A pointed question from the audience said that probability sampling was the theoretical basis for the projectability of survey research and asked what the scientific underpinnings were for assuming that Internet research was similarly representative.  Melanie [the presenter] answered that replicability is emerging as the standard instead of randomization and that the results from her research were replicable.

A new study led by Stanford University researchers raises doubts about the accuracy of one of the most common forms of survey research, polls done among people who sign up to fill in questionnaires via the internet in exchange for cash and gifts.

In the most extensive such analysis to date, David Yeager and Prof. Jon Krosnick compared seven non-random internet surveys with two surveys based instead on random or so-called probability samples. The non-probability internet surveys were less accurate, and customary adjustments did not uniformly improve them.

While the random-sample surveys were “consistently highly accurate,” the internet surveys based on self-selected or “opt-in” panels “were always less accurate, on average, than probability sample surveys, and were less consistent in their level of accuracy,” the researchers said. Further, they said, adjusting these samples to known population values had no effect on accuracy (and in one case even worsened it) as often as that process, known as weighting, improved it.

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In November 2008, Newsweek published an article stating that the American affluent population was “experiencing an unfamiliar emotion:  luxury shame”.  The article, as well as several others that have appeared in various media since then, explained that across America, the affluent population was straying from conspicuous consumption, and engaging in “stealth wealth” because conspicuous consumption just didn’t feel right in these difficult economic times even though the affluent could still afford the finer things in life.

According to a recent tracking study of the wealthiest 10% of US households, the American Affluence Research Center found that in fact a mere 7% of survey respondents indicated any signs of luxury shame or stealth wealth.  For those who did reduce spending because of their self-consciousness, they did so an average of only 4.5 times during the year.  Vacations, new cars, and dining out were the three biggest categories where this small share of the affluent consumer market reduced its spending due to luxury shame.

Despite the fact that 41% of survey respondents acknowledged feeling self-conscious about being in a better financial situation than those around them, we see that not many felt badly enough to change their spending habits because of appearances.  Rather, respondents were more likely to have indicated a change in spending habits due to uncertainty when the economy will recover, decline in value of investments/savings, and a desire to spend less and save more.

It seems the media has it wrong.  Although luxury retailers have seen declines of 10-25% during this recession, those declines are most attributable to “aspirational” consumers who were living beyond their means but can no longer afford to do so.  The change in spending habits of aspirational consumers has given the biggest blow to luxury retailers.  The true affluent have reduced only some spending due to declining net worth, but the truth for the affluent market seems to be that old habits die hard.  Especially spending habits.

The national survey included 684 affluent men and women with an average of $300,000 household income, $3.1 million average household net worth, and $1.2 million average value of their primary home.

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Luxury Defined: What the Affluent Will Spend for Luxury Price Points and Brands for 37 Products and Services

For several years, luxury retail and marketing consultants have fed the media with anecdotal research about the sales of $700 Manolo Blahnik shoes, $1,000 Prada hand bags, and $250 True Religion jeans as though such sales are common place.

But the affluent women in a survey of the wealthiest 10% of US households by The American Affluence Research Center (AARC) report they are more likely to spend less than $120 for nice shoes, less than $100 for a purse for every day, and less than $75 for a pair of women’s jeans.

“Luxury is a very ambiguous word that is used very loosely,” according to Ron Kurtz, President of AARC, who observed that “the definition of luxury varies considerably by individual and by product, as clearly demonstrated by our survey.”

Affluent Report the Most They Could Imagine Spending for 37 Products

In AARC’s ground breaking research on the definition of luxury among the wealthy, the survey respondents were asked to specify the most they could imagine spending for 37 different products and services. They were also asked to name the brand they would most likely purchase for each of the items.

The profile of the affluent in the survey sample is: $304,000 average household income, $3.1 million average household net worth, and $1.6 million average household investable assets. The average value of their primary home is $1.2 million. The average age is 55 while 86% are married and 60% are males. The national sample represents 33 states plus the District of Columbia.

In this study, both men and women were asked about the same 15 products and services. The wealthy women were asked about an additional 11 gender oriented products and the affluent men about an additional 11 products.

Both men and women were asked to provide a price (the median value of the price reported by men/women is shown in parenthesis) and a brand for a new auto ($40,000/$35,000) for personal use, a room in the winter in a Caribbean resort ($300/$250 per night), a European cruise ($300/$300 per person per night), a hotel room in New York City ($300/$300 per night) for a vacation, a refrigerator ($1,500/$1,500), an original painting $3,000/$3,000), a washer/dryer set ($1,500/$1,500), a king size mattress ($1,000/$1,500), a set of linens for a king size bed ($200/$150), wall to wall carpet ($20/$20 per square foot), a watch for dressy occasions ($1,000/$500), a watch for every day ($130/$150), a bottle of wine ($40/$30) for a special dinner at home, frames for sun glasses ($125/$150), and a large 24” wheeled garment bag ($200/$150).

Women were asked to provide a price (median value shown in parenthesis) and a brand for a dressy suit ($250), shoes ($120) to go with the dressy suit, a cocktail dress ($200), shoes ($100) to go with the cocktail dress, a pair of jeans ($75), a pair of diamond stud earrings ($1,000), a purse ($100) for every day, skin rejuvenation cream ($50 for 1.7 ounces), liquid make-up/foundation ($25 for one ounce), a bottle of perfume ($60 for 1.7 ounces), and lipstick or gloss ($15).

Men were asked to provide a price (median value shown in parenthesis) and a brand for a business suit ($500), shoes ($200) to go with the business suit, dress shirt ($75) to go with the business suit, a tie ($50) to go with the suit, a tuxedo ($500), shoes ($125) to go with the tuxedo, shirt ($75) to go with the tuxedo, a sport coat ($250), slacks ($100) to go with the sport coat, a dressy long sleeve sport shirt ($75), and dressy short sleeve sport shirt ($50).

Conspicuous Consumers Only 10% of Affluent Market; Most Affluent Not Familiar with Luxury Brands

“The research results support two important observations about the affluent market and their spending on luxury items,” according to Kurtz.

First, the affluent market is composed primarily of people with middle class backgrounds who continue to pursue a somewhat middle class lifestyle with middle class values. Kurtz emphasized that “about 90% of the affluent, or 10 million households, are not conspicuous or ostentatious consumers. They spend conservatively and save carefully. America’s current credit and economic problems might have been avoided if these affluent people, with their conservative spending and saving habits, had been recognized as role models. They have demonstrated the importance and value of living within your means.”

Second, only about 10% of the wealthy, or the 1 million households that account for less than 1% of US households, might be considered conspicuous consumers. With the exception of this relatively small niche segment, the affluent market does not appear to be very knowledgeable about the pricing and brands of products that are generally recognized by marketers as being in the higher price points associated with the luxury category. This seems to create an opportunity to substantially increase the market for high end luxury products if the affluent market can be educated about why they should consider buying them and the brands that offer them.

False View of Luxury Market Created by Anecdotal Research Provided to the Media

None of this is new news or indicative of a new trend. The conventional wisdom is that the US has witnessed increasingly conspicuous and ostentatious consumption by an increasingly affluent market for a period of about 30 years, which has been interrupted by brief interludes of retrenchment during the occasional recession and the 9-11 tragedy. This popular perception of the luxury market and the wealthy has resulted from anecdotal “research” provided to the media that used examples such as a young Wall Street attorney spending $50,000 of a year end bonus for a new watch or a secretary spending $1,000 for a new hand bag.

Other examples of conspicuous consumption among the wealthiest 1% have created the impression that there were many hundreds of thousands of people making a million dollars a year or more among the ranks of the entertainers, professional athletes, Wall Street bankers and attorneys, Fortune 500 executives, real estate developers, and entrepreneurs who have taken their company public. In fact the latest IRS data shows less than 400,000 US households in this income bracket.

The actual size and spending patterns of the affluent market are well documented by the data from the Internal Revenue Service and The Federal Reserve Board and the research of the affluent by former Georgia State University Professor Thomas J. Stanley that began in the 1970s and led to “The Millionaire Next Door” and a series of related books beginning in 1996. Dr. Stanley’s research produced similar conclusions regarding the lifestyle, values, spending, and savings profile of the affluent as that suggested by the AARC research. In fact, since AARC’s inception in 2002, the results of its research have been consistent with Dr. Stanley’s research.

No Long Term Changes in Spending Evident Among the Affluent

Contrary to assertions by some luxury market consultants that the current economic problems are creating longer term changes in their lifestyles and reductions in spending on luxury and conspicuous consumption by America’s wealthy, most of the affluent are behaving like their normal, rational, and frugal selves. Their careful spending is not a new trend.

While the concepts of “stealth wealth” and “luxury shame” are now being advanced by the retail and luxury consultants and futurists through anecdotal research about cut backs in the spending on ostentatious luxury, Kurtz feels “the sale of luxury goods and services, as defined by the majority of America’s affluent, is not subject to much change in 2009, just as it has not shown much change over the past 30 years.”

Kurtz emphasized that he “doesn’t see any evidence that the majority of the affluent are showing major long term trend changes in their spending patterns and attitudes. They have never been ostentatious or conspicuous consumers. They have always been careful shoppers and savers who look for quality and value in their purchases, the brands they buy, and the stores where they shop.”

The affluent market in the US is cutting back and deferring expenditures, according to AARC research in early 2008, due to current economic conditions, especially given the reduced values of their homes and stock portfolios. However, these expenditure changes should not materially affect the sales of the high end products and brands normally associated with ostentatious “luxury” because most of the people in this market have not represented a substantial source of the sales of such products. “They will not suddenly be switching from Manolo Blahnik to Stuart Weitzman shoes, from Prada to Coach purses, or from Four Seasons hotels to Marriott,” according to Kurtz, “because they were not supporting those brands previously.”

The sales of the high end “luxury” products appear to be derived primarily from international “new rich” consumers and by the small segment of the wealthiest 1% in the US, as previously noted. A portion of the sales have apparently also been derived from those stretching their resources (especially their credit) to achieve a taste of luxury.

A segment of the small niche market of conspicuous American consumers will have to change their spending and saving behavior. The Wall Street investment bankers, attorneys, and others in related activities are experiencing large reductions in income and net worth. Many of the younger people in this group don’t have substantial net worth to fall back on, as they were spending what they were making (and perhaps even more). Changes in the spending of these people, as well as among the wealthy “new rich” citizens of the countries now experiencing recessions and declines in oil and commodity prices, will contribute to the decline in sales of the ostentatious “luxury” brands.

Concepts such as “discreet luxury,” in Kurtz’s view, are creations of some retail and luxury consultants who invent terms such as “mass affluent,” which he considers to be an oxymoron, to promote new consulting work. In his opinion, “some of these consultants are prone to invent such terms to describe changes in behavior among a small group of people as major trends. These trend projections are often based only on anecdotal or “managed” research.”

2 Important Aspects of the Research Methodology

The results of this research demonstrate that surveys that attempt to measure spending on “luxury” items are useless, at best, and dangerously misleading, at worst, if “luxury” is not precisely defined by specific price points. The same appears to be true for surveys that attempt to identify “luxury” brands without specifying price points to define “luxury.”

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, AARC’s unique 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 AARC’s surveys are typically more affluent and more open in providing confidential information.

The 43 page, 74 table report is available for $595 including a complete 302 page set of tabulations (or $395 without the tabulations).

AARC provides marketing research, mailing lists, and consulting services to businesses that focus on the affluent. For more information: Ron Kurtz at KurtzGroup@comcast.net or 770-740-2200.

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New Survey Identifies Price Points and Brands for 37 Products and Services

“Luxury” is a very ambiguous word that is used very loosely. Perceptions of luxury vary by individual and by product.

In new ground breaking research, a national survey of the wealthiest 10% of US households reveals how the affluent define “luxury” by price points and brands.

The survey respondents were asked to specify the most they could imagine spending for 37 different products and services. They were also asked to name the brand they would most likely purchase for each of the items.

The results of this new research demonstrate that surveys that attempt to measure spending on “luxury” items are useless, at best, and dangerously misleading, at worst, if “luxury” is not precisely defined by specific price points. The same appears to be true for surveys that attempt to identify “luxury” brands without specifying price points to define “luxury”.

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 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.

The profile of the survey sample is as follows: $304,000 average household income, $3.1 million average household net worth, and $1.6 million average household investable assets. The average value of their primary home is $1.2 million. The average age is 55 while 86% are married and 60% are males. The sample represents 33 states plus the District of Columbia.

In this study, both men and women were asked about the same 15 products and services. Women were asked about an additional 11 gender oriented products and men about an additional 11 products.

Both men and women were asked to provide a price and a brand for a new auto for personal use, a room in the winter in a Caribbean resort, a European cruise, a hotel room in New York City for a vacation, a refrigerator, an original painting, a washer/dryer set, a king size mattress, a set of linens for a king size bed, wall to wall carpet, a watch for dressy occasions, a watch for every day, a bottle of wine for a special dinner at home, frames for sun glasses, and a large 24” wheeled garment bag.

Women were asked to provide a price and a brand for a dressy suit, shoes to go with the dressy suit, a cocktail dress, shoes to go with the cocktail dress, a pair of jeans, a pair of diamond stud earrings, a purse for every day, skin rejuvenation cream, liquid make-up/foundation, a bottle of perfume, and lipstick or gloss.

Men were asked to provide a price and a brand for a business suit, shoes to go with the business suit, dress shirt to go with the business suit, a tie to go with the suit, a tuxedo, shoes to go with the tuxedo, shirt to go with the tuxedo, a sport coat, slacks to go with the sport coat, a dressy long sleeve shirt, and dressy short sleeve shirt.

The research results support two important observations about the affluent market.

First, the affluent market, as defined by the wealthiest 10% of US households, is composed primarily of people with middle class backgrounds who continue to pursue a somewhat middle class lifestyle with middle class values. They are not conspicuous or ostentatious consumers. They spend conservatively and save carefully.

Second, with the exception of a small niche segment, this market does not appear to be very knowledgeable about the pricing and brands of products that are generally recognized by marketers as being in the higher price points associated with the luxury category. This seems to create an opportunity to substantially increase the market for high end luxury products if the affluent market can be educated about why they should consider buying them and the brands that offer them.

None of this is new news or indicative of a new trend. The popular perception is that the US has witnessed increasingly conspicuous and ostentatious consumption by an increasingly affluent market for a period of about 30 years, which has been interrupted by brief interludes of retrenchment during the occasional recession and the 9-11 tragedy. This perception has resulted from anecdotal “research” in the media that uses examples such as a young Wall Street attorney spending $50,000 of a year end bonus for a new watch or a secretary spending $1,000 for a new hand bag.

The media has created the impression that there are hundreds of thousands of people making a million dollars a year or more among the ranks of the entertainers, professional athletes, Wall Street bankers and attorneys, Fortune 500 executives, real estate developers, and entrepreneurs who have taken their company public. This, together with the purchases of luxury goods by international visitors leveraging the weak value of the dollar, has given a distorted view of the size and nature of the true affluent market in the US.

The perception of the size and spending patterns of the affluent market created by the media is inconsistent with the data from the Internal Revenue Service and The Federal Reserve Board. The research of the affluent by Professor Thomas J. Stanley that began in the 1970s and led to “The Millionaire Next Door” and a series of related books beginning in 1996 produced similar conclusions regarding the lifestyle, values, spending, and savings profile of the affluent as that suggested by the AARC research. In fact, since AARC’s inception in 2002, the results of its research have been consistent with Professor Stanley’s research.

The 43 page, 74 table report can be purchased for $595 (including a set of 302 pages of data cross tabulations). Place your order by clicking on Order Luxury Defined Report or calling  770-740-2200.

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Spending Plans Stabilizing as Expectations for Business Conditions and Stock Market Rise

This new study, the fourteenth in a series of twice yearly tracking surveys by The American Affluence Research Center, indicates the affluent may feel the economy is bottoming out and that they are upbeat about improvements in business conditions and the stock market during the next 12 months.

The composite Affluent Consumer Expectations (ACE) 12-Month Economic Outlook Index of 113 rose 11 points from the Spring survey and represents a relatively positive outlook overall. Substantial increases in the indexes for future business conditions (up 24 points to 123) and the stock market (up 19 points to 124) offset a decline in the expectations for personal household income (down 10 points to 93), the third element of the composite index. Index values can range from 0 (totally negative) to 200 (totally positive), with an index of 100 being a neutral reading.

Highlights of this national survey of 552 affluent men and women can be found at www.affluenceresearch.org The survey participants have an average income of $304,000, an average net worth of $3.1 million, and average investable assets of $1.6 million.

The index of 47 for current business conditions represents only a modest drop of 5 points from the Spring 2008 survey, which had a precipitous drop of 56 points from the Fall 2007 survey. This index is at its lowest level since the Fall 2002 survey and essentially indicates the view of the affluent that the economy has effectively been in a recession for several months, as first noted in the Spring 2008 survey.

Over half (54%) of the respondents have no plans to make any of 8 major expenditures in the next 12 months. This is essentially unchanged from the historic high recorded in the Spring survey (53%). Plans to acquire a new primary residence were up slightly for both buying (3.4%) and building (1.5%). Plans for motor vehicle acquisitions (20%) and plans to cruise (14%) were unchanged from the historic lows of the Spring survey.

Of the 17 categories of products and services, for which expected changes in spending during the next 12 months are tracked, the indexes for 9 categories were up, 7 were down, and 1 was unchanged. In all 17 categories, at least two-thirds said they would spend the same or more as they did during the prior 12 months.

This survey also included a series of questions that reveal how the affluent define “luxury” by price points and brands for 37 different products and services. This ground breaking research demonstrates the ambiguity of the word “luxury” among the affluent and their apparently limited familiarity with the brands normally associated with luxury.

The results of this research demonstrate that surveys that attempt to measure spending on “luxury” items are useless, at best, and dangerously misleading, at worst, if “luxury” is not precisely defined by specific price points. The same appears to be true for surveys that attempt to identify “luxury” brands without specifying price points to define “luxury”.

Unlike other affluent and luxury market research that is based on surveying online panels of people who are compensated for participating in regular and frequent surveys, our unique study is based on samples drawn at random from, and representative of, the 11.2 million households that account for the wealthiest 10% of US households based on net worth, according to the latest Federal Reserve Board research.

The 38 page, 33 table report can be purchased for $395 (or $595 with the full set of 302 pages of data cross tabulations).

AARC provides marketing research, mailing lists, and consulting services to businesses that focus on the affluent. For more information: Ron Kurtz at KurtzGroup@comcast.net or 770-740-2200.

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Obama’s Support Among Women and Independents Offsets McCain’s Strength with Men

Contrary to conventional wisdom that the wealthy are staunch Republican voters, Obama and McCain each received 48% of the votes among likely voters in a new survey of the wealthiest 10% of US households. About 4% of the likely voters indicated they had not made a decision or were supporting another candidate.

With 552 respondents, the national survey is representative of the wealthiest 11.4 million households (as defined by net worth in the most recent Federal Reserve Board research) that will account for almost 25% of all votes to be cast in the presidential election. The survey was completed September 25 by the American Affluence Research Center in Atlanta.

The survey participants have an average income of $304,000 and an average net worth of $3.1 million. The respondents reported party affiliations of 42% as Republicans, 30% as Democrats (due to 39% share among women), and 27% as Independents.

Men favored McCain 59% to 36% for Obama, while women favored Obama 61% to 36% for McCain. Independents favored Obama 55% to 34% for McCain.

The source of McCain’s support was 80% from people who considered themselves Republicans, 19% from Independents, and 1% from Democrats. The source of Obama’s support was 63% from Democrats, 31% from Independents, and 6% from Republicans.

Of 18 possible issues that were listed, the five issues most important to McCain’s supporters are state of the economy (48%), war on terrorism (33%), war in Iraq (29%), long term energy program (29%), and 2001 Bush tax cuts (27%).

The issues most important to Obama’s supporters are the economy (59%), war in Iraq (55%), universal health care (28%), foreign policy (28%), and energy program (26%).

Additional data is available in categories defined by gender, age, income, and net worth and will be included in the report for The Affluent Market Tracking Study #14, a unique survey conducted twice a year to identify the outlook of the wealthy for the economy, the stock market, their personal income, and their spending plans for over 20 different products and services.

AARC provides marketing research, mailing lists, and consulting services to businesses that focus on the affluent. For more information: Ron Kurtz at KurtzGroup@comcast.net or 770-740-2200 .

Tags: Affluence Research, survey of the affluent, survey of the wealthy
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