Movin’ On Up

At least one commodity remains unaffected by the current economic uncertainty: wealthy Americans. The United States is producing more of them than ever before, and one category in particular—the “mass affluent” (defined as households with incomes of $100,000 or more)—is growing faster than any other income segment, according to the latest U. S. census.

“The top 1% of earners in the United States takes home 20% of total income, and 50% of total growth in income went to the top 20% of households [in the past 10 years],” says Paul Nunes, a senior research fellow at Accenture Institute for Strategic Change in Cambridge, Mass. “The sweet spot for retailers is in the top 10% [of earners], minus the top 1%. This is a segment that grabs 26% of total income, while still representing a substantial number of households.” (See chart at right.)

Members of this growing “mass affluent” class have tremendous spending power, but so far the jewelry industry hasn’t benefited much from the newly wealthy.

From 1990-2000, the top 20% of U.S. wage earners saw their incomes grow 49%. Yet their spending on gifts of apparel and accessories (including jewelry) rose only 16%, according to research by Nunes. This means that the industry lost a substantial percentage share of income—billions of dollars—by not targeting top earners.

“In the next 10 years, the consumer market will diverge,” says Pam Danziger, CEO of Unity Marketing, Stevens, Pa. “There will be clustering at the high-end and budget level, without a lot in the middle.”

But even if the mass affluent are less inclined to spend today compared with a few years ago—because of shrinking portfolios—analysts say they’ll still want the same quality and brands; they just won’t buy as much.

“Understanding what motivates these consumers to purchase luxury goods is crucial,” says Kristen Thomas, a consultant with SRI Consulting Business Intelligence in Menlo Park, Calif. “Underlying mindsets that motivate them to be luxury buyers won’t change.”

To appeal to this newly expanded group of affluent consumers, consider these tips:

1) Treat these customers like millionaires, even though their net worth isn’t quite that high. Nunes’s research shows that high earners save more discretionary monies (as a percentage of income) than less-affluent people. Break down resistance to spending by offering them an exclusive, store-within-a-store shopping experience. “They [the mass affluent] want the J. Lo [celebrity-buying] experience, but they don’t want to be reminded that they’re not millionaires,” observes Nunes. “Tell these shoppers, ‘I understand who you are, and what a $5,000 purchase means to a $250,000 household.’ “

2) Pitch jewelry as an heirloom. Over the last decade, most top earners invested their money. To get their attention, build a value proposition into merchandise ads, as Patek Philippe does with its watches: “You never actually own a Patek Philippe, you just take care of it for the next generation.”

3) Offer a variety of brands. Brands can be instrumental in closing sales because they confer a sense of security. And branding extends beyond product; the store as brand is equally important.

4) Market aggressively. Overall, jewelers don’t spend a lot on advertising. Jewelers of America’s annual Cost of Doing Business Survey shows that the median amount spent by jewelers on advertising—for the last five years—is 4% of total sales, while JCK research shows that stores with healthy growth and a strong community presence consistently spend double that amount on ads.

5) Know the milestones that can trigger purchases. According to Unity Marketing, the top lifestyle triggers that stimulate purchases of luxury goods are redecorating or remodeling a home, buying a new car, and sending a child off to college or away from home. Being aware of those triggers can help jewelers celebrate occasions—and milestone purchases—with customers.

6) Understand that the mass affluent thoroughly research purchases before buying. They won’t buy on a whim. “They conduct extensive pre-purchase research and make logical decisions rather than emotional or impulsive decisions,” says Thomas. One almost-40 father of two shopping for a new car told the Wall Street Journal that before making any purchase he does a lot of research, and then buys the best he can afford.

7) Target the right customer with the right message. Don’t send a magazine touting what’s hip on the art scene to a father of three, as Cartier did recently to Nunes. “I was into that when I was 25,” he says. What would have been appreciated: An invitation to come in for drinks and suggestions for next-level purchases at this stage in life. Just because customers on a mailing list are in the same household income range doesn’t mean they share the same interests.

8) Communicate how products enhance users’ lives. While some in the mass affluent class opt for status-symbol purchases, not all want to appear overly lavish. Therefore, citing “smart” products or features—such as a sterling silver Palm Pilot case to simultaneously protect and enhance the electronic tool while expressing the user’s individuality—can help overcome anxiety about seemingly extravagant purchases.

9) Exploit price points. “Don’t create new products … just position your offerings at price points that haven’t been exploited before,” Nunes says. As examples, he cites Starbucks custom coffee drinks, premium golf balls that promise better games, and slightly more expensive—but much more convenient—liquid soap in squeeze pump containers.

10) Sell the experience. Research indicates that luxury services are the next big trend. Consider Bulgari and Versace, both of which have unveiled hotel resorts within the past three years. Luxury spas proliferate in the United States, and there are even racing schools for driving enthusiasts. According to Unity Marketing, “Luxury is the power to pursue one’s passions, it’s anything that’s not a necessity, and it’s constantly evolving.”

Decades of household income compared

Income 1990 2000 Change
Source: U.S. Census Bureau Select Economic Characteristics 2000 & 1990
>$10,000 14.2 million 10.1 million -41%
$10,000-$14,999 8.1 million 6.7 million -21%
$15,000-$24,999 16.1 million 13.5 million -19.3%
$25,000-$34,999 14.6 million 12.8 million -12.3%
$35,000-$49,999 16.4 million 17.5 million 6.3%
$50,000-$74,999 13.8 million 20.5 million 48.6%
$75,000-$99,999 4.7 million 10.8 million 56.5%
$100,000-$149,999 2.6 million 8.2 million 68.3%
$150,000-$199,999 1.4 million 2.3 million 39.1%
$200,000&&/td> N/A 2.5 million N/A
Total number of households 92 million 105.5 million 12.8%
Median household income $30,056 $41,994 28.4%

The mass affluent category: How many households?
SRI Consulting Business Intelligence, Menlo Park, Calif., tracks affluent households nationwide, with the help of a geographic database, to study consumer mindsets. It defines a mass affluent household as one with an annual income of $100,000 or more or that has assets (excluding primary residence) valued at $500,000 or more. Based on recent findings, consultant Kristen Thomas has this message for jewelers: “The mass affluent have the potential to be an increasingly lucrative segment.”

Year % of mass affluent households in the United States
Source: SRI Consulting Business Intelligence, Menlo Park, Calif.; (650) 859-2000; info@sric-bi.com.
1996 10%
1998 13%
2000 15%
2002 14%

What the rich buy
Some 90% of Americans with household incomes of $50,000 or more say they’ve purchased at least one luxury* product in 2002. Of those, 32% have bought jewelry and watches.

Product Purchase Incidence
Source: Unity Marketing’s Luxury Market Report 2003.
*The definition of “luxury” product or service was self-defined by the respondent.
For more information about research from Unity Marketing, contact the company at (717) 336-1600 or visit their Web site at www.unitymarketingonline.com.
Any luxury product 89%
Electronics 51%
Garden 45%
Fragrance and beauty 44%
Apparel and accessories 41%
Furniture and floor coverings 35%
Linen and bedding 34%
Jewelry and watches 32%
Fabrics and wall and window coverings 29%
Kitchen appliances 29%
Kitchenware, cookware 29%
Automobiles 24%
Art and antiques 19%
Tabletop 8%
Recreational vehicles 8%
Any luxury service 62%
Travel 35%
Housecleaning 23%
Entertainment 20%
Spa, massage, beauty 20%
Landscaper 18%
Home decorator 13%
Catering 10%