Download demographics of affluence

Luxury Report 2011: Ultimate Guide to the Luxury Consumer Market
DEMOGRAPHICS OF AFFLUENCE
Marketing starts with understanding the consumer – And understanding the consumer starts with
demographics.
The demographics that describe the affluent consumer market tells us details about the customer that luxury marketers depend upon:
those who make more money and who spend more. These are the customers that every luxury brand must rely on for their future
growth.
The affluent market segment is defined by income
Based upon U.S. Census data, the affluent are defines as those whose income places them within the top 20 percent of U.S. household
income which in the latest government Census starts about $100k. If you take all U.S. households and divide them into five equal
segments, the top 20 percent is the top or fifth quintile. All total there are 23.4 million households in the top quintile. However, not
all households in the top 20 percent are equal in value to luxury brands. Many heritage luxury brands target those at the top 5 percent
of incomes (which starts at about $180,000) or the even more narrowly defined top 2 percent of households, called ultra-affluents
which corresponds to incomes $250,000 and above. In all there are only about 2.5 million households at the ultra-affluent income
level.
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Luxury Report 2011: Ultimate Guide to the Luxury Consumer Market
Marketers have far smaller target market at the upper-income segments which translates into fierce competition for the spending of
ultra-affluents. As marketers look at the affluent market, they find four-times more households at the lower-income ranges, often
called the aspirational consumers. With more target consumers, even those who have lower-levels of spending potential, luxury
marketers can find more opportunity for growth.
Number of Affluent Households
25,000
20,000
15,000
10,000
5,000
0
Top 20% (starts at
Top 5% (starts at
$100,250)
$180,000)
Top 2% (starts at
$250,000)
Figure 14: Segments within the Top Income Quintile
Should luxury marketers define their target customers by wealth or by income?
A frequent question that arises when studying the demographics of affluents is whether marketers should focus their attention on the
high-net-worth segment of the market or on how much people earn. In other words, wealth vs. income? Unity Marketing focuses on
income as the metric that really matters to marketers. The fact is there is reliable and accurate data on people’s income, but not so
with wealth. Further people spend their incomes and not generally their wealth in the category of consumer goods and services.
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Luxury Report 2011: Ultimate Guide to the Luxury Consumer Market
Wealth clearly can't be discounted completely. How people perceived their wealth was important in the luxury market's run up to the
recession. Feeling wealthy due to rising home values, 401k and other investments, resulted in people spending more in the market
prior to the recession. But with the recession all that wealth vanished, so now people are back to spending their real income once
again.
The average income for all households in the top 20 quintile is about $170,000 which gives them a pretty comfortable lifestyle, but
hardly allows for buying Hermes bags at $15,000 a pop. And these households want to get back the money they lost in their
investments, so they are saving more rather than spending more on luxury.
There are the affluent, then there are the rich
Number Affluent Households by Income
Share Affluent Market
Avg. Income
$100,000‐$149,999
59%
$119,749
$150,000‐$199,999
22%
$169,399
$200,000‐$249,999
9%
$219,666
$250,000 and above
10%
$425,226
Average Income
$170,130
Figure 15: Average Income of Top Quintile Households
The table above looks at the key income segments within the top quintile and shows the average income for households within that
segment, so households with incomes of $100,000 to $149,999 make up 59 percent of the top quintile households and the average
income in that range is just under $120,000. As we look at the distribution, it is interesting to note that the average income within the
three income segments under $250,000 all skew toward the lower income boundary defining that range, so for example. $169,399 is
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Luxury Report 2011: Ultimate Guide to the Luxury Consumer Market
closer to $150,000 than to $199,999 and $219,666 is closer to $200,000 than to $249,999. On the other hand the average income for
the 10 percent of top quintile households over $250,000 is close to half-a-million. Those households with incomes of $250,000 are
truly the rich in our contemporary society, everyone else is merely affluent.
The top quintile households will grow in importance to all marketers in the next decade, not just among
luxury marketers, but mass marketers as well
A recently published white paper from Ad Age on the upcoming Census 2010, predicts that middle-class households will emerge from
the recession severely limited in their ability to purchase goods and services in the near future. Based upon the current demographic
trends, the disposable income among middle-class households will slow, which will "severely limit their ability to purchase goods and
services in the near future. The widespread
exuberant spending that took place between
2001 and 2008 at retail outlets and on housing
is not likely to return anytime soon, except
among high-income households," reports the
Ad Age white paper. With this increasing
concentration of income – and resulting
spending – toward the affluent segment of the
market, the top 20 percent will be not only a
desirable target for luxury marketers but for the
mass market as well. Attracting the affluents'
high levels of disposable income may be do-ordie for many mass brands and mass retailers in
the next decade.
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