Future Relevance Of Sustainable Luxury Goods The Customers

Future Relevance Of Sustainable Luxury Goods
The Customers’ Perspective"
SIM-Tank Publication
Lorraine Dellion
Lívia Kathi
Max Schacker
Neli Staneva
Nan Daniel Wei
Is Green the New Gold for "
Luxury Cars?
Not today, but it will be by 2025
3
x 1.2
x 6.6
x 10.1
x 9.7
*Estimated growth of the green luxury car market by 2025 x 2.9
What Drives this Growth?
Growth of Green Luxury Cars"
Several trends will drive the growth of green luxury cars globally
Education
•  Driving awareness of
sustainability
•  Education levels rising globally
•  Education on sustainability
gaining importance worldwide
Transparency
•  Improves information flows and
enables people to make
informed buying decisions
•  ICT rapidly developing and
improving
Natural Disasters, Climate Change
5
Regulations
•  Increasing awareness and
provoke responsible action
•  Offering an external incentive to
be green
•  Frequency of droughts, flooding,
cyclones and other natural
disasters increasing
•  EU forerunner of environmental
regulations, followed by Japan
and China
Media
•  Catalyst for social pressure
•  Forming the public opinion,
increasing transparency
•  Increasing emphasis on
environmental & social issues
Green Technology & Infrastructure
•  Improving convenience and
technology to make green cars
more attractive
•  Improvements in battery range;
faster charging; more stations
available
Who buys Green Luxury Cars?
Overview of Customer Segments"
Customers of sustainable luxury cars differ greatly in their beliefs
& motivations
Personal
values
Self-indulgers
True sustainables
Trend seekers
Social conformists
Value
orientation
depending
on nature of
motivation
Social
values
Health and personal
lifestyle
Environment and society
Concerns driving consumption
of sustainable green products
7
Self-indulgers
Choose green for the benefits
Trend seekers
Choose green for admiration
Values: look for utility maximization,
hedonistic and egocentric, informationseekers who look beyond labels
Values: look for social status and admiration,
aspire to an above-average lifestyle, want to
be perceived as trendy
Profession: executives, entrepreneurs, highranked consultants, lawyers and bankers
Profession: middle managers, entry-level
consultants, bankers and lawyers
Premium: ready to
pay higher price
because of
personal benefits
Other products:
Sigma milieu: Milieu
der Performer und
Hedonistisches
Purchase drivers: design and interior,
personalization and
smoothness of drive,
connectivity
Premium: reluctant
to pay higher price
because of their
extrinsic motivation
Other products:
Sigma milieu:
Aufstiegsorientiertes
Milieu
Purchase drivers: design, connectivity,
cost of ownership
True sustainables
Choose green for green
Social conformists
Choose green for acceptance
Values: look for a better world, ecologically
conscious, proactive, center/left wing views
Values: people pleasers and opportunists,
desire to be part of the green elite, afraid to
miss out, moderate beliefs and views, do not
want to stand out
Profession: social entrepreneurs, women in
senior positions, academics, NGO executives
Profession: politicians and government
officials, public figures, high-ranked positions
in state administration Sigma milieu: Sozialökologisch and
Liberal- Intellektuelles Sigma milieu: Moderne
bürgerliche Mitte
Premium: ready to
pay higher price
because of
environmental
concerns
Other products:
Purchase drivers: green mobility,
enhanced safety, size
and interior
Premium: reluctant
to pay higher price
because of their
extrinsic motivation
Other products:
Purchase drivers: enhanced safety,
green mobility, security
and access
How much are these Customer
Segments worth?
Approach to Market Sizing"
The valuation of each customer segments was based on a topdown approach
11
Granularity: (customers segment x geography)
Market for sustainable luxury
cars in 2025 (Mn $)
1 Calculation for each geography
Market for luxury
cars
in 2015 (Mn $)
“Green Filter” =
Share of green cars /
total car sold
1 Calculation for each geography
Growth of the luxury
car market (2015-2025)
&
Share of the growth
that goes in the
sustainable market
Growth of the sustainable
luxury car market (2015-2025)
Market for green luxury cars
in 2015 (Mn $)
2 Repartition per customer segment
Growth rate of luxury sustainable cars
(2015-2025)
Market for sustainable luxury
cars in 2015 (Mn $)
2 Repartition per customer segment & geo.
EU
EU
EU
EU
Approach to Market Sizing"
Five factors drive the relative growth of each customer segment
12
Grading of the impact per
customer segment
Factor
Description
Awareness
People become more aware of green
issues Lifestyle
The health-conscious lifestyle becomes
more popular
Social Pressure
Buying green is to show status, become
part of the green elite
Governmental
Incentives
Governments give incentives to
encourage green purchases
Cost
Consciousness
People are becoming more cost
conscious
&
Estimating of the magnitude
per geography
EU
US China JP &
KR
Market Size 2025 – Conservative Scenario – Global"
Self-indulgers and Trend Seekers are the largest customer
segments; Social Conformists are growing the fastest
Full Supply Chain
13
$ 2.1 bn
Demand for Sustainability
True Sustainable
$ 4 bn
Self indulgers
$ 3 bn
Social Conformists
$ 3.9 bn
Trend Seekers
Post-
purchase
Market size 2015*
Hygiene
Purchase Premium
USP
Market size 2025*
* based on own calculations
Market Size 2025 – Conservative Scenario – Europe"
In Europe, Self-indulgers and Trend Seekers also represent the
largest segments
Full Supply Chain
14
$ 700 mn
Demand for Sustainability
True Sustainable
$ 1100 mn
Self indulgers
$ 800 mn
Social Conformists
$ 1100 mn
Trend Seekers
Post-
purchase
Market size 2015*
Hygiene
Purchase Premium
USP
Market size 2025*
* based on own calculations
Market Size 2025 – Conservative Scenario – US"
In the US, Self-indulgers experience the highest growth"
Full Supply Chain
15
$ 900 mn
Demand for Sustainability
True Sustainable
$ 1700 mn
Self indulgers
$ 1200 mn
Social Conformists
$ 1600 mn
Trend Seekers
Post-
purchase
Market size 2015*
Hygiene
Purchase Premium
USP
Market size 2025*
* based on own calculations
Market Size 2025 – Conservative Scenario – China"
Chinese Trend Seekers constitute the largest and fastest
growing segment
Full Supply Chain
16
$ 200 mn
Demand for Sustainability
True Sustainable
$ 450 mn
Self indulgers
$ 500 mn
Social Conformists
$ 600 mn
Trend Seekers
Post-
purchase
Market size 2015*
Hygiene
Purchase Premium
USP
Market size 2025*
* based on own calculations
Market Size 2025 – Conservative Scenario – JPN & Korea"
Trend Seekers are the fastest growing segment in Japan &
Korea as well
Full Supply Chain
17
$ 300 mn
Demand for Sustainability
True Sustainable
$ 430 mn
Self indulgers
$ 450 mn
Social Conformists
$ 550 mn
Trend Seekers
Post-
purchase
Market size 2015*
Hygiene
Purchase Premium
USP
Market size 2025*
* based on own calculations
What are the Implications for BMW?
Repartition of the Green Luxury Car Market in 2025"
Self-indulgers in the US will constitute the absolute largest
segment
Self indulgers
30%
Social Conformists
22%
Trend Seekers
30%
True Sustainable
32%
22%
25%
25%
28%
26%
30%
34%
18%
16%
13%
EU
US
32%
17%
China
Japan & Korea
19
Potential Target Segments for BMW"
Self-indulgers and Trend Seekers pose market opportunities"
20
Self-indulgers
Trend Seekers
Values: look for utility maximization,
hedonistic and egocentric, informationseekers who look beyond labels, Values: look for social status and admiration,
aspire to an above-average lifestyle, want to
be perceived as trendy
Willing to pay a premium
Not willing to pay a premium
Trendsetters: Trend Seekers aspire to
become them, winning this segment first
would help win Trend Seekers later
Followers: Aspire to become Self-indulgers,
would want to buy the brand that is popular
among Self-indulgers
ü
û
Strategic Customer Target"
Self-indulgers represent the most attractive segment for BMW"
Self-indulgers
Value luxurious
experiences
•  Satisfying ownership and after purchase experience
•  Luxurious shop layout and customer service
•  Smooth driving experience
Ask for tangible
sustainability
•  Sustainability of the car can be felt and seen •  Green engine technology (hybrid, plug-in, electric)
•  Durable and sustainable high-quality materials
Demand modern features
Ready to pay
premium
•  Appealing and modern design and interior
•  Personalized features to reflect their individuality •  Car should be easily connected with other devices
•  Comparable driving performance, design and quality are
necessary to justify the premium
•  Sustainability cannot replace luxury
21
Key Takeaways"
Green is becoming the new gold but remains fragile"
Green does not substitute quality and luxury.
Customers value predominantly tangible sustainable features
Buyers of luxury green cars differ in
their value orientation (extrinsic and
intrinsic) as well as nature concerns
(environmental and personal).
The market is volatile and
dependent on rapidly
changing macroenvironmental forces such
as governmental
regulations, economic
growth and technological
innovations.
Developed economies
such as the US, Europe
and Japan are still the
main growth drivers of
sustainable luxury cars.
.
22
Whilst the luxury
green car market is
growing rapidly, it still
represents a small
part of overall
demand of luxury
automobiles.
Thank you for your Attention
Q & A
Appendices
Research Question and Approach"
What relevance will sustainability have as a purchase driver for
luxury cars in 2025?
Customer
Segmentation
Estimation of
current size
•  Segmentation of
potential green
customers
according to
value orientation
and nature of
concerns
•  Description of
customer
„personas“
•  Estimation of
current segment
sizes using a
top-down
approach
•  Use of market
reports and
other sources as
well as
assumptions
Identification of
growth drivers
•  General growth
drivers of green
luxury car
market
•  Segmentspecific growth
drivers with
different
weighting and
impact
25
Estimation of
segments in 2025
•  Quantification of
trends and
growth drivers
•  Scenario
analysis of
growth of green
luxury car
market
Comprehensive illustration of the different segments, their size and their understanding of
sustainability in 2025.
Our Approach"
Sustainability-conscious luxury consumers are an emerging
segment
Traditional luxury Sustainability-conscious consumer
luxury consumer
Power
Elite
Success
Status
Snob
Exclusivity
Comfort
Quality
Pleasure
Materialism
LOHAS / Sustainable
consumers
Authenticity
Locality
Lifestyle
Community
Ethics
Sustainability
Post-Materialism
Responsibility
Spirituality
Well-being
Slow
health
Experiences Sense-seeking
Identification
Güntlisberger, M. (2012). The Sustainability-Conscious Luxury Consumer. Development of a Conceptual Model with
Special Consideration of China’s Luxury Market
26
Our Approach"
A conceptual framework was used to derive the customer
segmentation
Social Values
27
Subjective Norms
Personal Values
Cultural Values
Attitude towards
sustainable luxury
purchases
Intention to purchase
sustainable luxury
goods
Identity concept
Percceived selfefficiacy
Güntlisberger, M. (2012). The Sustainability-Conscious Luxury Consumer. Development of a Conceptual Model with
Special Consideration of China’s Luxury Market
Sustainable luxury
purchase
Education Drives awareness of sustainability
Importance: only understanding climate change and
sustainability enables people to act on it
Trends: •  Rising general
education levels •  Sustainability
education gaining
importance and
heavily encouraged
through UN
institutions
•  Understanding of
sustainability
increasing EU: sustainability education
since mid-90s
US: high commitment to
sustainability education
China: sustainability on the
agenda but challenges
remain, significant regional
differences
Main Sources:
•  UN education index
•  UNESCO: Teaching and Learning for a Sustainable
Future
•  International Journal of Sustainability in Higher
Education
Transparency
Adds to awareness and social
pressure
Importance: improves information flow and enables
people to make informed buying decisions
Trends: •  ICT rapidly developing and improving
•  Global free internet?
•  Higher reporting standards
•  Transparency as competitive advantage
•  New media channels
•  Number of NGOs will grow significantly
Main Sources:
•  Forum for the Future (2014). Sustainable
Business Trends
•  Mol, A. P. J. (2010). The future of transparency.
•  Ethical Corporation (2013). Full product
transparency is the future of reporting.
Natural Disasters, Climate Change
Drive awareness
Importance: catastrophes raise awareness and fear and
provoke responsible action
Trends: •  Depletion of natural
resources
•  Frequency droughts
and other natural
catastrophies
increasing
•  No. of floods to
increase fivefold by
2030
•  Ecological footprint
around 2.7 planets
Media
Triger social pressure
Importance: form the public opinion and exert
social pressure, increase transparency
Droughts (2000s vs. 2030s)
Main Sources:
•  Washington World Resources Institute
•  The Earth Institute (Columbia University)
•  National Center for Atmospheric Research
Trends: •  Blogging / social media
•  Live reporting by mobile phone
•  More emphasis on environmental and social
issues
•  But governmental control of media in some
countries
Main Sources:
•  Sustainability, social media and the future of
retail.
•  Brulle, R. J., Carmichael, J. & Jenkins, J. C.
(2012) Shifting public opinion on climate
change.
Regulations
Restrict scope of action
Importance: environmental regulations limit the scope of
action and give an external incentive to be green
Green Technology
Makes green cars
more attractive
Importance: improvements in convenience and
technology (supply side) make green cars more
attractive
EU: around 40 000
charging stations,
target 2020: 800 000
Trends: •  EU is forerunner of
environmental
regulations,
followed by Japan
and China
•  Regulations on
social and reporting
standards are
tougher in Europe
and the US
•  Subsidies for green
Trends: •  Standardization of
charging procedure
•  Battery range will
improve drastically
•  More charging
stations and faster
charging
•  Lower costs
Main Sources:
•  KPMG (2010). The Transformation of the Automotive
Industry: The Environmental Regulation Effect.
Main Sources:
•  McKinsey (2014). Electric Vehicles in Europe.
•  State grid (2014). EV infrastructure and
standardization in China.
US: currently 25 000
charging stations,
target China: just invested
US$ 16 bn in new
charging stations
Japan: already more
charging (40 000)
than gas stations
Approach to Market Sizing"
The value of our customer segments is based on analyses from
BCG and Bain&Co on luxury customers’ profiles
Customer Segment BCG
Self-
Indulgers
New Money & Old Money
High-net-worth individuals who earned their wealth
themselves or are second-generation millionaires,
value lifestyle and status
Trends Aspirational Mass Market
Trendy metropolitans with average background who
Seekers aspire to an above-average lifestyle
True
Sustainables
Beyond Money & Old Money & New Money
Commonly inherited wealth, but avoid display of
wealth and are indifferent to status
Social Rising Middle Class
Middle-class background but well-paying jobs,
Conformists follow social norms
Sources:
BCG, The New World of Luxury
Bain, Lens on the Worldwide Luxury Consumer
31
Customer Segment Bain & Co
Hedonists Shoppers infatuated with the luxury experience
Opinionated
Highly aware of differences between brands,
question why they buy luxury
Omnivore
New entrants to luxury who prefer aspirational
brands
Wannabee
Shoppers looking for entry-level items and
influenced by friends’ recommendations
Investor
Interested in quality and durability, carefully evaluate
luxury purchases
Disillusioned
Shoppers suffering from luxury fatigue, not
influenced by brands
Conservative
Influenced mainly by recommendations of friends
and family
Approach to Market Sizing"
The growth of green luxury is based on a scenario analysis
32
Value of luxury car market in 2025
Value of luxury car
market in 2015
$800 bn
$400 bn
Optimistic
Moderate
Conservative
Share of green cars of
total sales
10 - 12%
5 - 7%
2 - 4%
Share of luxury green
cars of total luxury sales
8%
5%
2%
Sources: OECD, Market Development for Green Cars
Approach to Market Sizing"
Five factors will impact the growth of green luxury car market in
the different geographies
Factor
Description
Awareness
People become more
aware of green issues Lifestyle
Social Pressure
Governmental
incentives
Cost
consciousness
The health-conscious
lifestyle becomes more
popular
Buying green is to show
status, become part of
the green elite
Governments give
incentives to encourage
green purchases
People are becoming
more cost conscious
* Brazil, Russia, Turkey, Malaysia, Thailand, Indonesia
EU
US
China
EU
JP+KR
33
Approach to Market Sizing"
The growth of the green filter differs per geography due to
various market trends
Geography
Europe
US
China
Japan & Korea
Green
Filter
2015
1.4%
0.6%
0.23%
0.6%
Green
Filter
2025
34
Trends and market developments identified
2.6%
Increasing governmental regulation within the EU, greater
incentives in countries like the Netherlands and Norway,
increasing media coverage of environmental issues, penetration
of sustainability into school curriculum 2.54%
Increasing governmental incentives in states such as California
and Nevada, home market of Tesla, increased transparency and
media coverage, as well as focus in education 1.7%
Rapidly tightening governmental regulations following similar
trends in US and Europe (however delayed), increasing number of
state policies regarding pollution in large cities
1.5%
Increasing governmental regulations and incentives (however, less
drastic than in other geographies), increasing media coverage
and societal concern for the environment
Approach to Market Sizing"
Example with Europe"
Market for luxury
cars
in 2015
120 bn $
35
“Green Filter” =
Share of green cars /
total car sold
Market for green luxury cars
in 2015
1,40%
136 bn $
31% =
42.16 bn $ Growth of the green
car market
20% =
27 bn $ 19% =
26 bn $ 30% =
41 bn $ Allocation based on trends
125%
Market for green luxury cars
in 2025 (Mn $)
1,100 Mn $ 679 Mn $
813 Mn $
1,106 Mn $
Survey among HSG Students "
shows a balanced picture as well
Survey among HSG students
Social
Conformists
20%
True
Sustainables
31%
Self-indulgers
20%
Trend
Seekers
29%
36
Would pay a premium:
•  Self-indulgers
•  True sustainables
A car’s sustainable image depends most
on:
•  Green technology (engine) – 65%
A car’s sustainable image depends least
on:
•  Compliance with human rights
– 34%
Why I don’t buy sustainable now:
•  I do not find the price attractive
– 25%
Number of responses: 80
Age group: 20-25
Male/Female: 41/39
Region: Europe