Life Style Marketing

Signaling Social Status With Luxury Brands

A recent (2010) article summarizes research regarding the motivation of people at various levels of "wealth" towards the "need for status." The article provides some interesting insights and acknowledges some short-comings. For example, the authors point out that the merchandise samples used, taken from the websites of the brands, were based on what the brands were offering and did not necessarily reflect what was actually selling.

We noticed a few other points that the authors might consider in any follow up studies:

1. Wealth was defined in terms of income. This, one supposes, would be contrasted with net worth, which was not measured.
2. Status was defined as "tendency to purchase goods and services for the status or social prestige value that they confer on their owners." This definition, on examination, is somewhat circular since the term "status" is included in its own definition.
3. The authors suggest that wealth and status have been "inextricably linked" since the 18th century yet assure us that the dimensions of their taxonomy, the same wealth and status, are two distinct characteristics.
4. The primary sample for the study was apparently taken during "intercepts" at shopping malls. One might question if people who are shopping at a mall are a random sample of all people, or more likely, a random sample of people to whom shopping is more important.

One point (to use a metaphor) of the research was the relative importance of "brand prominence," defined at the relative size of the logo, in the consumer's decision process. Less knowledgeable customers are seen as preferring larger ("loud")logos. More knowledgeable customers are seen as preferring the information conveyed by smaller (quiet) logos and the "subtle design features" they recognize. This ability to "recognize" quiet and subtle signals is determined to be one of the characteristics of the "Patrician" segment's ability to predict the price of an item.

An interesting question is the possible relationship between a person's ability to read subtle signals and his/her ability to achieve higher levels of income. For example, there is a general relationship between levels of education and income. Which brings us back to the question of the two axes of the taxonomy are truly independent.

Customer Capital and Quasi Rational Marketing

The information in this blog entry summarizes new information about what individual customers value in a firm's products and services. This information (called "customer capital") will be used to calculate the value of customers on a much more accurate and actionable basis .

For some time sociologists have known that affluent people purchase discretionary goods and services for symbolic as well as practical value. Some have argued that the primary value of these goods and services is their effectiveness in communicating status. The benefits of these insights have been available to marketers of luxury brands in the form of marketing consulting and/or market research.

Economists have also studied luxury goods and recognize that these goods provide "utilities" in addition to their functionality. Economists recognize the importance of "personal taste" in influcing these decisions at the individual level. As a result they have not attempted to measure the decision making process of affluent individuals due to the lack of reliable "preference" metrics. In this case "reliable" means metrics that are repeatable over multiple purchases and are applicable across multiple product categories. The classic economic problem might be identifying and measuring the preferences of individuals for using the same amount of money for the purpose of making a down payment on an automobile versus taking a vacation. Some economists (Richard Thaler, for example) refer to this type of decision as "quasi rational" since factors other than economic play such an important role.(https://www.russellsage.org/publications/quasi-rational-economics).

We are very pleased that our research regarding "personal drivers of consumption" may provide a set of preference metrics that economists can include in their designs. These preference metrics claerly differentiate the "tastes" of individuals and correlate with spending behavior across multiple product and service categories. We are looking for a University that would like to have access to our data base. And we are working with several clients to help them achieve the benefits of what we may call Quasi Rational Marketing.

The World's Worst Salesperson

I had come to believe I was the world's worst salesperson. I have an offering which is guaranteed to produce a 10x return on investment (ROI). When properly applied it results in 200%-500% increases in revenue-per-email I have presented it to a variety of companies. A few have tested it and achieved the results. The rest have either ignored the results or said "too good to be true." As I said, this had brought me to the conclusion that I must be doing something terribly wrong.

Then I read Thinking, Fast and Slow by Daniel Kahneman, a Nobel Prize winner in economics. ( http://www.businessweek.com/magazine/book-review-thinking-fast-and-slow-by-daniel-kahneman-10272011.html) I realized that the reason that our LifeStyle research is receiving such a dismissive response is that I have been talking to my prospect's System 1 frame of mind. This is the lightening fast mechanism we are all equipped with that helps us decide what to pay attention to and what to ignore. It relies on heuristics developed over time. My prospects have all been taught that "if something sounds too good to be true it probably is." So now it makes sense to me that this work has received the initial reaction that it has. It is not that I am the world's worst salesperson. It's that I have a totally new idea to present. I should expect this.

What I need to do, I realize, is anticipate this initial reaction and immediately address the "too good to be true" objection. How does one do this? Kahneman, whose work challenged conventional wisdom, gives a suggestion in the book. He indicates that people are more likely to change an embedded attitude if confronted with a particular and striking instance which demonstrates the new point. Kahneman says that people can sometimes "go from the particular to the general" and change an opinion. It is much harder to go from the general to the particular.

So, it will be better for me to start with the case histories (the particular) and move to the benefit (the general 200-500%) rather than state the benefit first and then move to the demonstrations. A good lesson for a marketer to learn. Thank you, professor.

How a Brand Thinks

Marketers often recommend conceptualizing a brand as a person. In this mode of thought, various human attributes are attached to the brand. These attributes are often the ones research has indicated are most important to the consumer. A famous example (dating myself) was the creation of the Marlboro Man to embody the attributes male smokers valued. Another example is Betty Crocker. Most brand statements today include some version of a brand personality.

What is missing? Well, if you are an employee of the brand you may have a question regarding how you (as an example) a 23 year old MBA graduate working in sales, how do you get to the point where you can act like the Marlboro Man might act in a particular situation? Not that you have to wear chaps and carry a branding iron; but how do you display the character of your brand in your personal behavior?

Or if you are working in Nordstroms, how do you enact that brand personality? Or a Mercedes dealership's personality? This is where the concept of a "habitus" (http://en.wikipedia.org/wiki/Habitus_(sociology) comes into play. There are several steps in developing (let's use the more common term) a habit. For example, there must be memories of actually performing the behavior to draw on. These behaviors are rooted in a belief.

So when we ask the MBA graduate to "act the way the Marlboro Man would" we should have previously provided some insight into how the true (brand) Marlboro man thinks and what he he believes in. We should have provided insight into how and why the Marlboro Man translates this in a particular set of behaviors. Very importantly we would provide insight into why other, alternate behaviors would not be acceptable to the Marlboro Man, even if they would be socially acceptable to someone else.

And we would have provided our MBA graduate an opportunity to practice.

The point is that an employee can act like the brand only if he/she has been taught to think and feel like the brand.

Customer Experience Management (CEM) for the Affluent

Customer Experience Management (CEM) is the application of familiar concepts (process control, quality management, etc.) to the experience a customer has when doing business with an organization.

There are two different ways to think about CEM.

One way is to standardize processes so that all customers have a similar and consistent experience. The objective is to eliminate error (from the customer's perspective) and waste (from the company's perspective). In the best cases the result of a this application is that overall customer satisfaction increases and overall business costs decrease. This approach is very relevant in mass market applications where companies dealing in commodities that allow little customizing and competition is based primarily on cost.

Another way to think about CEM is to tailor processes to meet the differing expectations of different customers. In this view there are different requirements for satisfying different customers. The objective is to personalize the system so it responds appropriately to each customer segment.

The definition of "appropriate for each segment" is critical. Segmentation of the customer base includes consideration of a customer's value to the company as well as the customer's expectations of the company. In this approach the business objective is to allocate resources in a way that recognizes that different customers have different value. Overall satisfaction scores are a by-product of the real emphasis: The retention of customers relative to their value. This approach is very relevant in markets in which companies compete on the basis of differentiation and personalization rather than efficiency and price.

For this reason we think companies focused on the afluent market will choose different approaches to CEM than companies serving the mass market.

Critical Success Factors for the Luxury Market

What are the factors critical to success in the luxury market? How does a luxury brand different itself from a "mass" brand? What does a "mass manufacturer" trying to move up-market need to worry about? This one-pager summarizes key factors to which senior management should attend.(http://www.premiumknowledge.net/assets/files/pdf/Luxury_Market_From_an_economist_POV.pdf)

Marketing Philosophy May Be The Real Problem

Behind every marketing strategy is a marketing philosophy, a set of beliefs or principles about how the world works. This set of beliefs can be based on intuition, experience or research. It can be articulated or latent.

For example, Michael Porter laid the basis for one set of philosophies when he postulated that there were three possible competitive positions: Low Cost, High Differentiation or a blend of the two. (The later alternative was not recommended.) The basis of this world-view was that the infrastructure required for high differentiation was antithetical to the economics of low cost production. As a result a generation of enterprises chose to pursue either Low Cost or High Differentiation.

The development of improved engineering techniques (i.e., platform engineering, computer-aided design, etc.), improved operational methods (i.e., kaisan, six sigma, flexible manufacturing, etc.) and especially improved information systems (i.e., build-to-order scheduling and inventory control, etc.) changed the landscape. Companies like Toyota were able to "put it all together" and create offerings like Lexus that offered highly differentiated, high quality products and related services at costs well below their competition. Behind Toyota's success was a philosophy that challenged previous assumptions. It began with an in-depth understanding of what affluent North American consumers wanted and then found (or created)the methodologies to meet those desires. Perhaps most revolutionary was the discovery that the relationship between the manufacturer and the consumer had to be reinvented. The "Lexus Experience" was as much a part of the success as the vehicle itself.

What brings this to mind is a reflection on the prevailing (and failing) strategies for marketing to the affluent. As I look across the spectrum of categories from transportation to travel, from "finery" to financial services I am struck by what appears to be a shared underlying philosophy of marketing to the affluent. The philosophy appears to assume that what is most important to the affluent is to differentiate themselves from the masses. That is, to have possessions and do things beyond the reach of people with less money. And that these differences should be highly visible. The logos should be big. I think this may be a Boomer thing.

Our research would suggest that these assumptions may be dated. We are increasingly aware of the desire of affluent people to differentiate themselves from the constantly increasing number of other affluent people. The competition is no longer the guy or gal below you trying to get up the hierarchy. The competition is predominately peer-to-peer. This is not a question resolved by who has more. This is a question resolved by who has better-for-me. Who is smarter? This is a Gen Y thing.

Luxury as Information

The decision to purchase or not to purchase a luxury item constitutes a bit of information about the affluent consumer making the decision.

Which item is purchased (Armani or Ralph Lauren) and where it is purchased (Neiman Marcus or Barney's) constitute additional bits of information.

How frequently such purchases are made, the channels they are made in and the conditions (e.g., sale, early in the season, with the assistance of a personal shopper, etc.) under which they are made constitute additional bit of information.

Add up the bits and you have quite a bit of information about the consumer.

The next question becomes, are these various acts random or is there a pattern? If there is a pattern, what does the pattern mean. What exactly is the information that emerges from these shopping pixels? Is it possible to impute intention or motivation from behavior?

At one level the answer to all these questions is yes. However, it is very interesting to look at this question through the lens of information theory. In determining "meaning," Information theory considers the expectations of the recipient as well as the messages generated by the sender. The pixels will look different if your set is black-and-white than if it is color.

That is, the bits of data become information only in the context of the receiver. The purchase of a Maserati by person A probably means something different to person B (say,  a teenage boy)  and person C (say, a middle aged man). And Person A may attach a third and different meaning to his purchase.

It is this phenomenon, the subjectivity of the receiver or observer, that makes marketing luxury such a delicate business, Luxury, by definition, arouses feelings. These feelings can taint the objectivity of the marketer as well as stimulate the behavior of the customer.

From what perspective does the marketer look at the purchase and ownership of luxury?  From the perspective of a person who can routinely afford the very best? Or from the perspective of his/her own life situation? This is marketing's version of the Uncertainty Principle: An object changes when measured.

Luxury is useful information only if there is an objective frame of reference. This objectivity is one of the attributes of LifeStyle.

   

Luxury Forecast 2008, Part 2

The prior entry about the Luxury Market forecast for 2008 seems to have generated some interest. Here are some follow up factoids:

• Netjets is increasing its order of Gulfstreams by >35%. Says Corporate execs, especially in Europe, are flying private more.
• Toyota is introducing an $85K version of its big SUV. it is forecasting 100% increase in sales over the previous, lower priced model.
• Ford is launching a Platinum version of its F-150 with prices starting about $60K. Sales of the standard F-150 are flat.

At the same time,  the domestic auto industry is forecasting an overall decrease in sales (units and dollars) compared to 2007. Not a single commerical air carrier is forecasting growth in the 30% range.

These points illustrate the bifurcation most likely to occur in spending at least in the first half of the year. The very affluent/wealthy will continue as if nothing (except sales) is occuring. The aspirational affluent will hold off until the coast is clear.

Forecast for the Luxury Market 2008

The Luxury Marketing Council Dallas, of which I am the Founder and CEO, holds an annual breakfast for the CEO’s of its member companies. The purpose is to provide a shared perspective on the forecast for the luxury market for the new year. We were joined by Ash Rajan, Director, Global Markets, Merrill Lynch, who provided opening comments.

Notes on Comments by Ash Rajan:

The news for the U.S. economy and the luxury market is bad and good.

The bad: Oil prices are rising; inflation is a concern; the Fed will cut rates and this will drive the dollar down further. The trade imbalance will worsen. Corporate profits are falling and will continue to fall for a while. For all intents we are in a recession. In this environment mass and “Aspirational” consumers will defer purchases.  This condition will reach a crescendo in 6 months when the results of rate decreases and government stimuli such as tax incentives make an impact. Growth in the economy and spending will then resume.

The good: Markets move based on expectation and so will advance ahead of the improvements and end the year ahead by ~10%. The truly wealthy will not be impacted by the current downturn. For them this is a blip. Their spending is a-cyclical as demonstrated by the current boom in antiques, fine art auctions and sales of very high end homes.

Four types of rich are taking the lead in spending: (1) Nouveau Riche who suddenly come into wealth through an event like the sale of a business ;(2) Global rich from the BRIC countries (Brazil, Russia, India, China) whose economies are rapidly expanding and creating new concentrations of wealth; (3)Commodity rich who are involved in materials (copper, oil, steel, etc.) in short supply as a result of demand by BRIC and other growing economies; (4) Eco-rich (“eco”  is Greek for  “household”) who inherit money or , still living at home, are able to spend their parents wealth.

In addition to these factors, luxury merchants should recognize there is a secular trend towards experience as the basis for luxury. Comfort, convenience, and the sensation of luxury (“decadence”) are the new drivers of luxury consumption rather than mere ownership of things. Luxury is not just the fine hotel but the services and experiences in the hotel. It is not just the materials from the fine tailor but the way the staff handles your appointment. It is not just the fine pastry but the view one is provided while enjoying the pastry.

In light of these conditions, Luxury merchants should review their business models and avoid over-reliance on traditional sources of business and traditional ways of attracting and satisfying clientele.

The notes, above, are based on my notes of Ash's comments. Any error is my responsibility.