Monday, May 11, 2009
In economics there is a wave of literature, pioneered by the likes of Thornstein Veblen, that attributes consumption patterns to one's level of income and wealth, but also to his "relative" standing in society. In short: households accumulate wealth in order to pay rent, buy a car, or purchase groceries, but also to to flaunt, or openly display, one's placement in the pecking order of society. This behavior is called "conspicuous consumption", or "keeping up with the Joneses". Did you ever:
- Build a pool in your backyard because your neighbors all had one...even though you don't swim?
- Buy a big Hummer to drive around the streets of Houston, Texas?
- Buy the $300 cotton top at Saks rather than the $10 cotton top at Target?
In these hair-shirt times, selling the ultimate statement of automotive luxury is tricky. Rolls-Royce’s customers can still afford the £300,000 ($450,000) asking price. The problem, as Mr Purves acknowledges, is that for some buyers, the “atmospherics” of splashing out on such a conspicuous symbol of wealth do not feel quite right. The firm has data going back to 1904 that suggest there is no link between Rolls-Royce sales and either stockmarkets or GDP, but there is with property prices. In 2007 Beverly Hills was Rolls’s best market, beating London, Dubai and Riyadh. But last year Beverly Hills was relegated to fourth place behind Beijing, with oil-rich Abu Dhabi claiming top spot. Mr Purves says that America accounts for about 40% of Rolls-Royce sales, and California was one of the first markets to soften.I know that most of us are not in the market for a Rolls Royce. However, it is likely that "class" may play a lesser role on consumption behavior while households slowly pay down debt.