As we wrote yesterday in the eMarketer Daily Newsletter, affluent consumers expect luxury retailers’ websites to replicate the same shopping experience they offer in their stores—yet many luxury brands have been slow to offer the white-glove treatment expected by their online customers.
Part of this new behavior was born of the recession: More wealthy consumers are making purchase decisions based on value and information rather than brand image. We recently chatted with Milton Pedraza, CEO of the Luxury Institute, about the post-recession mind-set of affluent shoppers. Here’s a snippet from the full interview, available on eMarketer Total Access.
eMarketer: Who is the affluent consumer in terms of income?
Milton Pedraza:
We say a minimum of $150,000 annual household income. That’s when you start to be able to buy certain luxuries. You’ll pay $1,000 for a handbag. You’ll buy a Miele or Bosch washer or dryer. You probably live in a home that’s at least half a million dollars. But that’s the minimum.
Our survey average is about $250,000 annual household income, which is the top 7% or 8% of America. The average net worth is $2 million to $2.5 million. These people are in their late 40s to early 50s.
Young affluents make a minimum of $150,000 a year and are probably single. In New York City, these younger affluents are 25 to 35, earn $300,000 a year but have no assets. They really haven’t bought any real estate. They may have a little bit in their 401k, but, by and large, they live off their income. Some may save, but most haven’t. They may have credit card debt or college loans, but they still love their Louis Vuitton. They consume luxuries, just not at the same rate as couples in their late 30s, 40s and 50s.
The next segment of affluents probably earn about $300,000 a year. Their net worth is $2 million to $2.5 million. We call them the “near millionaires” or the single-digit-to-$10-million millionaires. They’re a large group of luxury consumers and are very resilient. People with over $10 million in assets make up 5% of the customer base that buy 30% or 40% of the luxury goods volume. Those who are in the $50-million range are the super wealthy.
eMarketer: How has the recession changed the way affluent consumers shop online?
Pedraza:
They’re searching more meticulously for value and quality. They’re taking their time and doing a lot more research online and at the store. And price is very important right now. Before, a luxury brand could get away with a little leather and a lot of canvas. That’s not going to happen now.
They want to know what an item is made of. They’ll go into the store to take a look and try it on. Also, consumers know that a pair of shoes that was $1,200 a year ago is now $800. That’s stealth discounting. Consumers are very aware that that is happening. They’re really hunting and stalking a product to see if the price went down. They’re on a flash site several times a day to see if the price dropped. They stalk the product for a period of time and when the price goes down—boom—they buy it.
eMarketer: What do affluent shoppers expect from the retailers they do business with online?
Pedraza:
Zappos has spoiled the heck out of them. They expect a Zappos experience from every luxury brand—great assortment, availability and excellent service. First, they expect to find what they want very easily from a site with great navigation. Second, they’d better be able to perform the transaction very easily. They want to search for products the way they think about searching, not the way a retailer imposes it on them. Third, the shipping costs, delivery time and return policies had better match Zappos’.
Affluent customers also want to be able to reach someone who can help and guide them. Many people, affluent or not, just need hand-holding and telephone dialog offers opportunity for suggestive sales. You can have suggestive selling online, too, but sometimes it’s unnatural and obtrusive. For example, with Zappos, you know you have people you can talk to. What Zappos realizes is that that hand-holding builds relationship value for the long term. Even though it may be inefficient, it is not ineffective. That’s what a lot of luxury brands are missing online—the human factor.
Also, if they forgot something in their order, they don’t want to start all over again. A lot of companies fail to design an intuitive transactional process. They don’t mean to annoy customers, but they do anyway because they don’t think like customers.
eMarketer: How does affluent online shopping behavior differ from non-affluent shopping behavior?
Pedraza:
Older, wealthier people still like visiting stores and the relationships with salespeople. Younger people are more do-it-yourselfers. However, I would say that both the single-digit millionaires and the ultra wealthy—90% of those people worth $5 million or more are self-made—are also do-it-yourselfers. They’re highly educated, independent and savvy in terms of value-hunting.
Affluents can afford a lot more than non-affluents, but they’re similar in their desire for convenience from the online shopping experience. Older consumers in both groups need more hand-holding.
eMarketer: Which retailers and brands do a good job with the online shopping experience?
Pedraza:
Net-A-Porter offers one of the best content, product and navigation experiences, along with great search and generous return policies. After that, you have Neiman Marcus and Saks and even Bloomingdale’s and Coach.
The big ones have the resources to create good websites, and by that I don’t mean Flash-based sites. Flash is probably a detractor. The good sites match Amazon in the way that they enable people to search and traverse, offer relevant products, assortments and content that’s interesting. They also offer excellent shipping and return policies.
eMarketer: How do luxury retailers create an engaging online shopping experience?
Pedraza:
You have to let people search the way they want to search, be transparent about pricing and offer your entire product assortment online. A lot of brands leave pricing out of the equation because they think affluent shoppers don’t do comparison shopping.
Eventually, luxury brands need to include ratings and reviews. They will embrace and covet the feedback because it will help improve the shopping experience in real time. If there’s a negative rating for a service or product reason, they’ll be able to understand it and address the issue.
The full version of this interview is available here, to eMarketer Total Access clients only. Every day they have access to new interviews with digital marketing leaders and trendsetting entrepreneurs.
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