Just What IS “Luxury,” Anyway?

It’s clear that we’ve been living through a new Gilded Age for some time now (see here for a much more thorough discussion after you sit through a brief ad). The middle class is shrinking; some argue it is even disappearing. The gap between the “haves” and the “have-nots” is expanding; according to the latest survey by United for a Fair Economy, CEOs of large U.S. companies averaged $10.8 million in total compensation in 2006, more than 364 times the pay of the average U.S. worker. That’s about nine times what that gap was 25 years previous.

These trends, unfortunate for so many, have largely shielded purveyors of so-called “luxury” goods and services, such as those who perform custom electronics installations for the well-to-do, from the harsh macro economic trends that have been reshaping our nation over the past decade and beyond, for better or worse (I’ll let you decide which is the correct word to use). But these days, given the mortgage crisis, the battered dollar and the ever-exorbinant costs of energy, even ultra-wealthy Americans are getting a bit nervous about “frivolous” spending.

I’m not here to make a political point (reach me offline, though, and I’ll spout about a thousand of them). I’m here to propose that “luxury” really means two different things in today’s America, and that the wise manufacturers and dealers of consumer electronics would do well to recognize this fact.

I have found over the years that many people in the CEDIA channel have incredibly warped expectations about what the average consumer will pay for gadgets and other electronic doodads for their homes. It’s almost like they set themselves up to get frustrated and dismissive about the mainstream consumer, particularly the one with ample enough disposable income who nevertheless isn’t wealthy enough, or enough of a reckless spender, for their tastes.

Take this article in the Washington Post by PC World‘s Dan Tynan. Don’t forget here that Dan is an enthusiast who probably makes a decent living. He’s looking for a whole-home audio system. First, he says:

The first option is a whole-home audio system installed by a custom integrator for $5000 or more–a tad pricey for my gadget budget.

I have had people in the CEDIA channel tell me with a straight face that $5,000 is “not that much money.” For lots of people — people with well-paying gigs included — that might be their entire life’s savings, or more.

Dan moves next to less expensive wireless systems, which he still likes,

but at $1000 for two rooms plus $350 to $500 for each additional zone, it’s out of my range, too.

So there you have it. $1,000 is still too expensive for most people. In the CEDIA channel, a whole-home audio system that costs $1,000 is charitably considered garbage. In the real world, where real people live, it’s called a luxury. And it’s a luxury that a lot of people would be thrilled to have.

Or is Dan Tynan just not your kind of client?

I think back to when the iPod entered the scene, and the CEDIA channel treated the device as if it were Kevin Federline scrawling doodles on the Mona Lisa. What idiot, they huffed, would want a “cheap” piece of junk like the iPod (it took me two years to cost-justify purchasing one, and I was the adequately-compensated editor-in-chief of a magazine at the time), especially when they could purchase a [fill in the incredibly expensive high-end audio system here]? The answer? Just about everyone was apparently an idiot. The next year, everyone in the custom world was jumping all over each other trying to support the wretched iPod. They still are, holding their noses (and raking in the cash) all the way.

OK, what is my point here? It’s this: We all need to recalibrate how we think of “luxury.” We’ll always have the high-end, the ultimate, the Robb Report, those who expect and demand the best. That’s been a lucrative market for the custom channel, and it will continue to be its lifeblood.

But if we want to expand beyond that top one percent of earners in America, we need to stop telling people that they need to hand over five grand or ten grand as a matter of course to acquire “luxury” goods and experiences, because they can’t, and they won’t, with few exceptions (and in those cases, I hope you to great care to make sure you get paid).

We would all do well to re-evaluate what the average American considers to be “luxury,” and try to match some of our products and services with those expectations and those economic realities.

I believe the flat-panel boom, when average consumers regularly forked over four figures for televisions, has completely skewed the CEDIA channel’s persepctive when it comes to consumer spending. Flat panel was a once-in-a-generation product that people were willing to go far above their means to acquire, simply because the television remains the flagship home entertainment product of the American home (nothing else even comes close) and,  as a result, flat-panel/HDTV became the swimming pool of the 21st century. You didn’t need it, but you sure were proud to own it (see also the flat panel’s companion piece, the gas-guzzling SUV).

Wow, people sure were spending a lot on consumer electronics all of a sudden. But just because they paid $3,000 for a plasma TV (even one that happens to be an LCD, har har) doesn’t mean they wanted to pay $3,000 for a speaker, or a receiver, or a whole-home audio system. They still don’t. They just wanted a cool new teevee, something that would impress the neighbors.

So how do we get them to open up their wallets again (assuming we want them to, which for pete’s sake, I hope we do)?

If we engage them on a level that says, “This stuff is pretty cool, and it won’t break your bank, and we’ll install it for you, and we will BLOW YOUR MIND in the process,” I think they’ll be willing to spend a little or a lot more than they planned. Whole-home audio, music and media servers, lighting control and light home automation are all things that every person I know not only would want, but would consider incredibly luxurious and exciting.

These products are growing ever more affordable, but they are still complicated and usually require some wire-pulling and such. With few exceptions, consumers don’t want to be plumbers or electricians in their spare time, and they don’t want to be custom electronics installers, either. They don’t want to buy this stuff at retail and grapple with it.

They want magic. And the custom channel? Those people are the magicians.

So if the custom channel can provide those things for a reasonable price, make a decent margin and make people giddy about the experience, who’s to say that isn’t luxury at the end of the day?

Posted by: Joe Paone

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