Life Style Marketing

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.

Underconsumption and Underemployment

We are having difficulty getting our economy growing. One way to describe this phenomenon is "under consumption," an idea espoused by John A. Hobson, the English economist. (http://en.wikipedia.org/wiki/Underconsumption). His is an observation worth reviewing today in light of the increasingly unequal distribution of income and the concurrent out-sourcing of jobs to other economies.

Hobson points out that even when the rich have more money than they know what to do with, they physically cannot consume enough to replace the demand that would have been created by several other people with lesser incomes. A family with an income of $10M does not consume (i.e., spend) as much as one hundred families with $100,000 income each. Take automobiles as an example. The average $10M household may have 5-6 vehicles. One hundred families with $100,000 income would have an average of 2.5 vehicles each, or a total of 250 vehicles. That's a fifty-times increase in consumption based on the same total income.

As a result Hobson pointed out that the increasing disparity of wealth in a capitalistic system would, ironically, end up decreasing demand and initiating a down (read recession) business cycle. It appears this is where we are. The executives have earned their $10M salaries and bonuses by outsourcing or eliminating middle management and skilled positions. As a result they have fewer customers to serve in the US and have even more reason to focus on international markets for growth. They executives will point out they are required to do this by shareholders' relentless pressure to generate profits (potential dividends), or growth or both. This is today's Hobson's choice.

Marketing to Gen X: The Importance of Authenticity

Recently an automotive manufacturer asked what trends would have the greatest
influence on the premium-priced market in the next decade. Our response was (a)
the shift from the Boomer Generation to Gen X and (b) the increasing importance
of authenticity as a brand attrbute.

In many ways the two trends are correlated. Gen X places great importance on
authenticity. I think it is related to their need to validate trust they place
(sparingly) in anyone or anything. Being authentic inherently requires a
consistency between a person's inner character and external behavior. The same
could be said of a brand: It must walk it own talk. And it should not attempt
to "put on airs" or pretend to be capable of something it cannot do
really well.

In the automotive sector than have been a few classic cases of a brand not
being authentic. The experience of the Jaguar brand under Ford Motor Company
specifically comes to mind. (Hopefully this can be overcome under Tatta.) Or
what General Motors did to Cadillac a decade ago. A current question is how
Mercedes is handling SMART. Or maybe that question has already been answered.

Toyota was very intelligent when it launched the Lexus brand. It knew that
"Toyota" as a brand at the product level would never see seen as
authentic luxury. It also knew that for "Lexus" to be an authentic
luxury brand it would have to "walk the talk" at every step in the
business process, from product design through distribution, sales and service.
It set up an entirely new franchise next work of very limited (i.e., exclusive)
scope and has held its dealers to the highest standards of performance.

But Lexus was for Boomers. We are waiting to see if Toyota is as successful
with brands it is launching aimed directly at Gen X.

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)

Income and Wealth Inequality: What are the Marketing Implications?

http://www.pbs.org/newshour/rundown/2011/09/a-broader-view-of-americas-wealth-ineqaulity.html

Recent stories regarding the inequality of wealth (and income) in the U.S. should have profound impact on marketers. Putting aside the issues of social policy, more specific attention must be paid to marketing to the affluent versus marketing in general. The affluent buy for very different reasons than the "mass" population. And they buy in different ways

For some time this blog (and our website www.premiumknowledge.net) has pointed out that the most significant variable in the affluent consumer's decision to purchase is the semiotic (social signaling) content of the good or service. That is, the consumer asks him/herself "Does the article communicate to others (and reinforce for me) the identity that I want in this society?" Notice we use the word "identity" as distinguished from "social status" or "image."

To the person whose identity is heavily rooted in "personal frugality" it is important that the article convey (and reinforce) this image. This person will not buy a Rolls Royce motor car or a Hermes scarf even for an impossibly low sale price. It's not about price, it's about symbolism.

Likewise the individual whose identity is heavily rooted in being (and being seen as) affluent will buy a luxury car or designer purse instead of something more functional and less expensive in either category. Again, it is not about price. it is about symbolism.

Based on our research the top 25% of households (those with at least $100,000 in income) place great emphasis on the social signals that their purchases convey to themselves and others. We have identified 10 different sets of these values and identified the impact each set has on product preferences, pricing, channel selection, service expectations, etc by category (i., automotive, finance, travel, apparel, etc.). Again, these differences are WITHIN the top 25% who are responsible for the vast majority of profitable sales for today's mechant. In today's economy, instead of running sales and offering discounts to everyone, we recommend merchants understand the real value they are already offering to these afluent and price accordiningly.

For more information contact info@prmiumknowledge.net.