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 (http://pauravshukla.blogspot.com/2009/02/rise-of-affordable-luxury-consumption.html) 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?