Saturday, October 31, 2009

Understanding Luxury Brands and Social Media

One of the biggest misconceptions by brand managers is that the web is not a luxury market. The truth is that people are spending more money online and it’s a place luxury brands must build a presence. However, most have a nagging fear of ruining their brand reputation.

So, how can luxury brands engage in social media?

The Luxury Market Online

Let’s define the luxury market. Luxury as a concept is defined:

“…within the scope of socio-psychology as a result of its connection to a culture, state of being and lifestyle, whether it is personal or collective. When linked to brands, it is characterized by a recognizable style, strong identity, high awareness, and enhanced emotional and symbolic associations. It evokes uniqueness and exclusivity, and is interpreted in products through high quality, controlled distribution and premium pricing.

So, brands with scarce products and high prices must find a way to find consumers online. The questions we haven’t answered yet are, “are premium, affluent consumers online?” and “does making a product available online hurt controlled distribution?”

Problems With Luxury Brands Online

The unique luxury brand must overcome a number of obstacles upon entering the online space. Here are some of the challenges:

1. Luxury implies a sense of exclusivity; that it isn’t for everyone. It’s difficult for a brand to selectively choose who to interact with and, unless done properly, this segmentation could cause a major backlash.

2. Most luxury brands are extremely hesitant to experiment with new marketing strategies. They feel that trying new things is too risky for their brand image. Instead, this hesitation can actually limit online opportunities, hurting the brand in the long run.

3. Because of a luxury brand’s need to maintain the appropriate aesthetics, social media can be a more expensive proposition for them. Building an application or web page is an expensive, arduous task for any major brand. It’s important to remember that social media for brands is not free.

Finding Solutions

The first and most obvious solution is to simply trust your consumers. If your internal perspective of the brand aligns with the customers’ view of the brand, everything will be fine. If not, you’ll finally learn who your core demographic really is and what they are looking for.

Just as a product can be exclusive, so can sites on the web. Creating an exclusive social network, an invite only site, or a suggestion site for actual customers are ways to limit the demographic.

If you decide you must engage on a public site like Twitter (Twitter) or Facebook (Facebook), throw out any hopes of being exclusive. Selectively following or befriending users can quickly cause a backlash as customers complain about being left out. One way to engage on public sites is to target those sites with the closest demographic to the brand’s consumers. This limits the number of “outsiders” engaging with the brand.

Lastly, if the brand finds a mention that they aren’t comfortable with, it may be better not to respond. The web is huge; not everything will be seen by the masses (especially as we move towards real-time conversations). Responding or seeking removal of a message may legitimize and simply bring attention to any negative sentiment.

Examples of Luxury Campaigns

Case studies analyzing social campaigns are a great way to determine how to position a brand online. However, too closely emulating a campaign can have a negative affect. Social media success requires implementation of something new and exciting; some kind of added value.

Use the following case studies to see what they did right and as a means to understand the fundamentals for a luxury brand in social media.

Gucci On Facebook

Gucci has built an amazing following on Facebook, with over 404,000 fans on their official Page. By continually updating the page, and introducing new content such as photos and videos the brand is keeping its consumers engaged. Each update receives over 200 interactions in the form of “likes” and “comments.”

gucci facebook page

By opening Gucci to everyone, and not selectively deciding who gets to join, or inviting only specific people, Gucci has built a community. Even though many of the Gucci fans may not be able to afford actual products, the Facebook fan page builds “lust for the product.” This idea of “one day I’ll be able to afford that,” is part of the luxury appeal.

Not only does the Facebook Fan Page build consumers’ desire for Gucci products, but also enables the community to offer free feedback, publish images, and share Gucci content.

Mercedes Benz Social Network

Scarcity online is only achieved in a closed system. Usually this is against the accepted best practices of a social campaign, but for a luxury brand it can work. Mercedes highlighted this idea by creating a closed social network for Gen Y’ers.

mercedes image, is an invite only social network where consumers can give feedback on vehicles, as well as give Mercedes Benz insight into their younger customers.

By creating a network that includes only those that are either previous buyers, Mercedes members, and potential consumers, the brand has targeted exactly the demographic they want. Mercedes is able to engage users without fear that the brand reputation will be tarnished.

Creating a successful private social network can be costly, but the return on consumer loyalty may be great. Allowing brand customers to connect with each other while connecting with the brand, as well as creating a place to introduce new products to a brand’s core demographic, can be an invaluable asset.

Thursday, October 29, 2009

To Get Rich Is Glorious! Being Rich a State of Mind!

Where's Luxury?

Fear and savings are up. Consumer confidence teeters. We turn on the TV and hear media talk of the shame of the luxury goods buyer, now hiding newly purchased hi-end extravagances in discount store shopping bags.

If marketers looked closer and listened harder, they would realize that something else is afoot: Frugality is not antithetical with Luxury. Let me explain.

Marketing strategists ultimately define a luxury by its price tag. As a cognitive anthropologist, I’ve been out and about in this downturned economy talking with people about, What’s life like, nowadays? I am not simply seeking answers as to what people buy or don’t buy. When you give people the time and leeway – and respect – to talk about their lives, not as a consumer, but as a person, you hear the mundane eloquence and simple complexity of real life lived by real human beings.

In this context, two types of narrative encountered are:

1. More Meaning-Seeking: “I must be more selective in what I buy and what I buy into. I want things now that will show me my heart.”

2. More Authenticity: “I’ve wanted to buy a great fountain pen for as long as I can remember, but I never have until now. Despite the economy or maybe because of it, I thought I should buy one now. I did and I’m so happy. It feels so sensual, so luxurious in my hand. I think better writing with it. It helps me get down to my deepest thoughts and feelings. I find ‘me’ with this pen in my hand.”

That’s the real experience of luxury, no matter what a product costs. A luxury experience takes you beyond yourself. It makes you feel more of you. It provides a venue for you recognizing or elaborating something latent in you that has not yet been made manifest.

A luxury experience makes your familiar, novel. A paradox: It provides for a surprise and it “fits” you. That’s the best!

In today’s culture, time is speeded up, unpredictability has ascended, competition for scarce resources is the name of the game. Life is hard. We are aging more rapidly even though our life span is increasing.

America is between mythologies. We are not what we once were. We do not yet know what we will become. In this transitional phase, the American ethic of self-expansion is still strong, but in some way, “having” is being replaced by “being”. Accumulation is being over-ridden by authenticity and the quest for meaning. The quest for more of “me”. That is a necessary luxury.


by Bob Deutsch


Revisiting the BRICs

Following the market upheaval that began one year ago, each of the BRIC countries needs to be considered one by one.

It’s been nearly a decade since Goldman Sachs first anointed the so-called BRIC countries — Brazil, Russia, India and China — promising uninterrupted growth and development for the global economy, based largely on the huge populations, vast resource base and sheer geographic scale of these new powerhouse economies. With a surge in wealth and growing consumerism, the BRIC markets were at once the greatest opportunity and greatest challenge facing the luxury industry at large.

Fast-forward to October 2008 and the onset of the greatest economic crisis in a generation. Some economists were espousing the theory of “decoupling”, which asserted that emerging economies would continue to plough ahead unabated (albeit, at a slower pace), while those of the industrialised countries, mired in a financial crisis that killed consumer confidence and credit markets alike, stagnated or, even shrank.

In fact, things did not play out that way. Stock markets and consumer confidence in the BRIC countries plummeted as they did elsewhere, and decoupling was very much in doubt. The global economy, it seemed, was much more interconnected than had previously been thought, and the US banking crisis quickly became an economic pandemic to which no nation was immune.

Then, something unexpected happened. In early 2009, some emerging economies, in particular China and Brazil, continued to grow, partially boosted by economic stimulus packages concocted by national governments intent on maintaining sky-high GDP growth and economic development. Russia, on the other hand, suffered a dramatic decrease in wealth, while India, previously touted as “the next China”, turned out to be the farthest thing from it, with ongoing cultural, infrastructure and regulatory issues holding the country’s luxury industry back.

It soon became clear that the BRIC markets, which may have nattily been grouped together by Goldman Sachs, actually had their own responses to the market upheaval and needed to be considered one by one.

The BRIC economy that received perhaps the least attention from luxury brands in the pre-crisis world. No more. Today, Brazil is in laser-focus as the global luxury industry has taken notice of its relative market buoyancy in contrast to the other BRICs.

In India, however, the mood is decidedly less jubilant for international luxury brands — at least in the short term. Some brands are still smarting from ill-advised partnerships and retail expansion, while others are concocting new strategies and aproaches for India, a country with its own tradition of luxury and great cultural pride.

a long-term approach is also appropriate for Russia, where a massive contraction of wealth has left some local luxury groups in economic distress and their international partners, like Alexander McQueen and Stella McCartney, in rapid retreat.

As for China, the one great short-term hope for luxury in the emerging markets, things are a bit more complex than they seem on the surface, according to W. David Marx. And finally, Robb Young looks beyond the BRICs to investigate the other emerging markets that may hold promise for the luxury industry as the Noughties come to a close.

by Imran Amed

Louis Vuitton

Does Eastern Europe produce Luxury Brands?

Despite its position as opening for the global luxury surplus, the Central and Eastern Europe (CEE) is, in fact, quite poor when it comes to proprietary luxury brands. A company here and there, making a name around the globe in a few cases but that’s all. One could not find a dozen significant names on the luxury market, except maybe for some brands tightly connected to history and heritage, brands that not even the Communist regime dared to shut down. Herend porcelain and the Bohemian glass are the two names that come to mind approaching the issue.

A chronic lack of luxury

The absence of luxury in this area has its grounds. Beyond the historical lack of fortune that placed all CEE states in the way of migratory campaigns and wars of all sorts, the Eastern Europe found it difficult to assume a noble identity until the late 18th century. The only country where the influence of a certain nobility still stands is Hungary, once part of the Austrian – Hungarian empire.

In the late 19th century and the first decades of the 20th, a middle class is born. Youngsters return to their native lands after getting an education in Paris, Sorbonne, London or Berlin. The average level of education is at a peak. Meanwhile, on the market, tailors and their custom-made suits, jewelers and perfume makers become an elite among craftsmen. The aristocrats start longing for “Paris-like fashion”. Freeways built to serve for war purposes contribute to the exchange of knowledge, fashion and information. A few products generated in the East acquire international recognition.

The dawn of the Communist era, after the second world war and its subsequent crisis, brings along the persecution of noblemen and their families, the nationalization of all production facilities and, since luxury and the “proletarian dictatorship” can’t live together, the end of any production of premium or luxury items. Several countries in the CEE area struggle for independence from Moscow, only to bring famine and darkness over their people. The West is cautious in its relationship with Russia – satellite states. The road towards Socialism aims at full independence, from both the East and the West, targeting a fully functional autonomous society. Nothing is destined for consumption unless it is a national product.

The consumer’s point of view

In the ‘80’s, luxury meant for Romanians (and other Communist states) nothing but a plastic bag with a tobacco brand printed on it, a plastic bottle or a BIC lighter. A pack of cigarette (Kent or Rothmans) and a bottle of Johnnie Walker were the top achievable luxury. Their symbols remained in force quite a few years after 1989, the official date for the fall of the Communist regime.

After 1989, as any new market, the CEE state were flooded with cheap products, mainly from China, Turkey, Russia and Ukraine. From elementary households to t-shirts, dealers made a fortune on market lacking elementary financial regulations, such as excises, VAT or other taxes.

The middle class products (entry level / some quality) entered the market with cheers, horns and drums. Advertising budgets and the new “free” TV stations made average consumers that the Consumerist God has just rented a studio down the street and became one of theirs. A couple of products with warranties still valid, a few clerks under-55 and everything became heaven.

The first attempts to sell true luxury came around the dawn of the new millennium. CEE states had produced a handful of “new rich” – people in real estate, football, state employees in charge of privatizations and so on. They had already assumed the main Western luxury symbols – brands like Hermes, Vacheron Constantin, Rolex, Gucci, Vuitton, John Lobb, Hugo Boss, Armani, Versace and others. It was time for their executives and top management to afford such products. Instead of them going to Milan or Paris, watches, jewelry and some fashionable street wear brand arrived in Romania.

Some had a good start and begun selling significant amounts – be it via franchises, multibrand or monobrand stores. Others lost the consumers’ confidence by first importing the cheap, entry-level lines. A few lost control of the market, already flooded by fakes wearing their brand name. The most important brands, though, refused to make any important move in the area (with a few notable exceptions) and thus failed to gain recognition before the financial crisis. Those who approached the market before the crisis have a break now, finding opportunities to consolidate their position with little expense.

From a production point of view

Industrialization by force and urbanization by governmental decree (a huge migration from the rural to the urban areas, dictated by the Communist party) had long-term side effects. For the luxury industry, the most important fact is that craftsmanship in traditional production was lost. Bound in “production cooperatives”, all former enterprises lost their identity. Efficiency and politics denied the very existence of private initiative.

After 1989, the “cooperatives” lost their last seniors, long passed their retirement age. In Bucharest, even the ancient glass furnace downtown became a beer and sports pub. Textiles, shoes, embroideries – all was in the past now. Cheap products reigned in an underpaid society.

Political clients only aimed at taking over industrial and tourism assets. Luxury was only something to be bought from abroad and no Eastern millionaire ever even considered launching a local luxury brand, regardless the object. After 2000, when the first personal loans were approved by banks, a new paint on the wall, a microwave oven and a branded TV were the extreme affordable luxury (for an interest rate 4 times higher than anywhere in Europe).

Adopting any symbols, from luxury brands to Valentine’s Day, Halloween and Christmas turkeys, the CEE citizens realized that their traditions mattered only after their accession to the European Union. Still, only a couple of goods were brought back to life, ranging from plum jam to salami, with a few cosmetic products and… that’s about it.

The only brands to be resurrected were those that even the Communist regime failed to burry – such as the already mentioned Bohemian glass and Herend porcelain.

A few quality producers became suppliers for foreign brands. Eastern clothing, furniture and top-of-the-class fabrics were exported and then sold under the name of major brands. All luxury producers found fit to employ cheap Eastern labor force, without caring for the market itself – an attitude that led to a wave of fakes and stolen design products.

What can one call “CEE-made luxury”?

The Herend Porcelain
First sold in 1826, the Herend porcelain gain recognition in 1851, after the adoption of the Victoria pattern. After 180 years of history, the Hungarian state recognizes the importance of the Herend Museum. Today, it’s a must for royal courts and can be found in all executive suits in the Kempinski hotels.

Bohemian crystals
Produced since 1250, a century after the first documents about local “colored glass” production, the Bohemian glass had its first official museums in the 17th century. During the communist age, manufacturers are gathered into a state-owned enterprise. German craftsmen leave the Czech republic, seeking shelter in the Federal Republic of Germany. After 1989. Ornela Company Limited takes over the former state “cooperative”, „Jablonecké sklárny – Dolni“. In 2005, Ornela is shut, its remains being took over by Jablonex Group.

CSA – Czech Airlines
Best business class in Eastern Europe awards for this SkyTeam Alliance member. Despite the recent incentives and price cuts policies, it still maintains high standards in service.

St. Crispin’s
One of the very few luxury companies born after 1989. A Romania-based producer of ready-to-wear and bespoke shoes, currently operating in Japan, Germany and Switzerland. Its products are fair competition to John Lobb and well above the commercial lines produced by Ferragamo.

The production potential

Ever since the accession to the European Union, the CEE states were directed towards promoting local brands and products, from salami and sausages to wine and spirits. A couple of small quality producers approach the fine wines segment, but their attempts seem effortlessly doomed by decent prices for imported wines.

Traditional brands, mostly under private ownership, have few – if any – marketing and development resources. Several quality goods producers prefer to supply major brands with raw matters or finished products.

In Romania, one of the main marketing failures is the Gerovital line of cosmetics. After the ban of the Gerovital H3 formula in the US, the cosmetics are still sold, with some success, but its origins are not acknowledged. With Sophia Loren, Fidel Castro, Charles de Gaulle, Kirk Douglas, John F. Kennedy, Marlene Dietrich or Salvador Dali recommending it, Gerovital should have been a national treasure by now.

Romania’s national vehicle, Dacia (under Renault ownership) sees no future in launching any premium or luxury vehicles. Across the border, the Czech Skoda launched its “Superb” model, close to 40,000 Euros in its full-option version. 10,000 Euros short of the “luxury” class, but 10,000 Euros above the average executive car in CEE states.

Quality wine producers play an increasing role on the market, if not for their business figures, at least for forcing industrial producers to adopt higher quality standards. Wines ranging from 20 to 200 Euros per bottle are currently produced by Crama Oprisor, Cramele Rotenberg and DAVINO in Romania, several Tokaji producers, St. Andrea (Eger) and Gere Attilla (Villany) in Hungary, as well as Enira in Bulgaria.

Fashion is rather poorly represented abroad, with two Romanian designers: Doina Levintza (Paris and NY shows with some success and constant demands from the US, years after the shows were put up) and Iulia Dobrin, with her lingerie company, I.D. Sarrieri, rather a “quality”, not “luxury” brand.

As local potential, the huge production of goose liver and game in Hungary may soon become more than “export asset”, once some gourmet companies decide to produce their foie gras within the country.

The way things go in the CEE states, is seems that a consolidated luxury market, with all the major brands well represented, is required before any luxury brands arise. The potential is promising, but has no chance to turn into production earlier than ten years.

by Radu Rizea

Tuesday, October 27, 2009

Brazil: The Allure of the Underdog

Often the least explored of the BRIC markets, Brazil has potential for the luxury goods sector that is steadily increasing.

Brazil is a relative newcomer to global trade — a status that has put it in an almost unique position during the global economic crisis. Less involved in exports than other BRIC markets, its large, emerging economy has been more protected and in comparison unscathed by the crisis.

The country’s high net-worth individuals have also suffered less by contrast to those of other BRIC markets. Capgemini/Merrill Lynch’s 2009 World Wealth Report counted 131,000 HNWIs in the Brazilian market in 2008 versus 143,000 the year before. This decline of 8.4% is nevertheless lower than China ’s decline of 11.8% and the average global drop of 19.5%; and much less dramatic than Russia ’s decrease of 28.5% and India ’s of 31.6% (although these falls were on the back of sharp increases the year before.)

This relative stability among Brazil ’s high earners is one factor that is clearly pushing the country further up the agenda for many international brands. “The global financial crisis has affected markets that have become very important to the luxury sector,” says Carlos Ferreirinha, director of São Paulo-based MCF Consultoria. “Luxury brands are now looking more closely at Brazil as a potential new market, although only a handful are yet to start development here.”

Hana Ben-Shabat, a partner at management consultancy AT Kearney, also notes that companies are keeping a closer eye on Brazil . The country came top of its annual Retail Apparel Index, which examines emerging markets with the most potential for the fashion retail sector. “ Brazil is not as big as the Asian markets but now that brands have conquered China , they are looking for other destinations in recognition that the majority of growth is going to come from emerging markets.”

“Overall, Brazilians value fashion — shown in the higher levels of disposable income they spend on fashion,” she adds. “There are a large number of aspirational consumers and we’ve already seen luxury players entering the market. The characteristics resemble a market ready for luxury.”

Compared to some other BRIC markets, however, Brazil has some catching up to do. Based on the market and financial performance of 220 of the world’s leading luxury goods companies and brands, Bain & Company’s 2008 study of the global luxury market values the Brazilian luxury goods market at €1.3 billion ($1.9 billion), that is smaller than China’s (€4.5 billion or $6.6 billion) and Russia’s (€3.6 billion or $5.3 billion) but larger than India’s (€0.6 billion or $0.9 billion). On the other hand, it is the market where the greatest growth is expected, with an uplift of 35% for the luxury sector over the next five years forecasted by Bain & Company. A further fifty luxury brands are likely to take advantage of this opportunity and to enter the Brazilian market by 2013, according to the study’s estimates, driven by growth promising to be higher than in other BRIC markets.

Any such fulfilled potential will come from the increasing access to disposable income among the majority of Brazilian consumers, in addition to rising interest in what Brazilians call “pleasure consumption” . High-end food items and beverages, luxury cars, cruises and designer clothing all fall into this category offering local and global luxury brands opportunity.

"Luxury tourism and fashion are the two areas where the market can excel," remarks Marco Fidelis,

director of Prestige Consultoria. "In the fashion sector, for example, five key flagships have opened in the last twenty months: Gucci, Diesel, Chanel, Marc Jacobs, and most recently, Hermes."


Marc Jacobs recently opened São Paulo store in Rua Haddock Lobo

Until recently, however, Brazil has not been a priority for market development among international luxury brands. “One barrier,” says MCF’s Ferreirinha, “is that the luxury market is concentrated in São Paulo and other cities have not emerged as strong, potential luxury markets.”

For fashion brands, São Paulo remains the only serious market. “If your business model is sustainable and can be successful by targeting just a small slice of the market — the 0.2% of wealthy individuals in São Paulo captured by (luxury mall) Daslu — then you can do well,” explains Andrea Jansen, former marketing director at jewellers H.Stern, one of Brazil ’s luxury success stories. “Until the Brazilian middle class is better established and becomes more active in consumption, this is the market for luxury fashion brands.”

Another major obstacle is cost. Brazil remains an expensive market in which to operate, not least because high import and local taxes drive up retail prices to a prohibitive level for the country’s cosmopolitan luxury consumers. “Retail prices are always at least double that for the same product in the US market and higher again than prices in Europe ,” says Ferreirinha.

French luxury group Hermès, which finally opened the doors to its Brazilian store in mid-September, usually prefers to go it alone in new markets. After years of deliberation, however, it has teamed up with a local partner to make the numbers work in Brazil .

The company is working with a new breed of investor in Brazil — owner of São Paulo ’s luxury retail shopping mall Cidade Jardim. Its investment in an international luxury brand is part of a growing trend among luxury shopping centre developers. Iguatemi's owner, for example, has invested in New York designer Carolina Herrera. Rather than wait for the brand to come to them, developers are seizing the initiative, entering traditional franchise agreements as well as paving the way for future joint ventures.

British luxury powerhouse Burberry is also readying itself for further expansion in Brazil but plans to take on the market directly. It has now regained control of its franchise operation to manage its business there from 2010, integrating it into its newly created Americas market region. CEO Angela Ahrendts is no stranger to the opportunities afforded by emerging economies and in May this year noted that China and Brazil offered Burberry the most potential, replacing Russia and Dubai from the previous year.

In whichever manner brands enter Brazil , having a local representative is imperative, according to Paola Le Gargasson, director of Brasilia-based consultancy Quartier du Luxe: “International brands really do have to open an office within Brazil to represent them commercially, even if they have a partner here.”

Perhaps more promising than the fashion industry is Brazil ’s luxury tourism market. At the moment, home-grown brands rule.

“ Brazil ’s luxury tourism sector has very few international brands,” remarks Nicolas Peluffo, managing director of Ponta dos Ganchos, a resort opened in December 2001 near the southern city of Florianópolis . “Today, apart from some international players, local companies have taken the lead and expanded almost competition free.”

Fidelis says: "At moment We have just seven hotels that are members of The Leading Hotels of the World but this number is likely to increase. This segment is becoming professionalized very quickly with new training courses in place."


Hotel Unique, São Paulo

Peluffo, who is also head of the recently-founded Brazilian Luxury Travel Association, adds that, “the cost of construction, land and labour are significantly lower than North America and Europe , therefore requiring less investment for setting up new businesses. The tourism luxury boom is already happening in some areas and the result will be noticed in about five years from now when the region will be booming with new properties being launched and demand driven this way as never before.”

His confidence is echoed across the sector. Both local and international brands already in the market acknowledged early on that the global financial crisis might not have the devastating effect seen elsewhere. According to a study by market research firm GfK Brasil (part of Germany’s GfK Group) and MCF Consultoria, between November 2008 and February 2009, only 14% of the 102 companies surveyed thought their businesses would be seriously affected, whereas 34% thought they wouldn’t be impacted at all.

Brazil is clearly not a market to enter casually. Aside from the operational challenges, also to contend with are the unique characteristics of local consumers. Brazilians don’t always see the need to buy international brands, nor do they automatically equate international with luxury. Ruth Marshall Johnson, consumer insights editor at trends forecaster WGSN, remarks: “There is a collective memory that luxury is European at heart, but also a strong sense of national identity and the idea that Brazil can build its own luxury sector from scratch.”

Long the underdog of the BRIC markets, Brazil will remain a mix of opportunity and obstacles for some time to come. Consequently, luxury firms will have to gauge their approach according to the capacity of the country’s main urban market to accommodate them as well as the pace at which the middle classes become a formidable segment to target.

by Angela Rumsey

Tuesday, October 6, 2009

Wealth and Luxury Trends 2010 and Beyond

Wealth and Luxury Trends 2010 and Beyond

As the luxury industry ends a disappointing 2009 and prepares for 2010, there are strong signs that many top-tier luxury brands are gearing up for a renaissance. CEOs of major luxury brands are embracing the challenge to reinvent themselves, even as they fight to survive the remainder of 2009. We expect to see a dramatic redesign in key components of the luxury business model, resulting in a true, customer-centric luxury industry worthy of the name. There is hard evidence that the luxury industry is rising to the occasion, and we look forward to the innovations that will emerge in the coming year. The following are predicted forthcoming trends:

1) Social Media Becomes Plain Ol’ Luxury Media

The Luxury Institute’s latest survey on ‘Social Networking Habits and Practices of the Wealthy’ shows that seven out of 10 wealthy consumers are now members of social networks. The wide participation of the wealthy customer is rapidly persuading luxury brands to join in the online conversation. Whether it is fan pages, contests, exclusive offers, or simple banner ads, most major luxury brands will have accepted and embraced social media participation as mainstream in 2010. Print media will always have its role in luxury, and will innovate to stay relevant. However, social media may dominate the future, as well as morph into unforeseen vehicles to help promote a refined and effective luxury conversation that is unmatched by any other marketing or communication channel. States Mathew L. Evins, CEO of Evins Communications, Ltd., “The real value of social media to the luxury consumer is that it is neither ‘push’ nor ‘pull’ in nature. Traditional media has overly solicited luxury consumers and bombarded them with a surfeit of messages. Social media gives the luxury consumer the opportunity to decide what brands they engage with and on what terms. It’s this element of control that really is the ultimate luxury.”

A major economic crisis truly is a terrible thing to waste and luxury will prove it’s up to the innovation task.


2) Impatient Luxury Beginners Exit the Industry

During the boom times, many merchants, designers, investors, private equity firms, service providers, consultants and others with no experience in luxury goods or services jumped onto the luxury bandwagon looking for immediate wealth opportunities. The newcomers were mesmerized by the beauty and awe of luxury, but they underestimated the skill, investment, dedication and time required to create and deliver at the highest levels of design, quality, craftsmanship and service. A historic truism of the luxury industry is that those who serve the ultra-wealthy can achieve great success, but luxury’s slow and surgical scalability rarely allows providers to become instantly successful. Some wealthy entrepreneurs who entered the game during the boom have unfortunately learned that being rich and consuming luxury does not make you a luxury purveyor, especially if your orientation is not customer-centric. Luxury takes special talent, skill and sacrosanct devotion to serving customers that very few brands are able to deliver consistently. Many newcomers have discovered that luxury also takes a long time to bring to fruition and very few beginners have the patience. This exit will prove to be a blessing for the luxury industry as truly devoted luxury purveyors take back leadership and control of the industry for the benefit of all.


3) Customer Data is Valued as a Vital Asset Rather than as a By-product

In good times, luxury brands thought they could afford to ignore the quality and accessibility of their customer databases. Surprisingly, even the top-tier luxury brands were negligent when it came to customer intelligence and its enhancement of the customer experience. Demographic data such as email addresses, home addresses and cell phone numbers remained uncollected, disorganized and outdated. Transactional data, the heart and soul of customer intelligence, remained trapped in operational systems that were diligently used by accountants, but marginally valued by sales and marketing teams. The days of customer data mismanagement will end as luxury brands begin to embrace excellence in customer data management and analytics to generate real-time, actionable customer insights.


4) Luxury Sales Compensation Gets a Redesign

One of the most destructive conflicts in the luxury industry is the battle as to who really “owns” the customer: the sales executive or the company. Luxury salespeople refuse to provide their customer information to the company, believing that doing so will undermine the salesperson’s control of the customers, their independence, and ability to earn commissions. Many salespeople think of their customer information as job security. The company rarely provides the salesperson with real-time insights and marketing support that can be beneficial to the salesperson as well as to the company in retaining, cross-selling, up-selling and reactivating the customer profitably. Salespeople typically are not rewarded or given recognition for collecting or using customer data intelligently. In the current severe downturn the lack of cooperation on customer data has proven disastrous for salespeople and for luxury brands. In the upcoming year, expect the smart luxury companies to redesign their sales selection, training, reward and recognition systems to drive teamwork and accurate data collection in order to have a beneficial source of insights for continuously reinventing the customer experience.


5) European Luxury Launches a Redesign of its Service Culture

Unfortunately, European luxury brands are not world-renowned for delivering extraordinary customer experiences, albeit Europe is the birthplace of luxury. The quality of customer interaction and customer service of European luxury brands globally is nowhere near as great as their products and venues. European luxury executives are beginning to recognize that the time has come to not only rival the non-European luxury brands such as Ritz-Carlton, The Four Seasons, Lexus, Nordstrom and Apple in customer experience, but to dramatically surpass them in 21st century style . This task will require cultural transformations of massive proportions for the product-centric Europeans and will take several years. Look for top-tier European luxury brands to take on the challenge passionately as they begin to reinvent themselves in 2010.


6) Many Well-Intentioned CRM Projects Will Fail to Deliver Results

Several major luxury brands have decided to undertake Customer Relationship Management (CRM) projects. But Luxury CRM is vastly different from Wal-Mart CRM. The challenge is that many of these luxury brands’ leaders believe success lies within the parameters of data, analytics and technology. It is critical for luxury brands to first embrace the right culture, values, people, skills, metrics and compensation systems in order to redesign the customer experience and internal business processes in ways that are extraordinary, relevant and lasting. The data, analytics and technology are merely tools that should be used only after the customer-centric culture is embedded in the enterprise. Luxury brands also need to beware that CRM technology vendors know nothing about luxury, and surely do not practice CRM with their own clients; they only sell CRM. Luxury CRM is a virtuous endeavor, but one that can only thrive in the context of a devout customer-centric culture and a cautious approach to CRM vendors. Look for brands to finally discover this after some false starts in 2010.


7) Trusted and Authenticated Peer Ratings and Reviews Surpass Friends and Family Recommendations as Influencers on Luxury Purchase

In a recent Luxury Institute WealthSurvey, 42% of wealthy consumers chose “ratings and reviews from a trusted source” as the most influential factor in purchasing luxury goods and services. This marks a discerning shift from “friends and family” as the most trusted source. Wealthy consumers are becoming comfortable with using the expertise of trusted peer groups to help make luxury purchasing decisions. The aggregated experiences of the larger peer group become a more reliable and expert source for making luxury purchasing decisions as long as the source is trusted. Research shows that under the right circumstances, the aggregated insight from legitimate peer groups is far more reliable than an individual, albeit trusted, source of knowledge. Look for major luxury brands to begin to embrace this trend and begin to engage in this rich and profitable ratings and reviews conversation, especially with their own customer communities, in 2010.

As 2010 approaches, there is much in the luxury industry for which to be grateful. It will take a significant amount of time to recover and surpass the economic success levels of 2007, yet luxury is cyclical, and the category will benefit from the growth of the world economy over time. Asia remains a very bright spot and will drive dramatic growth in the 21st century. The top-tier brands of luxury have already embarked on a reinvention and renaissance that will make luxury wonderfully unrecognizable several years from now. Look for those famous green sprouts in 2010. They are definitely there, but hard to see with the naked eye.

Monday, October 5, 2009

The Wealth Report - September Issue

The Wealth Report - September Issue

Number of US Millionaires Drops

The number of millionaires ($1m or more in investable or liquid assets, excluding sponsored retirement plans and real estate) in the US has declined by 14% over the past two years (Phoenix). However, the ranking of states has varied little, with Hawaii leading the nation with a ratio to millionaire to total population of 6.4%. While the top states in millionaire percentages are much the same, overall the market downturn has taken its toll on the ranks of millionaires in most states: there are only 5m households in the US that qualify as millionaires compared to 6m two years ago. The table to the right shows the ratio of millionaires by state.10 Wealthiest US States


Residency Offered to Wealthy Investors

US companies have been offering green cards to wealthy foreigners as an incentive to invest their money in the US (Daily Business Review). The US immigration Act of 1990 established the EB-5 immigrant investor visa program which offers a green card to those having invested $1m in a US business.

This idea being mirrored by other countries around the world in the hope of attracting wealthy individuals. New Zealand
recently announced that it had relaxed its rules on immigration in a bid to attract wealthy entrepreneurs (Agence France Presse).
Migrants with at least $6.6m will no longer need English language skills or business experience, and the maximum age limit has been removed. Those moving to the country will be required to stay there at least a fifth of every year and the invested money will have to stay in the country for at least three years.

Shanghai has also released residency rules aimed at attracting and retaining quality personnel from other cities (EIU). HNWIs (paying over $146,000 in annual income tax for three consecutive years) may qualify immediately for household residency in the city. Less wealthy individuals will need to have a city residence card for seven consecutive years and work in certain state-prescribed employment grades to qualify.

World’s Most Expensive Streets Drop in Value

Prime residential property on the world’s top ten most expensive streets saw their overall value fall by 12% in the last year (Wealth-Bulletin). The most expensive street on the list fell from $190,000 per square metre a year ago, to $120,000 per square metre this year. Only one street from an emerging market made this year’s list, Ostozhenka Street in Moscow. The table to the right shows the top ten most expensive streets this year, and their value last year.


Wealthy from Emerging Markets Buoy Offshore Financial Centres

Although offshore financial centers have been feeling pressure from Washington, Paris and Berlin, they may have a new ally in the wealthy from emerging markets (Wealth-Bulletin). Wealth managers in Switzerland have seen a surge of money from the Middle East and Latin America in the past six months; members of the Channel Islands’ financial community make regular trips to Asia and the Middle East to sell their offshore services. These individuals put their money in offshore centers for security reasons as they want their money looked after in a country safe from social upheaval.

Financial Crisis Takes Toll on Asia’s Wealthy

44% of Asia’s wealthy individuals (at least $2,150 income and over $91,000 in liquid assets) suffered losses in the past six months due to the market turmoil. Singapore’s wealthy saw the biggest drop in assets with 56% affected by the economic downturn (HSBC). The crisis has not only taken a toll on personal wealth but has also affected investors’ risk appetite and private consumption. Despite the downturn, 46% of wealthy Chinese saw their wealth rise by as much as 50% in the last six months.

Marc Cohen and James Lawson