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Swallow the Premium Frog – The Drastic Transformation of the Premium Market (Part 1)

There is almost universal agreement among economists that inequality is getting worse on a global scale. It is indeed becoming simpler: there are the rich and the poor. The process has been going on for some time, but the pandemic will put an end to it. Thus, the line between the premium and the mass markets has been nicely and not so slowly delineated in business and commerce. But even today, many people still mistakenly think that everyone who is rich is a premium buyer, and everyone who is poor must want to buy cheap things. It is a mistake to think that there is such a clear link between the quantity of money and consumer needs. Although money influences many things, it can only limit the decision-making mechanism behind the purchase; it cannot change it.

It’s not nice to be blinded

Traditionally, we can say that premium consumer demand focuses on brand and image. A common characteristic of the products and services preferred by premium customers is that they want to belong to an elite world. This is why it can generally be said that premium is always expensive, often hard to reach, or very hard to afford, or in many cases nowadays, all of the above. Just think of a brand of handbags or watches, where you have to wait months, often more than a year, to get a product that costs a horrendous amount anyway. Of course, it is certainly difficult to produce a bag for thousands of euros, it certainly requires leather that can be obtained once a year, and we could go on making excuses, but that is not the point of waiting most of the time. We should be delighted and honoured when we finally get our hands on our coveted possession. And that feeling is something to play with. When the first modern economic crisis hit, many thought that the luxury goods market would be the first to collapse. These expectations were borne out in the sense that many luxury brands went bankrupt or had very serious problems. Yes, but it is the brands that really do represent the premium perfectly, and that have taken care of every detail of their business policy, that have flourished since 2009. Many people did not understand what was happening. Perhaps one of the best examples of this in the premium market was the reaction of Louis Vuitton, who decided to sell products that they could not sell but would not compromise on price. Very few people dared to do this at the time, but they were rewarded handsomely by premium consumers for their brave decision. Even before, people had no doubt that if they saw a “Louis bag” on someone, they could not be too poor, but after such a decision, it becomes clear to the premium consumer that he or she has made the right choice, because the very ownership of the bag makes clear the owner’s unassailable financial situation. Of course, everyone knows that this can be played with cleverly, as some people prefer to starve themselves to show the outside world that they can afford cool stuff, while others borrow expensive products, but the point is not lost. If one can buy a “Louis bag”, it denotes a certain level of consumer. So, we are curious to see what a major crisis will now do to the premium brands. However, to sum up, the situation simply: it’s audacious. The price of luxury goods has been quietly creeping upwards in recent years anyway, but the events of 2020 have made things even more out of control. Tourism, cars, luxury goods, real estate, and so on, have all started to rise to unprecedented levels. It looks like they will not make the same mistake again as many did about ten years ago.

But who will buy it?

Well, that is a good question, because of course, no one has access to concrete statements with data; they cannot be summarised. Data protection has been drastically strengthened in recent years, so it takes a lot of research to get a realistic picture of the situation. But the real situation is that there is an over-demand for luxury goods, and, yes, even though prices have skyrocketed, consumer demand is continuing and even increasing. Of course, not all “luxury brands” are so spoilt, but those where the image and brand value are right certainly can’t complain. Many people are looking for the right response to this phenomenon, as there have not been so many premium attitude customers in the market. It was nicely segmented that there is the mass — the vast majority of buyers — for whom price is very important, or price to quality is the deciding factor. They are the “followers”, and for them, the real reference is if a product or service has been bought many times by many people, because it is certainly of good quality. But often they are just cheap. And there is a group of customers who have less money, even if they have the need, so they end up in this mass market. But their presence is just enough to influence the mass of followers. And then there is the other, a very small segment of the market, who specifically favour unaffordable products and out of reach for the masses, thus demonstrating their position — or their imagined position — to the world at large. Although varying considerably from country to country, the proportion of these buyers does not exceed 10%. And that is what is so strange about the current situation, because it is out of the question that this minority should be able to sustain this greatly increased supply of luxury goods. In addition, the traditional premium buyer does not waste money, there is always a limit, and if a brand goes over the target in terms of price, they will move on. Another good reason why they are not the solution to the current consumer market. Experts in social research, and even more so in generational research, point out that the generation of The Ambitionists, born between 1985 and 1996, has grown up and is the first generation in the consumer market to have been brought up in the social media “bubble”. Although they know that looks don’t define you, they have also learned how to present a better and more beautiful image of their lives to the outside world, and have experienced the benefits that this can bring in life. If the outside world buys it, that is. Selling this within their own age group is difficult, because they have been socialised in the fake world of Facebook and Instagram to profit from appearances, but they are not the ones who are the target of this “charade”. The older generation mostly buys the message, but younger people also tend to believe that there is real content behind a luxury item. So now, the 26- to 37-year-old age group is investing in these incredibly expensive accessories to redefine themselves.