The streets are similar, and a

similar mix of people visit New York

City’s Fifth Avenue, London’s

Bond Street and Moscow’s

Tretyakovsky Proyezd. There is the

respectable elderly couple

looking at timepieces by Blancpain,

with a design so nondescript it is hard

to see why they are so expensive.

Just beside them, a young millionaire

wearing gold cufflinks pulls up

in his Ferrari, about to buy a new scarf

with a conspicuous Gucci logo.

And across the street, a young

businesswoman dressed in high-street

brands is about to splurge

on a new leather bag from Fendi.

They are all typical luxury consumers – because there is no such thing as a typical luxury consumer. Most people simply do not buy luxury, and those who do share a number of values and habits, but there is a variety of distinct luxury consumer groups that differ from one another in many ways. Many are “occasional” consumers of luxury, making purchases only from time to time, depending on the occasion. But most interesting is the group we call the “real” consumer. Real luxury consumers regularly buy from various product categories, have a profound knowledge about the luxury market and are loyal to trusted brands. There is nothing occasional about their shopping behaviour, because luxury is an integral part of their daily lives. Real consumers know what they are buying. And they know exactly what they want to buy. These luxury customers routinely frequent boutiques, stop by car showrooms and stay at luxury hotels when they are on vacation. However, only a small percentage of the total number of consumers are real luxury consumers – in Germany, for instance, around 3 per cent.

We have already touched on market segmentation in our introduction. But to gain a deeper understanding of the characteristics of real consumers of luxury products – as opposed to occasional consumers – we need to gain a deeper understanding of them. How do real luxury consumers differ from one another? In answering this question, we can use our consumer-related insights as a basis for marketing and management decisions.

FOUR TARGET GROUPS AND THE CONTINUUM OF MATURITY

Real consumers are not a homogeneous group. We have identified four subgroups: “Newcomers”, “Climbers”, “Exclusivity Enthusiasts” and “True Connoisseurs”. They are similiar because they are all avid buyers of luxury items, yet they buy for different reasons. Instead of starting with sociodemographic categories, like most consumer typologies, the following typology is based on the buying behaviour of consumers and their general stance on luxury. One of the central findings is that there is a difference when it comes to the average age of the typical buyer of certain luxury brands. This is the Continuum of Maturity. The Newcomers are the youngest group, just starting to acquire luxury items. As we will see, their buying behaviour and attitudes are very different from older and more affluent Climbers and Exclusivity Enthusiasts, and especially True Connoisseurs, the oldest and wealthiest group.

We are also seeing that the overall number of luxury consumers, real and occasional, has grown considerably. Luxury markets are thriving, and not just in emerging markets such as China and Russia, but also in mature ones like Germany, where the market for luxury products grew by 16 per cent in 2011. For a more comprehensive insight into all four luxury consumer groups, let’s meet someone from each group.

NEWCOMER: WHAT YOU HAVE IS WHAT YOU ARE

Meet Lisa. She is 33 years old, and wants to stand out in a crowd. After getting home from work she loves sitting at her kitchen table and reading Cosmopolitan. She gets most of her inspiration for shopping trips from looking at celebrities and the latest fashion trends. When she buys luxury items, she wants others to see what she can afford, so she tends to buy items which promise to give her higher social status. Identifiable items and logos are more important to her than the tradition and heritage of a brand, the workmanship of a product or the service of a luxury company. And she is increasingly shopping online rather than taking the time to visit a flagship store. Lisa likes the ease with which she can find products on the Internet, compared to spending all day looking for the most appealing items at the mall.

CLIMBER: KNOWS WHAT HE WANTS

Meet Frank. He is 40 years old, and he knows what things are worth. He wants good value for money, and in his world, luxury brands are just that. He has several years of experience as a business consultant and is on his way to becoming a partner at his company. His self-confidence has increased over the years. He knows what he wants and is willing to pay a premium for luxury products that fit and underline his personality. Since his salary is now considerably higher than a couple of years ago, he can easily afford high-quality luxury products. But buying the “brand” is not enough for Frank. He wants those products to be of outstanding quality and highly unique. It is no coincidence that he wears an older Rolex wristwatch with an acrylic crystal. Aficionados will know that this is a rare vintage timepiece, from a period before the company switched to sapphire crystals. For Frank, luxury purchases have become about more than just consumption, and he sees a vintage Rolex as a good investment. Although Frank enjoys reading magazines like GQ, celebrities in fashion spreads do not really influence his shopping choices. He is not going to change his favourite fashion label just because of what David Beckham is wearing in an advertisement. Classic celebrity marketing does not have great influence on the buying choices of this group of consumers. But guess what does? The Internet. The Climber is especially present in all kinds of social media networks and forums, and what his contacts say about a purchase or experience is critical to his buying behaviour.

EXCLUSIVITY ENTHUSIAST: ONLY THE BEST WILL DO

Meet Maria. She is 52 years old. Over the years, she has learned that less is more, but she still has very high standards. This means she is constantly looking to trade up, provided the market offers a good reason. For example, she wears an older gold watch by Patek Philippe but drives the newest 7-series BMW. If you visited Maria at her spacious yet tasteful apartment, you would see Vogue and similar high-fashion magazines on her coffee table. But, for her, luxury products are not an end in themselves. They are an opportunity to maintain standards in her uncluttered lifestyle. It is no surprise that she seeks brands that do not shout out “luxury”. Still, those brands she does select often evoke nods of acknowledgment and appreciative looks from people she respects. Maria is also particular about where she spends time. She prefers the flair of luxury department stores to Internet shopping, even though she generally knows exactly what she wants. Still, the personal sales environment is an important aspect of trading up. She wants the feeling that she is not alone in her quest for quality, that other people understand her priorities and that they appreciate them. There have always been people who were prepared to have less, as long as what they had was the very best.

TRUE CONNOISSEUR: NUANCES, PLEASE

Meet Bernhard and Jessica. They are both over 60, and have nothing to prove to anyone. Anyone but themselves, that is. They have the homes, the cars and the yacht. At this stage, they are looking for subtleties, immaterial pleasures, nuanced experiences. The sparkle and bouquet of a particularly rare Champagne, the crystal waters and sweet tropical air of an exclusive resort in Tulum, Mexico – these might be the kinds of things sought after by True Connoisseurs. Bernhard has retired from his job as the CEO of a large corporation. What counts for this couple is that luxury fits their style. The latest fads in fashion are something they respond to with a raised eyebrow, if at all. Bernhard and Jessica certainly have their very own style, developed and shaped over the course of many decades of personal and professional experience. They do not feel the urge to impress anyone through their buying choices, and the popularity of a brand means little to them. For Bernhard and Jessica, quality, tradition and excellent service are of paramount importance. Price is no longer an object, as long as everything else fits. The couple makes choices based on the “inner qualities” of a product. The product needs to convey a classic elegance rather than sport brash and ostentatious features. They prefer fashion labels which are not widely known but have a high reputation in certain circles for quality and exclusivity, or tailor-made clothing. They are famously indifferent to opinion, or to the labels or products luxury consumers may be buying at any given moment. In fact, the couple prefers products from quality manufacturers with such a small output that only a few people have ever heard of them. Inconspicuous consumption is one of the sure signs of a True Connoisseur. There have always been True Connoisseurs. In the past, they were probably best known to gallerists and jewellers, and maybe high-end travel agents. But today such people have to compete with new attractions.

From pen company to luxury brand

Montblanc is now a luxury empire that leverages the legacy of its pen to sell handbags, jewellery and perfume. The company has created a tradition and legacy that almost transcends nationality.

OTHER MARKETS, SIMILAR CONSUMERS

We believe that gaining a knowledge of the four luxury target groups and their mindsets is a prerequisite for success in today’s luxury market. Still, the way luxury target groups behave and how their decision-making unfolds is also influenced by external factors. Though globalisation is a key source of growth of the luxury products industry, in national markets there are some very specific factors taking shape and setting parameters. Consequently, we are faced with a customer base that is multifaceted, fragmented and liquid. To view actual consumer behaviour up close, we have selected examples from four countries, with differing proportions of luxury target groups and market characteristics: the United States, Russia, the United Arab Emirates and India.

UNITED STATES

One will come across all four types of consumers in the United States, with a certain tendency toward Exclusivity Enthusiasts. Most buyers of luxury items in America share a strong affection for brands. Among the affluent and wealthy population there is a widespread acceptance of showing one’s success by buying luxury products. But in recent years, the people who buy luxury in America have changed quite a bit. Excellent quality and product design have become much more important. Many luxury consumers see the purchase of a well-designed, high-quality product as a “treat”, while status, price and the exclusivity of a product have become less important.

This is partly due to the rise of a new class of affluent consumers who are better educated, wealthier, a lot more tech- and media-savvy and even more discerning consumers than other affluent Americans. They often recommend products to others, especially when it comes to electronic devices. They base most of their buying decisions on their personal style as well as on the “substance” and authenticity they associate with a company, instead of relying on the brand name alone. These “new affluents” are even more design-centric than other luxury consumers and would go out of their way to get the right item that aesthetically fits their lifestyle.

The demand for “experiential luxury” is also growing. Instead of buying cars and jewellery, many affluent customers have shifted their focus to helicopter snowboarding or learning to cook with a famous chef. Visible in the past, this trend towards experiential luxury has recently become more prominent. We will take a more in-depth look at it in chapter seven.

Another characteristic of the American market is its striking regionality. American luxury consumers focus mainly on the domestic market and typically do not travel abroad to buy exclusive products. This is thanks in part to the wide availability of luxury items in their home country, but also due to more attractive pricing compared to Europe.

RUSSIA

In Russia, most luxury consumers fall into the Newcomer and Climber categories. Conspicuous consumption still plays a large role here. Many luxury consumers in Russia prefer well-known labels that are easily recognised. Their main motivation is to gain status by buying a Ferrari, a Louis Vuitton bag or a Rolex watch. An increasing number of wealthy Russians are turning to domestic luxury brands such as Marussia Motors, a manufacturer of exclusive sports cars. The majority of Russian luxury consumers is not put off by high prices. On the contrary, the more expensive a luxury item is, the more coveted it becomes. Also, Russians are increasingly buying luxury in the fancy shopping districts of Moscow and St. Petersburg, where prices are often higher than in Western cities. Until recently, Russians flocked to luxury hotspots like New York, London or Paris. Purchasing an item with an enormous price tag distinguishes one from the rest. Despite the growing interest in domestic shopping, going abroad is still popular among Russians who aspire to be part of the international jet set. Russians are the world’s second-largest group of tax-free shoppers, but big spenders driving big cars no longer dominate the Russian market like they once did. Luxury consumers in Russia are changing. The stereotypical opulence of the oligarchs is giving way to more subtle indulgences. A new generation of competitive, well-educated and affluent Russians aged 40–45, partly raised in Western countries, stands for a change in values. For this new generation of millonaires who did not take part in the mass privatisations during the early 1990s, a limited edition Bechstein piano or an exclusive work of art is a better way to show one’s unique and refined taste than a diamond watch or a private jet. This new elite is leading the way to a new, more intellectual understanding of luxury.

UNITED ARAB EMIRATES

Each major city in the Emirates has its own distinct culture. But luxury consumers share a number of characteristics, whether they reside in Dubai, Sharjah or Abu Dhabi. International luxury brands are very popular among the well-to-do. Does the product have a large logo which will be recognised by many people? Then it’s perfect for this market. Luxury consumers in the Emirates focus on accessories, especially on sunglasses. Sunglasses are experiencing a strong growth in sales here. That’s perhaps not so unusual given the intensity of the sun and the prevalence of traditional costumes in everyday and business life. In cultures where dress is virtually uniform, the importance of sunglasses, writing instruments and other accessories increases. Those items offer some of the few opportunities Emiratis have to be unique and stand out. Having the right pen or the right shades is important. European luxury brands dominate the market here. American brands are much less popular. This is mainly due to the political and military role of the United States in the Middle East. The buying choices of Emiratis are also influenced by general trends in the luxury world, by the popular luxury fairs for ultra-high net worth individuals and by advertising that features Western celebrities. Emiratis are avid travellers and Western countries are their preferred destinations. Mutual trust, patience and the personal involvement of top-level sales executives are extremely important for members of the affluent elite who want to enlarge their collection of luxury items. And these qualities are also key to success in selling to them. It might well happen that the CEO of a company who wants to sell something to a reputable sheikh has to wait 48 hours until the sheikh eventually shows up – and then spends a million dollars in five minutes.

INDIA

Although an estimated 400 million people in India are living below the poverty line, the number of luxury consumers has grown. Dollar millionaires increased by 22 per cent from 2011 to 2012. Only Hong Kong had a higher growth rate of ultra-high net worth individuals during the same period. Newcomers, Climbers and Exclusivity Enthusiasts are the most important target groups in India. True Connoisseurship as described in the Continuum of Maturity can be found in the long-established, affluent families of India. For these families, high quality and craftsmanship are the main criteria used to assess the value of a luxury product. The traditional sari as an evening gown for women and items that combine traditional and modern styles are very popular.

Still, the luxury retail infrastructure in Indian cities is far less developed than in other important markets, such as in China. Major luxury shopping streets do not exist in India’s big cities. Lavish mansions, yachts and expensive foreign cars are what India’s wealthy elite is after. But branded goods? Not so much. As a result, the sales figures for Western luxury brands on the subcontintent are rather underwhelming. The few who do like to buy branded luxury goods do it while travelling to the world’s luxury centres on private or business trips. Also, Indians do not like to splurge on most things. They are put off by price tags they deem too high, and they are famous for bargaining whenever they can. And since import taxes in India are notoriously high, it is often cheaper to pick up the phone and order something from a shop abroad and have it sent to you privately than to buy it in downtown Mumbai. Luxury shopping in India is still very much a personal matter. India is a one-to-one market. Direct enquiries or offers by CEOs or managers of luxury brands are tremendously important if companies want to sell high-priced items to India’s affluent elite. Personal recommendations and word-of-mouth advertising from friends and acquaintances are essential if a product wants to appear on the radars of the rich. Here luxury shopping is an event for the whole family, a collective experience for sometimes up to 30 people.

“The new wealthy want their own luxury.”

An interview with Jean-Claude Biver, chairman of the board of Swiss watchmaker Hublot. The company was founded in 1980 with a single model.

Hublot sells watches for €280,000, but recently began offering headphones for €1,000. Are you serious?

We have to begin thinking outside the box in our industry. Why are we producing headphones now? Because they are a means of communication, like watches are. And the younger generation wears them as routinely as wristwatches used to be worn.

Don’t traditional watch customers turn up their noses at that?

Not that I’ve noticed. Our sales in 2012 were 15 times what they were seven years earlier. The brand is currently doubling capacity at its production facilities in Geneva and is constructing an additional building. We’re doing fine.

This sort of brand extension isn’t causing any damage?

In all honesty, the headphones’ function is rather good promotion. They aren’t revenue drivers. These products, including our skis, high-tech sleds and carbon-fibre racing bicycles, demonstrate the distinctiveness of the brand. It wasn’t an arbitrary decision. A special technology to improve the sound was built into the headphones, which we developed in cooperation with Monster. The racing bicycle was already equipped with an automatic gearing system in 2005. That was a sensation at the time, but today the technology is used on the Tour de France. We wanted to demonstrate Hublot’s affinity with the future and technology.

Where do you see the potential of the Hublot brand?

When I joined Hublot in 2004, I wasn’t primarily focused on the brand’s potential, but on the potential of the customers. We are successful due to our customers, not our brand. The Ebel brand might have just as well been engraved on our watch faces. We would have been equally as successful as Hublot. What I’m trying to say is, that if we had been engaged somewhere else with the team we have at Hublot, we would be just as successful.

Where is the potential of your customers, then?

We have spoken to a new clientele. This is where the entire secret lies. We addressed new luxury. To get to know the new luxury of the 21st century, it would be best to head over to Soho House in Berlin. The people who go there have enough money to easily afford any other five-star hotel in Berlin. Why do they prefer to go to a hotel that, at least at first glance, looks as if its best days are behind it?

You have to explain a bit more, please.

The new wealthy want their own luxury, their own art, their own music. And not the look of their parents. The younger generation wants to express itself differently and have other luxury symbols than those of their fathers and grandfathers. Other luxury watch brands ignored younger buyers. They systematically addressed the normal, established luxury market. We were the only ones who spoke to the rappers, the football players and the basketball players.

Could you go into more specifics about the new luxury customer?

These are people who have so much confidence in themselves that they wear what they like and drive the car that they enjoy most. And not something that their social milieu dictates to them, as was customary for decades, even in the Western world. These are people who have enough strength and self-confidence to say, “I just don’t care what other people think, I’m wearing that.”

Why are we producing headphones now? Because they are a means of communication, like watches. And the younger generation wears them as routinely as wristwatches used to be worn.

How many watches does the typical Hublot customer own?

Two, three on average. Our best customer, by the way, is a German who owns 150 Hublot watches.

Hublot belongs to LVMH. What has that brought with it?

The group assisted us in increasing name recognition in various countries. And then people said, “Oh, you’re part of LVMH, that’s great!” That means something around the world, and brings prestige. And then LVMH was extremely helpful in getting us store locations that nobody would ever have suggested otherwise. In 2009, no one would have thought to offer Hublot the prime address on Place Vendôme in Paris when it became available.

How important is a retail shop in the Internet era?

At the moment we have 55 shops. We are adding more. In the course of the next three years we want to be offering Hublot watches exclusively at 120 boutiques around the world.

And all those shops with the Internet-savvy customers of today?

Of course that’s a contradiction. But a watch is like a pair of shoes. You have to try them on. And I can only advise anyone to not buy a pair of shoes on the Internet. The same holds true for watches. Even if you are able to buy them on the Internet, you should place it on your wrist at least once. Along with the diameter, other dimensions such as height, the width of the band and the watch’s weight also contribute to the wearing comfort.

A watch is like a pair of shoes. You have to try them on. And I can only advise anyone to not buy a pair of shoes on the Internet. The same holds true for watches. You should place it on your wrist at least once.

What is your biggest challenge in reaching customers?

This comes down to retail shops themselves. They are by far the most important and best instruments of communication. Each boutique sells about 20 to 30 watches every month, so that’s about 1,500 sold watches in total for us around the world. The majority of people who enter our shops leave with a watch.

You hold the record for selling the most expensive watch in the world, at €5 million. And you have a current model available for €1 million. What type of customer purchases something like that?

You cannot describe customers in this price range. But you really do find them everywhere. For instance, we sold three of the €1-million watches to Germans. But we also had a customer from Las Vegas and one from Istanbul. First off, these customers spend €1 million the way you and me might spend €1,000. For €1,000, you might buy an Omega, a Tag Heuer or a Longines. So it’s all relative. Second, these are people who know that a watch could actually be worth that much. Many people wouldn’t even begin to understand, and say, “How can that be? It’s a scam!” So these customers need expertise and knowledge, in things like the timekeeping mechanism, the gemstones or other materials. They must be able to recognise the substantive value.

How has luxury marketing changed for the various customer segments?

Back in the 1970s, the majority of watch companies didn’t undertake any sort of marketing. The product did the marketing, and that was it. The credo was to produce the world’s most precise watch. And then came the quartz watches. Companies spoke more about the technology than they did about emotions. The paradigm change came through fashion.

The new wealthy want their own luxury, their own art, their music. And not the look of their parents.

What do you mean?

The fashion industry discovered us. In a 1970 issue of Vogue you won’t see watches anywhere. No editorial. No advertisements. And now? You find something every couple of pages. At least 10 watch ads in every magazine nowadays. No one buys a mechanical watch today just because it is particularly precise.

Speaking of fashion, does Hublot do any market research to see which colours to use next year?

We never conduct market research. What can market research do for such a niche product? We would never be able to achieve a large enough representative sample. Our customers spend an average of €15,000 for a watch. That’s what makes luxury marketing so difficult.

So how do you come up with things like leopard prints on the wristbands?

It’s pure instinct. We just know our customers’ fashion tastes and wishes in detail. If bikinis for 2014 are violet or blue, we adjust immediately by having the same bands or watch casings. There’s no excuse if your watch does not match your Hermès handbag, for instance. Furthermore, we’re simply very open to new things. We don’t limit ourselves to tradition alone. We constantly remain on the lookout and keep our ears to the ground. We always say “yes” to new things. Then later on we consider whether or not it should become a “no”.

Which markets are most important for Hublot?

In absolute numbers, we sell the most watches in the United States. But we have by far the highest market share in Japan. Next comes Singapore. After that, the most important markets are Mexico, Brazil and Russia.

How do you serve the interests of the different markets?

Internationally there’s a learning curve. Think of children who would like to play a musical instrument. First, they learn acoustic guitar before daring to try the electric. To understand the future you need the past. Markets function exactly the same way. In China, for instance, they are absolutely interested in the past. In mechanics, tradition. Sports are uninteresting for the luxury segment there. Russians, on the other hand, buy something that is focused on the future rather than the past. In the emerging markets, a visible brand image plays a large role, while other countries still require tradition. But you cannot head towards the future without the past. Just like jumping. You need one foot on the ground in order to leap far ahead.

What does this mean for the product portfolio? Doesn’t it inevitably lead to too many models and a dilution of the brand image?

Our product range is indeed quite broad. We release about 100 new models per year. However, the trick is that they are for the most part limited editions. By next year, 80 per cent of the models will no longer be available. Still, we earn 70 per cent of our revenue with 120 basic models. The limited editions are offered exclusively in the boutiques, which attracts customers.

Could you sum up Hublot’s recipe for success?

Ultimately, a brand’s substance is the most important thing. It must maintain a substantial balance between marketing and true innovation. Research delivers the authenticity. When you strongly advertise the brand, as we do, you have to deliver substance through research and development all the more. Marketing always seems to pull energy from a product. You must counter this through committed research and development and reach a balance.

Ultimately, a brand’s substance is the most important thing. It must maintain a substantial balance between marketing and true innovation. Research delivers the authenticity.

So you invest just as much in research as you do in marketing?

Due to our sponsorship of the 2014 Football World Cup in Brazil, this is impossible at the moment. But over a time frame of 10 years these expenditures shouldn’t differ by more than 5 per cent. Otherwise you’re selling a fashion product.