Europe's consumers lap up luxury goods

- Last updated on GMT

Related tags: Marketing, Whisky

The market for top-end Cognacs or Single Malt Scotch whiskies is
set to grow as consumers across Europe become wealthier. But too
much growth is a bad thing, warns market analyst Datamonitor, as
the products become less prestigious and lose their cachet.

Sales of luxury goods, including luxury food and drink items, are set to rise across Europe as consumers become more affluent and more discerning. A new report from market research company Datamonitor reveals that the prestige goods market, which includes luxury goods and personal care items as well as food and drink, is set to reach €25 billion by 2006.

In 2001, there were 22 million western Europeans with over €50,000 in disposable assets - a figure which is set to rise to 27 million by 2006, the report said. The value of the assets held by these wealthy consumers will increase from €5,000 billion to over €7,000 billion over the same period, and manufacturers are being urged to react quickly to the potential in the luxury goods market.

The drinks industry has long been present at the top end of the market, with wines, champagnes, Cognac and Single Malt whiskies all regularly selling for sums way beyond the reach of the average consumer. Datamonitor predicts that prestige drinks sales will grow by 6.5 per cent per year between now and 2006 to reach a value of just under €4 billion.

The key for manufacturers, according to the report, is to assess what kind of product best fits the needs of the customer trying to make a statement by buying a luxury item. A sports car and a Single Malt can both be luxury items, but they appeal to different kinds of consumers trying to make different kinds of statements - a sports car is much more conspicuous but a whisky might have more of a quality element.

Producing products to meet these different requirements is vital for companies to cash in on the prestige market, as well as an awareness that they are not simply selling a product but also a lifestyle. An individual offering an expensive bottle of Cognac after a meal wants to be sure that the product is of a high quality, but there is also the desire to be seen as someone who appreciates fine food and wine, a far less tangible quality.

It is this association of the product with core prestige drivers which will fuel growth. Manufacturers and retailers need to develop a close understanding of the precise reasons why consumers seek out prestige goods, in order that they can develop the product to match those needs. Particularly important is the retail environment - if prestige goods are sold in a non-prestige environment their prestige standing is seriously damaged - which is why the best, and most expensive whiskies or Cognacs are unlikely to be found on the supermarket shelves.

But increasing sales of such products also carries a risk. If the sales drive is too successful, the cachet of a product can be seriously diminished. This would not be a problem if sales of such products were limited to the small number of truly rich people, but there is a growing number of so-called aspirational customers who have the wherewithal to buy these products occasionally but not on a regular basis.

Their motivation in doing so is simple - they desire to emulate those they perceive as being above them on the social ladder. Ironically, those very individuals are motivated by a different kind of prestige; since they have no-one to emulate, being already at the top of the social ladder, they are more likely be motivated by quality issues.

These two motivations can be conflictual, Datamonitor warns, and may destroy the prestige value of the brand. As aspirational consumers pursue the brand to fulfil social prestige, they erode its unique prestige. This cripples the demand among core prestige consumers. As the brand becomes less visible among this group, its social prestige begins to erode as well.

"Protecting a brand's cachet is vital for prestige manufacturers and retailers. It can be done by restrictive pricing, restricted supply or highly selective retailing. This limits the access of the aspirational consumer to the brand, and thus preserves its unique prestige. This however, also limits growth of the market,"​ commented the report's author Andrew Russell, Datamonitor's consumer markets analyst.

"An alternative method is to develop segregated brand extensions which transfer the cachet of the brand down the value chain, while keeping the unique prestige of the original, top-end brand alive and well."

The report, Prestige Consumers, is available from Datamonitor priced £2,995. Telephone + 44 207 675 7202 for details.

Related topics: Market Trends

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