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.