The common belief: Competing luxury brands attract different types of customers

Luxury theorists favour the idea that rival luxury brands are not substitutable and they appeal to different types of customers, e.g. different people who value the brand’s particular image (Kapferer, 1998). If luxury brands do tailor product offerings to meet users’ varying personal needs, and customers are drawn to brands based on how much they embody these attributes, then this should be evident in stark differences in the customer bases of luxury brands within the same category.

Prior knowledge from consumer markets

The same sort of assumption used to be made for brands in non-luxury markets, particularly brands that were supported by many years of image building advertising e.g. Nike, Coca-Cola etc. However, Andrew Ehrenberg and colleagues showed competitive brands sell to customers with similar demographic, psychographic and media usage profiles (Hammond, Ehrenberg & Goodhardt, 1996; and for sportswear brands including Nike see Dawes, 2009). So while each brand has a diverse range of buyers within their customer base, rival brands have much the same. This means McDonald’s buyers resemble Burger King buyers, and Nike wearers are similar to Adidas wearers. Brand user profiles largely reflect the profile of category users, therefore if you know the characteristics of people who buy the category then one can reasonably assume that any brand’s user base will look rather similar. Exceptions tend to be due to obvious functional differences which might make a brand (and competing brands that share that functional quality) slightly more or less attractive to a segment of the market. For example, sweetened cereals have a higher representation of families with young children in their customer bases. Sweetened cereal brands are still bought by single people and families without children, but slightly less than other brands. The findings were so surprising to the marketing community that one of the first publications won the British Market Research Society award for Advertising and Media Research (Ehrenberg & Kennedy, 2000).

Over time the findings have been replicated in various categories and countries, and occur consistently over time (examples include Uncles and Kwok, 2008; Trinh, Dawes, & Lockshin, 2009; Uncles, Kennedy, Nenycz-Thiel, Singh, & Kwok, 2012; Sharp & Romaniuk, 2016).

Why the similarity between brand user profiles?

There are two key reasons why competing brands’ user profiles end up looking very similar. First, rivals copy one another in order to stay competitive, resulting in similar sets of variants across rival brands. For example, when salted caramel was a popular flavour, almost every ice cream brand launched a flavour variant. Second, most consumers are repertoire buyers, so not only do Coca-Cola buyers resemble Pepsi buyers, many of them are actually Pepsi buyers too (see Corporate Report #39). It’s quite common for someone’s wardrobe to contain Nike and Adidas and Fila and Puma. Brands simply do not compete in silos and secure a specific group of customers who only buy that brand.

However, perhaps luxury brands have less replicable qualities and/or follow different patterns of competition than non-luxury categories (i.e. perhaps buyers own smaller repertoires or are more solely loyal to one brand). Therefore, could luxury brands be an exception to the general pattern of rival brands having similarly profiled customer bases?

Why luxury brands might differ

While there have been many investigations into the difference between luxury and non-luxury brands, comparisons between luxury brands are less common. It can be argued that luxury brands might have a greater chance of attracting unique customer bases compared to mass market brands. First, luxury brands are more symbolically different from one another, and their buyers appear to value these differences. If people didn’t believe Patek Philippe watches offer something rival brands don’t, why would they spend over $150,000 for a watch when there are other luxury watches that retail for a much lower (but still expensive) $15,000? Second, competitor copying may be more difficult in the luxury category as characteristics such as brand heritage and quality craftsmanship are difficult for competitors to imitate. For example, few brands can claim to have been tailor to members of British Royalty since the early 1800s like No.1 Savile Row’s Gieves & Hawkes. This then might result in those who value history and tradition or the Royal connections preferring this brand over competitors.

So we ask: do competing luxury brands attract customer bases with distinct profiles?

Method 

To answer this question we draw on the Affluential panel database, representative of the top 25 percent of income earners within the countries tested. We examine a sample of more than 1900 luxury owners spanning two years (2014 – 2015) and six countries: The United States, China, Singapore, Taiwan, Indonesia and Hong Kong.

We compare the owner profiles across four broad characteristic types: demographics; motivations for buying; researching/buying habits and; past experience with luxury, across 200+ luxury brands in six product categories: alcoholic beverages, makeup/skincare, watches/jewellery, hotels, cars and fashion/accessories (summarised in Table A). For the categories alcohol and makeup/skincare we only considered brands with 85+ owners, while for the remaining categories the minimum number of owners was 100.

Table A: A selection of the 200+ brands tested

For those unfamiliar with this analysis, Table B illustrates with a simple example. Each brand’s customer profile is compared against the category average to highlight any deviations (see Corporate Report #7 for more detail). So if the category average is 50% female and a brand’s user base is 55% female this is a 5pp deviation. Consistent with prior work, we classify deviations of ≥10 percentage points (pp) from average as meaningful (Kennedy & Ehrenberg, 2001). Table B is an example of the analysis for gender using a sample of watch/jewellery brands. Brands are ordered by size.

Table B: Example of brand user profile analysis – brands ordered by size

Table B shows the gender profile of most brands closely resembles the category average. There are some exceptions such as Cartier, which skews more to female owners while Hublot and TAG Heuer skew to a slightly more male customer base than average. It’s important to note that these deviations from the average are quite small (and below the 10pp threshold).

Overall Results

Demographics

We first compared the demographic profiles of brand owners to see whether directly competing brands attract distinctive types of customers. Brand owners were compared against the category average on the basis of age, gender, household annual income, disposable annual income and investments. The results are summarised in Table C (the number of brands (n=x) refers to the number of different brands – for brands that were tested in both years and/or multiple countries, we classified this as just one brand).

Table C: Summary Mean Absolute Deviation (MADs) for demographic profiles

Across countries and categories, directly competing brands’ customer profiles are similar. For example, Veuve Clicquot and Dom Pérignon customers have similar demographic profiles to Château Lafite Rothschild and Macallan customers. Gender accounts for the most variability in brands’ demographic profiles (8% of cases), whereas deviations for the remaining demographic variables range from 0 to 2% of cases. We see gender deviations mostly in the makeup/skincare and fashion/accessories categories. The finding isn’t surprising – it’s common for luxury brands to specialise in products for males or females. For example, makeup and skincare brand Estée Lauder is owned by a higher proportion of females compared to the category average, men lost certainly because it does not offer a range specifically for men.

Overall however, 99% of demographic profiles reflect the category average. Therefore, we conclude that competing luxury brands generally attract customers with similar demographic profiles (based on age, income, investments and gender).

Luxury buying and research habits

Next, we tested whether competing brands’ owners differ in their buying/research habits. We compared owners across 12 habits (and six habits for car and hotel categories) (e.g. I research luxury products on my mobile phone and When travelling I prefer to purchase luxury items at the airport rather than in the destination city). The results for a sample of the buying/research habits are shown in Table D.

Table D: Summary MADs for a sample of luxury buying/research habits

Comparing the buying/research habits of competing luxury brand owners reveals their customer bases are more similar than different. This pattern holds across countries and categories. For example, Max Mara and Tod’s fashion/accessories owners are similar to Alexander McQueen and Saint Laurent owners in their preferences for buying online vs. in-store, and researching or buying luxury products via their mobile phone.

Based on 12 luxury buying/researching habits, in 99% of cases tested, rival luxury brands attract customers with similar shopping styles.

Motives for buying luxury

There is a popular belief among luxury experts that rival luxury brands attract customer bases with distinct motives – some value craftsmanship or exclusivity, while others value the social recognition certain luxury brands can provide. These motives are thought to influence the brands people are drawn to, and ultimately, the profile of a brand’s customer base. We compared the motive profiles of brand owners in six categories for up to 12 motives. 99% of cases show owners of competing luxury brands have similar motivations for buying luxury brands/products – see Table E for a summary of results.

Table E: Summary MADs for motivations for buying luxury

Let’s consider some brand-level results. Overall, people who stay at different hotels have similar motive profiles. For example, people who stay at Shangri-La, Intercontinental, Four Seasons, Waldorf Astoria and the Ritz-Carlton have similar preferences for quality, uniqueness and exclusivity. The pattern applies to other categories too. Compared to the average luxury car owner, Ferrari, Jaguar, Lamborghini and Tesla owners are similar in their desire for others to recognise the brand they use. There are some deviations. For example, people recognising the brand is more important among a higher proportion of Jaeger-Le Coultre, Boucheron and Patek Philippe watch/jewellery owners than the average category owner (but only by 1 to 2% each). Whether this reflects something real or is merely an aberration is not clear, notably Rolex, Omega and Longines owners did not differ from average.

The key point is that in 99% of cases, competing brands’ customer bases are strikingly similar in their motives for buying luxury goods.

Experience with luxury brands

It’s reasonable to think people who are experienced luxury connoisseurs will gravitate to different brands than those who are new to the world of luxury (novices). An experienced buyer will have wider knowledge of the category and brands, whereas someone new to luxury may favour better known brands – and this should be reflected in brands’ customer composition. However, the results in Table F show that experienced and inexperienced luxury owners are not drawn to decidedly different brands, with 98% of cases showing similarity to the average category profile.

Table F: Summary MADs for owners’ experience with luxury brands (2015 only)

Even brands such as Van Cleef & Arpels do not attract owners with vastly different experience profiles to those of well-known brands Tiffany & Co.. Likewise, lesser-known skincare brands such as Origins and Laneige have similar customer bases to well-known brands such as Estée Lauder and Clinique.

Different brands attract the very similar amounts of experienced luxury buyers and novices.

What does this mean for my brand?

“Prada’s cool. Gucci is posh. Versace shows you’re rich.” (The Independent, March 1999). This may well be, but it doesn’t seem to matter much. All three brands are bought by similar sorts of buyers, indeed some of whom are the exact same people. For most luxury buyers each of these brands is haut couture, luxury, desirable. Yet these brands vary considerably in their sales volume, Versace is comparatively small and has suffered losses as it tries to expand its 1500 outlets, Gucci and Prada are huge each with around 6000 outlets and $4billion in sales.

Luxury brands are different from non-luxury, higher quality and much higher price. But luxury brands compete with other luxury brands. Versace’s buyers are similar to Gucci’s, just as Nike’s buyers are similar to those who buy Adidas. And their motivations and perceptions are similar classic luxury characteristics like glamour, style, craftsmanship, uniqueness and quality matter equally across competing brands.

Managers should always assume that their brand competes head on with other brands selling (potentially) to all category buyers. Embracing this knowledge opens up significant opportunities for brand growth… anyone who buys luxury goods is a potential buyer of your brand.