Marketing to the Relatively Well Off
By Al McClain
At a presentation given last week to the Florida Luxury Marketing Council in Coral Gables, Florida, I found out that a million just ain’t what it used to be.
For example, one now has to have $1.3 billion in net worth to make the bottom of the Forbes 400 richest Americans list. But, Lewis Schiff, co-author of The Middle-Class Millionaire, says that while the Forbes group in total has a net worth of $1.54 trillion – there is another group of about nine million households that each have between $1 million and $10 million and have a total net worth of $20.7 trillion.
This group (the middle-class millionaires) is responsible for 39 percent of consumer spending in the U.S. and is a new super-demographic that has lots of money to spend.
According to a survey of 3,700 U.S. households done in 2006 in preparation for the book, the most important personal values of this group include:
- 92 percent – Good parenting
- 85 percent – Providing children with a good education
- 97 percent – Being ethical
- 92 percent – Health more important than money
On average, they work 70 hours per week, versus 40 hours per week for the traditional middle class, and take only 12 days of vacation per year, versus 20 for the middle-class. What makes them successful? Well, one idea is that they don’t give up. Survey respondents recalled an average of 3.1 major business decisions that didn’t turn out well, versus only 1.6 for middle-class respondents. But, it was the reaction to a bad business decision that was really interesting. Seventy-six percent of the middle-class millionaires tried again after a bad business decision, versus only 14 percent of the middle-class respondents. And, 52 percent of middle-class respondents eventually gave up to focus on other things, while only two percent of the ‘millionaires’ did that.
What does this all mean for retailers and manufacturers targeting the ‘millionaire’ group? Consider these numbers and you’ll have a better idea:
The 2006 survey was supplemented by another one in January 2008 focused on luxury categories such as jewelry, watches, clothing, perfume and accessories. In this survey, respondents were asked what would make them spend more in a weaker economy. About 89 percent indicated interest in value-added options such as upgrades, additional time or services as part of a program, and limited editions.
Meanwhile, 32 percent of respondents planned to increase their charitable giving, while only six percent planned to reduce their giving. So, one idea is to tie products and services to charities important to your best customers.
Of the respondents, 34 percent are paying more attention to price and 24 percent are planning to postpone purchases. Mr. Schiff says these respondents are “pushing the pause button” but still plan to make the purchases as 65 percent plan to increase their spending when the economy improves, indicating pent-up demand.
Bottom line: Mr. Schiff says this group of affluent consumers needs to be given incentives to make purchases now, rather than delay. And, they want middle-class things in new packages, which is driving the trend towards fractional ownership of homes, jets, yachts, cars, etc. Finally, they are trying to buy back time. They work long hours and work hard to become successful so if retailers can give them back time in the form of added convenience, it can be a winner.
Discussion Questions: In what ways do you think middle-class millionaires are different from the traditional middle-class? Should mainstream retailers make a special effort with this demographic and, if so, how?
The middle class millionaire has been with us for years. First we classified them as the lower segment of the higher income group. Now we classify them as the upper segment of the middle income group. This group is growing, as it has many of the baby boomers which are looking at life differently than before.
As a group, they will not be hurt by rising gas or food prices as their percent of disposable income is significantly more than the national average of 10%. But that does not mean they will throw away money. They have been rational shoppers for years.
The book “The Millionaire Next Door” identified the Ford F150 pickup as the most common vehicle driven by millionaires. Some retailers have identified this segment as their target market. This does not mean just higher prices, but merchandise selection tailored to their taste and wants. Since as a number, they are not the largest group, only some retailers can target them.
Al, great article. Thank you for covering this important book and Lewis Schiff.
Over 80% of the affluent come from middle-American backgrounds. This book and market are very important considering there are 3.2 million American households with investible assets in excess of $1,000,000, and 300 new millionaires are created in America every month. Furthermore, the top 10% own 70% of the assets in America.
The Middle-Class Millionaire is an invaluable book on several levels. Today’s middle class millionaire has lived a life uniquely different from their high school friends who haven’t achieved the same level of success. Because this book uses the middle class as a base line, it is an important study and resource for mass marketers as well as marketers focused on the affluent.
The new millionaires are not hurting as another colleague suggested. They’re merely falling back on the values that made them successful. The slowdown in the luxury market is primarily driven by the middle class that is cognizant of the economy and may no longer have the dollars to spend.
I’ve read the book and heard a presentation by Lewis Schiff. Suffice to say, Lewis Schiff has successfully delineated the differences in the mindset and values of those who have achieved the American dream. As a marketer, isn’t this our Holy Grail?
First let’s not think that if one simply does what middle-class millionaires do one becomes one. Lots of ‘regular’ middle-class people work 70 hours,tell people about good products, don’t take holidays, etc). What I do find odd is that these millionaires apparently claim to hold health, family and parenting paramount but in reality their behavior contradicts that claim. The trap as I know too well is that they justify the behavior by claiming they are providing a superior life-style for their family and that “someday” they won’t have to work this hard. If and when that day ever comes many have a good chance of finding themselves alone. I want to find millionaires who work 40 hours a week, take two months of holidays and model myself after them! But I digress….
The critical, most discerning point in my view is that millionaires often “see” things before others do. And that’s a matter of mind-set and subconscious beliefs. They literally pick up on the early vibrational frequency new ideas and opportunities send out. Most of us sit around waiting for “proof of concept.” So what does that have to do with retailers? People whose subconscious is open to this energy know ‘lack’ retailers from ‘abundance’ retailers. Lack-oriented, narrow thinking and reactive people don’t connect with the folks we’re talking about here. In conclusion, if you want to reach them you too need to have your mind open to infinite possibilities like they do.
While looking at the survey, I found myself wanting to answer “it depends.” While Middle Class Millionaires likely have some commonalities, I would imagine that are really quite heterogeneous (as are most single-variable segments). For most marketers, understanding how to effectively market to MCMs will require looking at the different lifestyle segments within the group, rather than treating them as a single, homogeneous segment (akin to understanding how to market to women, to Hispanics, or to left-handers).
Some MCMs will be strivers and/or live beyond their means, and others will be more understated and prone to saving. Some will prefer “contemporary/modern” styles, others will prefer “classic/traditional,” and still others won’t really care. Some would think nothing of spending $2,000 on an outfit or $60,000 on a car, while others wouldn’t dream of it.
There are, of course, some macro-level opportunities that generally correlate to income, but the key is in understanding causation more than correlation, and this typically requires knowing someone’s lifestage and lifestyle, rather than just their demos.
Or to put it more simply “Madonna was Madonna before she became Madonna” (credit to my friend Dick Baker for that one).
The key to marketing to MCMs may be in understanding how they FEEL about their financial situation, not just the numbers. Occasionally (often after writing a check for property taxes or tuition) my financially savvy bride will wax philosophical and muse “well, I guess we’re all just broke at a different level.” Clearly, MCMs are in a position to break open the coffers to take advantage of opportunity. But retailers are going to have to convince these savvy buyers that they are “buying low….”
OK, how did they get to be middle class millionaires? Most of them arrived by paying off the mortgage on a house they have lived in for 15 or more years. The inflation in the cost of housing coupled with IRAs put many in the “millionaire” category.
But a million won’t take you very far because you can’t downsize out of a house. You have to have someplace to live so the money is going to stay tied up. The fact is that the middle class millionaire has gotten hammered beyond comprehension over the last 10 years by property taxes and inflation and LOW interest rates. Give me $250,000 in 1960 dollars and 1960 prices and I can live like a king. $2,400,000 in todays bucks won’t provide anything but a draw down source to fund a middle class retirement.
Most of us are value investors and recommend value. Many of us grew up with little and value money and don’t throw it away. We are the haggle generation and as more of us retire, we will put pressure on merchants to do a better job of delivering value. Some, like Jos A Banks, have caught on and are keeping their bread and butter customers happy with frequent high value sales.
This is a fascinating study; just some of the profiles related here have got me thinking not only how to market to the affluent middle class, but also how to become one of them. There is definitely a ‘creation’ spirit evident in this demographic, rather than just ‘maintaining’.
I really noted the point about picking oneself up from a bad business decision and starting over. Several successful entrepreneurs whom I have met weren’t so successful on their first try, and others continue to come up with new business ideas to diversify.
I get the thought that the Middle Class Millionaires would the best audience to pitch a sound, rational, new business idea to.
Two additional dynamics affecting Middle Class Millionaires are that they are living longer and must be prepared for a longer retirement, and that their children are living at home longer. This suggests that nesting in the form of home improvements and remodeling, especially while the real estate market remains in a state of flux, will receive a growing share of their disposable income. Retailers and service providers in these business sectors should pay special attention to this demographic.
This is the demographic that I sell to everyday. They are not price-driven, but rather are quality-driven. If I sell them a product, they don’t really care if it’s $10 more than the knockoff in the big box, but it better not break.
My focus is on finding the best *value* for price and quality in a particular market category, and then telling the customer that I have done the research for them and *this* is the one that will hold up.
In what way are middle class millionaires different from the traditional middle class? They got more money to spend (duh)–and they want to spend it on upgraded things for their lives. So go after these consumers too.
Although the article seems to barely touch on this specific aspect, I think if we look at this new demographic closely we will see that it is comprised primarily of professionals and first-generation entrepreneurs. I believe this is in sharp contrast to those that would appear on the Forbes list as most of them are probably second, third, or even fourth-generation business owners.
Beyond an obvious appreciation and commitment to hard work, this newest generation of millionaires is also the most socially and environmentally conscious group among all higher income demographics. While still enjoying the finer things in life such as vacations and nice cars, they still place a lot of importance on family and quality of life.
I would say to any retailer trying to reach this market that they must do it in a way that is intelligent and honest. They must also go out of their way to make these customers feel important. Whether it be through some kind of exclusive customer retention program or exclusive access to a specific products or events, if this demographic feels that their business is truly wanted and appreciated, they’ll be customers for life.
Middle-Class Millionaires (MCMs) are an interesting demographic. Although they have assets in excess of $1 million and in many cases considerably more than $1 million, they are not in the position to live like a “millionaire.” MCMs usually pay 100 percent of college costs, maintain one, if not two residences and own or lease several vehicles. Their lifestyle may seem exclusive to the traditional middle class but in reality they are just today’s version of yesterday’s upper middle class.
This is a consumer that researches buying decisions, uses their computer as a tool and makes decisions based on multiple factors, not just price.
Retailers and manufacturers that appeal to this consumer through advertising, product quality and competitive pricing can truly benefit; Apple Computer, BMW, and Coach Leather are a few examples of companies that know this customer and play to their interests resulting in disproportionate sales among this important demographic.
Marketing to this upper-middle-class/lower-upper-class segment always has been and will remain an outstanding opportunity to focused, committed retailers, especially retail entrepreneurs. Unlike so much of mass retailing, the customer is not price driven, but value and lifestyle driven, expects to be offered expansive customer service, and is committed to those niches and categories which capture their interest and imagination.
For the smaller and independent multi-store merchant, whose passion for what they’re doing is as much of a competitive edge as anything, blending the art, craft and science of retail into a compelling customer experience in a well defined niche offers success far beyond the current environment and headlines.
To amplify Ed Dennis’ comments: there’s a big difference between folks whose net worth of $1 million+ is mainly in their houses, and folks with $1 million+ of liquid investments. And the folks with $1 million+ liquid investments who still have jobs versus the retirees. And if the dollar continues to decline, we’re all gonna be millionaires.
Wow! What a fantastic set of comments. Clearly a lot of knowledge, experience and thought has gone into these responses. As the author of The Middle-Class Millionaire, it was a great pleasure to present these ideas to the Luxury Marketing Council in Tampa last week.
The collected wisdom in this site is extremely valuable to me. I’ll look forward to watching “the boards” and learning more and am happy to answer your questions as well.