Highlights of Most Recent Survey

Highlights of the Spring 2012 Affluent Market Tracking Study #21

As an inexpensive way to conduct research among the affluent, proprietary questions can be purchased in these tracking studies for your exclusive use.

Overview

Major findings are detailed in a section below.

This report provides extensive current and historic trend data on the following:

• Purchase intentions for 8 major expenditures including autos, primary residences and vacation homes, cruises, and major home remodeling
• Expected changes in spending for 17 products and services including vacation travel, dining out and recreational and entertainment activities, various durables for the home, apparel, and fine jewelry and watches

Special topics included in this report include:

Brand Perceptions (unaided)
• Identification of the highest quality product or service
• Best overall retail chain
• Best quality, best value, and most prestige for autos, watches, lady’s designer apparel, and men’s designer suits

Financial Advisors and Planners
• Identification of the firm they use, if any (unaided)
• Satisfaction with advisor’s recommendations since spring 2008
• Assessment of financial security now versus spring 2007

Loyalty Program Participation
• Which of 14 types (and how many of each) they belong to
• How each program influences spending with the sponsor
• Most important features of loyalty programs
• Identification of provider of best overall loyalty program

Daily Deal Promotions
• Which programs they subscribe to
• How many programs they subscribe to

Following a substantial decline in the economic outlook and spending plans of the affluent in our Fall 2011 survey, this new survey shows that the affluent have returned to a more positive perspective (similar to the Spring 2011 survey results) on current business conditions and their 12-month outlook for business conditions, the stock market, and their personal household income and net worth.
These results are consistent with the March general Consumer Confidence Index (70.2), reported by The Conference Board, and similar measures of consumer mood tracked by Bloomberg, Gallup, Discover Financial Services, and others.

As in the Spring 2011 survey, the relatively improved mood of the affluent appears to reflect a number of factors which include first quarter gains in the stock market and an improved outlook for their personal household income and net worth.

Spending plans for the 8 major items and the indexes for the change in spending for the 17 products and services tracked by these surveys are about equal or above those reported in the Spring 2011 survey, which also reflected a first quarter with good news about the economy and the stock market. There are pockets of particular strength in the spending plans, especially among the wealthiest one percentile.

The purchase intentions rose slightly from the Fall 2011 survey for a new motor vehicle, major home remodeling, and acquisition of a vacation home. The other major purchase items showed slight declines from the Fall 2011 survey. A substantial amount of possible additional purchases are represented by the respondents who are “undecided” about a cruise (8%), auto (10%), remodeling (8%), a primary residence (6.6%), and a vacation residence (7.5%).

Given the 11.4 million households represented by this survey, it can be estimated that the affluent represent potential purchases of 2.3 million autos, 1.8 million remodeling projects, 1.7 million cruises (total of 3.4 million cruisers), 365,000 primary homes, and 433,000 vacation homes.

The index for all 17 product categories rose from the Fall 2011 survey. Increases were primarily single digits (and some only by 1 point) but 5 categories rose by double digits: domestic vacation travel (+17), international vacation travel (+13), dining in upscale restaurants (+11), collectibles (+15), and political contributions (+17).

On average, the respondents believe it will be about 3 more years before the stock market returns to pre-recession levels. Over a third (37%) expect the recovery to be in less than 2 years. At the time of the survey, the Dow Jones 30 index was around 13,000 or about 1,200 points from its pre-recession high.

On average, the respondents believe it will be about 4 more years before unemployment returns to pre-recession levels. Over 40% expect the recovery to be in 4 to 5 years. The respondents thus feel the stock market will recover faster than unemployment.

Understandably, those with a more positive outlook about the economy and their personal financial situation are the least likely to plan reductions of their expenditures and are most likely to have the strongest spending plans.

Some of the highlights of the special topics covered in this survey include: 56% have a financial advisor or planner and two-thirds of these respondents believe the advice they have received since 2008 was excellent or good; 32% named Apple as the highest quality product or service; 25% named Costco as the best retail chain; 47% subscribe to a daily deal promotion (with Groupon having a 60% share); and 81% belong to some type of customer loyalty program.

Rolex was a clear winner as the fine watch brand for the two attributes of best quality regardless of price and most prestige. With the exception of Chanel being named for most prestige, especially among women, there were no real winners for the category of lady’s designer/couture apparel. Armani was a relatively strong winner as the man’s designer suits/clothing brand for the two attributes of best quality regardless of price and most prestige. For automobiles, a different brand was in first place for each of the three attributes, with Lexus named for best quality and Mercedes Benz for most prestige.
About 81% of the respondents report they belong to one or more of the 14 types of loyalty programs listed. Among those who do participate in such programs, the average number of programs is 10. About 5% of the affluent report belonging to 25 or more programs.

On average, the respondents identified about 2 features of loyalty programs that are most important. In general, the most important feature of a loyalty program is the value and type of rewards that can be earned, which was named by 65% of the respondents. Of the various loyalty programs in which the respondents participate, American Express, on its own (16%) and in combination with Costco (9%), was named as the best overall loyalty program provider.

Over half of the respondents (54%) say that the loyalty program influences them to spend more with the business than they would otherwise spend with that particular business.

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The 84-page/66 exhibit Spring 2012 Affluent Market Tracking Study #21 is available at a price of $495. With a full set of 122 tables of cross-tabulated data, the price is $695. To order, click below and tell us which you would like to buy. Please include the purchase price, your name, and the name of your organization. AARC accepts checks and charge cards.

Survey and Report Content

This is the 21st in a continuing series of twice-yearly surveys that focus on the 11.4 million households that represent the wealthiest 10% of all U.S. households, as determined by The Federal Reserve Board, based on net worth. These surveys regularly measure and track their 12-month outlook for the economy, the stock market and their personal earnings, savings, investment objectives, and spending plans for 17 product categories and 8 major expenditures. In addition, each survey contains special questions exploring new topics.

Special questions in this survey reveal which segments of the affluent will be making a general effort to reduce or defer expenditures during the next 12 months and which will not, which factors will most influence a return to pre-recession levels of spending, the expected change in net worth over the next 12 months, assessment of current financial security versus 2007, and expectations of the length of time before unemployment and the stock market recover to pre-recession levels. These are all important factors that influence the mood and spending plans of the affluent. They help explain current and near term spending of the affluent and provide a perspective of what to expect over the next year or so.

This survey also contained a series of questions to identify use of and satisfaction with financial advisors and planners; the brand of the highest quality product or service; the best retail chain; the brand perception (highest quality, best value, and most prestige) of automobiles, watches, lady’s designer/couture apparel, and man’s designer suits/clothing; subscriptions to daily deal promotions; participation in each of 14 different types of customer loyalty programs; identification of the most important features of a loyalty program and the provider of the best program.

These tracking studies are unique in that they are conducted by mail among samples drawn at random, and they focus on the future outlook and spending plans of the affluent, rather than asking the respondents to remember and reconstruct past spending that is then extrapolated.

The surveys track plans for major purchases (vacation homes, primary residences, home remodeling, automobiles, boats, and cruises) during the next 12 months. The surveys also track anticipated changes in spending during the next 12 months for 17 categories of products and services. These include fine jewelry and watches, domestic and international travel, dining in casual and upscale restaurants, furniture, major appliances, entertainment equipment, home computer equipment, entertainment, recreational activities, collectibles, designer and non-designer apparel, and charitable and political contributions.

For much of the preceding, the report shows historical trend data and data by demographic segment within the overall affluent population.

Our new, expanded report format with graphs and charts will help you to identify and understand the differences between the affluent consumers and the true luxury consumers. These graphic elements, plus the executive summary and highlights sections, will facilitate a quick read of a report rich with data.

This is report #21 in the original and only twice-yearly tracking study of the mood and spending plans of the wealthiest 10% of U.S. households, which account for almost half of all consumer spending. These surveys are designed to provide information critical for effective marketing to the affluent and luxury consumers.

With this new report, you will learn:
• Spending plans over the next 12 months of both the luxury and affluent consumers (and they are often different)
• Which of 8 major expenditures show the most sales potential and among which segments
• Which of 17 product categories show the most sales potential and among which market segments
• Which segments of the affluent are generally reducing expenditures and which are not
• Use of and satisfaction with financial advisors and planners
• The brand of the highest quality product or service
• The best retail chain
• The brand perception (highest quality, best value, and most prestige) of automobiles, watches, lady’s designer/couture apparel, and man’s designer suits/clothing
• Subscriptions to daily deal promotions
• Participation in each of 14 different types of customer loyalty programs;
• Identification of the most important features of a loyalty program
• The provider of the best loyalty program

Research Methodology

Unlike other affluent and luxury market research that is based on online surveys of panels of people who are compensated for participating in regular and frequent surveys, our unique direct mail surveys are based on samples drawn at random to be representative of the precisely defined population of affluent households, consistent with the research of the Federal Reserve Board. Confident of their anonymity, the respondents to our surveys are typically more affluent and more open in providing confidential information.

Surveys were mailed to a randomly selected, national sample of 4,500 men and women in households that, based on their income and ownership of certain assets, were expected to meet the minimum net worth requirement of $800,000. The overall survey response rate was 10.1 percent, thus showing the importance of this survey to the respondents, who have been a leading indicator of economic conditions, as when they called the recession in our March 2008 survey (well ahead of everyone else).

This report is based on the responses from 372 men and women who promptly responded and met the minimum net worth requirement of $800,000. Their households have an average annual income of $267,000, an average net worth of $3.1 million, average investable assets of $1.8 million, and an average primary residence value of $1.2 million.

The survey respondents represent 27 states and the District of Columbia. Eighty-six (86) percent are married. The average age is 59. Sixty-one (61) percent are males and thirty-nine (39) percent are females.

The maximum margin of error of this survey, at 95% confidence, is five percentage points.

Index values shown in this report can range from 0 (negative) to 200 (positive), with an index of 100 being a neutral point where little or no change is expected.

This survey is more informative than others for several reasons. Unlike some other surveys of the affluent, this is not an extrapolation of past actions that they have been asked to remember and reconstruct. It is designed to identify future spending plans and intentions.

Unlike most other surveys of the affluent, this survey of people does not include respondents who do not qualify to be among the wealthiest 10% of US households, based on net worth.

Unlike other types of surveys where the respondents cannot be confident of their anonymity, the respondents to our surveys are typically more affluent and more open in providing confidential information.

Major Findings

• The assessment of current business conditions (index of 69) rose 38 points from the Fall 2011 survey. This is the best rating since the Fall 2007 survey (108) just before the start of the recession.

• The index for future business conditions (128) is 37 points above the Fall 2011 survey index. Given the somewhat low rating of current business conditions, this future index seems to reflect an expectation of some improvement from a poor starting point. This is consistent with the March Consumer Confidence Index of The Conference Board (70.2) and similar measures from Gallup, Bloomberg, Discover Financial Services, and others.

• The index for change in the stock market (126) is 31 points above the Fall 2011 survey index and reflects some optimism about the direction of the stock market during the next 12 months. This index suggests an expectation that the market will continue to strengthen during the next 12 months.

• The index for the expected change in after-tax personal income (91) is 14 points above the Fall 2011 survey index. This index indicates an expectation that income will be largely unchanged during the next 12 months.

• The composite Affluent Consumer Expectations (ACE) 12-month Economic Outlook Index (which is the average of the 12- month outlook for business conditions, the stock market, and household income) rose by 27 points from the Fall 2011 survey and moved back into positive territory (115).

• All three components of the composite ACE 12-month Economic Outlook Index are well above the Fall 2011 survey results and very similar to the Spring 2011 survey.

• With average saving rates ranging from 12% to 22%, the affluent report a much higher rate of savings than the general public (about 6%). This is consistent with other research indicating that the affluent typically become affluent by living within their means and being aggressive savers.

• The index for the expected change in savings (105) is 17 points higher than the Spring 2011 survey. This index, while slightly above the neutral level, may be a reflection of the improvement in expectations for personal household income.

• The index for the expected change in savings has effectively been in neutral territory since the Spring 2007 survey. This indicates no real intentions to change the percentage of income saved or invested. This contrasts with the general public, which has shown some increased tendency to save since the start of the recession.

• Perhaps reflecting recent stock market strength, preservation of capital as a primary investment objective declined by 8 percentage points while capital appreciation/growth was the same as in the Fall 2011 survey. As might be expected, there are substantial differences in investment objectives among certain groups.

• The primary investment objectives of capital appreciation/growth and preservation of capital have shown substantial changes over time, while the objective of income has remained relatively stable. The changes in the importance of capital appreciation and preservation generally correspond to changes or volatility in the stock market.

• Almost half (44%) of the respondents appear to have no financial advisor or planner as none was named. Those with the higher levels of income, investable assets, and net worth were more likely to name a financial advisor. The large diversity of advisors is evidenced by the fact no firm was named by more than 7% of the respondents and about 20% of the respondents named a firm outside of the 16 firms that were most frequently named.

• About two-thirds (68%) of the respondents gave a rating of good or excellent to the quality of the recommendations received from their financial advisor since Spring 2008, when the stock market began a major decline due to the financial crisis and recession. The remainder (32%) appears to have some doubts or uncertainty about the quality of the advice they received.
• A little over a quarter (27%) of the respondents feel their current financial security is better than it was in Spring 2007. About 44% of the respondents feel their financial security is worse than in Spring 2007.

• The purchase intentions rose slightly from the Fall 2011 survey for a new motor vehicle, major home remodeling, and acquisition of a vacation home. The other major purchase items showed slight declines from the Fall 2011 survey. A substantial amount of possible additional purchases are represented by the respondents who are “undecided” about a cruise (8%), auto (10%), remodeling (8%), a primary residence (6.6%), and a vacation residence (7.5%).

• Given the 11.4 million households represented by this survey, it can be estimated that the affluent represent potential purchases of 2.3 million autos, 1.8 million remodeling projects, 1.7 million cruises (total of 3.4 million cruisers), 365,000 primary homes, and 433,000 vacation homes.

• Plans to acquire a vacation home peaked in the Spring 2005 survey (10.5%) and declined to a record low in the Spring 2009 survey (2.3%). The current reading of 3.8% is a return to the Spring 2011 level and the highest level since Spring 2008 (4.2%).

• Plans to acquire a primary residence peaked in the Fall 2003 survey (9.6%) and declined to a record low in the Fall 2009 survey (2.6%). The current reading of 3.2% is a large decline from the Fall 2011 survey and only slightly above the record low.

• Plans to acquire an auto peaked in the Fall 2003 survey (37%) and declined to a record low in the Spring 2009 survey (14%). The current reading of 20% is relatively unchanged from recent surveys.

• Plans to have a major home remodeling project peaked in the Spring 2005 survey (34%) and declined to a record low in the Spring 2009 survey (10%). The current reading of 16% is the highest since Spring 2010.

• Plans to take a cruise peaked in the Fall 2007 survey (22%) and declined to a record low in the Spring 2009 survey (12%). The current reading of 15% is down 3 points from Fall 2011.

• The absence of plans for major expenditures (“none of the above”) had been relatively stable (43% to 46%) prior to the Spring 2008 survey. Since then, the absence of plans for a major expenditure has ranged from 55% to the 60s, with a peak of 68% in the Spring 2009 survey and a record low (a positive indicator) in the Spring 2005 survey (36%). The current reading of 59% is relatively unchanged from recent surveys.

• The index for changes in spending for all 17 categories rose from the Fall 2011 survey. Increases were primarily single digits (and some only by 1 point) but 5 categories rose by double digits: domestic vacation travel (+17), international vacation travel (+13), dining in upscale restaurants (+11), collectibles (+15), and political contributions (+17).

• There are 8 categories with indexes in the neutral range of 90 to 110, and domestic travel is in positive territory. The other 8 categories appear to be facing a decline in spending.

• The vacation travel index (104) rose 15 points from the prior survey reflecting improvement plans to increase spending for both domestic and international vacation travel.

• All four indexes for dining out and leisure activities are well above the record lows of the Spring 2009 survey. The index for future spending on dining out and leisure activities (91) rose 7 points from the prior survey and returned to neutral territory.

• All four indexes for home durables are well above their historic lows that were established in Spring 2009. The index for future home durables spending (90) rose 6 points from the prior survey and returned to neutral territory.

• The index for non-designer apparel (90) rose 4 points from the Fall 2011 survey. The current reading is reasonably close to the pre-recession readings and indicates only a slight decline in spending, if any change at all.

• The designer apparel index (72) rose 8 points from the prior survey. Though the reading is well above the historic low (47) in the Spring 2009 survey, it is below pre-recession levels and indicates a decline in spending during the next 12 months.

• The index for fine jewelry and watches (64) rose 5 points from the Fall 2011 survey. The current index indicates a definite decline in spending for these items during the next 12 months.

• The index for cameras and photographic equipment (75) rose 9 points from the Fall 2011 survey but continues to indicate a decrease in spending for these items during the next 12 months.

• The collectibles index (74) had a surprising rise of 15 points from the prior survey. However, spending on these items can be expected to decline during the next 12 months.

• The index for political contributions (82) rose 17 points from the Fall 2011 survey. Despite 2012 being an important election year, the respondents still seem inclined to reduce their political contributions during the next 12 months.

• The charitable contributions index (99) rose 8 points from the prior survey but remains in neutral territory, suggesting little or no change during the next 12 months.

• The average index for all 17 categories of products and services (87.4) rose 6.1points from the prior survey. This reading is very close to neutral territory and suggests little change in overall spending during the next 12 months.

• About 37% of the affluent say they will make a conscious effort to reduce or defer expenditures during the next 12 months. The responses to this question have been largely unchanged since the Fall 2010 survey.

• About a third of the respondents say they have not changed their spending since the recession started.

• About a quarter of the respondents who have changed their spending since the recession started say they will not return to pre-recession levels of spending.

• Those who expect to return to pre-recession levels of spending typically have more than 3 factors that will influence whether they return to pre-recession levels of spending. In total, the most important factors are value of savings/investments is fully recovered (55%), home value is fully recovered (48%), stock market is fully recovered (41%) and certainty of job security and/or compensation (37%).

• On average, the respondents believe it will be about 3 more years before the stock market returns to pre-recession levels. At the time of the survey, the Dow Jones 30 index was around 13,000 or about 1,200 points from its pre-recession high.

• On average, the respondents believe it will be about 4 more years before unemployment returns to pre-recession levels. The respondents thus feel the stock market will recover faster than unemployment.

• Because prior research has shown that the affluent have limited knowledge of the brands considered to be “true luxury” by the industry, the respondents in this survey were not given lists of brands to rate, as is often the case with brand rating research conducted by others. Instead, they were asked to name the best brands.

• Apple, the clear winner as the brand that represents the highest quality, was well ahead of the next 4 places, which were auto brands.

• Costco, the clear winner as the overall best retail chain, was well ahead of Target and Nordstrom, which were also among the top names.

• Rolex was a clear winner as the fine watch brand for the two attributes of best quality regardless of price and most prestige.

• With the exception of Chanel being named for most prestige, especially among women, there were no real winners for the category of lady’s designer/couture apparel. The names mentioned most for best quality and best value for this category of product received less than 10% of the total mentions.

• Armani was a relatively strong winner as the man’s designer suits/clothing brand for the two attributes of best quality regardless of price and most prestige.

• For automobiles, a different brand was in first place for each of the three attributes, with Lexus named for best quality, Mercedes Benz for most prestige, and Toyota for best value.

• Approximately half (53%) of the respondents say they do not subscribe to any of the daily deal promotions. Among the 47% that do follow such promotions, the most popular one is Groupon, which has about a 60% share.

• The daily deals are most popular with the under age 50 (66% participate), women (54%), and those in the lowest net worth group (52%). Participation is about the same for both income groups.

• About 81% of the respondents report they belong to one or more of the 14 types of loyalty programs listed. Among those who do participate in such programs, the average number of programs is 10. About 5% of the affluent report belonging to 25 or more programs.

• Among all loyalty programs in which the respondents participate, over half of the respondents (54%) say that the loyalty program influences them to spend more with the business than they would otherwise spend with that particular business.

• On average, the respondents identified about 2 features of loyalty programs that are most important. In general, the most important feature of a loyalty program is the value and type of rewards that can be earned, which was named by 65% of the respondents.

• Of the various loyalty programs in which the respondents participate, American Express, on its own (16%) and in combination with Costco (9%), was named as the best overall loyalty program provider. No other programs were mentioned by more than 6% of the respondents.

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Top 4 Ways to Use and Benefit from This Research

If your perceptions of today’s luxury and affluent consumers (who are often very different) are largely derived from what you read in the media and online, you are probably creating your marketing strategies and plans based on false premises. To stay ahead of your competitors, you need AARC’s new research report to understand today’s luxury and affluent consumers and how to market to them.

1) Develop an understanding of the general mood of the affluent and their expectations for business conditions and personal income over the next 12 months. Gives you a basic perspective on general market conditions that will determine marketing opportunities and challenges.

2) Identify changes in the spending plans of the affluent for your specific product category during the next 12 months. Shows you how potential sales of your product category compare to prior years and indicates what competitive pressures may result in your industry.

3) Learn which segments of the affluent market represent the best sales potential for you during the next 12 months. Identify the market segments that are cutting back on spending and those that are continuing to spend for your product category.

4) Create your marketing and sales plans with data based on the future intentions of the affluent. Unlike many other surveys of the affluent, this is not an extrapolation of past actions that they have been asked to remember and reconstruct.

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