Luxury Marketing 3742 [PDF]

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The 6 P’s of Luxury Marketing A New Model for Considering Consumers’ Buying Behavior for Luxury Brands

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Table of Contents The Luxury Buyer………………………………………….……….…………….…………………………3 The 6P’s of Luxury Marketing…………………………….………….………….…………….……………5 • People • Product • Passion • Pleasure • Purpose • Price The Pragmatics: Conclusion and Managerial Implications…………………………………………….….…11 Biography…………………………………………………………………………………………………13 Bibliography………………………………………………………………………………………….…14

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The luxury buyer Meet Will, a single 30-year-old, living in New York City on the Upper East Side. Like his father, Will is an investment banker with degrees from Columbia University and The B School. He’s on the fast track at his firm, and makes between $300K and $500K a year—maybe more depending on his performance bonus. He owns a condo—decent location, high ceilings, nice view—but it’s pretty much just sleeping quarters, which is reflected in the somewhat Spartan bachelor décor. Will does, however, dress and drive the part of someone on the success track, and owns an impeccable wardrobe, several expensive watches and a M-series BMW. A major music fan and former rocker, Will owns several guitars, including a vintage ’55 Les Paul Gold Top. Will recently got his pilot’s license, and is trying to figure out whether his summer weekends on Nantucket, where he pretty much has the run of his family’s place, justifies buying a plane. Meet José. Fifteen years ago, he came to the United States from Costa Rica on a student visa to study dentistry. José met his wife Ashley, an American girl, in college. The couple put off kids while José completed dental school and built his practice, but they’re now the proud parents of a newborn son and plan on expanding their family. José’s dental practice does very well, generating well over $3M in revenue. José and Ashley recently bought their dream house, a large 4-bedroom home in Naples, Florida, and every evening when he turns into his driveway he’s reminded that his hard work is paying off and he’s living the American dream. José and Ashley take none of their success for granted. The car he parks is a paid-for 2002 Volvo wagon. When she had the baby, José splurged on an Escalade for Ashley, but she uses it to drive to Costco to stock-up on home essentials. A key priority now for José and Ashley is saving up for their son’s private school and college and their future children. Meet Trish. Fiftyish (but passing for fortyish), Trish is the recently divorced ex-wife of a wealthy real estate investor. The divorce meant selling off their extensive personal properties in Utah, Cabo San Lucas, New York City and The Hamptons. Trish is flush with cash from the divorce settlement, and now that the kids are grown, is trying to figure out what to do with her life. She hasn’t worked in twenty years, nor has she even managed the household finances. Her husband pretty much called the financial shots and Trish got a very generous allowance that she always managed to spend. Trish is thinking of opening an upscale boutique (she’s thinking maybe children’s clothing) in LaJolla, not far from where she grew up in San Diego. Although from a cash and income standpoint, Trish doesn’t need to work, opening her own shop is a dream from her days in design school when she decorated off-the-shelf handbags and sold them out of her University of San Diego dorm room. Will. José. Trish. Three people with one thing in common: by anyone’s definition, they’re affluent consumers. But they’re also three people who have much more that is not in common. Each has a different story to tell, each has different needs and desires, and each is at a different place in his or her personal, professional and financial life. Published—V 3.0

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As often as not, however, marketers have approached luxury consumers using simple demographic criteria: the zip code they live in, the college they attended, their occupation, income or investable assets. But today’s luxury consumers are more diverse and complex than ever, and this defines how they purchase luxury goods/services.  Individual differences based on ethnic and cultural background, social class and gender, also greatly affect the emotion the consumer may feel for a product. (There is also evidence that the meaning of the goods themselves can evolve over time based on popular perception and the general culture.) Failure to recognize these distinctions can result in disconnects when it comes to understanding—and marketing to—luxury consumers. (On an interesting side note, there’s some evidence that marketers may not have a complete grasp on their customers’ media consumption behavior even at an aggregate level. A recent survey conducted for Brandweek by the Harrison Group highlighted this difference. Comparing how the wealthy see themselves with how marketers perceive them, the survey revealed that high-wealth individuals are likely to spend 13.1 hours in a week using the Internet. Yet, the marketers surveyed estimated an average of 7.6 hours. This has clear implications for where marketers should approach this demographic.)  Relying on years of experience effectively marketing to the affluent, Winsper rejects any traditional onedimensional approach. In order to win new customers, luxury marketers need to take a more nuanced approach that recognizes that their consumers may well fall into many different categories—perhaps even down to the individual level. In this white paper, we will both demonstrate that luxury marketers have to become more granular in how they approach their customers, and lay out a set of factors that must be taken into consideration during their approach. What we also want to underscore in this paper is our belief that there is a fundamental difference between communication and connection, and that to be successful, brands must effectively do both. Moving beyond simple composites of the affluent based on typical demographic data representing the “what” (financial resources) and “where” (zip code) of affluence and consumption, Winsper’s approach allows marketers to align their brands with the who, why, when and how of this highly desirable, profitable and important audience. To help luxury marketers better understand how to communicate and connect with their audience in a more meaningful (and, ultimately, successful) way, Winsper is introducing the 6P’s of Luxury Marketing©, a framework that embraces all the touch points between luxury brands and consumers. Using the 6P’s as a foundation will enable luxury marketers to better understand their customers and build longer-lasting, more profitable relationships with them.

   

David, in Case (2004) Hirschman and Holbrook (1982b) Richins (1994). O’Loughlin (2005)

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The 6P’s Of Luxury Marketing As we start to define the dimensions of the 6P’s of Luxury Marketing—people, product, passion, pleasure, purpose, and price—it’s good to keep in mind two key points about marketing. These points were noted by Dell Computer’s Keith Kozac who, at a recent market research conference, reminded the audience of two prerequisites for successful marketing (whether it’s luxury marketing or, as in the case of Dell, mass marketing). Kozac’s points:

• Listen to the customer



• You are not the customer!

In other word’s, it’s not up to marketers to define what the key characteristics of a luxury product are, or what is pleasurable and what is not. It’s for the consumer to say and for the marketer to listen. Listening to the customer has led Winsper to define six key areas that luxury marketing must pay attention to. These areas—which fully cover what matters most to luxury consumers—have been identified based on Winsper’s years of experience in observing and communicating with high net worth individuals at work, at play, at home— and all the places in between. Seriously considering the 6P’s as an integrated framework, and understanding the reciprocity of the “P’s” within this framework, will greatly impact the way luxury marketers approach their customers and allow them to create unique relationships throughout the buyer’s journey.

People: THEY Buy From People One often says (and as often forgets) that ‘people buy from people.’ After years of one-way monologue communication to customers, marketers now have recognized the need for a dialogue with them. Specifically, in the luxury sector, we refer to this give/get model as “image through action.” Image through action is a two-part equation: how the brand marketer tells its story, and how well your story is told by others. Both are equally important. The former is, of course, the beginning of the buyer’s journey with the responsibility resting solely on the brand’s ability to begin a personal relationship and execute with excellence; the latter is the value of consumer’s peer-to-peer communications. Whether someone is selling a product through a channel or using a direct sales model, the value of people in the buying process is critical to the success of business transaction. And that is just the start of the fruitful journey of building brand loyalty. The most successful luxury brand organizations have built best practices for the proper training of their brand ambassadors who directly/indirectly touch the consumer (e.g. sales people, customer service, phone operators, etc.). But many luxury brands tend to be passive, overlooking this fact, and typically take the least path of resistance relying heavily on past brand equity, image, and heritage to do most of the implied or explicit “talking.” They often express why their brand is different/better with “our quality speaks for itself,” or “it’s handmade from only the finest materials” or “because it’s from Switzerland it is made with precision.” There is also a trend towards greater social responsibility on the part of those with high wealth. Microsoft founder Bill Gates, is an example of an emerging social responsibility at the extreme end of wealth, with Published—V 3.0

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both the money and the time and energy he contributes to the Gates Foundation5. For luxury marketers, connecting with the affluent now implies taking part in local communities, in charitable, social, and cultural events. But, as we have mentioned, there is no one size fits all approach here. One might expect investment banker Will to attend the charitable events that his firm sponsors—or attend events that his latest girlfriend supports. Trish is likely to continue her involvement in the social causes she was involved in when she was married, only now part of her drive will be networking for her business. José and his wife, with their young family, are seeing their network of friends and acquaintances expand as their son enters “the right” preschool. In short, people have conversations with other people; it is your responsibility to have your brand included in the proper context and for the right reasons.

Product: the six key characteristics of luxuries Within the 6P’s of luxury marketing, product quite naturally plays a central role. Through extensive interviews with luxury goods consumers, French marketing professor Bernard Dubois identified six key characteristics of luxury that are inherent in a product and/or its brand.6 First, luxury is synonymous with excellent quality. The components are of an exceptional nature and manufacturing the product involves high level of expertise. Second, a luxury brand will typically have a history, a heritage that gives it an authentic aspect and helps give the brand a unique identity. Creating authenticity may mean building a compelling story that blends many aspects of a product’s heritage (who has used the product, during what era, where the product is made, etc.)  Obviously, new products from new companies will lack long histories, but there may be ways in which marketing can subtly convey lineage. Maintaining integrity is also essential for luxury brands. This can be demonstrated by ensuring stylistic consistency, committing to traditional production practices or by using history and culture as referents in branding. The ‘Begin your own tradition’ campaign conducted by Geneva watchmaker Pâté Philippe, is a good example of emphasizing integrity, history, and authenticity. In this campaign, the visuals explored the relationship between parent and child. Using emotive, black and white shots that illustrated the heritage and craftsmanship associated with the brand, the theme ‘you never actually own a Patek Philippe. You merely look after it for the next generation,’ underscored multiple product attributes: quality, history, and integrity. A fourth luxury attribute is price. The price of a luxury product is assumed to be very high, especially in comparison to its utilitarian counterpart. Indeed, research shows that the perception of quality is positively linked to price of the product or service (i.e., a higher price can confer a quality “halo effect”), with consum-

  

Beverland (2005) Beverland (2005) Dubois et al. (2001)

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ers often judging the quality of a product according to its price when choosing between different brands. Consumers who believe the price is an indicator of quality also associate high price with prestige. Fifth, luxury products are expected to be scarce. Clearly, ‘items that are in limited supply have high value, while those readily available are less desirable. Rare items command respect and prestige.’10 Finally, luxury can to some extent be superfluous, even useless. This does not mean that the product is innately superfluous. More likely, it is the extravagant, the indulgent, aspects of the product that are not strictly necessary. Because of their means, the affluent are often able to move beyond meeting needs in their purchases, and move toward indulging their wants. We have to eat in order to live, but we don’t actually have to consume Kobe beef. For a number of reasons, we just might want it. For our affluent consumers, the Patek Philippe ad campaign, with its emphasis on heritage and integrity might have particular appeal to new-father José. History and quality—that 1955 Les Paul guitar—may have particular appeal to Will. Trish might want to order that $40 Kobe beef hamburger just because she can. The point is that different attributes of different products will appeal to different consumers at different times.

Passion: connoisseurship shared in real and virtual communities The pursuit of luxury is often a passionate endeavor and the affluent can be very passionate consumers. In many instances, it is their passionate nature that has put them in the position to access the luxuries that comprise their lifestyle. In the United States today, in particular, the lion’s share of wealth is accumulated through business ownership (or sale) and employment compensation; the passion for success in business and professional life is mirrored by passion for the lifestyle choices their wealth enables them to make. Whether they are collectors, connoisseurs or communities of like-minded individuals, passionate consumers are brand advocates respected by their peers and a brand marketers best allies. Collectors are a prime example of passionate consumers. They might devote years to researching every model produced by a watchmaker or car manufacturer. They may know more about the brand than almost anyone else. In fact, the only people who can teach things to a true collector are other collectors and (hopefully) the brand itself. Whether they’re collectors or not, connoisseurs are people who their friends respect for their knowledge. (Someone interested in vintage guitars might well tap his friend Will before making a purchase.) Passionate individuals rarely stay isolated. Rather they share their passion with like-minded people. Fellow collectors share a faith that has been likened to that of religious believers. 11 In fact, the only people who can teach things to a true collector are other collectors and hopefully the brand itself.   10 11

Lichtenstein et al. (1988); Erickson and Johansson (1985) Lichtenstein et al. (1993) Solomon (1994:570). Belk, 1995

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Communities of passionate individuals may be large or small, but they are highly influential—and growing in influence. In the offline world, the Aircraft Owners and Pilots Association have over 400,000 members in the U.S. who share a passion for flying. In the virtual, online world, blogs like Blavish.com, Highchic.com or Luxist.com cover a wide range of luxury interests, from spas to real estate to luxury boats. Many products and brands have their own blogs and/or customer-created blogs and web sites. ‘Amateurs’ (neither journalists nor professional practitioners) who generate word of mouth through ‘social media’ like blogs or YouTube can make or break the reputation of a brand or a new product. Messages delivered through blogs and other online forums have become much more powerful than messages broadcast on TV, radio or in newspapers. Will loves to blog about guitars and has a standing jam session with other like-minded banker/musicians; Trish is the travel expert for her group of friends and provides them with information on the “inside track” of what to see and do when vacationing; Jose is actively campaigning to become a city councilman and to get on the board of his son’s school to ensure that his vision and values are reflected in his community. Because ‘amateurs’ can become the best brand advocates … or the brand’s worst enemies, marketers need to pay close attention to them. This means supporting formal associations of users, and monitoring and participating in both online and traditional media forums that promote their products and brands. Marketers ignore emerging media—or the power of the “Citizen Marketers” described in the recent acclaimed book (of the same name) by McConnell and Huba—at their own peril. They must also avoid getting into no-win online battles with brand enemies, as well as avoid the temptation to try to manipulate new media by setting up “fake” blogs, which are inevitably discovered and ‘outed,’ with resultant loss of brand (and marketing) face. At the individual consumer level, support for your most passionate users may also mean indulging your customers in what may appear to be irrational, impulsive purchasing behaviors. There are stories about shoe designers arranging to have shoes specially manufactured if the colors and sizes of interest are sold out. A luxury car owner may fly in a technician just to service his car. But support for the most passionate users generally pays back in repeat and word-of-mouth business.

Pleasure: luxury is experiential Ordinary product purchases—like trash bags and paper clips—are based on processing information, with the aim of solving a problem or meeting a clear need. In contrast, luxury products are experiential. They provide a sensory fulfillment beyond the functional attributes of the item or service. This sensory fulfillment may come through the selection process, the purchase itself, through use of the product, or through fond recollection. Luxury marketers need to understand the sensory markers that their different customers best respond to, and determine how to convey those markers. And no matter how complete the sensory appeal of a product is, the products in themselves are seldom enough. Luxury products need emotional marketing to give them that ‘extra’ dimension. Christian Blanckaert president of Hérmes (leather goods and other luxury apparel) recognizes this appeal to emotion. He has said that ‘Hérmes is not in the luxury business; Hérmes is

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in the dream business. Our object is to charm, to surprise.’ He contends that marketers should concentrate on the dream, the magic and the irrational.12 For other brands, the appeal may be more or less emotional, more or less rational, but for luxury goods, the sensory experience matters. Trish could just throw any old scarf over her shoulders, but when it’s an Hérmes scarf, she’s transported to Paris. There are a number of ways—beyond concentrating on ‘the dream’—that luxury marketers can help create a sensory experience for their customers. Some luxury brands have launched distinctive limited-edition products and services, or built elaborate flagship stores that represent a larger brand lifestyle message. Ultimately, the luxury experience must feel personal to the consumer, and make the consumer feel clearly distinguished from the masses. In short, the brand is the experience and the experience is the brand.

Purpose: luxury may have an element of superfluity, but it can also be practical People often equate luxury with superfluity, useful only as a means to display wealth. This is borne out by the inclusion of superfluousness in Dubois’ listing of the attributes of luxury goods. But this assumption is incomplete. While the luxuriousness of a good may be a superfluous aspect—giving pure pleasure alone, as often as not, luxuries hold a strong utilitarian aspect as well. The pleasure vs. the purpose aspect may be more or less important to different individuals. Typically, they’re both present in a luxury consumer’s thinking, but in different weights. In short, luxury must be both exemplary in function and form. Use of a private jet is on most people’s roster of luxury. The quality of the leather seats, the in-flight entertainment system or simply the overwhelming feeling of being successful in life might appeal to one affluent traveler. Others, like Will who holds a pilot’s license and is thinking of getting his own plane someday will eventually take his Piper private jet from Westchester to Nantucket so he can spend that extra hour at the office on a Friday night to help close a deal. Will, while appreciative of the luxury appointments, is far more interested in checking out features and functions. Is the plane equipped with the latest Honeywell avionics? What’s its cruise performance? Are the different security features satisfactory? What are the annual operating costs? Yet, obviously, one does not come without the other; the utilitarian and hedonic attributes add value to each other and increasing the personal value of the total offering. For José to charter a jet flight back to Naples from a dental conference in Chicago, the decision may all be about his longing to get back to see his wife and baby as quickly as possible. It’s an extravagance, sure, but he can afford it and the only commercial flight option gets him home five hours later. Luxury marketers need to keep in mind that the product appeal—and the balance between practicality and pleasure—will be different for different customers. Marketers must be prepared with the information—or with opportunities for direct sensory engagement—that can be employed, as needed, in right combination.

12

Blankaert in Collocia (2002)

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PRICE: THE RISE OF FRACTIONAL OWNERSHIP Price is an important attribute of luxury goods, conferring an aura of quality and prestige. But Hollywoodstyle extravaganza aside, most affluent consumers are well aware of what money is worth and how hard it is to make. Even for the wealthiest consumers, maintaining private jets, luxury yachts and multiple mansions is costly, and may well feel more expensive than it’s worth. Luxury toys may depreciate rapidly. You can only live in one place at a time. Luxury spending ties up capital that could be used for making money. “Trading off ” is more important than “trading up.” One alternative would be to buy something cheaper, or forego a purchase entirely. But neither of those options is much fun. Ravi Dhar, a marketing professor and Director of Yale’s Center for Consumer Insight, places what might be termed “ownership fatigue” in context. Dhar notes that, thirty years ago, people owned fewer things. As a result, there was a lot more attachment to, and value placed on, those things13. Nowadays, the proliferation of options means less commitment, enabling consumers to enjoy a product temporarily before moving onto the next one. Fractional ownership of luxury goods has now been introduced, enabling the affluent to share the cost of an acquisition they enjoy only a few days a year. It is inspired by the time-share model, but is more exclusive and often comes with an equity stake.14 These ‘partsumers’15 share cars, yachts, houses, planes, and even handbags. Exclusive Resorts is a good example of fractional property ownership. Homes in their portfolio are worth on average $2.5 million, and memberships cost nearly $400,000 with annual dues between $15,000 and $25,000. In order to make sure that its members can easily access any given property, this company maintains a ratio of six to seven new members to every one house. (Keeping in mind “Trading Off ” as part of the equation, the new equity models from companies like M Private Residences might be slightly more attractive for others.) Luxury car clubs are also becoming popular. Revo250 and P1International offer members a choice of Bentleys, Ferraris, or Rolls-Royces for a certain number of days each year. In some cities, designer handbags are “for hire.” For our consumers, fractional ownership would allow Will to have the benefits of private plane ownership, without having to deal with the hassles. José might want to purchase part ownership in a resort area in Costa Rica so that he could regularly show off his growing family to his relatives there. During her marriage, Trish had gotten used to having access to homes in a number of different locations. She can still enjoy that luxury, without having to own all those homes outright (which, let’s face it, post-divorce she can’t really afford).

13 14 15

Foust (2006) Fourst (2006) Levenson (2007)

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THE PRAGMATICS: CONCLUSION AND MANAGERIAL IMPLICATIONS This paper started from the premise that the affluent constitute a diverse group of consumers. These luxury consumers can be better approached through taking into occasions variables based on their individual needs, wants and values as opposed to a ‘one size fits all’ template. For luxury products, the variables, or dimensions, that matter are People, Product, Passion, Pleasure, Purpose and Price. Each of these dimensions will impact different consumers in different ways. And none of these are static or isolated. The importance of these dimensions will shift over time as individual circumstances change, and, at the macro level, key cultural, social or economic trends will have significant impact. Luxury marketers have to take all this into consideration when determining present and future brand management, product offerings and marketing campaigns. To summarize some key takeaways: People — People will increasingly rely on strong personal relationships that differentiate their trusted network from larger, non-exclusive networks associated with mass offerings. The ways to help forge bonds with affluent consumers include participation in the charitable, social, and cultural events that they support. Product — Luxury products must embrace six key characteristics if they are to be considered luxuries by consumers: quality, heritage, integrity, price, scarcity, and superfluousness or non-utility. These characteristics will mean different things to different people. Passion — Passionate consumers share their passion in a variety of “old-fashioned” (clubs and association) and emerging (online communities, blogs). Luxury marketers need to be particularly cognizant of what’s happening online: both good and bad news travels fast. Pleasure — Pleasure derived from luxury consumption comes from the experience. A luxury experience implies an emphasis on senses and emotions. Luxury marketers need to ensure that their customers have the opportunity for sensory connection with their products, and should also consider emotional appeals in their marketing campaigns. Purpose —Although luxury might be superfluous, it also serves a purpose. Most luxury products have a utilitarian aspect, which is more or less important to different individuals. Luxury marketers should arm themselves with a combination of practical, factual information, and ways for customers to connect to the pleasure aspects of their products. Luxury customers will place varying weights on the importance of pleasure vs. purpose. Marketers need to be prepared for all possible combinations. Price — Money matters to the affluent, who tend to spend rationally, even if they seem to spend a great deal. Aware of the many downsides of ownership, the affluent increasingly favor fractional ownership. While fractional ownership may not always be relevant, luxury marketers should consider adding this to their mix. For luxury brands and those responsible for their management and marketing, it is crucial to understand that different affluent consumers respond better to different combinations of these six dimensions. Additionally, these combinations will not be the same for all products, services or categories. For instance, Will the investment banker mentioned earlier in this paper, will require a different prioritization of cues for his BMW (product, passion), his clothes (people, pleasure) and his home furnishings (purpose). Candidly, the true value of the 6P’s is in the ability to establish unique, personal relationships based on individual consumers that can evolve over time as opposed to imposing a confining and prescriptive mechanism focused on internal, Published—V 3.0

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company-centric claims. No given offering — or marketing approach — will appeal to the entire target audience. Private jet operators communicate well with the audience of C-levels, entrepreneurs, and investment bankers like Will, but may miss out on hip-hop artists and wealthy would-be C-level execs of their own business, such as Trish. As for José a private jet may be very attractive way to get back to Costa Rica for a visit, but not a priority today— other than in exceptional circumstances (like really missing his family). The 6P’s system has been tested and readapted many times, and can provide luxury brands with a comprehensive tool to develop fine-tuned value propositions for smaller sub-groups, and even for individuals. This results in better outcomes with a wider audience of affluent individuals. Reflecting on the brand’s 6P’s assets, luxury brand managers can determine what combination of P’s will best impact the targeted segment and deliver the desired interaction. For further information regarding Winsper’s 6P’s of Branding for Affluent Consumers, please visit http://www.winsperinc.com and find out how to apply the principles of this paper to your product or service offering. For a complimentary assessment and scoring or your brand within the context of the 6P’s, please contact Sarah Rodgers, Manager of Business Development, at 617.695.2900 ext. 108.

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BIOGRAPHY Jeff Winsper With a breadth of strategic marketing and business expertise, Jeff has helped a variety of companies throughout their lifecycle. Prior to establishing his current agency, Jeff was an EVP at Mullen, the nation’s 24th largest brand agency with advertising, public relations, direct, interactive and design capabilities. Prior to Mullen, Jeff was a founding partner of Leo Burnett/Boston, with billings of $240M. He oversaw all operations, sales, marketing and services.

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