Learning how-and why-wealthy clients spend money is a key element in building your relationship.
(The following article is the second
of a two-part series based on the authors' new white paper, The New Jet
Set: A Psychographic Analysis of Luxury Spending. A complete copy of
the paper can be downloaded at www.hannahgrove.com.)
In last month's column, we introduced a new and
growing segment of wealthy individuals, the private jet owner, and
shared some of their unique qualities. Their age (they tend to be
young, with a median age of 49 and an average age of 57), their gender
(most are male, roughly 68% of survey respondents) and their source of
wealth (complete or partial ownership of a business) is not dissimilar
from other wealthy individuals we have studied. The characteristics
that begin to paint a truly distinctive portrait of a private jet owner
are their vast wealth (a median net worth of $41.2 million and an
average net worth of $89.3 million), the desire for privacy, a schedule
of nearly constant travel, significant real estate assets (more than
85% own an average of 2.3 homes worth at least $2 million), a personal
and/or professional staff that insulates them from most monetary
transactions, and a sizeable spending habit.
In a recent Wall Street Journal article ("Advisers
Mine Clients' Personality Types," June 24-25, 2006, weekend edition)
personality types were discussed as a more effective way of servicing
and marketing to the affluent, rather than categorizing clients solely
by their level of assets. We are long-time proponents of this
philosophy-in fact, the Seven Faces of Philanthropy, a system that
identifies wealthy individual's motivations for charitable giving
designed by Russ Prince, dates back to the early 1990s. As a result, we
continue to educate advisors about the mindsets, behaviors and
preferences of the high-net-worth market as a means to forging a
stronger and more symbiotic relationship with potential clients.
In our in-depth research with just over 660 private
jet owners, we uncovered some data further supporting the idea that all
consumers are not created equal. The more marketers and advisors can
understand about how and why consumers purchase, the greater the
likelihood that they can become part of the client's selection set and
influence that purchasing decision.
In the process of conducting and analyzing our
research, we uncovered some distinct consumer personalities within this
group of private jet owners. These personalities explain the
psychological foundation behind their luxury purchases and, as such,
can be a powerful tool for both advisors and marketers in reaching,
connecting with and cultivating a wealthy customer over the long term.
We refer to these profiles as affluent luxury
personalities and they include the overriding motivational state and
buying patterns of a wealthy individual when purchasing luxury goods
and services. Within our survey sample there were three: Trendsetters,
Winners and Connoisseurs.
Trendsetters:
This group is attuned to the social zeitgeist and the popular media,
such as magazines, television and movies. They are early supporters of
significant changes and introductions in the luxury marketplace and can
be influential within their social circles. They are more likely to be
impulse buyers than the other affluent luxury personalities and, as
long as the luxury product or service is validated by their reference
points, they will readily buy. The greatest number of spenders in each
luxury category are Trendsetters, although they generally spend less
than their counterparts, with one exception: clothing and accessories.
Winners:
This group makes purchases to reward themselves, and those in their
inner circle, for personal and professional accomplishments. More often
than not, the spending is triggered by an event-such as a birthday, a
large legal settlement or the incorporation of a new business-but their
purchases are generally thoughtful and well researched nonetheless.
Sometimes Winners will loosen their self-imposed guidelines for
purchasing and buy aspirationally. In effect, buying in expectation of
greater future success. Winners anticipate spending less in 2006 than
they did in 2005 in every luxury category, further supporting the idea
that their purchasing is event-driven. It is possible, however, that
unforeseen events will provoke higher spending levels.
Connoisseurs:
This group is the most knowledgeable and discerning of the three
affluent luxury personalities. They are deliberate in their purchasing
and thoroughly research all aspects of a category, and a particular
item, before making a decision. They focus intensely on such factors as
construction, quality, value and history, and often turn to
professionals and specialists for advice. When compared with the other
affluent luxury personalities, Connoisseurs tend to concentrate their
purchases within a few categories. In most cases, they are the smallest
percentage of spenders in each category, yet the dollar amounts they
spend far surpass that of their counterparts.
It is important to note that each affluent luxury
personality is category-specific. This means that Rudolph might be a
Connoisseur when purchasing fine art, but a Trendsetter when it comes
to watches. And members of the New Jet Set may not actively purchase in
all luxury categories. For example, Francesca may spend extensively on
wine, but not at all on cruises and spa services.
To understand the affluent luxury personalities in
context, let's look at how jet owners purchased jewelry and fine art
last year.
Nearly all jet owners purchased some kind of
jewelry, excluding watches, in 2005. Three out of five spenders were
Trendsetters (59.3%), one-quarter of affluent jewelry buyers were
Winners (25.7%), and the remaining were Connoisseurs (15%).
The average amount of money spent on jewelry was
nearly a quarter-million dollars, with Connoisseurs spending
significantly more at $413,000 (Exhibit 1). Winners project they will
spend less on jewelry in 2006, while both Trendsetters and Connoisseurs
expect to spend a great deal more than they did in 2005.
By contrast, fine art is the number one luxury
category as measured in dollars, yet just one-third of jet owners
bought fine art in 2005. Roughly 60% of spenders were Trendsetters,
with the remaining sample closely divided between the other two
affluent luxury personalities (21.5%, Winners; 19.0%, Connoisseurs).
The difference in spending between personalities is
significant, with Trendsetters spending about a half-million dollars,
Winners spending just over US$1 million and Connoisseurs spending more
than US$6 million. The spending level of Connoisseurs indicates an
interest in original work or rare pieces and only Connoisseurs are
likely to spend significantly more this year (Exhibit 2).
Understanding how your clients and prospects make
spending decisions may not radically change your relationship with
them, or make you a better advisor, but it is another important tool to
help you know more about what motivates them and how they approach
certain financial decisions.
In our March 2005 Financial Advisor article, "Know
Thy Clients," we discussed a technique for gathering salient
information about a client's financial situation. This technique,
called the Whole Client Model, helps advisors construct more
comprehensive and detailed profiles of their clients, and the result
can be:
A more balanced perspective of the clients, including both assets and liabilities;
The ability to make more informed product and service recommendations;
Identifying the areas of a client's life that
might benefit from more financial involvement or are underserved;
New business opportunities, such as insurance or estate planning;
Multiple ways to connect with the clients on a personal level, and
A broader and stronger relationship with the client.
In knowing what is important to clients-perhaps how
they spend their free time (i.e., golfing, building model airplanes
with their grandchildren or cultivating orchids) or what they do to
fulfill their sense of obligation and giving back to the community
(i.e., fundraising for their local synagogue, sitting on the board of
their children's summer camp, or crusading for animal rights) or even
the watch brands they favor or the last hotel they stayed at on
vacation-an advisor can establish the very things that elicit an
emotional response from their client and use it as a basis for more
intimate communication.
A client is a puzzle, and the advisor must first
find all the pieces before fitting them together to create a reasonable
picture. How wealthy clients consume is one piece of the puzzle that we
believe will help advisors and marketers interact more effectively with
these desirable clients.