Luxury Market and Affluent Market Are Often Very Different

Luxury, like beauty, is in the eye of the beholder. Luxury means different things to different people. Luxury” and “the luxury market” are thus vague concepts that cannot be defined in objective, quantifiable terms. As a result, the size and composition of the “luxury market” cannot be defined or determined with any degree of accuracy.

AARC does not believe in asking people about their purchases or spending for “luxury” products. If the market researcher and the survey respondent do not have the same definition for “luxury”, how can the survey results be interpreted? This dilemma applies to every product.

AARC’s ground breaking research study, “Luxury Defined: What the Affluent Will Spend for Luxury; Price Points for 37 Products and Services”, demonstrates the ambiguity of the word “luxury”. This ambiguity is evidenced by the broad range of price points that the affluent use to define luxury for the different products and their apparently limited familiarity with brands normally associated with the high end luxury products.

In the Fall 2013 report #24 there is additional evidence that the affluent have limited experience and familiarity with luxury brands. This is perhaps understandable since over 80% of millionaires are self-made and were raised in families with little or no exposure to luxury products.

In the absence of being able to objectively define and quantify the “luxury market”, the American Affluence Research Center believes it is best to “follow the money” and understand the size, attitudes, and behavior of the “affluent market”, i.e. the people who can afford the higher priced items in the categories of products and services that would be considered expensive by middle income consumers.

The American Affluence Research Center has always defined the affluent market as the wealthiest 10% of U.S. households, based on net worth, as determined by The Federal Reserve Board. This is an objective, quantifiable definition of a market segment that should be the focus of marketers who believe they are offering a luxury product or service.

In the years immediately before the 2008 recession, much of the growth in luxury sales was attributable to people who had the income ($100,000 or more) to buy marginally luxurious products but not the wealth (or credit) to sustain such purchases on any large scale. Contrary to many researchers, AARC does not believe a $100,000 income qualifies as being affluent, especially for families in major metropolitan areas.

A focus on the “affluent market”, as opposed to the nebulous “luxury market”, will be more productive, accurate, and practical for marketers of “luxury” goods and services, in our opinion.

“Only about 1% of U.S. Consumers (or 10% of the affluent market)
are familiar with the price points and brands of products and
services generally considered to be true luxury.”