When Apple unveiled the Apple Watch this year, its pricing strategy faced a lot of scrutiny. Some pundits were perplexed about the big range in pricing—from $349 and $17,000—while others thought it was outright too expensive. But if the Apple Watch seems out of reach for the mass market, that’s probably because Apple is targeting a different, highly-profitable market: an emerging segment dubbed HENRYs (short for High-Earners Not Rich Yet).
As its name suggests, this segment is in between the middle class (those with an income of $50,000 and $90,900) and the wealthy (with a household income of more than $250,000 or net worth of more than $1 million). HENRYs are flipping the luxury market on its head, shattering the industry’s traditional shopper persona.
Although HENRYs is a nascent segment, its impact can be felt everywhere. In consumer electronics, HENRYs fueled the growth of luxury smartphones. And it will be crucial for the success of emerging and relatively expensive technologies like drones, wearables and smartwatches. In retail, brands like Lululemon, Target and T.J. Maxx have recently tweaked their product mix in no small part to attract customers who are squarely in this market.
In the near future, all industries will need to pay attention to HENRYs. Here are five reasons why.
- The middle class has less discretionary income.
The importance of HENRY customers has increased following last decade’s recession. As the spending power of the middle-class suffered a big blow, many mass retailers relied on HENRYs for growth.
“HENRYs are the next mass-market for brands both up and down the pricing spectrum,” marketing expert Pam Danziger tells Luxury Daily. “The fact that the middle-class has lost so much spending power, the importance of HENRYs to mass brands is growing by leaps and bounds.”
- HENRYs have money to spare—and there’s plenty of them.
HENRYs represent the top 20 percent of households in terms of income, earning anywhere between $100,000 and $250,000 a year. Because they earn more than the middle class, HENRYs have more spending power and could afford more expensive purchases.
More importantly, however, HENRYs are quickly growing in number. Between 2010 and 2013, HENRY households rose 11 percent, according to Business Insider. In the same period, overall households grew by only 2.5 percent.
- Mature markets need them for future growth.
For established markets, HENRYs hold the key to potential growth. For instance, a 2013 Bain & Company study found that more HENRYs are becoming potential customers in the global luxury goods market, fueling growth in mature categories. According to the report, there are “ten times as many HENRYs as ultra-affluent individuals” entering this market each year.
- They’re the gateway demo to reach the ultra rich.
Brands need to build a relationship with HENRYs now because these customers are on their way to becoming even more affluent. “HENRYs are the gateway demographic through which most of those who reach ultra-affluent, HNW [high net worth] and UHNW [ultra-high net worth] status move through,” explains Danziger.
Indeed, many (but not all) HENRYs are still young—between 25 and 34—and are still moving up the career ladder. As they grow older, they’ll earn more money and will have even more discretionary income to spend in the future.
“My advice for luxury brands: ignore HENRYs at your own risk,” warns Danziger.
- They’re growing quickly in emerging markets.
The phenomenon of HENRYs isn’t just a Western thing. In fact, emerging markets like China are seeing more and more people becoming HENRYs.
“The HENRYs in China are the epitome of the young, rising professional class that drives the economy and brands’ sales,” writes Alexis Bonhomme, a reporter for Chinese business online magazine Jing Daily. “In China and the rest of East Asia, they represent the key growth target.”
Miral Fahmy, deputy editor at Reuters, says brands expanding in China are in fact better off targeting HENRYs rather than the ultra-wealthy “as a slowing economy and a government that frowns on official excesses usher in an era of less showy spending.”
All eyes will soon be on this important HENRY segment, not just retailers. It’s critical for companies to remember that not all HENRYs are the same. Engaging with these customers directly and consistently is critical.
It’s also critical to remember that HENRYs differ from Millennials or Boomers. And because HENRYs work a lot, it’s hard to reach them through traditional marketing methods. Marketers need to tailor their approach for these customers. Further research is required to gain customer intelligence on the best way to market to HENRYs.
Finally, the lives of many HENRYs are still in transition, so companies need to maintain a relationship with these customers in order to deliver relevant products and services. Marketing strategies need to speak to the unique needs and motivations of this segment.
“No one-size-fits-all strategy will work for HENRYs,” says Danziger. “It’s an incredibly diverse segment.”