Appendix
The author provides, and an appendix, some of the findings of a 2004 study he conducted on the purchasing decisions of affluent customers.
The object of the study was to discover the key factors that guide the major-item purchasing decisions of high-income individuals. The study was done for the financial services industry, so it was largely focused on products related to financial management, but the author feels it to be broadly applicable.
The study was a random sample that identified a group of 400 individuals with household incomes of $100,000 or greater, in various locations across the United States.
Other details include:
- 92.3% of respondents generate their own wealth (rather than inheriting wealth or being a spouse or dependent of a wealthy person)
- They were asked to rate and rank pre-defined criteria related to the selection of a banking service.
- The research indicates banks have not positioned themselves effectively in an investment advisory role.
- Most respondents turn to independent professionals for wealth management: an accountant, financial planner, or financial advisor. Some indicated they use personal bankers and attorneys, but these were far less common.
- The qualities considered most important were understanding the client's situation and goals, being clear about fees, and being proactive in contacting clients.
- When it comes to managing finances, the affluent are not happy with the service they receive, and are having difficult finding a trusted advisor to manage their financial affairs.
- The services they largely seek is to minimize tax impact, maximize investment growth, and protect value in turbulent markets.
- For making important purchasing decisions, two criteria stood well above the rest: offering the right set of features and being able to evaluate options through careful analysis and comparison
- 65.5% of respondents indicated the opinions of family and peers help them decide which vendors to consider, but only 37.8% indicated those opinions had significant impact on their final selection of a vendor.
- Most respondents include the Internet and trusted periodicals as sources of information for product research
- In terms of their decision to repurchase from a given provider, the two most critical factors were problem resolution and post-purchase service. Offering the lowest price ranked dead last.
The statistical analysis to support these observations was done at the 95% level of confidence, and a 4.8% error rate (plus/minus) is conceded.
Demographics
Regarding personal income, 82.8% had between $100K and $250K in annual income, with only 1.9% having $1 million or greater.
Source of income: 48.3% were independent professionals or business owners, 44.9% were salaried employees, and the remainder were from retirement investments, inherited wealth, or "other".
The number of hours worked each week: 25.9% claimed 60 or more, 56.7% reported 40 to 60, and only 17.4% reported 40 or less.
Respondents were 82.2% male, 17.8% female.
Age ranges are given as 7.1% over 65, 42.9% 50 to 64, 39.0% 35 to 49, and 11.0% under 35.
Most respondents hold a graduate degree (41.7%) or an undergraduate degree (38.8%). Only 1.7% were high-school drop-outs.
Geographically, the audience was spliut between mid-Atlantic, South, and Midwest, with New England and the Southwest being underrepresented.
On marital status, 10.4% were single (never married), 4.4% were divorced and 1.5% were widowed. 39.6% were married with children living at home, 32.6% were married with no children in the home.
Financial Decision Making
For selecting a primary banking services, the following characteristics were identified as important: a reputation for high-quality service (74.8%), convenient branch and ATM locations (63.8%), low service fees (60.1%), Internet banking services (50.9%).
For selecting a primary financial coordinator, the following characteristics were identified as important: clearly understanding the client's situation and goals (78.8%), clearly revealing their fee structure (70.8%), being proactive about informing clients of upcoming changes affect their portfolio (69.8%), helping to create a formal financial plan (59%), helping to determine a portfolio asset mix (57.5%).
Normal Budget Purchase Decisions
A "normal budget purchase" refers to any purchase that the customer will make without having to finance the purchase beyond 90 days (primarily to allow credit card purchase to be included as 'normal" rather than "financed" purchases.)
In choosing products for home use, respondents valued those that offer the right features (73%), has a cost within budget (65%), compares well with alternative options (64.7%), and is from a vendor who offers responsive sales and service (55.7%). Discounted prices and reviews and testimonials tie for last place.
In choosing products for business use, the criteria were ranked in the same order, though each item received a slightly higher response rating.
In choosing medial and health services: Being covered by insurance, being well regarded by other sources, having a cost within budget, and the convenience of location were ranked most highly.
For entertainment outside the home: being something the customer "very much wanted" to see or experience was ranked highest. Total cost was a distant second. Evaluation of options, convenience of location were below 50%, and the reviews and price were minor factors.
For choosing education, both formal as well as training classes: Being convinced that the specific course/degree was an important investment for the future, being the best of available options, and having a cost within budget were the top three criteria. Reviews were considered to a lesser degree. Convenient location was mentioned by about a fourth, and price was dead last.
Major Purchase Decisions
The criteria for being a "major" purchase was a product or service that would last over a year, the cost requires financing over more than 90 days, and the cost is high enough that the buyer feels it merits careful analysis.
Over the past year, only 8.8% of respondents had major purchases totaling over $100K. 14.3% spent 50-99K, 26.0% spent 25-49K, 24.5% spend 10-24K
When deciding "where to look" for major purchase options, the suggestions of immediate family, the suggestions of trusted friends, information noticed in specific periodicals, and the Internet were highest ranked. The advice and recommendations of salesmen were dead last, with only 2.5%
When making the purchasing decision for an unfamiliar brand, most indicated that having the right set of features and being the best alternative among options was important. Getting a good price, what was said in reviews and testimonials, and the opinions of immediate family and friends followed after a significant gap. It's also noted that "warranty" was a frequent write-in item.
When deciding whether to repurchase: the prompt and satisfactory response to problems (90.3%), good service after the sale (81.8%), satisfaction with the purchase decision (69.5%), a clear guarantee of satisfaction (65.8%) offering a preferred brand (63%), and friendly and helpful sales staff (63.5%) were highly rated. Lowest price available was dead last.