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.
A herd mentality
The generational effect may be one explanation for queues outside luxury retailers even when economic indicators show a clear downturn in all regions. But the entry of one generation into the consumer market is certainly not sufficient justification for this level of progress. What can bring the luxury industry serious volume, on the other hand, is if it can reach customers who are fundamentally interested in mass-market goods but who will pay for the premium category. This, of course, will require luxury brands to become more popular and the benefits to be more widely known. The major brands have been investing considerable effort in this for years, and there is a clear emergence of a following of buyers in the premium market. A very interesting phenomenon can be observed when you wander down the streets of a major international city nowadays, lined with luxury brands. There are queues in front of more and more stores, which may be explained by COVID occupancy restrictions, but the true explanation is that each shopper is matched with a personal salesperson, who is of course presented as a consultant, but the point remains the same. So, whatever the weather, one is now quite likely to have to wait outside the shop on the street if they want to enter a luxury store. And the traditional premium shopper certainly doesn’t wait on the street because, on the one hand, they find it outrageous not to get in immediately and, on the other hand, they don’t spend their valuable time waiting on the street. In other words, if the queues are still snaking in front of several brands’ stores, it is a strong indication that the moneyed, traditionally mass-market shoppers have entered the premium market. And from this point on, the luxury industry begins to move into a truly new dimension, where it is no longer only the consumer’s decision-making mechanism that defines the margin they are willing to pay for a product. In a way, this sends the message that people have started to “spend without regret”. It is as if everyone wants to enjoy a little more the money they have earned through their work. Which is fine, as long as the big brands don’t abuse it. But when the price of a T-shirt without a logo can reach EUR 800, you have to wonder where it all ends. It is also the emergence of a completely different attitude that explains why some luxury brands are now simply doing away with branding that clearly represents the brand value. For a very long time, this was unthinkable, because that is why people spend more money on a product than the quality they deserve, to show that they own the brand. Several brands have gone in the direction of either reducing the branding to a minimum size, almost invisible, or even charging extra for ordering a product without a logo. In other words, just the knowledge that the customer can afford to buy from them is enough, and it no longer needs to be flaunted.
Everything is getting more expensive. Where will it end?
Everything is getting more expensive, and if you think that’s the end of it, there’s bound to be another product or service direction where you’ll be gasping at the new price level. Moreover, it is generally true that these price increases are not followed by any improvement in quality. In fact, in most cases, you get even worse quality at a higher price, and at the moment, everyone seems to be swallowing that particular frog. Let us be happy to travel, let us be happy to spend our money, let us not worry about what we get for it. What the players in the luxury market do not really see is that this direction is certainly not sustainable for long, because sooner or later, buyers – whether they have money or not – will make value judgments about them. We are now in a period where the opinion of buyers and the amount of money they spend and where they spend it are not necessarily in direct proportion. Now is the opportunity for the luxury industry to convince its own customers that it is treating them as fair business partners. In the present situation, it is possible to give, not just take. The status quo gives us the opportunity to really develop quality alongside the price. And a lot of people are now feeling the opportunity to enter this premium market. After all, from a human interest point of view, it is very important to cater to the less fortunate group of customers, but where would a smart manager start a business if they had the opportunity to do both? In a 5% or 500% margin market?
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Swallow the Premium Frog – The Drastic Transformation of the Premium Market (Part 1)