Monday, October 19, 2009

Impact of attitudinal and behavioural loyalty on future purchase intentions in cross-cultural context

Companies across the world recognize the importance of customer satisfaction and loyalty. The results of higher satisfaction in most cases are positive word-of-mouth and repeat purchase. This has direct impact on firm performance in terms of sales and profits as well as firm valuation. While the task of satisfaction in a single market is dynamic enough, the issue becomes highly complex in cross-cultural context. In such market situations, customer satisfaction and resultant loyalty can make or brake a company.

Researchers argue on two distinct theoretical steams with regard to customer satisfaction. On the one hand, researchers argue that customer satisfaction occurs when a product or service meets prior expectations of consumers. However, on the other hand, researchers give more importance to the experience and feelings evoked by the product or service and its relationship to satisfaction. One thing however is fairly clear that both these strands suggest that the impact of customer satisfaction and loyalty on future buying behaviour is significant.

Researchers suggest two separate dimensions of loyalty which affect satisfaction. Firstly, 'behavioural loyalty' is associated with the level and amount of past purchase activities. Secondly, 'attitudinal loyalty' is reflected in consumer's attitude towards a product or service. Several researchers suggest that behavioural loyalty precedes attitudinal loyalty. However, others argue that the two constructs merge and create a larger single loyalty constructs. Furthermore, researche in this area has mostly focused on Western developed nations and there is a need for focusing on the rapidly developing emerging markets such as the BRIC countries.

One such study was conducted by Broyles in 2009 focusing on the US and China as representative countries with a final sample containing 236 Chinese respondents and 224 from the US. Coca-Cola and KFC were the brands eventually chosen because of their widespread availability and leading brand status in both countries. It was also noted that the Coca-Cola and KFC have “dissimilar complexity and consumer involvement” in relation to the service provision from employees to customers.

The results provide interesting insights. It was clearly observed that both the loyalty constructs are separate in nature. Furthermore, a contrasting results was observed wherein attitudinal loyalty was found to be preceding behavioural loyalty rather than what is being suggested in prior literature. This is striking result and may require further studies to support the notion. It was also observed that, the nature of the directive relationship between attitudinal loyalty and behavioural loyalty indicates that behavioural loyalty likewise does not influence an individual's feelings toward a product and their future intention to purchase or not.

Companies such as Coca-Cola may find better results if they focus on behaviour loyalty. However, other food companies such as KFC may be better off focusing on their emphasis on behavioural loyalty in developed markets while using attitudinal loyalty in emerging markets. There is a possibility of replicating such studies in other market and industry contexts.

There is also a great research opportunity in measuring the impact of loyalty on satisfaction.
While a lot of earlier research has focused on impact of satisfaction on loyalty, the resultant impact of loyalty on satisfaction has not been studied in same details by researchers. Most researchers assume the single purchase situation. This is mostly due to prominence of cross-sectional research in the field of marketing and international marketing. However, one has to remember that consumers don't engage with a product or service once only and therefore the multiple engagement which could lead to higher loyalty may have a different level of satisfaction associated with it.

Wednesday, September 02, 2009

Impact of contextual factors, brand loyalty and brand switching on purchase decisions

Many marketers consider young adults aged between 18 and 24 as a distinct consumer segment that boasts considerable purchasing power. In the UK, such consumers spend around £10 billion each year, while it has been projected that young adults will inject more into the US economy than baby boomers by 2010.

The young adult segment
The importance of these consumers is also widely acknowledged. Their impact on family purchase decisions is growing and they are recognized as trend setters that influence consumption change within other market segments. Marketers also remain aware that securing the patronage of young adults may be important given their capacity for future spending.

Like other consumers, the image, lifestyle and purchasing behaviour of young adults is shaped to some degree by various external factors. The challenge to researchers is to identify which factors hold sway. Previous investigations have indicated aspects that include family values, peer influence and self perception to influence consumer behaviours along side such as age, gender and lifestyle. Some analysts believe, however, that marketers have insufficient knowledge about what motivates this market segment.

Some marketing managers continue to avoid the young adult segment on the premise that such consumers are not brand loyal. Evidence for this is, however, somewhat inconclusive. On the one hand, researchers suggest that the purchase behaviour of young adults is often determined by monetary constraints. An aim to save money means that switching to cheaper brands becomes a natural response. Conversely, there are also those who argue that the purchasing habits developed during their young adult phase can remain with consumers for many years after. Considerable research from the tobacco industry adds weight to this particular claim.

Consumer loyalty to a brand is shaped by factors that include brand familiarity, convenience, usage experience and perceived value. Analysts previously measured loyalty through behaviour alone but cognitive factors are now part of an approach that also incorporates consumer attitude and values. Behaviour continues as a key indicator of loyalty and enables identification of such as purchase frequency, purchase volume and likelihood of repeat purchase. It is likewise possible to ascertain the ratio of purchases made against other products or services within a specific market or retail location.

Marketers also note the impact of brand switching tendencies on brand loyalty. It is argued in certain quarters that intrinsic or extrinsic factors may motivate consumers to switch to a different brand. Variety and an abundance of choice are cited as key intrinsic motivators with the belief that curiosity or need for specific attributes can inspire switching behaviour. Extrinsic factors can be equally influential and might, for instance, help the consumer to achieve or circumvent purchase or consumption objectives. The earlier reference to young people being motivated by financial constraints is one such example. Involvement levels and packaging are among other factors noted as being potential antecedents to brand switching.

Behavioural intention is commonly perceived by scholars as key to understanding consumer purchase behaviour since it determines brand loyalty and switching behaviour. Many scholars regard overall satisfaction as a key to behavioural intentions but others are now challenging this assumption as it does not consider the impact of contextual factors. It is likewise argued that models founded on the premise that behavioural intentions are largely fashioned by consumer attitude are similarly flawed. In this case, marketing and advertising variables are not considered seriously enough.

Study and findings
In view of these alleged limitations, I investigated the interaction between contextual factors, behavioural intentions and purchase decisions in the belief that this will provide richer insight into consumer behaviour.

The first part of the research work involved exploratory study using three focus groups consisting of young adults in the Sussex area of the UK. This qualitative research analysed the characteristics of this consumer segment and explored the loyalty, switching behaviour and purchase decisions of participants. Findings were combined with extant literature and used to develop hypotheses and a structured, self-administered questionnaire, which was subsequently completed by 340 young adult respondents.

Study findings indicated that, as predicted, contextual factors substantially influence brand loyalty, switching behaviour and purchase decisions. A significantly positive relationship between brand loyalty criteria and purchase decision was likewise found. But contrary to expectation, the impact of brand switching criteria on purchase decision was not significant.

Previous studies have explored these constructs independently, whereas I adopted an integrated approach here to investigate the complexities of consumer decision making. This enabled me to ascertain that:

* key reference groups like friends had the most influence on the loyalty behavior of young adult consumers;
* the impact of product type and image on loyalty was moderate;
* brand loyalty is influenced by brand name and packaging;
* the influence of advertising on loyalty was minimal;
* enhancing products helped to increase brand loyalty; and
* loyalty was not significantly affected by past usage, expectations and convenience.

The store where the consumer shops was identified as moderately influential, even though many focus group members did not consider this factor as significant. This raises the issue of conflict between consumers' perceived and actual behaviour.

For brand switching:

* in-store promotion was found to be most influential;
* the effect of media advertising was inconsequential; and
* price was surprisingly identified as an insignificant factor.

Marketing implications and additional study

Based on these findings, I recommends that marketers should:

* develop a strong brand name;
* pay little attention to advertising;
* focus on continuous innovation and brand extensions;
* be aware of how consumers connect with the product in real life contexts; and
* hold in-store promotions based on product volume rather than price.

Sometimes impulsive nature of brand switching makes loyalty more vulnerable in-store. I therefore recommend that marketing managers should explore ways to positively engage with consumers within this environment to lower the threat of switching behaviour occurring.

I believe that the apparent significance of contextual factors warrants segmenting young adult consumers on this basis. The dynamic nature of the constructs measured here is, however, acknowledged and I suggests periodic reassessment is necessary to improve understanding of the interplay between them.

Future research involving additional consumer segments, product categories and markets can build on present findings, while longitudinal study is suggested as a means of testing the validity and reliability of the complex relationships identified here.

Sunday, July 26, 2009

Innovation, adoption and consumer behaviour

Following are some of examples my own behavioural patterns (which I think is interesting) I have observed over a period of time with technology products:

1. For the first 30 days I was so engaged with twitter and then on I haven't even looked at it ones. For those 30 days I was so hell-bent over increasing the number of followers and now I don't care really.

2. When Microsoft launched the 'voice command' for PPC I was like WOW and installed it and used it for a week (more of an ostentatious display among tech friends showing them I have a new mobile secretary :) ). However, by the end of the week I didn't make a single query using the software.

3. I got this pedometer as I walk quite a bit and used it for about a week and again it was lost in space.

What is it with these innovative products which fascinate us for a really short period of time and then they fade away extremely quickly?

While quite interesting at first what makes them become nuicense (in some cases) very quickly?

Why most of these innovative products don't stick?

While there is this sudden break in some innovation there are some other innovations which keep coming back to me and again fade quite easily. For example, I use ubuntu (the free OS) quite a bit for some time and then it slowly fads away. Then after a period of 3 months or so I will pick it up again and it will fade again.

What does this engagement and re-engagement scenario presents in terms consumer behaviour?

I have seen some research regarding adoption of innovation but how about fading away of innovation and re-engagement with an innovation. I guess these are some pretty interesting questions which need answers. I haven't come across much research regarding this (probably I am wrong on this).

Do share your own examples of innovative products fading away or your own findings.

Tuesday, June 16, 2009

The changing face of luxury business

Luxury market is showing signs of recovery but then experts predicted something at the start of 2008, something different in the middle of 2008, in the late 2008 and in early 2009 too with reality hardly matching with the prediction. However, this time Financial Times has taken good care in bringing about some interesting issues associated with luxury markets. This has been published following the Luxury Summit 2009.

Bernard Arnault, Head of LVMH, the biggest luxury company in the world gave an interview to the Financial Times. He suggests that there will be many more businesses going bust in the luxury industry. Mr. Arnault blames it on over confidence among the industry players and the easy availability of credit which has caused this phenomenon to occur in the luxury industry. Interestingly, he points out a cogent observation that many market players have incomplete knowledge of how to manage in this uniqely challenging market and therefore have lost in this tough times.

Listen/view the interview here

In a similar interview, given to the Financial Times, Angela Arhendts, CEO of Burberry, discusses why market knowledge in luxury industry is extremely important and how Burberry is using its own knowledge in riding out this recession. She also focuses on the unique facet of the industry and how complicated it is for luxury strategists to cut costs as both consumers and suppliers have strong association with the price and the cost.

Listen/view the interview here

The Financial Times, today also provided this highly informative and insightful report on luxury marketing called 'Business of Luxury' which focuses on many important aspects including:

1: How luxury conglomerates are changing themselves in this tough market conditions.
2. Why luxury marketing plays by a different set of rules?
3. How to manage the quality transition in luxury market?
4. How luxury brands are using online marketing tactics?
5. Cost-benefit analysis of brand dilution in luxury market?

The report is available at
(Click on 'FT Business of Luxury report' link)

Sunday, June 07, 2009

If you can't convice them, confuse them...

In the market with umpteen me-too products and brands marketers have few choices with how to develop, maintain and enhance relationships with their customers. The situation is worsened with multiplicity of communication channels including online (internet based) marketing and offline marketing and advertising.

The increasing pace of media innovations is hard to keep up with. Added to that, marketers hardly know what is the ROI on most communication mix (advertising, sales promotions, direct marketing and others) avenues. Therefore it becomes further difficult for marketers to balance and achieve the targets on their communications budget.

When facing such market reality, the marketers are left with two real choices:

1. Convince the consumers; or
2. Confuse the consumers

The convincing part requires increasing effort to develop and maintain because of the market complexities and therefore many marketers are driving their skills and organizational resources in confusion the consumers.

For example, if you wish to buy a mobile phone have a look at what happens?

You have more than:
a) six - ten mobile phone service operators (depending on the country)
b) twenty different mobile phone brands (with increasing numbers every year)
c) thousand different price plans
d) thousand different mobile phones types (with phenomenal number of features)

The marketers claim that this choice provides consumers with the freedom. However, in one of their seminal papers Simonson and Tversky( 1992) claimed that consumers hardly can judge and value the products they choose.

In case of such product choices (i.e. mobile phones) instead of freedom the overchoice creates consumer confusion.

The case of confusion exists in almost every product we purchase in today's marketplace.

So, the revised adage for today's marketplace seems to be Confuse them and confuse them more...

In the coming posts, I shall focus on the concept of consumer confusion and how it affects our choice process. I shall also focus on managerial implications of consumer confusion and how managers can avoid causing confusion.

Friday, May 01, 2009

Luxury brands in recession: Developing a better value proposition and luxury brand strategy

Commenting on my last post on 'luxury value propositions', Mostafa Huga and Thangaraj asked a very pertinent question, 'how should managers' build a better value proposition and a marketing strategy for luxury brands in recession?' Brand management is extremely crucial for luxury industry in customer retention and keeping consumers loyal. Focusing on value propositions can help managers not only in building a better corporate branding strategy but also a good customer relationship management campaign.

As I stated in my earlier blogs (Managing luxury brands in recession) and (Gucci's response) that managers need to continuously focus on and understand customer psychology and customer engagement process to develop a better luxury marketing strategy.

With regard to consumer engagement researchers have identified that consumers focus on several important criteria when engaging with luxury brands. This criteria include:

- Status derived from the luxury brand
- Conspicuosness associated with the luxury brand
- Hedonic (pleasure seeking) orientation of the luxury brand
- Materialistic attitude of the individual
- Uniqueness of the luxury product/brand/organization
- Quality association of the luxury brand
- Functional advantages derived from the luxury brand
- Financial associations with the luxury brand (as consumers become very value conscious when economic environment is tough)

It is very important for luxury brand managers to understand how consumers areengaging with their luxury brand on each of the above mentioned dimensions. Only that understanding can help managers develop a customer oriented luxury brand strategy. For example, consumer may engage with a luxury brand as it may be associated with it a symbol of success and achievement. However, there could be some brands with which consumers associate ostentation and show-off.

Furthermore, managers should also try and profile their consumers on the basis of their personal orientation such as are these consumers predominantly hedonistic or materialists. It is important to understand the difference in this personal orientation.

Similarly many luxury brands are marketed and bought for uniqueness as well as high-quality associated with them. Consuming such goods may provide a social advantage. Moreover, in recessionary times consumers may become price conscious and that may have an increasing effect on the overall consumption decision and value proposition.

Each of these value dimensions would have a distinctly different effect on consumer engagement and resultant consumer behaviour. Managers need to understand the motives of luxury consumption. For example, an Armani suit bought by a consumer may be bought because s/he is attending an important event of importance and therefore it has more of social (status and conspicuous) aspects associated with it. On the other hand, the person may put-on a high-end luxury fregrence which may reflect more of a hedonistic attitude.

Presently we are conducting a study which focuses on the impact various consumer value perceptions (such as social, personal, functional and financial) on the overall luxury consumption. I shall surely share the results... Till then, watch this space!!!

Tuesday, April 14, 2009

Luxury marketing: adapting value propositions

How do you convince a consumer to buy luxury products?

This is one of the very important questions asked by managers involved in marketing luxury goods. Luxury consumption - especially one related to conspicuousness - seem to have changed dramatically in the last few months with consumers clearly avoiding any conscious attempt to signal wealth.

Many observers have pointed to consumers' attempt of avoidance stating the term 'discreet consumption'; 'stealth consumption' and so on. While the phenomenon is observed all around the important question is 'why are the luxury consumers behaving in this particular manner?' In consumer research terms we may ask, 'what is the underlying motivation for this discreet or stealth luxury consumption among consumers?'

One of the major reasons may lie in the changing socio-psychological context and the value perceptions associated with luxury consumption.

In troubled times we humans have an increasing tendency to become more socially conscious. In such times our tendency to empathize may increase substantially and therefore our consumption may reflect this reality too. This empathizing may lead to consumption of less conspicuous products. This could affect many product categories including luxury automobiles, handbags, glasses etc. where the brand message is directly on display. For example, it has been recently reported that the best-selling luxury car brand sales in the U.S. fell 37% in the first quarter of 2009, led by a drop in demand for the most expensive models. The Lexus sales in the US decreased by 27% over the last year.

While the decreasing sales is a reaility of reduction in luxury consumption, one has to remember that there are two major underlying needs among consumers relating to consumption (including luxury consumption); (1) Need for conformity (i.e. to conform to the existing societal norms) and (2) need for uniqueness (i.e. to be unique enough so one can differentiate from others). These two needs are extremely important when focusing on luxury consumption and luxury marketing.

The first kind is need (conformity) is reflected in this decreasing conspicuous consumption. Consumers in such tougher times would not like to be seen as aggressively snobbish and therefore ostentatious behaviour and conspicuous public display will be avoided. However, the other innate need (uniqueness) behind consumption is what drives luxury consumption in today's conditions. Luxury products, according to most consumers, are unique from various perspectives including quality, price, brand image, pleasure and so on.

Therefore, managers will have to change their core message and value proposition to reflect the market conditions and consumer motivations. The question which managers need to ask is what is the value proposition in the present circumstances most of my consumers are looking for and how can I develop and convey a message which reflects consumers' reality rather than brands own reality.

Other interesting blog posts:

Thursday, April 02, 2009

Impulsive buying behaviour in recession

Researchers suggest that 90% people across the world make occasional impulse purchases. However, when asked about impulsive buying behaviour approximately 30% to 50% only classify themselves as impulsive. This highlights two interesting issues: (1) consumers’ own understanding of what is impulsive; and (2) the difference between what consumers portray and what they really do. While impulsive buying has been strongly associated with female consumers (especially in the categories of fashion, accessible luxury, and so on), man are not really far behind in this area. Moreover, the communication channels including the electronic channels such as web marketing, email marketing among others provide added impetus for impulsive purchases.

A recent survey of more than 70,000 American consumers representing a wide range of income groups by Taylor Nelson Sofres (TNS), one of the largest market research firms in the world, found an increasing shift from branded products to own-labels. Furthermore, it the survey results also highlighted increasing usage of coupons among the survey’s highest income bracket customers. In an earlier consumer market research focusing specifically on luxury consumption ( we observed similar results where many consumers were moving towards buying affordable luxury.

This poses as significant challenge for companies. Companies like P&G, the world's largest consumer products company, have already adopted an approach called ‘performance-based value messaging’. This, I believe is due to the nature of most P&G products which belong to Fast Moving Consumer Goods (FMCG) area. This is the area where most consumers make decisions when in the store and therefore the overall behaviour may be highly impulsive. In this recessionary times, P&G has focused on communicating to the frugally minded consumers that it is worth spending more on its products as they perform much better in comparison to own-labels and therefore provide better value overall.

While many academic researchers define impulse buying as a sign of immaturity and lack of behavioural self-control, impulsiveness and resultant impulsive buying is a significant reality of our everyday lives. In recessionary times, we all tend to become more frugal and therefore less impulsive. It is believed that our behaviour becomes more planned when we face economic and financial strains.

However, the above stated notion of reduction in impulsive buying in recessionary times raises interesting questions.

Following are some of the interesting research questions relating to impulsive buying behaviour in recession:

1. Does our impulsive buying behaviour get affected in recession? Do we seriously adopt more planned approach to buying?
2. If the impulsiveness reduces, what sort of reduction is observed?
3. Is the reduction in impulsive purchase behaviour substantial that managers should worry about it?

I am really interested in knowing your views about it. Therefore, could I request you to answer the above three questions from your own perspectives?

Monday, March 23, 2009

Power of public relations and the rise of celebrity hype

This week has brought about an interesting news item in terms of marketing thinking. On almost every mainstream daily newspaper in the UK this week the sad demise of Jade Goody has appeared to be on the front page. While it certainly is a sad event, when I saw this news item grabbing 2 of the top 5 read news on website two things clicked in my mind with regard to celebrity hype and the pr strategies and marketing.

Firstly, I remembered one of my colleagues at Liverpool who researches into the area of celebrities and their impact on masses. He is a fanatic football fan and I remembered him telling me that he had read more than 50 celebrity biographies (including many footballers and entertainers) and had concluded that there was hardly anything inspiring in those memoirs (BTW, jade goody had one!). It was just one skill which had put most of these people in the mainstream media and once they are there we know the human struggle to be there.

The second thought which arrived in my mind related to the power of high tech public relations (PR). I might be completely wrong but even the BBC obituary of Jade Goody notes "...she hit the headlines as a young woman with shockingly poor general knowledge, who was often the object of her fellow housemates' derision" (BBC, 2009). However, when you just type Jade Goody in Google it turns up with 5,130,000 results. These include a wikipedia which is several print pages long, official website, news (obviously in terms of celebrity gossip), a perfume website and a FAN website (yes...)!!!

Thinking about this I ran another google search for Prof. Amartya Sen (yes, yes, the 1998 nobel prize winner) and it returned with 659,000 entries. Pardon me Prof. Sen for even comparing.

However, this demonstrates the power of public relations and how pr firms exploit it.

I am amazed to see that society as a whole what do we really look for and how our thoughts can be manipulated. Reminds me of Edward Bernays - the father of public relations and the newphew of Sigmund Freud - who believed in manipulating society and resultant public opinion. In one of his seminal works 'the propaganda' he argued that the manipulation of public opinion was a necessary part of democracy. He successfully used it in 'breaking the taboo against woman smoking in public' and even helping United Fruit Company (today's Chiquita Brands International) and the U.S. government to facilitate the successful overthrow of the democratically elected president of Guatemala, Jacobo Arbenz Guzman.

Today's, high tech public relations firms have honed their skills with such a finnesse that a 'Miss Piggy' who reportedly thought a ferret was a bird, an abscess a green drink from France, that Pistachio painted the Mona Lisa, that there was a part of England called East Angular and that there was a language called Portuganese (Jeffries, 2009) gets 2 out of 5 top news items on BBC and gets coverage on all the world media. I have hardly ever seen that being achieved...

Something has surely going wrong at the macro societal level or I guess Bernays was so right when he said "The public has its own standards and demands and habits. You may modify them but you dare not run counter to them." This is what we demand as news today, don't we?

Saturday, March 14, 2009

Customer satisfaction: Is that what we should measure? Really?

While discussing with some of my MBA students the issue of customer satisfaction measurement (especially customer satisfaction surveys) cropped up. Over these years, when talking to managers about market research the issue of satisfaction measurement, customer satisfaction survey and employee satisfaction survey are among the top five issues. However, I always ask the question as to is that what we should measure? Is satisfaction really a reliable indicator of (a) future customer purchase intentions and (b) loyalty among other things?

Last week I was talking to a senior executive from a credit card company about one of the research study we have just conducted focusing on role of satisfaction in financial services industry. Instead of revealing the results to the executive I asked him about what was his view on the role of satisfaction of existing customers on generating positive word of mouth which in turn may convert in higher number of credit card applications online as well as offline. The executive suggested that satisfied customers would be highly inclined to suggest others. This led me to ask another question as to what was the role of product related characteristics (APR, Speed of transaction, Acceptability etc.) and information related characteristics (Availability of information from the market, consistency of information etc.). The executive suggested that there would be balanced impact of both the factors.

The idea was not to test the person but to see if the managers' understanding of market factors matched with customers when looked through the satisfaction perspective. In one of the earlier posts about customers, I mentioned there was hardly any difference between the behaviour of satisfied and dissatisfied customers. A recent study carried out by us which had a sample of 340 customers revealed that there was hardly any difference between the satisfied and dissatisfied customers with regard to influencing future customer purchase intentions. Furthermore, we observed stronger influence of information related characteristics rather than product characteristics. This I believe is because of the nearly me-too nature of the product related characteristics in this market.

There have been two camps in literature with regard to the impact of satisfaction on purchase intentions and loyalty. While many researchers have observed the significant positive impact of satisfaction on purchase intentions and loyalty, others have argued against it. In two of my studies I have found two different results. This leads me to suggest that consequences of satisfaction (i.e. purchase intentions and loyalty) are highly situation and industry specific. A rich area of research indeed!

Sunday, February 15, 2009

Rise of affordable luxury consumption

In past few posts, I have discussed the impact of recession on luxury consumption. In two of these posts (Luxury consumption: will it really be affected by recession? and Luxury Consumption Tendencies in Recession: Early Evidence) looking through an exploratory study, I opined that the overall luxury consumption will not decline as much in this recession due to several factors including, mass consumption trends, tourism trends and the rise of emerging markets.

The mass consumption trends have shown an interesting consumption trend overall which has been termed 'the lipstick effect'. The effect relates to tougher economic conditions when consumers who are used to buying luxury products tend to consume lesser costly luxury products but the consumption pattern continues. It was first observed by analysts at Estee Lauder who saw a huge jump in Lipstick sales after Sep 11 attacks and Leonard Lauder, Chairman of Estee Lauder promoted it. Later on when analysed, this effect was observed through various recessionary phases world has seen across countries.

There is conclusive trend emerging to support this effect. Rather than changing their overall spending habit and becoming thrifty, consumers are simply trading down (another term quite known in fashion world) to cheaper luxury products to cheer themselves up. The trend is clearly seen from the recent sales figures from the world's big cosmetic firms including Shiseido, L'Oreal and others. The European personal products index is an excellent proxy for the global cosmetics sector because it is dominated by L'Oréal and Beiersdorf. So far in the downturn, this index has already outperformed the broader market by 45%.

The accessories (or what is called affordable luxury) is a very interesting product category. They involve products such as perfumes, belts, glasses, small ticket jewellary, and so on. The accessible luxury goods, even if they are relatively inexpensive in price (comparing to it true and intermediary counterparts), still function as luxury products as they are ‘creative, sophisticated’ and yet ‘sold through luxury distribution’. Many of these products are used for self-gift giving and also general gift-giving. My last blog on Valentine's Day as a marketing opportunity highlighted the day as one of the biggest events for consumption of affordable luxury products.

The affordable luxury products provide an interesting comparative research environment to look into. There are several research gaps in our understanding as to: how do other affordable luxury products (else than Lipstick) perform comparatively? how do affordable luxury products perform against exclusive luxury (the real and very high end luxury); how do consumer engage with these affordable luxury products?

We are working on a research project on similar lines. Till those results are made available in public domain, watch this space!!!

Thursday, February 05, 2009

Valentine's Day as a marketing opportunity

While there are many festivities which are related to various types of consumption (i.e. Christmas with Turkey, Diwali with fire crackers, Easter with Easter eggs and so on) Valentine's day provides a unique opportunity for marketers to target a very vibrant and highly consumption oriented group, the youth.

There are some distinctly unique characteristics of Valentine's Day.
1. It is a seriously global event.
2. The target market for the same is uniquely similar because of the need it caters to.
3. The consumption behaviour pattern is quite predictable.
4. The consumer need and wants are quite structured for this specific event.

The above four points, according to me, makes Valentine's Day a unique marketing opportunity.

In marketing, as stated in one of my earlier blogs (What we don't know in the field of marketing?), marketers are looking for forward looking consumers. In a way, marketers are interested in higher prediction levels of consumers’ consumption patterns. Valentine's Day in that perspective provides a great understanding relating to forward-looking customers.

When such behaviour can be predicted (and that too at a global scale) marketers can take ample advantage. An example of the same is that the U.S. Greeting Card Association estimates that approximately one billion valentines are sent each year worldwide, making the day the second largest card-sending holiday of the year behind Christmas. The association estimates that women purchase approximately 85 percent of all valentines. Similar trends might be observed in other parts of the world.

The other important aspect as I mentioned above is the similarity in consumption pattern globally relating to Valentine's Day. While Christmas may be celebrated around the world for the same reason, the celebratory styles and the events involved are quite different (it's not always the Turkey you see!). With Valentine's Day the consumption pattern across the world (cards and flowers leading to a dinner???).

I am amazed that why other marketers else than the card and flower firms have not yet exploited this window of opportunity in full.

Tuesday, January 13, 2009

Luxury consumption: Gucci's response to recession

In my earlier blog in July ( I had stated that Luxury consumption will not affected as much globally by this recession. However, within the last six months the market performance of luxury companies has made analysts shift from one end of the pendulum to another.

As many consumers look to cut costs for all their expanses to cope with this downturn, one would expect their overall spending patterns to be adversely affected, with the luxury goods segment being one of the hardest hit. However, Robert Polet, chairman of the Gucci Group disagrees with most views. While he agreed that consumer psyche vis-à-vis buying behaviour has taken a hit, he believes that his company is in the business of selling dreams – and you can’t put a price tag on a dream. These views were captured in one of his interviews at INSEAD business school.

“People buy our brands because they want to be a part of a particular dream… So people before going into the store, they decide ‘I would like to be part of that dream.’ And that is an emotional decision. It’s an aspirational decision for many. And they’re seduced when in the store; they’re seduced by the product, by a really desirable product that you cannot resist … This is not about selling bags or shoes or ties or suits. This is about ‘Would you like to be a Gucci man or a Gucci woman?’”

Polet stated that Gucci will take a less reactive approach to this recession rather than tackling the crisis head on. This meant Gucci will not change its broad strategy but make several tactical changes only.

“Let me just reaffirm the importance of actually sticking to your strategy because the strategy that you build around brands is the strategy for the longer term. You manage brands for a long life or longevity, so you don't sort of whisk them around every quarter or every year or every two years, and that is come hell or high water I would say. But you know what, times change and there are things that you need to adapt to and in the short term – change your tactics.”

Polet is now counting on Asia to cushion the Gucci brand from the shock waves of the ailing economy. Gucci has already opened 24 stores in China while it had none just four years ago. “I'm absolutely convinced of it and it's actually happening as we speak. Asia is delivering its part of the portfolio that we knew that it would deliver.”

The three things I stated in one of my earlier blogs ( and ( about mass consumption of luxury, global travel and the Asia impact still seem to be working.