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Maximizing Value By Understanding Economic Trends

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Feb 9 2009

In 1899 the Economist Thorstein Veblen coined the terms "Conspicuous Consumption" and "Pecuniary Emulation" in his classic text The Theory of the Leisure Class.  In this work, Veblen evaluated the behavioral characteristics of the super-rich and the middle-class of his day and developed a new school of economic thought, Institutionalism, which still holds relevance today. Veblen posited that people make purchase decisions not necessarily based upon the usefulness (utility) of the products purchased but instead based upon the perceived status such products bring. As a result, "Conspicuous Consumption" refers to purchases made primarily to demonstrate one's wealth and status to others as opposed to purchases made out of necessity.

"Pecuniary Emulation" follows and can most easily be summarized with the common phrase "keeping up with the Jones's". In effect, pecuniary emulation applies to purchases made in an effort to make one appear to be wealthier than one actually is.  While this journey into economic history may be interesting (or horribly boring depending upon one's point of view) it has a significant impact upon how marketing strategy and analytic experts should be approaching client problems.

The current economic downturn has had a significant impact on the purchase behavior of the affluent in this country. A recent study by The Luxury Institute found sales of mega-yachts dropped between 25% and 50% in 2008. The study found "there's a stigma to the wealthy spending millions on a boat when people are being laid-off". Perhaps more relevant to several of Quaero's current clients, sales of luxury automobiles have declined dramatically as a result of the current recession. In 2008, BMW experienced a sales decline of 4.3%, Lexus saw a 9.1% decline and Mercedes saw its sales fall by 11%. Luxury retailers such as Tiffany, Nieman Marcus, and Saks Fifth Avenue have seen an increase in customers requesting their purchases be placed into plain bags or even wrapped and shipped to their homes. It seems that even the wealthy and affluent are cognizant of the hardships being endured by the less fortunate and, as a result, conspicuous consumption is no longer en-vogue. The Luxury Institute labels the change in the purchase behavior of the affluent "luxury shame" or "stealth wealth".

When marketing strategy and analytic experts focus on maximizing their client's marketing efforts it is important to remember that macro-economic conditions are changing the behavior of many of the groups those clients are trying to reach.  Segmentation schemes often identify affluent customers as a desirable target for marketing and advertising efforts. Client marketing departments often see this group as having significant disposable income (often rightly so) and willing to spend on lavish products and services. Client Sales teams often leverage affluent segments in discussions with high-end advertisers and charge a premium for access to these consumers. What is important to understand is that products that may have had tremendous appeal to the affluent one year ago may have lost some of their luster in today's economic environment. The affluent may still be purchasing but the types of products they are likely to buy may be very different today than they were even a year ago. This has very direct impacts upon the types of marketing campaigns and offers directed towards the affluent as well as the types of advertisers that may find success by targeting this segment. Marketing efforts directed towards affluent customers may see higher response rates when the products or services are less high-end. Examples may include targeting affluent customers with trip offers to Disney or Breckenridge instead of the Bahamas or Aspen. Similarly, when targeting affluent customers, companies such as Nissan and Toyota may find success in touting their flagship lines as opposed to their high-end Infinity and Lexus lines.

Ultimately marketing and analytic professionals have an obligation to stay abreast of macro-economic trends and how these impact their clients. Demonstrating knowledge of the macro-economic environment and its impacts improves a client's competitive advantage in the marketplace and further demonstrates the value marketing consulting services can provide. It is the author's hope that the above discussion on affluent purchasing patterns provides an example of the types of trends marketing professionals need to be cognizant of when working with their clients. Even if it is only in the short-term, even Veblen would agree, conspicuous consumption is no longer "in".

 

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