There is no clear definition of either luxury products or luxury consumers. In fact, the various expressions used when describing the luxury market only add to the confusion. Broadly, in the Western world, luxury consumers are defined as the top 2-5% of earners or the 10% of income.
The Bureau of Labor Statistics (BLS) classifies the 111 million households of the United States into equal-sized quintiles based upon household income. The lower cut-off for households in the upper quintile, about $75,000, provides a reliable definition of the luxury market?households with income within the upper quintile of the BLS’s model. The average income for those households in the upper quintile is $1,21,367.
In the Indian context, there are three defining levels of incomes at which consumption of luxury products and services take place. At Indicus, we define these levels as
* Luxury consumers ? HHld income > Rs 1 million pa
* High end luxury consumers ? HHld income > Rs 2 million pa
* Super luxury consumers ? HHld income > Rs 5 million pa
Notice that although in exchange rate terms, Rs 1 million is only $25,000, in terms of value of good and services it can buy, it is closer to $80,000-90,000. Thus when a household crosses the threshold of Rs 1 million, it is in consumption terms already equivalent to the upper quintile of the US households.
While India is still emerging in terms of number of luxury consumers, there are no more than a handful of countries on the planet that have more luxury consumers. In five years, India will scale past many of the G8 nations. It is the fastest growing market in terms of number of consumers, and by 2020, only China, the US and Japan will have more consumers in the high-end luxury and super-luxury categories than India.
India is at an inflexion point and the demand for luxury products is set to grow at near about 20% pa plus (in value terms) for an extended period of time lasting a couple of decades. During the next five years, this growth is expected to be at 25% pa.
The current market size for luxury products/services is estimated to be of the order of $2.5 billion.
The growth patterns suggest that now is perhaps the most opportune time for marketers of a whole cluster of goods and services under the ‘luxury’ umbrella.
While there are several characteristics of luxury consumers that are common across countries and cultures, there are a distinct set of attributes that define the bulk of the luxury consumers in most emerging economies, including China and India?the ‘nouveau riche syndrome’.
It must be remembered that India is an economy where large-scale wealth creation is a relatively new phenomenon and people in large numbers are climbing up the income ladder. A very typical behaviour pattern (which has also been observed in emerging Asia, including China) is the need to announce ‘the arrival’ and consume conspicuously. This is music to the ears of luxury product marketers. The large numbers graduating to high income levels and the sustained growth rates indicate that the market is not going to dry up any time soon. Further, considering the fact that India has a base of 18% of the world?s population, one can imagine that within a couple of decades it will outstrip most other markets in size by a considerable margin.
Yet, in some ways, there are unique dimensions to this phenomenon not seen anywhere else in the world?the grand weddings, supercharged festivals, and the like. The impact is already being seen across several categories of products and services?housing, travel, education, high-end automobiles, entertainment electronics, home lifestyle improvement products, men’s and women’s clothing, women’s jewellery, women’s accessories, watches, gourmet food and wines.
Some characteristics to look out for
* Despite strong family ties, Indians value individualism in consumption choices. They look to luxury goods to help differentiate themselves from the crowd. This implies that quality and brands matter. Indeed, they are more concerned with the logo than many others.
* Luxury = status symbol. If it doesn’t convey status, it is not worth spending on.
Following from the above two, brand loyalty tends to be very strong
* Country brands in the luxury segment: US, French and Italian brands for most product categories. With regard to watches, Swiss; French and Italian brands for wines and gourmet food; French brands for perfumes.
* Unlike the Western markets and much like in China, bargains and discounts work even in the luxury segment, though only up to a point.
* ?They Got Rich Fast, and they Spend Faster?: they acquired their wealth in a short time period, which translates into a different spending pattern than the affluent population of other nations, or the ?older rich? within India.
* Every now and then, they want to spend conspicuously on big-ticket items, hence purchasing frequency is high.
