Here’s a puzzle. Look around the world at almost any retail sector in almost any country and you’ll find the same trend. Discounters – retailers that excel at reducing prices rather than putting them up – are on a roll. Just look at Aldi, Hennes & Mauritz, Tesco, Wal-Mart, and so on.
But this bargain hunting is hardly driven by necessity. Real disposable incomes have jumped by more than 20 per cent in the UK since 1995. They’ve risen even faster in the US, and only slightly more slowly across Europe (except Germany where growth is less than ten per cent).
What’s more, according to Accenture researcher Paul Nunes, traditional income distribution patterns (lots of poor people, a few very rich ones) have flattened noticeably over the past 30 years. In the US for instance, the number of people earning less than $60,000 (£33,000 at 2000 prices) fell significantly from 1970, while the number earning between $60,000 and $200,000 (£110,000) effectively doubled.
The result, says Nunes writing in the latest edition of the Harvard Business Review, “is that a vast new space has opened up for offerings that were once not economical enough to pursue”. Yesterday, most middle class people eyed the lifestyles of the super-rich and idly thought “wouldn’t it be nice to have some of that”. Today, they’re beginning to think “I can have some of that!”.
When he was chief executive of Tesco.com John Browett explained the phenomenon like this: “It’s a big mistake to confuse discounting with cheap and nasty. That is not what we are talking about. There are 10 million households in the UK that can basically afford all the standard consumer goods and services of the richest one per cent. They go on holiday twice a year, they own two cars – all the bits and pieces. If you are going to have a mass affluent society of that type, then because people are going to be on the margin of being able to afford these things, everything is going to be discounted.”
That’s why Tesco is discounting champagne, for example. Last year, its sales of champagne fizzed ahead by 41 per cent. Target is doing the same thing in the US. If you want some affordable Philippe Starck chairs, don’t go to Wal-Mart. But try Target, because it has started selling them.
It also explains much of Procter & Gamble’s innovation strategy: to target expensive (and often troublesome) professional services such as dry cleaning, dental and hair care by introducing clever off-the-shelf products that deliver the same core benefits: think Dryel, Whitestrip tooth whitening, hair colouring products, and so on. Whitestrips may cost ten times more than traditional toothpaste, but they also cost ten times less than a tooth whitening programme at a dentist.
Democratised luxury isn’t confined to consumer goods. The en suite bathroom is no longer a luxury you only get at hotels – it’s now de rigueur in many middle class homes. In fashion retailing, the product is no longer displayed as king. Many a mid-market fashion store looks more like a luxury home than a shop nowadays: exquisite furniture, one-off designs, plenty of space. All of which makes Marks & Spencer look very mundane. Even celebrity is being democratised by reality television.
The burgeoning market for experiences, whether “packaged” (a day out motor racing, or ballooning), exotic adventure holidays in far-away places, or weekends being pampered at a spa is another example. We may not be able to stay on a yacht off the coast of Portugal to see Euro 2004 as Chelsea owner Roman Abramovich did, but we may be able to sample such a lifestyle for a weekend, or a week even. In professional circles nowadays, who hasn’t got – or isn’t dreaming about – having a second home nestling in some beautiful village in France?
“If you think about Edwardian times, if you were rich you had a fantastic time because you had a whole load of people doing all the drudge,” notes Browett. “If you look at modern consumption behaviour, people are trying to become more like Edwardian ladies, with almost everything done for them.”
Home-delivered groceries is just one part of that. Having someone to cook for you was once a luxury of the rich. Now, with the rise of fast food, eating out and home delivery, it’s standard. The burgeoning rise of personal services is another sign of the times. Anybody who’s anybody nowadays has his or her own personal trainer. Or career coach. Or counsellor.
Likewise, concierge services are beginning to penetrate the lives of the upper middle class. Ten UK chief executive Alex Cheatle reports that the more requests his company gets, the less it costs him to service each one. As experience and knowledge grows, unit costs fall and economies of scale are kicking in. Which means the opportunity to expand the market is huge.
But still, you might argue, real luxuries, like yachts and private planes, lie way beyond even the mass affluent’s reach. Perhaps, but that gap is narrowing. Look up “fractional ownership” on Google and you’ll find 97,300 references.
Fractional ownership is a form of upmarket time-share where you share the ownership of an asset with a handful of other people. It is booming in the US, covering just those areas once regarded as exclusive to the super-rich: the use of a private jet (fractional pioneer NetJet is currently growing at 15 per cent a year), a yacht, a luxury holiday home, vintage or luxury cars. Why commit yourself 100 per cent to a Porsche when, via fractional ownership, you can have a bit of a Ferrari, Bugatti or Lamborghini as well?
Mass-affluence marketing isn’t all good news. As former Henley Centre chairman turned strategy consultant Martin Hayward points out, many aspirations are being subsidised by unsustainable levels of debt and/or a new bout of “workaholism”. It also presupposes an inexhaustible supply of cheap, undemanding labour to do our chores for us. That, too, is probably unsustainable.
On the other hand, the advances of previous spurts of mass affluence have stayed with us. The first wave of mass affluence gave us packaged holidays, central heating and mass car ownership. The second wave is taking the form of democratised luxury products, exotic holidays and other experiences, concierge services and fractional ownership.
Are marketers rising to the challenge? Not fully, yet. Eighties-style aspirational marketing with its excessive focus on image and status isn’t enough. Democratising today’s luxury products and services requires real consumer insight, sometimes fundamental innovation, new business models, different channels to market and brand strategies.
Nunes’ core formula for addressing the challenge is straightforward. Ask yourself, if your customers were as rich as Croesus, what would you offer them? Now return to present day reality and ask, if we doubled or quadrupled the current price, how much closer to Croesus-like luxury could we get?
Certainly, the opportunity is there. In the US, the top quintile of earners account for 49 per cent of total income, but only 37 per cent of total spending. This suggests marketers simply aren’t doing enough to tap their desires. We can see similar trends in the UK. So prepare yourself. Discount luxury is not the oxymoron it once might have been.
Alan Mitchell, email@example.com