What is luxury? Who are luxury shoppers? Are they just the ultra rich?
This year the Organization for Economic Cooperation and Development released data showing that the top 1% of income earners in the U.S. earned 47% of all income growth over the past three decades. Surveys also show that there is a growing divide in America between those accumulating wealth and those who are not.
So even though there is a growing divide in income, actual spending continues to show strong demand for luxury brands, and outlays on those luxury brands have been increasing. The US Department of Commerce tracks consumer spending and data confirms that since the 2008 recession, spending overall – particularly on luxury goods – has been increasing across the board.
But too often the media labels those with the highest incomes as luxury shoppers and, therefore, luxury purchases become defined based on income. No doubt that there are many luxury products and services outside the realm of reality for 99% of Americans, but that does not mean that consumers do not seek to indulge or reward themselves.
We can clearly see that this is the case for coffee, and that there are growing sales and demand for luxury coffee experiences. It is estimated that luxury or specialty coffee sales range between 8-30% of all coffee sales, and as such the profit margins can be substantial. So, what exactly defines luxury and especially for the coffee category?
There really is no universally accepted definition of luxury. But I offer the following as provided by Klaus Heine in The Concept of Luxury Brands because it hits on the more perceptual and emotive drivers of behavior: “Luxury is regarded as images, experience, and emotional bonds in the minds of consumers that comprise associations about a high level of price, quality, aesthetics, rarity and specialty.” As I have written before, luxury is also about exceeding expectations. Luxury is perceptual and defined from the point-of-view by the consumer especially at a more emotional level.
In a 2014 article submitted to the website, The Gate Worldwide1, the author suggests that there are eight characteristics consumers use to define luxury: rarity, excellence, expensiveness, timelessness, authenticity, tailored, pleasurable, and experience. The following are selected excerpts from the author and my comments regarding application to coffee that should be quite thought provoking:
1. Rarity: Luxury is not democratic. By definition, it’s exclusive, rare and limited. Luxury products aggressively restrict when, where and how they are made, sold and to whom. This controlled and limited availability adds to its desirability. In a category perceived as commodity based, there is excellent opportunity to communicate the unique rareness of coffee, even beyond Arabica or single origin.
2. Excellence: Luxury never negotiates on quality. No concession is ever made on materials, craftsmanship or standards. Excellence is not fleeting or variable. It is earned and consistent. You know it when you taste a cup of coffee that exudes excellence; and many times it has nothing to do with the price you paid.
3. Expensiveness: Just because a product is expensive, does not mean it is a luxury product. But conversely, all luxury products are expensive. Expensiveness intensifies rarity and gives reason to believe that the product delivers on excellence. But expensiveness is also perceptual.
4. Timelessness: Luxury is timeless. It has a past. Even if manufactured through communications. It is also immortal because it leaves a lasting, indelible impression. The coffee industry has this going for it and its image.
5. Honest: Luxury is honest. It’s not synthetic or reproduced. It can’t be duplicated. It is simple. It does not try too hard. It attracts rather than shouts.
6. Tailored: Luxury feels bespoke even if it isn’t. Luxury instinctively knows what its perfect customers want often before they do. So good are luxury products at this magical skill that everything feels specifically designed, and ultimately, unique. From the barista that anticipates your drink order to today’s single serve system, consumers see that as tailored.
7. Pleasurable: Luxury is pleasurable whether rational (tactile) or as is often the case, emotional: possessing an object that elicits envy, status or power. The quest for personal satisfaction is intrinsic to any luxury product or service. Can anyone think of badge coffee brands that convey envy?
8. Experience: Luxury is an experience and not just an object. For the most part, it’s about the little things that leave an outsized impression. For me, experience is really about the memories and coffee is a memorable experience rooted in ritual.
Across all of these eight items, coffee meets the test of solidly performing on each attribute. A Google search of “coffee” and “luxury” reveals disappointing results — 99% of them focused only on coffee and price. So while the income gap in America is widening, consumers still want luxury products and experiences. This tells me that there is significant upside in the industry to push a luxury coffee experience based on the above eight attributes.
Of course, this same Google search gave me pictures of the excrement from a civet. Not the kind of marketing on coffee luxury our industry wants to help define this lucrative space.
Mike Dabadie is the founder of Heart+Mind Strategies, LLC, a research consultancy that continues to pioneer the use of personal-values insights and marketing. He can be reached at firstname.lastname@example.org.