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CONTACT: Pam Danziger, 717-336-1600

Demographics that Define the Luxury Market
Three segments make up the top 20 percent of U.S. households

Stevens, PA March 31, 2004 - Confusion reigns when describing the luxury market, which is variously defined as the top two to five percent of earners or the 10 percent of income. Others define affluence beginning at $1 million in investible assets,

"In practice, what marketers mean by the 'luxury market' is largely subjective," says Pam Danziger, president of luxury research and consulting firm Unity Marketing and author of Why People Buy Things They Don't Need. "While Cartier and Bailey Banks & Biddle jewelers both target the luxury market, each defines it differently." Cartier targets the super-affluent $150,000 plus tier; Bailey Banks & Biddle, with 110 locations nationwide, defines the luxury market as mall shoppers of more moderate incomes. A single woman, making $75,000 and living in Des Moines, is a prospect for a right-hand diamond ring at Bailey Banks & Biddle, but is not likely to shop at Cartier.

Seeking a standard definition of the luxury market, Unity Marketing turned to the Bureau of Labor Statistics (BLS) consumer expenditure survey. The BLS classifies the nation's 111 million households 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, i.e. households with income within the upper quintile of the BLS's model. The average income for those households in the upper quintile is $121,367.

Of the total 111 million U.S. households, approximately 27.9 million, or one-quarter, have an income of $75,000 and above. At $100,000 and above, there are approximately 15.7 million households, or 14 percent of households.

A more precise segmentation is based upon these broad perimeters:

• Near affluents - Households at the lowest range of the fifth quintile, i.e., HHI from $75,000 to $99,999, is an important segment for the future of the luxury market, as these near affluents are likely to see their incomes rise in the coming years. Also this segment will reach up to luxury in specific product and experiential categories. A total of 12.2 million households fall in this range.

• Affluents - Those households with incomes of $100,000 to $149,999; 10.1 million households.

• Super affluents - Households with incomes of $150,000 and above are 'super affluent;' 5.6 million households.

Demographically, the top 20 percent of households are more like each other than lower income American households. Their characteristics include:

• Larger households: The typical affluent household has 3.2 members, as compared with the total population of 2.5.
• More workers in household: The affluent household has 2.1 earners, as compared with 1.4 earners in the typical household.
• Own more cars: They own 2.9 vehicles, as compared with 2 for the typical household.
• Nearly all own homes: Ninety percent of affluents own a home, as compared with two-thirds of the typical households.
• Mostly white: Black-American households comprise only 6 percent of the affluent households, as compared with 12 percent of the total.
• Higher education levels: A key demographic characteristic of the affluent is higher education. The heads of some 80 percent of affluent households have some or more college attainment, compared with 56 percent of typical households.
• Middle aged: Most distinctive, the affluent are members of the baby-boom generation. In 2002 average income is highest among households aged 45-to-54, at $74,934. This income peak is flanked by age groups above and below. The 35-to-44 year old households have an average income of $68,310; the 55-to-64 aged households with $64,118.

Top 20 Percent Make More, Spend More and Save More

Affluent households have after-tax income nearly two-and-one-half times that of typical households, but their spending is less than twice the average. While the luxury consumers could spend more, they are highly motivated to protect and preserve their luxury standard of living. As a result, they have more money left over for saving and investing.

Their spending also lags behind their feeling of financial well being. While a near majority of luxury consumers felt better off financially at the end of 2003 than they did the previous year, they are not increasing their spending commensurate with their renewed feelings of confidence. In Unity Marketing's latest survey, only 30 percent of luxury consumers say they spent more on luxury in 2003, compared with the previous year; 21 percent say they spent less than the year before.

The luxury consumer is not about to put their lifestyle at risk. Rather than spend it all, they are more likely to spend a little on luxuries they desire and save or invest the rest. As opposed to viewing the luxury consumer as a spendthrift, marketers need to see them as they are: cautious, risk adverse, and protective of their financial resources. "That is one reason why these luxury consumers who can pay full price hesitate to do so. It makes good financial sense to seek out bargains and the best deal," Danziger says.

The Luxury Market Is Where the Action Is Now and Through 2010

If "demographics is destiny," nowhere is that more true than in the luxury market. From now until 2010, the number of affluent households and their influence will continue to grow. The rising tide of affluence is driven by the 78 million baby-boomers who range in age from 40 to 58 years. This is the age of empty nesting, when consumers are earning the most money in their lives, but no longer have to stretch their paychecks across the demands of a growing family. "Empty-nesters have more discretionary income for 'luxuries' that they might have denied themselves when their children were younger," notes Danziger.

Unity Marketing publishes the Luxury Market Report, 2004: Who Buys Luxury, What They Buy, Why They Buy.

About Unity Marketing
Founded in 1992 , Unity Marketing (www.unitymarketingonline.com) is a marketing consulting firm that specializes in consumer insights for luxury marketers. Using its proprietary why people buy research strategy, Pam Danziger, company founder and author of Why People Buy Things They Don't Need (Ithaca, NY: Paramount Market Publishing, 2002) uncovers the motivations, desires and emotional needs that drive consumers to buy. Unity also publishes market research studies on the luxury market, jewelry, garden, pet accessories, home furnishings, gifts and collectibles, greeting card and stationery, tabletop, art and wall decor, personal care and cosmetics markets, as well as the Luxury Business newsletter. Pam is currently working on her new book, Let Them Eat Cake: Marketing Luxury to the Masses (as well as the Classes), to be published in 2004.

To arrange an interview or other media inquiries contact: Len Stein, Visibility, 914-712-2610; lens@visibilitypr.com