“Marketing luxury brands to the rich is complex enough. But it could be a real challenge marketing to the new rich in emerging markets?”

Background: According to the Merrill Lynch - Capgemini 12th Annual World Wealth Report, assets of High Net Worth Individuals (HNWIs) rose to $40.7 Trillion. In case you’re wondering a trillion has nine zeros. Average HNWI Wealth was more than $4 Million each for the first time; The world’s High Net Worth population now stands at 10.1 Million individuals. Guess what India, China and Brazil have the highest HNWI Population Growth.

Take just China: The number of high net-worth individuals in China is hitting new records. And they're continuing to spend. According to the 2009 Hurun Wealth Report, 825,000 mainland Chinese, or one in 1,700, now has a personal wealth of at least US$1 million.

And it’s not just in first tier cities like Beijing, Shanghai etc. but in second- and third-tier cities as well. Rupert Hoogewerf, founder and publisher of the Hurun Report, a leading luxury business magazine in China, and author of the annual Hurun China Rich List, explained what this means for luxury and other brands looking to market to China’s high-end consumers.

China's wealthy are holding up well in the Global Credit Crunch: China seems to have avoided the worst of the credit crunch. 82 per cent of China's richest have not made any lifestyle changes since the financial crisis hit. The underlying reason is that domestic confidence remains high. Chinese believe that in six months or a year, it will have blown over completely, and China will be back on a track of high growth.

A profile of China's big spenders: The average mainland Chinese millionaire is just 39 years old. The average Chinese with $10 million is 43, and the average mainlander with $100 million is just 49. This means that China's richest are 10 to 15 years younger than their Western counterparts. The Chinese have a special affinity for international luxury brands, especially European brands. If a Chinese person has built a successful business, the first thing they reward themselves with is a luxury watch, a luxury car and after that all the rest.

As Beijing, Shanghai and Shenzhen are becoming inundated with luxury brands, there has been an explosion of growth in smaller wannabe cities. The latest Hurun Wealth Report highlights the increased importance of second- and third-tier cities for brands looking to tap China's high-end consumers. Leading the pack are cities like Hangzhou, Chengdu, Chongqing, Shenyang, Qingdao and Xiamen. Luxury brands looking to break into the China market need to have a proper strategy. Traditional methods like pricing and advertising alone may not be enough.

Although these numbers are in themselves quite staggering, the real numbers could be far higher - as many millionaires particularly, those in high tax jurisdictions, do not fully report the true value of their assets, which may be spread worldwide and difficult to trace.

It’s official: As if in response to all this, the luxury industry is coming back after a short rest. According to an article in Forbes referring to the global consulting firm, Bain & Company's 2012 Luxury Market Update, the luxury goods industry is poised for full recovery by 2011.

The study and report is authored by Claudia D'Arpizio, a partner based in the firm's Milan office and covered some 220 luxury brands, which included leather goods, fashion, jewelry, alcohol and cosmetics companies that serve high net worth customers, or those with assets of at least US$1 million. The study concluded that spending on luxury is expected to reach around $230 billion per annum by 2012. New millionaires from countries like China, India etc. will no doubt be leading the charge.

Rules of the game: While some golden tried and tested rules of consumer research and marketing remain, there are a few that need to be especially recognized. The new rich seem to believe in the maxim - “If you’ve got it, you’ve got to be able to show it...or else you ain’t really got it”

So as far as the new rich are concerned, this basically means that the whole point in purchasing a particular luxury brand would be to associate with the rich millionaire image the brand is able to convey to the relevant audience.

There are of course those who think that, because of the current poor economy, the wealthy now want to be understated and subtle about their wealth. Well, as far as the new rich are concerned this view is completely wrong.

Why Luxury Brands?: The rich patronize luxury brands for a variety of reasons. Although most would just prefer to say they buy for the quality of the product, the real reasons are more at the subconscious level – like peer recognition and approval, status, the admiration (envy) of the not so rich i.e. the aspiring rich etc.

Luxury Brands Marketing: Luxury brand marketers deploy a wide variety of techniques to keep their brands firmly in the mindset of their customers... both current and in particular future customers. While public relations and advertising in selected media has been the mainstay, savvy marketers have also adopted special events sponsorship for decades... but mostly in name only.

However, in the last few years, a down economy has forced many luxury goods marketers to become more creative and cost conscious in reaching their target audiences.

Historically, marketers of luxury brands such as liquor, fragrances, timepieces, fashion and cosmetics have consistently pursued a luxury pricing strategy in order to maintain an impression of exclusivity. That strategy meant limiting the availability of products, price mar-ups etc. The thinking was, that their brands had to be guarded against brand devaluation.

But with luxury brands facing stiffer competition from new entrants and in an economy that’s presenting additional challenges, the risk of becoming irrelevant or God forbid! Being considered ordinary is very real. Luxury brands are now reinventing themselves to a whole new generation of potential customers – the new rich. They are moving above advertising, that’s available to anyone with a budget, to considering unique, limited availability sponsorship of events and activities that are easily and obviously identified with the rich and famous, for differentiating their products.

Building Brand Image through Sponsorship: It takes a lot to build and a lot more to maintain a brand’s upscale image active in the minds of customers. And this is vital to the success of any luxury brand. There is no better and more cost effective way to build and secure that image than by regularly aligning with luxury events organized by equally luxury oriented organizations.

Take for example Richman’s International Millionaire Clubs. Its Charter Corporate Platinum Memberships is limited to just 100 globally, and is reportedly the world’s most expensive private club memberships. This particular class of exclusive membership offers much more that just one club membership with worldwide benefits not offered by any other club in the world. These memberships offer its holders exclusive rights to thirty years of corporate sponsorship rights to horse racing in China, arguably the world’s largest market for horse racing, and other international millionaire events, at no additional cost - a value probably far in excess of the cost of membership. Of course the club probably has other classes of members who don’t necessarily enjoy these free sponsorship rights.

Luxury brands could sponsor both international and country specific events like the Richman’s Inter-World Horse Racing, Polo, Motor Racing, Golf etc. Challenges. In addition to on site attendance, these events indirectly reach a huge world wide audience of both the rich and rich wannbes through extensive television and Internet coverage of the event - thus prividing sponsors with media coverage at no extra cost. It would cost a substantial fortune to purchase this amount of media coverage through advertisements.

The Marketing through sponsorship edge: The point is that apart from just media coverage, sponsorship is a unique platform that has exclusive, specific and strong personality traits in identifying with and influencing both directly and subliminally with the wealthy and the rich wannabes. Selecting events with qualities most similar to a brand provides a very powerful vehicle for drawing attention to, and sustaining the image of the brand. Additionally, the lifestyles of these events’ patrons – i.e. expensive, exclusive with limited access etc. will greatly reinforce related qualities of the luxury brand over time.

Innovative Brand Building Relationships: Luxury brands must seek to stand out among their competitors. Therefore, the atmosphere in which luxury brands engage their most committed customers must match the exclusivity of the brand and the lifestyle it seeks to represent. Properly planned and activated hospitality programs leave a more lasting impact on the biggest customers than image-laden ads in high-gloss limited-distribution lifestyle magazines - a medium that lifestyle brands have traditionally leaned on for years. In using lifestyle magazines, it’s probably more cost effective to pitch them on co-sponsoring events or subsidizing hospitality programs rather than straight advertising in them.

The New Rich. Are they different?: Old money is just that – it’s OLD. It has it’s established habits and favored brands. It’s entrenched and less concerned with peer pressure or living up to the Joneses. Sad but true...Old money is a dieing breed and worst of all it’s buying less and less. “To survive and grow, luxury brands need to market to the new rich.”

Unfortunately the very people who are responsible for marketing and maintaining the image of many established luxury brands have grown old with their brands. Old – but not necessarily in biological age terms... but in philosophical and mind set terms. What worked well before may not work as well anymore...and the lean and hungry competition is just around the corner

In general, luxury brand purchasers are accustomed to being pampered, but they are also used to having access to the hottest parties, entertainment events and sports venues. Their experience threshold is much higher than the average fan. The new rich want all of this and more...and on more terms relevant to them.

For instance, a great view from a luxury hotel suite would be a truly memorable experience for most. For many consumers of luxury brands, it's an average experience. But for the new rich it’s more. They want the whole world to know that they can afford to stay at the luxury suite. The view is an added bonus.

Event Sponsorship provides a unique, non competitive, really exclusive platform for bringing truly memorable experiences to the new luxury consumer... and in a way he or she wants it. Perhaps the experience needs to be a bit over-the-top and maybe the average investment per invitee is going to be higher than the usual customer entertainment event but when you’re selling luxury to the new rich, coddling the customer just that much more is well worth the investment.

For more information on Luxury Brand sponsorship opportunities please contact the author.