“In mature markets, where disposable incomes have dropped during the economic downturn, consumers have proved unwilling to compromise in certain sectors such as spirits, and rather than buy cheaper brands, have simply consumed less. Hence the term “weekend millionaires” was coined to describe those who rarely go out, but splurge on the best when they do.” Patrick Schmitt (July 30, 2012)


Description

The downturn has not halted middle-class shoppers’ desire to maximize the quality of their consumption. Indeed, the troubled economic times have led people to value distractions that facilitate escapism from the tough everyday, providing an impetus to experience some of life’s ‘small luxuries’. Millennial consumers have become accustomed to treating themselves well – and this sense of entitlement ensures indulgence is an enduring behavior irrespective of financial pressures. The masses have now gained access to the elite’s lifestyle, been educated to brands and deepened their knowledge of luxury. A more discerning shopper has emerged, one who demands more from his consumer lifestyle, creating a growing demand for premium goods and services. Moreover, the rapid development of emerging countries is bringing a growing middle class that will induce launches of more premiumized products to meet their new needs and preferences.

Coffee-sipping Americans on average spend about $5 a workday on average for their lattes and mochas outside the home, or $1,092 a year, according to Accounting Principals, a researcher in Jacksonville, FL.

“Affordable luxuries“ are perceived as a good way to bring pleasure and joy in the daily routine and gain appeal as consumers satisfy their desire for regular moments of indulgence. For instance, coffee-sipping Americans spend about $5 a workday on average for their lattes and mochas outside the home, or $1,092 a year, according to Accounting Principals, a researcher in Jacksonville, FL. Overall, the high propensity to treat oneself and the inherent crossover between treating and premiumization provide ongoing opportunities to develop added-value, high margin, premium products that make a positive difference in consumers’ daily lives. In response, brands are increasingly upgrading the value of their offerings to cater to this new consumer demand.

Democratization vs. premiumization

While luxury is getting democratized – making goods and services accessible – to a wider audience, mainstream labels are continually looking for new ways to add value. On the one hand, high-end brands have segmented their offer by launching entry-price point lines while extending their offer into more affordable categories, such as sunglasses or fragrances. With high quality and low prices as their foundation, brands have raised standards in their categories by homing in on what consumers really want — simplicity and low effort — and discarding the rest. This has resulted in trendsetting high-end fashion brands offering affordable prices to middle-class or not-so-rich consumers who crave a little treat.

While Brazil’s State Treasury Office says that the number of companies with VIP fantasy names has grown more than 40% between 2008 and 2013, North American revenue from celebrity clothing lines, excluding merchandise linked to athletes, rose 6% in 2011, to a historic peak of $7.58 billion, according to The Licensing Letter.

Mainstream brands have also launched private labels to appeal to younger shoppers. Premiumization is about establishing quality and specialness, making it the domain of the mass market brands as they look for a share of this quality status. From the introduction of premium segments from supermarket chains to the most super premium vodka, and VIP club services, premiumization is now more prolific and more desirable than ever before. While Brazil’s State Treasury Office says that the number of companies with VIP fantasy names has grown more than 40% between 2008 and 2013, North American revenue from celebrity clothing lines, excluding merchandise linked to athletes, rose 6% in 2011, to a historic peak of $7.58 billion, according to The Licensing Letter. That’s on top of a nearly 5% increase in 2010. Even in these tough economic times, when value may dictate many purchases, people have continued to seek less expensive ways to experience luxury and specialness. And this has created a new niche – and a ‘mass’ desire – for ‘premiumized’ products. Premiumization has made the impossible dream possible.

Millennials go for small luxuries

Indulgent treating is the post-financial crisis sweet spot— and not just for the wealthy, but for everyone. This new consumer mindset has partly emerged from the tough economic climate and the development of premium brands positioned at accessible prices. It has also been caused by the Millennials’ behavior: they are paradoxically reducing budgets for primary needs while splurging on wants. This reflects a shift in middle-income shopping culture in recessionary developed markets, whereby consumers are treating themselves to what they perceive as quality products at affordable price points. There is also a boom in small luxuries consumption among the new cash-rich middle class in emerging markets. Millennials tend to turn their backs to the recessionary climate and want to let it go. To do so, they are opting for indulgence spending and aspirational shopping while living under economic pressure. Among the overall luxury spending increase last year, the biggest gainers were in accessible, relatively inexpensive categories. Sales of high-end televisions went up 22%, while computers and peripherals increased 16% and household linens were up 12% (WSJ.com, 22 January 2014). Although the wealthiest are still upping their spending on highly elitist and unaffordable goods and services, affordable items have also greatly increased in the meantime. Indeed, a 2012 survey by Accenture found that “small luxury purchases” were exploding post-recession.

In 2013, consumers mainly purchased fancy coffee drinks (53%), luxury clothing items (48%) and fine personal care products (48%).

It reported that 50% of all consumers intend to make such a purchase in the next six months, with Millennials more inclined to make it than other demographic groups. In 2013, consumers mainly purchased fancy coffee drinks (53%), luxury clothing items (48%) and fine personal care products (48%) — all luxury purchases that are accessible to just about anyone willing to scrimp a little elsewhere in order to splurge, according to global consulting firm Accenture.

Featured examples

 

Lush SPA

Credit: Wikimedia

Credit: Wikimedia

Mainstream soap brand LUSH added a luxury spa extension in the existing New York City and Philadelphia shops. The LUSH Spa provides luxurious fresh, handmade treatments with a touch of magic in a traditional English Spa setting. It creates individualized client experiences based on the emotional state they wish to achieve. Massages, wraps, body scrubs and facial masks are combined with specially designed displays of light, sound, scent and even taste, in the form of relaxing or energizing tea. The LUSH Spa experience is run by an in-house team of experts and they promise that from the moment you step through the door you’ll be positively overwhelmed by their attention to detail.
United States of America United States, January 2014

 

Kit Kat Chocolatory

Credit: Nestle.com

Credit: Nestle.com

Chocolate bar brand Kit Kat opened a store in the heart of Tokyo with an exclusive range of unusual and exotic flavors. The brand has maintained its collaboration with celebrity pastry chef Takagi, which resulted in highly intriguing flavors such as red wine, cherry blossom, green tea, special chili, sublime bitter – this one is sold for over $3 for a regular-size stick. Takagi oversees the premium limited editions presented in the “Chocolatory” store – which were sold out in a few hours the opening day.
Japan Japan, January 2014

 

VIP services in movie theaters

Credit: Kinoplex.com.br

Credit: Kinoplex.com.br

Following the trend happening in the US and the UK, movie theatres in Brazil are also upgrading their service to give their customers a more premium cinematic experience. VIP services are growing in popularity in chains like Kinoplex (Kinoplex Platinium), Cinepolis (Cineapolis VIP) and Cinemark (The VIP Room), which are offering Italian leather armchairs, private tables with desk lamps, waiters, and sushi menus to delight a select group of consumers willing to pay up to R$60 ($30). (The average movie ticket costs R$23, or $11.50).
Brazil Brazil, May 2013

 

Pure Color Envy Sculpting Lipstick by Estée Lauder

Credit: Esteelauderusa.com

Credit: Esteelauderusa.com

Global beauty brand Estée Lauder released a new premium lip line called Pure Color Envy Sculpting Lipstick, which is priced at around $30 a pop, considerably more expensive than lipsticks from its competitors. The cosmetics giant says the collection represents a formula breakthrough, with multifaceted pigment that creates the appearance of sculpted lips. The launch comes at a time when American women are flocking to high-end cosmetics counters, happily trading in their drugstore standbys for something more chic. The 20 colors have been inspired by edgy adjectives like Impassioned, Envious, Red Ego, Dominant, Powerful, and Vengeful.
United States of America United States, January 2014

 

Rossano Ferreti’s salons

Credit: Fourseasons.com

Credit: Fourseasons.com

Affluent Indian consumers increasingly want their hair-salon experience to be luxurious, comfortable and exclusive. Italian stylist Rossano Ferreti has opened salons at the Oberoi Hotel in Gurgaon and the Four Seasons in Mumbai in early 2013. They have been reporting 25% month-on-month growth since opening. The secret? A cut priced at $1,000, which includes pick-up and drop-off in a BMW 7 series car, champagne on arrival and use of indulgent hair products like caviar pearls. Big personal-care brands have been following the momentum: Godrej Consumer Products acquired a 30% stake in Mumbai-based premium hair salon chain b:blunt for an undisclosed sum.
India India, October 2013

 

Business & Marketing guidelines

1

Consider the emotional benefits of luxury spending, even for middle-class consumers who “can’t afford it.” A premium purchase can provide a sense of indulgence as well as emotional relief even for tight-budgeted people. And as long as the benefit is experiential, the price point is not as important as the perceived quality.

2

If you aim to get premium, add value in the right way—create value through desire but don’t value your brand out of its own market. You should use design and creativity to drive difference and create a new future definition and space that is more than just a price point or copycat offer.

3

Copy the luxury approach—returning to core values and quintessential beliefs to create ever more unique and individual expressions.

Summary

  • The troubled economic times have led people to value distractions and moments of indulgence through regular ‘small luxuries’. Millennial consumers have become accustomed to treating themselves, a behavior that is irrespective of financial pressures. They tend to reduce budgets for primary needs in order to splurge on wants.
  • While luxury is getting democratized to a wider audience, mainstream labels are continually looking for new ways to add value to their offerings and go premium.
  • A 2012 survey by Accenture found that “small luxury purchases” were exploding post-recession. It reported that 50% of all consumers intend to make such a purchase in the next six months, with Millennials more inclined to make it than other demographic groups.
  • In 2013, consumers mainly purchased fancy coffee drinks (53%), luxury clothing items (48%) and fine personal care products (48%) — all luxury purchases that are accessible to just about anyone willing to scrimp a little elsewhere in order to splurge, according to global consulting firm Accenture.

Experts that we recommend

florence-servan-schreiber Florence Servan-Schreiber
French journalist & author of 3 kifs par jour (Marabout, February 2012)
david-amsellem David Amsellem
CEO & founder of John Paul, premium concierge company
loic-prigent Loic Prigent
Fashion journalist & film director, La ligne Balmain, 2014