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:
http://pauravshukla.blogspot.com/2008/07/luxury-consumption-will-it-really-be.html
http://pauravshukla.blogspot.com/2008/08/managing-luxury-brands-in-recession.html
http://pauravshukla.blogspot.com/2008/03/middle-aged-consumers-conspicuous.html

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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!!!

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Middle-aged consumers & conspicuous consumption

When it comes to the issue of branding, there is plethora of knowledge (or rather information) available with regard to the youth market. Research abounds in examining their purchasing behaviour and other extensions of youthful statements. When it comes to conspicuous consumption, purchasing things, especially expensive things in a way that people notice, young consumers are in a league of their own – or are they?

For every youthful consumer there is a middle aged one with more money (and more credit) to spend who would rather like to be noticed too. Those in the 40-60 age brackets are more likely to have a higher income and a better job – a career in fact. They are out there spending their hard earned cash on big ticket items such as cars and houses, big, big ticket items. Bigger ticket items than a few clothes or a better mobile phone which the young consumers focus on. Yet to read the marketing literature you would hardly think so, until now.

This led me to focus on this interesting segment in the latest study published in the Journal of Product and Brand Management on “Conspicuous consumption among middle age consumers: psychological and brand antecedents”. Using the context of automobiles the study looked into how psychological and brand related factors affect this segment’s conspicuous consumption. While their utility matters, automobiles also provide a great opportunity to display status, personality and self-image. People may feel they need cars, although that has become contentious in this more environmentally aware age. But they also provide a great opportunity to say “this is who I am”. It seems that making this statement crosses the generations. How we choose to make it is where there is room for difference.

Marketing's missed opportunity
Coming to terms with conspicuous consumption among the middle aged is to begin to address marketing's missed opportunity – although it's tempting to assume that there are savvy car sales staff who know the emotions rather well already. However, the study reveals that there is more that they can do, opportunities that are being missed. The survey focused on customers of the BMW, Mercedes Benz and Lexus dealerships in East Sussex in the UK. Focusing on how consumers associate themselves with these brands holds the key to marketing them successfully.

It is an interesting and conflicting area to look at. It leads us in to human emotions that pull in opposite directions – the need for uniqueness and the need for conformity. The Irish management academic Ivor Kenny dubbed it “freedom and order”. With conspicuous consumption the drive for uniqueness is the key. On this dimension, the greater the uniqueness of the product the higher the value ascribed to it – the more of them there are around the less they are deemed to be worth.

A study conducted in the 1950s when language was simpler noticed the snobbishness effect and the need to jump on the bandwagon. Essentially if other people are getting them I want one too; the need to be different and the need to be the same once more. We are a contrary species!

It does get slightly more straightforward however as with conspicuous brands, such as BMW, Mercedes Benz and Lexus, buying behaviour is affected more by the personal factors – it says who I am, it will enhance my image – than the societal factors – e.g. gaining respect. Understanding this is at the heart of addressing the missed opportunity.

Big names not quite hitting the spot
Automobiles are designed and built by engineers so perhaps we should not be too surprised when product and engineering features dominate the marketing messages, even for prestigious cars. Lexus' “The pursuit of perfection” reflects technical aspects of the vehicle, BMW's “The ultimate driving experience” highlights performance. It is emotion that will by and large determine the success of the sale. The big brands are spending a fortune on glossy promotion without hitting the spot in terms of the message through which consumers will engage with their brands.

The study found that psychological and brand antecedents are crucial for brand engagement in conspicuous consumption market. The study further highlights the factors that middle aged customers consider when making buying decisions for conspicuous products. The study integrates multiple standards into a single framework for comparison.

The psychological associations to measure are:
* gaining respect;
* gaining popularity;
* noticed by others;
* showing who I am;
* symbol of success;
* symbol of prestige;
* indicates wealth;
* indicates achievement;
* interested in status; and
* enhances my image.

The corresponding brand associations are:
* brand symbolism;
* self-concept and brand image congruency;
* brand familiarity; and
* brand aroused feelings.

These are the factors to measure and the associations to stress. The opportunity is there for the taking.

In western society a prestigious car bought by someone in middle age is often considered a “mid-life crisis”. Well it's mid-life, but something more significant – an ongoing and sustainable pattern of purchasing behaviour, and an opportunity to get the message right, and do better.

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