Executives at luxury goods and services firms, please take note: In little more than a decade, the Internet has become the channel of choice for high-net-worth consumers. So why is this still a topic of debate around the boardroom table?
In our latest best practices research, we focused specifically on how America’s economic elite use the Internet and e-mail and on how they do business with the luxury companies that serve them. Our survey sample group represented a rarefied demographic slice of American households with a minimum net worth of $750,000 (including home equity) and at least $150,000 in annual income. The median income for this group was $314,000, and median net worth came out to $2 million.
For most wealthy consumers, the Internet is the first choice in dealing with providers of luxury goods and services, beating out other channels, such as the telephone, face-to-face visits, and mail. In fact, 37% of wealthy consumers prefer buying luxury services on the Internet, compared with 30% who would rather do so in person and 21% who prefer the phone. Even with luxury goods, where you would think customers would have a strong bias for going into a store to see and touch the products, 38% prefer online purchases compared with 33% who favor face-to-face transactions and 19% who like buying over the phone.
Research: the killer app
Wealthy consumers especially appreciate being able to research companies and offerings online. A resounding 88% of wealthy consumers cite a preference for using the Internet and e-mail to research luxury-services firms, and 85% prefer these channels for learning more about a particular service. In luxury goods, nearly 80% of the consumers surveyed turn first to the Internet or e-mail to learn about companies and the products they sell.
A resounding 93% of individuals worth $10 million or more tell the Luxury Institute that they have purchased a luxury product over the Internet in the past 12 months, compared with just 55% percent of all wealthy consumers surveyed who bought luxury goods online. Nearly three-fourths of the wealthiest made online purchases of luxury services, while only half of the overall high net worth group did the same. Between the sexes, men are slightly more likely to go online to research companies and offerings.
Deepening customer relationships
The economics of the Internet make it a natural channel for firms to upsell and cross-sell customers. More than half of the wealthy prefer using the Internet and e-mail to contact a services firm about new and existing services, while only two in five prefer the telephone. Similarly, 53% prefer contacting goods providers online about new products, vs. 38% who prefer the telephone. Indeed, this presents a rather compelling case for companies to make their Websites as information-rich and as user-friendly as possible.
The Web and e-mail are also the best ways for luxury firms to reach out to the wealthy and present offers for goods or services; telephone solicitations, unsurprisingly, are the least popular. Nearly three-fourths of luxury consumers want offers from goods and services providers with whom they already have a relationship to arrive via e-mail. The propensity of the wealthy to welcome unsolicited e-mail from firms with whom they have no existing relationship, however, drops to 56%, and fewer than 40% prefer to receive such offers through physical mail. Only 6% welcome a telephone pitch from any source.
Despite its tremendous popularity as a conduit for communication and commerce with the wealthy, the Internet is not always the best channel for all occasions—or for all people.
For instance, when there is a problem, wealthy consumers are more inclined to pick up the phone or to pay a personal visit than to try to resolve the situation online. When seeking to resolve major problems with luxury goods or services firms, more than two-thirds prefer a face-to-face meeting, and about 15% prefer the telephone; just 9% attempt to tackle major problems via e-mail. For filing complaints, the phone also prevails as the preferred channel for a majority of wealthy consumers—fewer than a third do so online. The apparent convenience of the Internet cannot beat the immediacy and accountability of speaking to a company representative directly on the phone. For resolving small issues, however, the telephone is only slightly more popular than e-mail.
Ubiquity of the Internet
The Internet is a powerful channel for building a brand and doing business, and obviously at this stage of its adoption it is also an essential channel for dealing with the wealthy consumer.
For luxury firms, the need to continuously burnish their brands by beefing up the functionality and usability of their Web presence is critical. Many luxury goods and services firms are very, very late to the Internet party. At the same time, they cannot lose focus of the importance of maintaining the integrity of their other channels, such as the telephone. It would unfortunately appear that this has been lost on many mainstream firms that have pursued short-sighted cost savings by outsourcing to contact centers and adopting decidedly user-unfriendly automated systems that serve more to frustrate customers than to foster long-term business relationships.
Are luxury goods and services executives listening to the voice of the customer this time? Historically, luxury is the most innovative industry, and then the luxury innovation trickles down to the mainstream market (think indoor bathrooms). It would be optimal next time a revolutionary invention such as the Internet comes about to see luxury executives once again lead, not lag, the mainstream market.
Milton Pedraza is CEO of Luxury Institute, a research firm that focuses on wealthy individuals.