. It transcends any other smartphone in terms of the desire it ignites, if not of ease of use and functionality. As a result, it generates the same long lines we once saw outside of upscale fashion boutiques.

As the concept of luxury evolves, the true opportunity for luxury brands will be to focus on the roots and meaning of their excellence. Prada has continued to invest in its own stores with the goal of owning the purchase experience and ceremony. While it has embarked on the Prada Transformer, a structure that is designed to accommodate a series of events in Seoul in 2009, this initiative is not about stretching the brand. On the contrary, it is about reinforcing its essence by letting its artistic angle play out. It is about depth and substance, not breadth and surface.

Christopher Koller, Group Managing Director of Interbrand Sampson

Markets | Sustainability | UHNW