Harvard's John Quelch: How to Market Luxury in a Downturn

One of the best-known academic minds in marketing talks about the two types of luxury consumers, and how to hang onto them in a recession.

Two types of luxury consumers

I divide the luxury market into “must-haves” and “wannabes.” Members of the first group have incorporated luxury into their lives and seek to retain that lifestyle in the face of recession. Very high net worth individuals occupy the top rung of the must-haves. They are largely inoculated from the downturn. Even if they’ve lost a lot of money in the recession, they are still ultrarich. On the other hand, those must-haves who have become financially strapped are now buying luxury items at lower price points or buying them less often, but never compromising on quality.

The luxury wannabes view luxury aspirationally, occasionally investing in luxury purchases in order to touch luxury without immersing themselves in it. They would never buy (or probably would never be able to buy) a Ralph Lauren suit. But they can afford a few lower-cost accessories such as a polo shirt with the logo.

Hold on to these customers in this economy?

You have to figure out how your customers’ behavior has shifted. Can you enable your more price-sensitive customers to continue to patronize you? It’s a balancing act, because you don’t want to taint the image of the brand.

This is more challenging at a time when cash-strapped companies are reducing spending on market research that could help them learn just how to reach those customers. Most large companies in the U.S. are cutting their research budgets by 10 percent to 20 percent. To adjust to this shift, I urge marketers to focus their research on the products, brand, and markets that are key to their strategy. Don’t waste resources on peripheral or potential consumers.

Discounting? is that always a bad idea for luxury brands?

Of course, discounts, if overdone, can detract from brand quality and the credibility of retail list prices. But modest, often unadvertised discounts on selected or discontinued items need not dilute brand quality. In fact, during a recession, even some luxury must-haves are hurting and need a helping hand in the form of a price cut from their favored brands.

“Simplifier.”a new kind of consumer

Simplifiers predated the recession, but the recession has accelerated the trend. These are people who trade down to a simpler lifestyle than they are able to afford. In particular, they seek to reduce the scope and scale of the stuff they own, because they simply find it too aggravating to maintain and less emotionally satisfying than they expected. Often, as they grow older, they place more value on — and invest more money in — experiences instead of possessions.

Savvy marketers will keep this new Simplifier in mind when creating an argument for their product or service.