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"Sell to the Classes, Live With the Masses" No Longer Quite True

WheelsRCool

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Hey all, well I am currently reading this book called "Richistan," and it is all about the explosion of wealth in the world, and America in particular, these days. The author calls the new world they've created "Richistan," and he divided them up into three levels: Lower Richistanis (net worth $1 million to $10 million), Middle Richistanis (net worth $10 million to $100 million), and upper Richistanis (net worth $100 million to multibillions). There are now more wealthy people in the world then ever before, thanks to the river of money, venture capital, new technologies, and free market-friendly governments, and it has just caused an explosion in wealth. The book talks about like, for example, how the butler industry has been completely reborn, only they aren't called butlers now, they're called "House Management Professionals," or something like that, etc...ANYWAYS, because of this huge explosion in wealth, the wealthy are actually no longer a small class anymore. They have grown, for two reasons:

1) the number of "affluent" people (upper-income middle-class people) has also grown a lot, and these people love to seem wealthy, and the luxury industry has caught onto this, thus creating many very inexpensive versions of their luxury brands. There is a book about this too, called "Deluxe: How Luxury Lost It's Luster," which is about the "cheapening" of much luxury, but that is a different topic (it has also created new super-luxury products so that the truly rich can still have things the lower folks can't). But anyways, the point is that all these luxury brands are marketing to the mass medium of affluent people now, and this has been a phenomenal success. For example, things like Gucci sunglasses, which aren't too expensive for affluent people, but still have the luxury logo on them, luxury lipsticks, etc...to make affluent people feel nice. Also re-packaging of chocolate, for example, if you go into the market you can find luxury milk chocolate. Now to me that is a true insult to people's intelligence, I mean the whole reason that milk chocolate was created in the first place was as a way to let the masses enjoy something very similar in many ways to real chocolate but was much cheaper. But, that's capitalism folks, if you can take milk chocolate and re-package it as a luxury product and yank up the price accordingly and people will buy it, more power to you IMO.

Anyhow though, the point is there is now a huge market for luxury products, as many products that were formerly solely the area of the wealthy have become available to the affluent and the masses.

We have also seen this to some extent with the automotive industry, as I'm sure LamboPower readers have seen people talk about how cars like Mercedes, Lexus, BMW, etc...used to be true symbols of luxury, but have now become almost commonplace in certain areas, thus making Bentleys, Aston-Martins, Lamborghinis, Ferraris, etc...the new standard, and some now even complain those are becoming too commonplace! This ups the standard even higher to the Rolls-Royce and the Maybach and the Bugatti Veyron, etc...

As such, new super-luxury products have also began coming about, for example $300,000 mechanical watches, 300 and 400 foot yachts, etc...an interesting and rather funny thing about these yachts, especially the 400+ footer ones owned by multibillionaires like Larry Ellison and Paul Allen, is the point of them is to park them next to all the other yachts as a "Na na Mine's bigger!" type of thing, only the problem is, these yachts are sooo HUGE that they are too big to dock at conventional yacht ports, so they have to be docked next to oil tankers and so forth, which defeats the whole purpose :)

Okay I'm rambling again, point is marketing "luxury" to the masses is now an industry. Luxury, as a market, is no longer the sole avenue of the truly wealthy.

Two very interesting things I have learned from reading this book and the "Deluxe" book are: much of what is passed off as "luxury" these days is not "true" luxury anymore. Many luxury brands that claim their handbags are "Made in Italy," for example, actually have them made in China, or 3rd world countries, with cheaper materials, and the "Made in China" (or wherever) badge is put onto the handbag. What they then do is ship the handbag to Italy and have that badge covered over, so that the "Made in China" part of the "Made in Italy" handbag is inside the stitching, where you can't see it. They then have, say, the handle, attached in Italy and the "Made in Italy" thing attached, and then they ship off the lower-quality bags to luxury retailers and people buy them. This, combined with the new marketing to the masses, has given luxury companies HUGE profits and great returns to their shareholders.

I personally see absolutely nothing wrong with more and more luxury products becoming available to the masses, I mean that is what happens as time goes on and things become cheaper, for example inground pools and home theaters used to be the sole area of the wealthy, but now these things are much cheaper and more available. Cell phones and TVs in your car too.

But I do not like it when these companies lie about where the product is made and the product's quality, to the people. This is a whole different topic thuough, but figured I'd throw it out there, READ THE BOOK!

The other VERY interesting thing I've learned is that, this marketing to the wealthy makes a sort of "rat-race" with each level trying to make itself look richer than it really is. I'm sure you've all heard of the upper-income middle-class people who buy luxury vehicles and luxury homes, but take on huge debt to "look" rich. Well it turns out this doesn't just apply to the affluent---it applies also to the actual wealthy, all the way up to the billionaires. Yes, there are even billionaires living beyond their means, taking on debt it turns out. WHY people would do this at that level of wealth when you could lose it all is beyond me (and one guy did lose it all), but people are doing it. The affluent want to look like the lower Richistanis, many lower Richistanis want to look like the Middle Richistanis, and the Middle want to look like the upper Richistanis, and those who live in Billionaireville I guess try to look like their wealth is unlimited.

Here is a quote from the book:
"Businesses that have succeeded in Richistan are already outpacing the broader market. As part of his stock research, Kapur created an index from shares of companies that cater to the rich, including Julius Baer, the private banker; Bulgari; Richemont, which oversees Cartier, Dunhill and other brands; Kuoni, the upscale travel agency; and Toll Brothers, the luxury home builder. Since 1985 the Plutonomy Index has increased 17.8 percent a year, well outperforming broader global indexes.
One way to get rich, in other words, is to invest in companies that serve the rich. With the population of rich people expanding so rapidly, wealthy consumers have gone from being a niche market to a broad consumer base. The old economic adage of "Sell to the classes, live with the masses" no longer holds quite as true, as those who sell to the "classes" are making "classes" money themselves."

It also has created a trickle-down affect, for example in the book, the author tells about how he was a at a luxury car dealership talking to the head guy and a salesman came over and said he had a buyer for a Ferrari. The head asked what the potential buy did career-wise, and the salesman said, "Well....he's a stone mason." The author then went and asked the mason guy how he got wealthy enough to buy a Ferrari, to which the mason responded, "Well, all these new large homes are made of stone, they need walls, they need patios, etc..." very interesting read.

So marketing to the wealthy, or marketing luxury products, or products packaged as luxury, seems to be a profitable thing now and a way to make some serious $$$.
 

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Adam

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Re: "Sell to the Classes, Live With the Masses" No Longer Quite T

You are correct that there has been an explosion of wealth, but this market segment that you speak of is just that, a market segment. This segment is also extremely small compared the the REST of the population. The luxury buyers do not, have not, and will never represent our population as a whole.

For example, I can't off the top of my head think of a peer that doesn't own a car. However, there are far more people that don't own cars than do. It's just that I happen to surround myself in a social circle of people that own cars, so it seems foreign to me to NOT own one.

The median household income in Minneapolis is $70K year. That means that there are millions and millions of people that will never reach that income level. $70K doesn't cover the RE taxes on our buildings, so I don't think that 70K a year is all that much. However, the average FAMILY would LOVE to make that much money.

Like you, I am not impressed when seeing a BMW, Mercedes. etc, but you have to remember that the majority of our population couldn't afford a $60K home, much less a $60K car.

I could go on and on with examples. I do believe that the luxury market is exploding and there is more room now than ever for players in that market, but a true volume based business will always have a better chance at survival by serving the largest market segment, regardless of the income that that market segment earns.

Last, I think that you mean, "Sell to the masses, live with the classes." I firmly believe that this quote will hold true for generations to come. I can't see the well-off becoming a relatively large class of people, our government would never allow it...
 
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WheelsRCool

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Re: "Sell to the Classes, Live With the Masses" No Longer Quite T

No, I meant the term "Sell to the classes, live with the masses" isn't quite as true as it used to be, in that it used to be, if you sold to the wealthy class, you lived with the masses because you couldn't make enough money, but if you sold to the masses, that is how you got rich. But now, you can sell to the wealthier classes, and also live amongst them it seems.

It used to be, "Sell to the classes, live with the masses, sell to the masses, live with the classes," but now you can "sell to the classes, live with the classes" it seems.

Also remember, it isn't just that there are more wealthy people, a big segment is marketing luxury products to the affluent upper-income middle-class professionals, which has produced enormous profits for these luxury companies.

You are right though, selling to the masses will never go out of style. The best thing, IMO, is to do both, market to the regular masses, then have another brand your company owns that markets to the luxury segment (for example, Toyota owns Lexus) (not that I'm any expert!).

I don't get your last part, why wouldn't the government allow a large class of well-off people. A large-class of well-off people means lots and lots of money to go back into the economy, which is one thing that is happening right now. It also means more $$$ for the government, I mean wealthy and high-income people pay the highest taxes, the more high-income people there are, the more tax revenue the government gets.
 

Adam

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Re: "Sell to the Classes, Live With the Masses" No Longer Quite T

In regards to my last comment about the gov't; it was meant to be sarcastic. But in all reality, many people in gov't leverage thier wealth to their PERSONAL advantage while in PUBLIC positions. You shift their wealth, you also shift the power. I don't want to turn this into a drawn out conversation, but its not the amount of money out there that's the problem, its the distribution of that money.
 
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WheelsRCool

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Re: "Sell to the Classes, Live With the Masses" No Longer Quite T

Hmm...well I will contact you via PM to discuss this more, however, regarding politicians, I'd say they more leverage the public's wealth to their own personal advantage, which is why they'd like more income from taxes, because it means more money they can use.
 

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Re: "Sell to the Classes, Live With the Masses" No Longer Quite T

So marketing to the wealthy, or marketing luxury products, or products packaged as luxury, seems to be a profitable thing now and a way to make some serious $$$.
Serving those in the fastlane can be a way into the fastlane.

Some examples:

1) Sports agents to high-profile players
2) Fund managers (managing the wealth of the wealthy)
3) Luxury home builders (Their owners are very wealthy)
4) Artists

Now just because the guy could afford a Ferrari doesn't make him rich. There's a great thread over on LamboPower entitled "Just because you can afford the payment doesn't mean you can afford the car!" -- that of course, is entirely another thread.
 
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WheelsRCool

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Re: "Sell to the Classes, Live With the Masses" No Longer Quite T

2) Fund managers (managing the wealth of the wealthy)
3) Luxury home builders (Their owners are very wealthy)
The book mentions a lot about hedge-fund managers.

Now just because the guy could afford a Ferrari doesn't make him rich. There's a great thread over on LamboPower entitled "Just because you can afford the payment doesn't mean you can afford the car!" -- that of course, is entirely another thread.
Oh yeah, I hadn't meant it that way, what I meant was that the market for luxury had a "trickle-down" effect that was thus raising up many other people's standards of living to an extent, for example, through all the jobs. The stone mason guy was making a lot MORE money then what he would be making without all the luxury homes to build patios and walls for.

Or the butlers. Since "house management professionals" are in such tremendous demand right now, starting salaries are literally like $70,000 to $100,000, obviously not wealthy money, but I mean that kind of money for a starting salary is huge.

So this luxury market is having a trickle effect that is generating more wealth and money for everyone:banana:
 

Russ H

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Re: "Sell to the Classes, Live With the Masses" No Longer Quite T

McLovin' ;) said:
Serving those in the fastlane can be a way into the fastlane.
Happened to me in an indirect way. Working for so many celebs and captains of industry, I started to see what they had-- and didn't have-- and learned a lot about myself in the process.

For instance:

-I'm not into big houses or bling (just doesn't fluff up my skirt, that's just me)

-I LOVE my privacy.

Try going to a store with a well known personality just to pick up a simple item, or deposit their check. Lots of public scrutiny. Part of the reason I built so many private home theaters for these guys/gals was that they couldn't take their family to the movies anymore without it being a weird experience.

-I love to travel, but I don't need the big yachts, the private planes, the penthouse suites, and the private cars. Again, fun (did all these things w/my clients), but just not me. Having a private plane would be fun-- but I'd have to have about $150M in net worth for it to be a negligible expense.

-I do love to sleep at night (not all of these folks sleep that well-- too many worries).

-I love spending time w/friends and family. This is something the ultra-rich ($50-100M+ do, and they do it a bit differently (big houses on the shores of Lake Tahoe, etc)-- but when you get down to the actual conversations and meals, it's just as much fun having a BBQ in your back yard with your buddies. At least it was for me. :)

Hanging around the wealthy also taught me that they seldom worried about the things that the middle class worried about (and they hardly *ever* paid any attention to the tabloids, unless it was about them and they had to have their PR people do damage control).

I also happened to be around some when they underwent spectacular losses (was at the house of one when the market crashed in '87, and they lost a HUGE amount of their net worth, and was in Europe doing research for another one and while I was there, their net worth decreased by 80%-- to the tune of about $64M GONE, in a few weeks). So I got to see them right when (or right after) it happened.

Did it bug 'em?-- heck yeah. But how they handled it was what set them apart from most other folks: They just dug in. Figured out their strategy--right or wrong-- and went full speed ahead.

The big secret to me was that getting rich for them was just a process.

If the money went away, they weren't that concerned. Sure, it meant a big change in lifestyle --short term.

But long term?

They just got back in the fastlane to do it again. :)

-Russ H.
 
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WheelsRCool

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Re: "Sell to the Classes, Live With the Masses" No Longer Quite T

Yeppers, I am learning a lot about that stuff from this book, it's really interesting. One thing I am wondering though, but how does one store wealth when they get it? Are there any HARD assets you can buy that flat preserve your wealth? I mean if I had a net worth of $200 million and it was all in the stock market say, I'd be worried constantly, because the stock market fluctuates. I've heard of art, real-estate, etc...and of course cash you can just have in the bank as well, being solid.

If I was worth $200 million, I'd probably keep $100 million in cash, $50 million in real estate, art, etc...and another $50 million spread throughout the stock market.

Pete Musser became a billionaire during the tech boom by borrowing heavily against the value of his company's stock and investing that money into tech stocks. He invested money into the tech industry and also his company invested into it I believe.

When the tech bubble burst, his tech stocks became worthless and since hsi company had so much money invested in the industry, it's stock plummeted as well. this caused a big problem, because he had big debts to pay off with that stock, which he hadn't counted on it's value plummeting.

He is like in his 70s, but he is "back in business," he founded that Nutrisystem and some other companies, he hopes to make at least $50 million and pay off his debts before he dies he says.

One thing rich people seem to get is lots of connections so if they do go broke, their experience, knowledge, and connections, allow them to get back into the fastlane again easier.

I also read about a guy who became a multimillionaire by age twenty-two in real estate, then ten years later the real estate market crashed and like many, he had purchased much of it via debt, so he had to declare bankruptcy. Then he got into the timber business, and sold his stake in the business ten years later for $20 million. Then he got into real estate development, and now he's a billionaire at 50 :) He became worth $2 billion, then he and his wife divorced, so now he's back to $1 billion, as he and the wife split the assets down the middle. Big loss in one sense, but $1 billion is still plenty :)
 

Rawr

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Re: "Sell to the Classes, Live With the Masses" No Longer Quite T

Bump, because I want to hear more stories from Russ (back in the day machine!)

and I am looking for Mike's post on calculating how much car you can afford.. MJ, your rule 1/10th of net worth, right?

A buddy just picked up a gorgeous g35 coupe, aftermarket deep black rims, brembo brakes.. car looks great, girls are going ga-ga, guys too, but he is so far in debt now I just shake my head.

I got the urge to look at some cars as I might need one in the future, and had to set my limits 3 times to get to a reasonable number of what I can really afford.



in any case, Russ, what were the biggest "ah-has" for you that you learned from your successful clients about biz / life? Trust me I remember your countach example quite often, and try my best to parlay it to my friends. I am glad most of us are seeing making $$ as a key to gaining freedom, not to buy antiques.
 

Russ H

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Re: "Sell to the Classes, Live With the Masses" No Longer Quite T

Rawr-

Great question! I'm getting our little one up and ready, and then need to spend some time w/the contractors (they've already called 3 times). Normally I'd be over there now, but Sharon wanted a "sleep in" morning (she asks for one of those about once a month, so I do whatever I can to make those mornings stress-free).

I'll come back later and post a more thoughtful reply. :)

-Russ H.
 

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Rawr

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Re: "Sell to the Classes, Live With the Masses" No Longer Quite T

Bump Bump! :)
 

Russ H

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Re: "Sell to the Classes, Live With the Masses" No Longer Quite T

Thanks-- I'm getting forgetful in my old age! ;)

Biggest "aha-s" for me . . .

1. Money does not make you happy.

Some of the unhappiest people I've ever met were insanely rich. But they trusted no one-- thought everyone was out to screw them. What a sad, sad way to live.

2. Things do not make you happy.

Also met a few folks who were into the "He who dies w/the most toys wins" philosophy of life. MORE unhappy people! These guys would buy their new bling (car, house, home theater, trophy wife), and would get bored with it after a period of time. At that point, it just sat there, unused/unappreciated (most of the wives left at that point).

3. Find out what makes YOU happy.

Every single one of my clients had some different source of happiness. For some, it was working out. For others, performing in front of large crowds. Others liked to have big parties, or travel. But everyone was different!

While this may sound like common sense, it's actually one of the biggest, most freeing things I learned. Because I know now that I don't need/want a big house, stable of cars, or harem to be a happy camper. The things that turn me on are good conversation, great meals/wine w/friends, spending time w/my family, and being outdoors. Lots of other things, too-- but those are my top 4. I try to do all of them each day, at least for a little bit.

4. Enjoy the ride.

That was another quality of the celebs, rock stars, and VCs I admired-- they knew how to enjoy life--- every minute of it. They were building/creating the lives they wanted for themselves and their families.

Again, easy to say-- but how many of us just slog along--even when we're doing amazing things-- and don't celebrate the day?

Life is NOW-- this moment, this second. We are making the memories we will have -- and share-- for the rest of our lives.

Make each moment count. :banana:

**********

-Russ H.
 

Rawr

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Re: "Sell to the Classes, Live With the Masses" No Longer Quite T

Thanks-- I'm getting forgetful in my old age! ;)

Biggest "aha-s" for me . . .

1. Money does not make you happy.

Some of the unhappiest people I've ever met were insanely rich. But they trusted no one-- thought everyone was out to screw them. What a sad, sad way to live.

2. Things do not make you happy.

Also met a few folks who were into the "He who dies w/the most toys wins" philosophy of life. MORE unhappy people! These guys would buy their new bling (car, house, home theater, trophy wife), and would get bored with it after a period of time. At that point, it just sat there, unused/unappreciated (most of the wives left at that point).

3. Find out what makes YOU happy.

Every single one of my clients had some different source of happiness. For some, it was working out. For others, performing in front of large crowds. Others liked to have big parties, or travel. But everyone was different!

While this may sound like common sense, it's actually one of the biggest, most freeing things I learned. Because I know now that I don't need/want a big house, stable of cars, or harem to be a happy camper. The things that turn me on are good conversation, great meals/wine w/friends, spending time w/my family, and being outdoors. Lots of other things, too-- but those are my top 4. I try to do all of them each day, at least for a little bit.

4. Enjoy the ride.

That was another quality of the celebs, rock stars, and VCs I admired-- they knew how to enjoy life--- every minute of it. They were building/creating the lives they wanted for themselves and their families.

Again, easy to say-- but how many of us just slog along--even when we're doing amazing things-- and don't celebrate the day?

Life is NOW-- this moment, this second. We are making the memories we will have -- and share-- for the rest of our lives.

Make each moment count. :banana:

**********

-Russ H.

Thank you Russ!

There is nothing I can add, everything is spot on. Now to go do 3 and 4! :thumbsup:
 
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May I venture to add that it's the "I deserve to to have more" attitude that has created many financial problems. The race to appear wealthier than you are, whether in personal life or the life of a business, has created an economy based on ever increasing debt.

All that debt worked fine for a while but now payments are coming due and artificial wealth is collapsing around both people and businesses. Buying on credit has turned into a financial nightmare. Waiting until you have enough money is a forgotten virtue.

One of the prior posts summed it up, "Just because you can afford the payment doesn't mean you can afford the car."
 

MJ DeMarco

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One of the prior posts summed it up, "Just because you can afford the payment doesn't mean you can afford the car."

From my book ... if you *think* you can afford it, you can't.
 

Rob Burgundy

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From my book ... if you *think* you can afford it, you can't.
Thats something I always keep in mind when making purchases. If there's even a question of should I be buying this with what I have and am earning I find the answer always to be no and I shouldn't.
 

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