(By Bob McCurdy) Common sense dictates that high-income houses buy “luxury” brands and lower-income households buy the “value” brands. Intuitively, it makes sense, but is it true? Is it possible that when it comes to advertising and marketing it is best to exercise some “uncommon” sense?
There are times when consumers spend extravagantly, and other times frugally, regardless of household income. It often boils down to what products/services are valued and the “trade-offs” made to own them. Some might settle for a smaller apartment to afford a more expensive car or decide to repair their current set of wheels to fund a vacation. High-income shoppers shop Wal-Mart just as lower-income shoppers frequent Saks Fifth Avenue. It’s these trade-off decisions that result in luxury goods not being the exclusive property of high-income households. We saw this phenomenon recently when analyzing automobile ownership.
After broaching this topic with the General Manager of a “luxury” automobile” dealership, I pulled a Tapscan “Target Profile” run for six PPM markets: Boston, Charlotte, Detroit, Las Vegas, Philadelphia, and Tampa, and discovered that across these markets, 41.6% of Acura, Audi, BMW, Cadillac, Infiniti, Jaguar, Lexus, Lincoln, and Mercedes owners had a household income less than $75,000.
This dealership targeted A25-64 with a minimum household income of $75,000+. Interestingly, households with $250,000+ incomes accounted for only 7% of all luxury nameplate ownership, and those with household incomes of $100,000- $249,999 accounted for 33% of all ownership. Based on this dealer’s current ad allocation, those residing in households with income less than $75,000 received little to no messaging, in spite of them owning more luxury nameplates than those residing in households with a $100,000+ income.
One could suggest that some of those in the lower- to mid-income households might not have purchased “new.” This is surely the case. But with dealership service departments accounting for a considerable portion of dealership profitability, and used and new car sales contributing about the same amount to a dealer’s bottom line, the influx of off-lease inventory along with the high margin F&I opportunities they afford, and luxury nameplate retention rates around 50%, getting these drivers in their dealership is good business.
I then looked at another “luxury” category, current pool, hot tub, or spa ownership, and those planning to buy one. Across these same six markets, 42.5% of these individuals resided in homes with a household income of less than $75,000, and as was the case with luxury automobile ownership, more pool, spa, hot tub owners resided in households with an income of $75,000 or less compared to households with a $100,000+ income. Yet virtually all marketing in this sector targets households with a $75,000+ household income.
A few takeaways:
– While high-income households might be more likely to purchase luxury goods, those falling below the typical “targeted” income criteria comprise a considerable percentage of luxury-product ownership and should receive some marketing attention. Across these six markets, 59% of the households had an income of $75,000 or less, versus only 27% having a household income of $100,000+. In aggregate, these lower- to mid-income households account for a lot of purchasing trade-off decisions.
– This data again speaks to the importance of ad campaigns having a broad reach component with inclusive messaging.
– It’s important for marketers to own some mental “turf” with as many consumers as possible.
So, when it comes to luxury product ownership, the difference between the high-income and the lower-income consumer might be smaller than commonly believed. And while high-income households are more likely to own a luxury product, marketing to the less-likely-to-own could make it more likely to meet challenging sales quotas.
Bob McCurdy is The Vice President of Sales for The Beasley Media Group and can be reached at [email protected]