How VIP Clients Are Driving Growth in Luxury

True-Luxury Global Consumer Insight Summary of the BCG-Altagamma 2024 Study

Unique Study on the True-Luxury Global Consumer, Focusing on “Beyond Money” Segment

This document is the summary of the “True-Luxury Global Consumer Insight” research, carried out by BostonConsulting Group (BCG) in collaboration with Altagamma. This research, now in its Tenth Edition, is the most complete and innovative research on True-Luxury consumers.

This year the study has been designed to provide a uniquely comprehensive understanding of the True-Luxury consumers, with a specific focus on top spenders (“Beyond Money”), the top of the spending pyramid, who spend yearly on personal goods and experiences at least 50 k€ yearly and 350 k€ on average.

This years’ report leverages the below sources:

  • All luxury categories captured: from personal (clothing, accessories, jewelry, watches, …) to experiential luxury (hotels, exclusive vacations, wine and spirits, …)
  • Ad-hoc Beyond Money survey on 1K respondents: ad-hoc survey covers more than 1,000 respondents with an average spend on luxury goods of ~350 k€ /year on 7 geographies (US, UK, Italy, France, UAE, China, Japan)
  • 1:1 interviews with Very Important Clients: composed of 20 VICs of luxury brands, identified according to each segment spending thresholds (minimum 10 k€ yearly spent in one brand)
  • 3 focus groups with Very Important Clients: run 3 focus groups with 5 VICs / each in 3 regions (USA, Europe, China)
  • Ad hoc top CEO and Executives interviews: composed of 20+ luxury companies, to collect point of view and experience on the trends, including point of view of Client Advisors
  • Leverage of historical sample survey of True Luxury Report: covering more than 12,000 respondents with an average spend on luxury goods of ~39 k€ /year on 12 geographies (US, UK, Italy, France, Germany, Brazil, China, Japan, South Korea, India, UAE and KSA)

 

Intro & Market Context

It has become increasingly complex to make forecasts on the Luxury sector due to the macro- economic landscape volatility, rapid evolution and fluidity of the market, which requires analysis on a weekly time horizon. Looking at the growth of the luxury market for 2024, we forecast a period of normalization with two possible scenarios for the personal luxury market in 2023, based on key macro-economic context evolution and key geographies’ dynamics:

  1. Base Scenario: +1-3% growth vs 2023
    • More cautious outlook in China with technical rebound domestically and slow restart of internal consumption
    • Limited confidence of consumers in Western markets, with second half 2024 heavily impacted by economic uncertainty (mid-low single digit growth in US and Europe)
  2. Optimistic Scenario: +3-5% growth vs 2023
    • In case of China Luxury market restart, fueling domestic consumption and gradual spend increase in nearby markets (e.g., Japan and Macao) and in international destinations from H2 2024
    • Rebound confidence of US consumers despite the macro context, driving domestic and international demand (high single-digit growth)
  3. Chinese consumers spend outlook: single low digit growth vs 2023
    • Overseas spend fueled by exchange rates differences (particularly vs Japanese yen), easing of outbound travel restriction and global pricing policies of Luxury brands
    • Domestic spend projected on a negative trend, with macroeconomic factors and consumer behavior shifts impacting Chinese domestic luxury market

 

Beyond Money Consumer: Why Is More Relevant Than Ever

Beyond Money Segment are the most resilient and fast-growing segment

The Beyond Money segment (consumers with personal yearly spending above 50 k€ per year), fueled by the rising wealth of ultra-high-net-worth individuals, has seen a significant expansion, doubled its market share from 2013 and achieving a 10% CAGR growth rate, which is twice that of the overall luxury market.

These individuals maintain their luxury consumption despite economic fluctuations and geopolitical crises, demonstrating five times less volatility compared to the aspirational spend segment, even in highly uncertain conditions.

For them, luxury consumption is akin to a primary need, resulting in extremely low price sensitivity, uncorrelated to macroeconomic trends or fluctuations in global financial wealth.

 

However, Brands might miss out opportunities on Beyond Money segment, as current segmentation is not optimal

Despite the substantial potential, brands frequently fail to capitalize on opportunities within this segment as they do not sufficiently identify very important clients and high-potential customers.

Our research shows that High potential consumers such as Beyond Money shop across the entire assortment, are considered VIC for an average of 2 brands, but usually shop in 10 brands at average; still, majority of brands are using mostly quantitative spending thresholds in a limited timeframe (usually 12-18 months) to identify them, which is leading to missed opportunities, specially on high potential customers that are not yet classified as VICs in brands’ CRM database.

Additionally, although brands may have a deep understanding of these clients, their rapidly evolving aspirations and desires are outpacing the brands’ ability to satisfy them, resulting in a gap in effectively serving this valuable market.

 

Very Important Clients Evolving Needs: How To Win the Hearts of Vics

In the Tenth edition, we provide an holistic overview of the Very Important Clients needs and desires, with three main key takeaways:

  1. Turn on the radar and identify them correctly: traditional CRM segmentation is no longer sufficient and often leads to misidentifications and missed opportunities. Enhancing segmentation by leveraging new technologies is the crucial first step in any VIC strategy the brand aims to implement
  2. What brands might know, but need to master – fundamental aspects (table stakes) to delight VICs expectations – if not well executed, make customers leave the brand
    1. Exceptional product quality
    2. Exclusivity
    3. Impeccable service
    4. Outstanding Experiences
  3. What VICs would like the brands to know – aspects meeting consumer evolving expectations (differentiators) – if well executed, make customers love the brand
    1. Hyper personalization
    2. Bespoke products making the wait exciting
    3. Top tier Client Advisors
    4. Sense of community

 

1) What brands might know, but need to master – The Table Stakes

VICs are revenue powerhouses for the brands: they represent on average 30% of brands’ revenues, and have clear expectations:

a. VICs have high expectations for product quality, and have a strong desire for exclusivity

  • Technical excellence and high product quality: 89% of the respondents’ value luxury products for their exceptional quality, with that aspect gaining even more importance for Chinese customers (96%) and Middle Eastern’ (92%).
  • Exclusivity and recognition among peers are fundamental for VICs, with 85% of top luxury spenders affirming it as a key aspect of their buying behavior. This is particularly pronounced in the Middle East, where 95% of respondents emphasize its importance.

b. VICs continue to shop in boutiques, but require outstanding experiences and service in store

  • Majority of VICs (60%) still indicates the brands’ offline boutique as the preferred shopping touchpoint but are more involved when something special happens: among the options, all the activations linked to product aspects are the go-to ones, such as exclusive previews of new collections and invitations to in store launch events, both preferred by 80% of respondents.
  • Looking forward, VICs require outstanding experiences and service, with the experiential component gaining more and more importance for clients, looking to be delighted and surprised by brands

c. VICs require exceptional and highly professional service, focused on personalized approach

  • Among the frictions, unprofessional service is the most significant, impacting the purchase decision in over 50% of cases. Inconsistent or overly pushy service is viewed negatively by VICs, who expect personal recommendations not driven by staff sales
  • The trust and relationship they have with their Client Advisor are fundamental to their brand loyalty and buying behavior

 

2) What VICs would like the brands to know – The Differentiators

VICs’ dreams and expectations are evolving faster than brands’ to fulfill them – they are cocooned by brands in every sector, from personal goods to hospitality and entertainment industry, at the same time – in this highly competitive context, it becomes even more difficult to genuinely surprise them. Our research identifies four main global expectations that brands must address to win VICs’ loyalty and ensure their satisfaction.

a. They want hyper-local personalization, but worldwide recognition

TREND

For VICs, hyper personalization is fundamental in their shopping experiences, and they expect seamless customer journey that ensures global recognition of their status at every brand touchpoint.

  • Across the whole customer journey, personalization is top on mind: 80%+ of respondents consider personalized recommendations, 1 to 1 relationship with their Client Advisor and personalized after sales support as key factors in their shopping experience
  • Personalized activities are the ones engaging and converting the most, with private showings & home visits the preferred ones from consumers; the VIC-only private stores are an emerging trend, gaining more interest in emerging markets, particularly in Asia
  • Most frictions are due to lack of enough personalized experiences, as expectations from VICs constantly increase –Western consumers increasing sophistication leads to the need of almost one to one activities, while Asian consumers require global recognition across brand touch points, with not being recognized outside homeland as main friction for 60% of clients

WHAT BRANDS CAN DO

Executives must make choices across two main pillars to exceed VIC expectations:

  1. Boost their CRM systems ensuring best-in-class CRM capabilities and use of enriched data are in place;
  2. Leverage GEN AI in both client segmentation phase to adopt multi variable approach and in data collection / maintenance phase to equip Client Advisor with user-friendly, lean tools
  3. Ensure Data centralization by develop a unified database that consolidates VIC profiles, accessible to all stores globally and collectable in an universal digital system ensuring global VIC recognition

b. They want unique products, without the waiting game

TREND

VICs spent appetite is growing, and is growing toward special, unique or even bespoke products; from our interviews, the artificial “waiting game” some brands are playing is becoming obsolete for standard products, while the waiting time for bespoke is generally accepted, but needs to be justified and entertaining.

  1. In an era of normalization, Top spenders net appetite is growing by 36%, in particular on high end assortment segment: Jewelry, Design Furniture and Exotic Bags are the categories where VIC expect to spend more compared to last 12 months
  2. High fashion items and Bespoke products are a priority: VICs find owning them more fulfilling in 83% of the cases, but many brands are still lacking in that type of offering; moreover, special or limited-edition products often represent a small portion of brand’s assortment, leading to missing opportunities with top spenders
  3. The waiting game is over – artificial scarcity no longer appeals for standard items, but still accepted for highly personalized products; VICs perceive the value of real personalization leading to one-of-a-kind products, and their willing to wait is proportioned to the level of product personalization and varies across industries; from 12 weeks to partially personalized fashion products to up to 24+ months for Boats and Yachts.
  4. However, some phases of personalization process are still suboptimal in terms of satisfaction – production phase generates the biggest friction along the full process

WHAT BRANDS CAN DO

Bespoke and made to order products are a key feature of VICs retention and the production lead is an unique chance to further keep VIC engaged – and make the experience memorable. Executives can act both on immediately actionable initiatives and set long term strategy to maintain the competitive advantage and satisfy the increasing demand

  1. Quick Win – Involve VIC in the process: Enhance the experience with ad hoc VIC activations, transforming the current frictions in an engagement lever by create engaging content to make the VIC feel part of the production process and clearly plan mitigation actions to minimize waiting time change of mind and general dissatisfaction with the service received
  2. Mid- Long Term – Ensure Supply Chain is ready: given VICs’ increasing spending appetite and their resilience to market fluctuations, optimizing production speed and securing capabilities will become crucial to maintain competitive advantage; different degree of verticalization can be evaluated according to each brand status quo, securing a traceable and transparent process from raw materials to

c. They are more loyal to your Client Advisor than to the brand

TREND

A personalized service for VICs primarily involves the brand representative with whom they have the most contact—the Client Advisor. This relationship is becoming critically important, as it ensures a level of trust that becomes the deciding factor for these clients. Today, the best Client Advisors have a significant client portfolio and are becoming a scarce resource in the market.

This is leading to a War of Talents that is spreading across industries, given the global expectations VICs have toward the whole world of luxury.

  1. Even if majority of brands recognize importance of Client Advisors, many struggle to foresee their real impact on VICs: according to our research, 70% would consider following their Client Advisor to a new brand, given comparable quality product and aesthetic
  2. The relationship with brands’ client advisors is a key factor driving purchases across geographies, with 65% of VICs trusting their Client Advisor’ recommendations more than marketing or advertisement material
  3. Across the board, efficient handling of requests and prompt responses are the primary expectations for Geographical differences also play a role: in Mature Markets, relationships and an authentic approach are paramount, whereas in Emerging Markets, access to exclusive products and events is the main priority.
  4. Selling and creating relationships is an art mastered by top-tier Client They represent valuable assets in terms of client portfolios and are a scarce and counted resource, leading to a War ofTalents, not only intra – industry but spreading across industries, with Jewelry and Fashion companies the most active participants – with clear winners and losers – and this is just the beginning.

WHAT BRANDS CAN DO

To address this challenge, brands and society need a holistic view of the problem. A comprehensive approach is necessary, requiring action on three fronts:

  1. Education: Despite the significant role of retail in the luxury sector, there are few academies dedicated to training client advisors to the highest standards. This stands in stark contrast to the hotel industry, where prestigious institutions like École Hôtelière de Lausanne serve as key recruitment sources for top talent. Investing in specialized education and training for client advisors is essential to elevate the profession and meet the demands of high-value clients.
  2. Attraction: From a brand perspective, attracting talent requires creating a compelling company culture that resonates with these professionals. Brands must cultivate an environment that celebrates innovation, fosters professional growth, and recognizes the unique contributions of each team This means going beyond traditional compensation packages to offer meaningful incentives, such as opportunities for personal development, flexible working arrangements, and a clear path for career advancement. By positioning themselves as forward-thinking and employee-centric, brands can attract top talent who are passionate about the luxury sector
  3. Retention: the most immediately actionable step, involving clear career progression opportunities and ensuring competitive salaries and benefits. Most importantly, maintaining internal motivation and providing a calm and psychologically safe environment are among the best ways to retain top talent.

d. They want to be more than clients, they crave for sense of community

TREND

A generational shift is taking place, with Older Gens transferring share to Next Generations of UHNWI, who are more global and diverse; NextGen VICs show distinct traits compared to previous generations, that brands need to consider in their approach.

  1. By 2045, 53% of global wealth will be inherited by younger generations of UHNWIs (Gen Z and Millennials); the new generation has different characteristics, being more diverse – share of women reaches 11% – and more global – 12% of UHNWIs are looking to apply for second passports or new citizenships
  2. NextGen VICs show distinct traits compared to previous generations: there are highly informed, and less brand loyal, switching brands easily: 42% of younger VICs switch luxury brands when they find better or more innovative product (+4pp vs vs older generations) and tend to shop in multiple brands –88% of young VICs usually shop at 5+ brands (+10pp vs older generations)
  3. At the same time, NextGen VICs are seeking a sense of community and networking within the brands they buy – more than 80% of respondents feel emotional connection with a luxury brand is crucial to their purchasing decision and are seeking being part of like-minded buyers’ community

WHAT BRANDS CAN DO

The NextGen of VICs expects vibrant communities where they can cultivate a sense of belonging. Traditionally, brand communities can be divided into two types and their engagement strategy needs to be differentiated accordingly:

  1. Connoisseur communities, built around technical product knowledge (such as luxury cars, watches, boats, and yachts), need to develop strategies for integrating the Next Gen These brands should focus on fostering a sense of camaraderie among participants, who often come from diverse cultural backgrounds and different age ranges, to reinforce the community of like-minded buyers.
  2. Amateur communities, which create larger networks by sharing a subset of brand values and emphasize socializing and networking (such as Fashion, Beauty …); these brands should avoid the trap of launching overly generic activations that dilute Next Gen VICs’ sense of belonging and exacerbate their tendency to switch brands

 

Conclusion

VICs already represent a significant portion of brand revenues and act are their main Brand Ambassadors; in the future, their financial wealth and desire for luxury will only grow, along with their expectations.

To win their hearts, brands must master the fundamentals, which are the table stakes forming the foundation of their relationship. If not executed perfectly, these table stakes pose a significant risk of losing VIC favor to other brands.

Once these basics are established, brands need to fulfill the evolving dreams of current and potential VICs by addressing differentiators and implementing corporate and strategic adjustments that fully unlock the advantages.These differentiators are the competitive edges that ensure VIC loyalty and turn them into consistent, reliable clients over time.

 

However, this is only possible if clients are properly identified.

Traditional segmentation based on thresholds, limited timeframes, and single-variable approaches is no longer sufficient. Brands must implement multi-variable classifications approaches to identify potential VICs at early stages, ensure current VIC satisfaction and ultimately win their hearts.

 

Source: Boston Consulting Group/Altagamma, Milan, July 2024.