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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Managing luxury brands in recession

In the earlier blog 'Luxury consumption: will it really be affected by recession?' I provided my perspective on luxury consumption and effects of recession on it. I stated why there will be little affect of recession on luxury consumption. Furthermore, in a sequel to that blog I wrote another blog titled 'consumption tendencies in recession: early evidence' wherein the propositions I had forwarded were supported by consumers representing various countries and industries.

Respondents in my exploratory study confirmed the relatively lesser effect of recession on consumption pattern with regard to luxury goods. However, they also raised concerns as to companies should not be complacent about it and must take actions to offset the relative decrease in spending. In this blog, I will focus on how and what actions companies should take to gain from the recession.

1. Spend on your brand

During a vibrant and growing economy consumers spend freely. Therefore, having an unclear brand position, while not optimum, is not as risky as during a recessionary period. In growth times, the brand’s weakness in the marketplace is less obvious, as consumers tend to be more forgiving and are not so price-conscious. However, when times get tough, consumer spending habits change dramatically. With negative news percolating from all media avenues the consumption fear sets in and they require much further motivation for spending. In recessionary times, consumers, not only spend less overall, but they become far more selective in how they spend. They gravitate away from brands that fail to provide a clear, meaningful, relevant and emotional engagement.

Conventional wisdom suggests that in times of recession it is better to tighten the belt and cut costs and most companies immediately cut their marketing and branding efforts. However, this is where the opportunity beacons. When others are cutting their spending and loosing the emotional engagement with customers, it will pay in the longer term to spend on the brand.

2. Spend on brand relevancy

The brand spend doesn't always mean monetary spend in every case. It is about generating a buzz around the brand and with the present day technology such efforts can be choreographed much easily than one can think. However, a word-of-caution for those ever so enthusiastic marketers. While creating and opening new communication avenues understand the limitations of it and the consumer engagement process. History of such communications is littered with companies overdoing it and in turn failing to become relevant. With luxury brands, relevance is an extremely important issue and therefore, one must move with caution. However, recession is the best time to build relevance and such relevance will stick for long-term.

3. Avoid the SALE mentality

The increasing wall-street driven short-term focus to outperform competitors everyday is another pitfall associated with most marketers. There is not a single firm in the world which can ever do that. Remember that proverb 'every dog has its day'. This is how simple it is. You cannot outperform the market everyday and every time. It catches up on you. In recession times short-term focused marketer go on sales promotion overdrive. This has a direct impact on the brand erosion and consumers get confused as to what the brand stands for.

Instead of sales promotion spend on engagement. Make your brand relevant. Cement the position of your brand in the customers' minds. Stop the sale mentality. However, simple and logical this may sound, most marketers who are continuously involved in operational thinking miss this and kill their beloved (mostly by the consumers) luxury brands.

STOP. THINK. ACT.

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Luxury Consumption Tendencies in Recession: Early Evidence

In my last blog post (Luxury consumption: will it really be affected by recession?) I stated that luxury brands will not be affected as much by recent recession as they did in past. The main reasons I gave were (a) consumption tendencies of masses (where Armani, LVMH, Gucci, Prada and such others have become a regular consumption item); (b) geographical scope and the emergance of emerging markets in Asia and (c) tourism trends (where Chinese, Indian and other tourists are flocking the Western markets and buying luxury items in numbers).

This led me to do a quick a quick study asking some professionals in my network regarding what they thought about their consumption pattern of luxury brands (those Armani and Gucci) and consumption spending such as entertainment and eating out in posh restaurants. Furthermore, I did put a poll on webpage to see random responses of consumers regarding their luxury consumption habits in recessionary times.

The results corraborate to what I have stated earlier. The poll results show that a large majority of consumers (72%) are unlikely to stop their spending on luxury brands. Furthermore, the professional whom I asked showed a similar response however, an interesting theme emerged from the answers wherein added conscious effort to luxury consumption was observed.

For example, following is a response from one of the heads of marketing at an MNC healthcare firm:

"I wouldn't stop consuming luxury goods in these recessionary times. However, my decision process would be much more thought about, would be longer and would be priority based."

An academic from a reputed University in the UK

"it gets me thinking about my own habits in these times and I realise, as i sit here looking at my new G3 iphone, that no, i'm unlikley to stop consuming luxury goods."

A product manager states:

"But one thing i have started doing is calculating the expenditures and doing some preplaning before buying any luxury. Despite of being female who luvs buying, by doing little excercise i put a control on many things."

An analyst from IT industry

"won't stop but reduce buying them."

A similar response from another IT analyst

"To a certain extent, yes. Best to be a bit Frugal"

Another interesting observation confirming point (a) raised above was also observed from one of the respondents who happens to be a project manager.

"I would, and have, certainly reduced, though not stopped consuming luxury goods. Come to think of it, many of them are near-necessities now !"
Furthermore, from the below response one can observe that how luxury consumption is woven into consumer mind-set.

A business analyst states that:

"No i won't as long as my credit cards don't dry out ..."

Another market intelligence professional:

"I wouldn't. Why? Because of its emotional and recognition value"

The early evidence as stated above demonstrates that while there would be some restraint on luxury consumption, most consumers will not stop buying and consuming luxury brands. This is reflected in a business manager stating:

"I think the cusumer will be impacted and the companies shd have different strategies for different segment."

All the above responses show an interesting effect of recession of luxury consumption and show how consumer mind-set has changed regarding luxury brands and their consumption. In the next blog, I shall discuss how companies can manage thier marketing effort in such recessionary times for luxury brands especially.

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Luxury consumption: will it really be affected by recession?

The talk of medium-term recession is in the air. The mainstream media everyday reports so many gloomy results on various fronts that reading a newspaper in the morning makes the breakfast an undesirable event at times. One of my friends has just told me she has actually stopped eating breakfast, for the reason being the prices of food products have gone drastically up and it’s getting harder to make ends meet.

Consumers consume products to satisfy two major needs, namely, (a) utilitarian needs: basic needs such as food, thirst, shelter etc. and (b) hedonistic needs: which includes largely wants such as entertainment and status which mainly focus on pleasure.

Luxury consumption adheres to the later part of the needs and if asked any consumer would state that in tough times the first they will cut is the luxury consumption. However, in my opinion, it doesn’t seem to be the case. Over the past few years of unprecedented economic growth, luxury consumption has caught the eyes of the masses. Historically, such pleasure seeking behaviour was observed in more ‘well to do’ class of society. However, in recent years, our appetite to consume luxury products has increased voraciously.

From my own experience, finding a Louis Vuitton, Gucci or Prada accessory while sitting on a train in London Underground is as common as a finding the Metro newspaper (available freely to every reader on London underground).

On the academic front, we have good many forecasting models which provide some assistance in predicting how utilitarian products will fair in such recessionary scenario. However, we only have anecdotal evidence with regards to luxury products.

Financial analysts using historical sales data predict that luxury goods companies such as Moet Hennessy Louis Vuitton (LVMH) or GUCCI are traditionally hit hard by economic downturns. There is evidence of the same too as LVMH saw it profits drop by at least 20% in the aftermath of 9/11. According to Financial Times, in 2008, Bulgari felt slower sales growth in March, Richemont at the end of last year, while Gucci sold less in the first quarter than last year.





Furthermore, analyst at Lehman Brothers, points out that 50-60 per cent of the luxury goods industry's consumers remain in classic, developed markets, which are hit hard by the recession. While there seems evidence that luxury goods consumption will be hit hard, I tend to disagree with the analysts due to following:
1. Mass consumption behaviour: As I stated earlier luxury products have come much closer to becoming necessity in case of many affluent customers who still represent middle class in the socio-economic classification terms. This was hardly the case in earlier market scenarios.
2. Geographical scope: Half of the luxury consumers live in the Eastern emerging markets. The glitter of Dubai and Shanghai shows the dominant presence of Eastern consumers in consuming luxury products. While market such as India and most other parts of Asia underexposed to global luxury brands, the scope of growth is too hard to predict.
3. Tourism trends: There is an unprecedented growth in terms of tourist travelling from Asian markets to the Western markets. For examples, Indian tourists took the number one spot in terms of visitors to the UK displacing Japanese consumers who has reigned on that spot for a long period of time. Tourists have a huge tendency to purchase luxury goods as souvenirs and such behaviours have to be accommodated in the overall prediction however that will be too difficult to address without substantial research.

The above three points, when included in any economic analysis of luxury products can skew the overall results. They surely seem to have the propensity to create a mini ‘black swan’.

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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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