CustomRetailer: Is there a new definition of “luxury market,” as opposed to its definition before the 2008 economic shifts? And if that’s the case, how can integrators best re-frame their approaches to work within the changed definition?

Rich Green, Principal, Rich Green Ink, Palo Alto, Calif., and CEDIA Technology Advisory Group Member: First, let’s clarify what we mean by the “luxury market.” Does it simply mean expensive? If so, compared to what? I’ve seen mega-expensive, whole-home systems that are just large quantities of ordinary (cheap) stuff that nobody really cares about—hundreds of thousands of dollars’ worth of cheap stuff. Not that it’s all bad. Cheap stuff has gotten really, really good and it starts to make the expensive stuff look silly, frivolous or just plain unnecessary. Even wealthy people can see through the market hype behind frivolous expenditures.

Back in the good ol’ days of outrageous fortune in custom electronics, we used to call the uber-wealthy class the “crazy people.” And that was not meant to be derogatory. They were loaded with cash, full of life, vigor, piss and vinegar and really wanted to spend crazy money. It gave them great pleasure to look smart and cool in front of their friends—that is, until those bead-blasted, aluminum 400-pound objects of desire broke, or were replaced by something much more functional and much cheaper. Times have changed.

The affluent class has, in a sense, sobered up. Post-9/11; post-2008; post-Egypt; post-tsunami; post-Tea Party; post-deficit. The world is a scary place, and those who are still fortunate enough to have some disposable cash are less inclined to let it be known. I’ve been using the term “psycho-frugality” to describe the hesitation wealthy people have to spending frivolous money. Heck, they’re still wealthy, for crying out loud, but they are scared and they know they can get by without that $1M private cinema, or the next Range Rover. What makes them happy these days is a working BlackBerry in the pocket and a fully loaded iPad on the coffee table. The most important technology in their lives costs essentially nothing, and that’s a hard act to follow when you are pitching $30,000 speakers or $85,000 video projectors. Who needs that stuff anymore?

Wealthy people, like all of us, are lured by the human factors in product design. It’s the sexy feel, the sound of that “click” and the durability that still turns them on. These are delightful distractions from the scary world they live in, or maybe just reminders that it’s OK to feel good when you touch something luxurious. With the iPhone 4 and iPad, that luxurious feel comes at ridiculously low prices. Luxury has become affordable.

I think the answer to the luxury market in the CEDIA world lies in that sense of quality, the human ‘yumminess’ of touch and feel, and the ability to engage a human being emotionally. The old pros in the CEDIA channel remember the delight of raising goosebumps on the back of a billionaire’s neck. Yes, we have a secret weapon. It’s called audio.

The place to start a luxury market campaign is still with audio. That’s where the emotion is. It’s the direct line to the spinal column, and people respond to a really good audio system playing serious music—like it’s a drug. They want it and they’ll pay a high price to get more of it.

Just look at what’s happening to the high-end headphone market. It’s absolutely exploding. People WANT high fidelity. The experience, though, needs to be musically emotional and pure fun. It takes serious talent and refined skill to get that message across to a wealthy music-lover, but it can be done. Have CEDIA members lost that skill? Do they care any more? Ask any of the high-end audio manufacturers still out there and they will say yes.

But sales are pathetic, at least in the U.S. In my travels this year I’ve seen a thriving high-end market, but not here. People in Asia, South Africa, Brazil and China all pay dearly for that grip on the spinal column, and they are fortunate to have audio specialists who still know how to make it happen. Most of us, though, have gotten lazy, selling cheap stuff out of fear. We’re propagating our own form of psycho-frugality.

I say, fear not! Get out there and sell the dream. People still love music. They want to talk about it and share it. And people want to feel special. How better to accomplish all these goals than to turn someone on with a high-bit-rate, uncompressed, multi-channel music experience that’s better than CD ever was? There’s no escaping the lure of a well-designed audio system in an acoustically proper space. But it takes special training and skill to make it happen. And that skill is worth good money. Design is just as profitable as high-end electronics, and you need both to do it right.

The luxury market is sophisticated; they’re very well-informed, and they are mobile. They demand good value for money and they expect simplicity. This is a tough market. Getting back to the human basics, it’s still possible to sell very large video with superb audio wrapping around it. It is pure emotion, and wealthy people make emotional purchases all the time. It’s hard to make that happen with touch panels, keypads and thermostats. You need to touch the soul. Wealthy people will pay dearly for that sexy thrill.

Michael Stein, Senior Director of Research and Technology, Russound, and CEDIA Technology Advisory Group Member: I see the definition of ‘luxury market’ as an interesting dichotomy. It’s both morphed and solidified over the last few years. There used to be the rich ‘old money,’ the ‘new money’ and the ‘aspiring money.’ The aspiring money isn’t necessarily spending their money in the luxury goods market as much any more. They’re being much more conservative.

At the same time, I think the ultra-wealthy are probably in better shape than they’ve ever been. You can look at it in terms of both total money and percentage of the world economy they own. So even in bad times, the latter goes up.

The challenge for integrators is that the size of the market of people buying high-end, luxury brands is smaller. They are possibly more willing to spend money now than they were a year or two ago when things looked hopeless, but it’s still a smaller market.

Focusing on old-money areas, and what you can do to upgrade these established people, might be the approach. This has been the trend for the last couple of years. For a long time, home theater meant lots of flashing lights and all kinds of visible equipment. But over the last few years it’s become far more subdued, which, if you think about it, really fits in with the sensibilities of the old money, anyway. They’re not there to show it off; they’re just trying to enjoy it. My definition of new money is, they want to show it off. If they can have gold-plated keypads on the wall to catch your eye, they will, whereas the old money will end up putting the keypads in a closet, because they don’t want anything on the wall.

At the same time, there is a nascent market—although no one can quite put their finger on it yet—for figuring out what that next tier down really wants. Are there things above what they can buy with relatively off-the-shelf solutions that don’t cost too much? There does seem to be a bigger gap between the upper tier and the next one down than there used to be. I guess the question is, is there something for the dealers in between? Certainly, traditional products answer those needs, but with so little new construction going on, integrators have to focus on the retrofit opportunities—and in that luxury space.

Products displacing new-construction products offer thinner margins than traditional products. I think the solution for dealers now involves two directions: to focus on the traditional, old money or the Silicon Valley rich new money, or the other, which is to figure out a way to make money seeing more customers. Maybe you won’t be able to do quite as much hand-holding or close contact. It’s still above Geek Squad—you’re going to coddle your customers a bit more than that—but for the number of customers you have to see, there’s only so much you can do.

I also think it’s very tough for dealers to go in both directions at the same time. Most integrators who are good at luxury have crews very focused on that coddling, that ‘drop everything and get this guy what he needs.’ It takes a different mentality to get in and get out quickly, and not drop everything but politely decline to do things. It’s not impossible to do both, and there are many dealers who have successfully done both, but it’s hard. I think you see the same in retail; Neiman-Marcus doesn’t sell the same brands as JC Penney.

I think [Apple] and Android have laid the path for where the market is going. When you look at the money being generated around those ecosystems, it almost dwarfs what we do as an industry. And at some point, our customers are going to expect the same thing that people shopping at Walmart and Best Buy do, in terms of integration with their gadgets, low cost and simplicity.

CustomRetailer: What technologies hold the most appeal for the “new luxury” consumer moving into 2012?

Stein: Technologies that hold the most promise include iPad, iPhone and Android. And if you look at technologies like Apple’s AirPlay, Google with Android at Home, and DLNA being integrated into TV sets being controllable by default now on some Android phones with DLNA software built in, these things are all starting to work together in ways that are very integrated with the ecosystems that users are putting all their attention into. They’re focusing on iOS and Android and the whole generation of devices that have been spawned by those systems. Over 60 percent of Pandora’s content is now being consumed on mobile devices. So, users’ attention, when it comes to entertainment content, is turning to these devices.

I think these devices, with technologies and protocols like AirPlay and DLNA and Android at Home, are going to open up things for consumers. They are “personal scale” devices for single-person consumption. Where I think the movement will be is transitioning them to “room scale”—you see that now with AirPlay speakers. And then to “home scale”—say, playing major-league baseball streaming audio that you want to listen to everywhere. That’s how technologies are evolving.

What that means for the installer is that it’s all about networking. It’s all about quality of service. It will be about wired and wireless networking, with particular attention to solutions that overcome the inherent problems in wireless networking. If I were a dealer and was looking to maximize my profits, a main goal would be not having to go back into the customer’s residence to tend to something that’s working poorly. Generally, you have a hard time charging for something like that and a hard time making a living doing that. And if you have to go back too many times you erode all the profit from that installation – as well as their confidence in you.

Take a look at a technology like Wi-Fi, it’s great stuff. But if your client’s in New York City, you’re going to have problems getting it to go very far in the apartment because of all the other Wi-Fi systems within earshot. So in high-density urban areas, it’s problematic. In very large homes, Wi-Fi requires more than one access point to give coverage to the whole house. And unfortunately, multiple access points cause issues with technologies like AirPlay, where you might be streaming audio from your iPhone; as you walk from room to room, you may have problems.

My suggestion for integrators is to take up lines that provide higher-quality service and larger coverage areas for Wi-Fi. Invest in tools that allow you to snoop Wi-Fi networks to see where the noise is so you can adjust the networks outside those noisy areas. Nothing can make it 100 percent, but there are things you can do to mitigate some of the worst issues.

As an integrator, I’d be all over Wi-Fi, but also be all over all the other arrows that you can put in your quiver to deal with connectivity issues in the home. One of those is Power Line Carrier technology; if I can wire a device because the device doesn’t move around the house—say, an amplified speaker or some device connected to a stereo—a wire connected to it is fine, and it’s preferred to wireless. But if I can’t get a wire to it and it’s a fixed device, maybe I can get my data to it over Power Line or MoCA, or over HomePNA, and share some of the wiring authority in place. And my last resort is going to be wireless. But if all my music streaming devices and laptops are wireless, they’re all competing for that same pool of bandwidth. The idea is to lessen the competition.

Green: I would promote multi-channel audio delivered by really good Blu-ray and other high-bit-rate sources set up with excellent room acoustics. The system would be operated by an iPad and the equipment would be hidden from view. Next up is big video. Our video sources are so good now that we can afford to go beyond the previous limits of screen size. Make it really, really big and use native 2.35:1 optical systems when you can. Create emotional immersion with big video and big sound.

There’s a way to be discreet and still sell high performance. The latest generation of in-wall speaker systems and hidden subwoofers are truly amazing. They can raise goosebumps, too. The future of technology is simple and invisible. There’s magic in that. And the touch-points have become sexy products from Apple.

There’s no turning back from cheap tablets as controllers, so we have to make money on clever integration, human-centered design and flawless execution. Selling high-performance music and video is icing on the cake.