Wednesday, June 3, 2009

Luxury Brands Waking to a New Reality

As the recession keeps depressing, luxury brands are experiencing a wake-up call from this nasty cycle and from chastened luxury buyers.

For the first time, it seems, even brands that have succeeded by pursuing strategies of "great product plus major investments in image advertising" are forced to re-think this approach and many are exploring tactics more like the American packaged goods approach.

"Aspirational" or "symbolic" buyers, with household incomes of $250,000 to $500,000, are gone. And, the definition of luxury is radically changing. True luxury will continue to be distinguished by its inherent value, or by what Stanley Marcus called, "the impact of the hand" (the best the mind of man can imagine and the hand of man create).

Also, more than ever, great experiences will rate high on the value scale: rare experiences, sensually orchestrated, producing memories so precious they are actually luxury products. These include 'time out' vacations, exotic travel, sensual comforts, etc.

Educated consumers will even put a premium on things or experiences that cost little or nothing but provide immense satisfaction: good water, knowing how to tie a bow tie, dry firewood, a hot bath, first press olive oil, fresh caught fish, a smile, beautiful wrapping paper, elegant packaging, staying in shape, afternoon tea, museum visits, time alone or with family and friends. Did I say, time, the ultimate luxury, alongside health.

At no point in 15 years has the "best customer" (3.2 million worth more than $1 million) better mirrored Milton Friedman's view, "Nobody spends somebody else's money as carefully as he spends his own."

Focus on the Best Customer
Every smart luxury brand is obsessed with their best customers and is focusing marketing efforts on "surprising and delighting" them. The 'best customer' spends more, is more loyal, refers more, if asked and rewarded, is willing to partner, wants favored brands to succeed, forgives more readily (if mistakes are corrected), offers stronger word of mouth, is not PRICE but VALUE sensitive, is more economical to keep than to find and becomes more profitable over time.

These best customers are now--they're more curious about the best of the best and want brands to articulate why their products and services are worth the price; while demanding high-touch, sophistication, intimacy and intelligent 'courting.'

More demanding than ever, they view wealth as something to be enjoyed rather than displayed; are highly cynical about advertising and demands a personalized approach; desires connoisseurship' while searching for the unique and memorable, wants to tell the story of a great experience, relies on friends' recommendations, social networks and buzz instead of traditional advertising.

What Smart Luxury Brands Do
Marketing is increasingly seen as the president's job and not just the marketing department's. Luxury marketing, once seen as great product, great location and major investment in advertising, is increasingly following a packaged goods model. Advertising spends are being cut and the investment targeted to niche publications – Departures, Elite Traveler, The Robb Report, Modern Luxury.

Marketing is considered as an investment by the smartest brands. Those that continue to spend enjoy a significant competitive advantage. Luxury Marketing Council research shows that those that do invest are putting their marketing dollars toward: improving customer service, heightening the quality of interaction with best customers, investing in third-party-testimonial generating public relations, engaging people/employees/sales folks "on the line," making direct customer contact as strategic partners, genuinely soliciting their insights from the customer and marketplace and sharing insights with people/employees/sales associates in ways once deemed 'for top management only.'

While challenges remain, the prospect for a bright new world of luxury brand success is peaking through the clouds.