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Walpole seminar
London, May 2007

Luxury Experience - Magical or Mundane?

The Wise Marketer has reported on several schemes over the last few years that could be defined as 'luxury-focused loyalty marketing' and given a recent report (World Wealth Report from Merrill Lynch and Capgemini) that highlighted the growing group of super-wealthy consumers globally (8.7 million millionaires) it seemed timely that we re-consider what is happening in the glamorous world of high fashion and luxury. Do the super rich behave differently when confronted with a loyalty marketing initiative or is it simply that the spend more?

A recent research survey by Parago based in the USA showed that high-income households exhibit greater loyalty and are influenced more by loyalty programmes than average income households. 94% of high-income households said that membership in a loyalty, rewards or frequent customer program had a strong to moderate influence on their purchasing decisions, versus 78% of all consumers.

To understand better this end of the consumer market better we asked our correspondent based in the UK to attend the Walpole Seminar in London. Walpole was created in 1992 by top-tier luxury branded British companies to promote and develop luxury brands partnerships and understanding of their sector.

They present annual awards for British excellence and a host of other initiatives aimed to increase awareness and professional marketing. They are one of the few organisations focused on luxury marketing and the needs of their membership in the changing world of consumer marketing. Other conference organisers periodically capitalise on the interests of brands in these markets but Walpole go further in their consistent approach and desire to provide greater insights for their members.

The conference featured a keynote from Julia Carrick, CEO, and Guy Salter, Deputy Chairman of Walpole. Whilst Julia Carrick highlighted the major events, achievements and growth of the Walpole community over the previous year Guy Salter focused his presentation on three broad themes for consideration of luxury brands:

• losing the human touch?
• technology passing by a sector that used to be at the cutting edge of new technology;
• value and values, with an emphasis upon the ever greater need for genuine 'authenticity' in a world of luxury brands trading down to mass affluence markets and counterfeit attacks on established brands.

In order to provide greater insight into what is going on in the mind of the luxury buyer Walpole have recently commissioned the US research and design consultancy IDEO to assist them to understand the 'discernment curve' which has as its basis the hypothesis that as wealth increases with individuals they eventually seek ever greater 'holistic' value from goods and services they acquire. Mat Hunter, Global Head of Consumer Experience Design Practice at IDEO, supported Guy Salter's observations with a research-driven project to explore 'Understanding the psychology of what is driving consumer behaviour' and he delved into the uncharted territory of 'love and respect' from suppliers rather than any functional or association value. His mantra of what they are seeking to understand was summed up in the quote that "talent hits a target no-one else can hit; genius hits a target no-one can see".

Lionel Barber, editor of the Financial Times, set the broad agenda in terms of global trends and although his assessment that the 'good times' will continue to roll in world economies until at least the first quarter of 2008 seems optimistic it does seem a short period in commercial terms and the management of risk continues to challenge all brands in all markets. He also spoke of the huge liquidity in global capital markets and the never-ending search for extraordinary returns on investment. Other presentations featured in this half-day seminar included Harrods' Managing Director, Michael Ward, explaining the re-launched Harrods customer loyalty programme and the drive to use the data collected to understand their customers better; and an excellent presentation from Martin Hayward, Director of Consumer Strategy & Futures at Dunnhumby on how Tesco and Krogers as mass marketers are using their customer loyalty schemes to drive customer insight and better customer service levels. Finally, the direct marketing agency Harrison Troughton Wunderman described a direct marketing initiative they had run in the USA on behalf of Rolls Royce motor cars which was successful in increasing sales of vehicles that cost in excess of US$300,000. This was an extraordinary example of the latent power of targeted communication and seems to support further the potential for even luxury brands to understand their customer audience better.

The seminar closed with Guy Salter chairing a panel discussion that included the CEO of Maybourne Hotel Group, the Managing Director of McLaren Automotive, the Chairman of the Admirable Crichton concierge service and Dr Raj Persaud, a well known psychiatrist and the Gresham Professor for Public Understanding of Psychiatry. This panel explored the drivers of consumer behaviour in the luxury brands market and ways to better engage and understand their target audience.

As Guy Salter observed: "British luxury, like luxury world-wide, is strong and we can look back on another great year. But to continue to deliver these results, we need to shift our thinking. We must recognise that the top-down approach is not going to serve us well in the future. We need to rediscover what the founders of many of our businesses instinctively understood, which is, above all, putting people back at the heart of what we do."

This echoes the comments of Lucia van der Post, consultant editor of the Walpole Yearbook, that "Money is no longer the name of the game. Insider knowledge, private access, quick fixes, sophisticated technology - these are the key to understanding their needs."

What, if anything, can the more mass market loyalty marketers learn from the challenges currently facing the purveyors of more aspirational goods and services?

The first thing to observe is that their challenges are not that different. All suppliers are facing a developed world of consumers who are satiated in terms of 'normal' consumption. As Nick Foulkes stated: "If luxury is something we do not need, ours, in the developed world at least, is a luxury world."

Martin Hayward, who presented at this conference, puts it more simply: there to just "too much stuff out there".

The cross-over buying habits of 'normal' consumers is also a potential source of confusion for luxury marketers: many consumers will now spend normal incomes on selected 'luxury' brands, whilst saving money on purchases of less important (in their perception at least) items. Selective luxury buyers must be difficult 'outliers' for the luxury industry to understand. As mainstream grocery players such as Tesco extend their brand into 'Finest' ranges and market high quality wines, so some established luxury brands are reaching out to a broader market with their on-line shopping portals. At some point the two worlds cross-over.

The irony of the challenge facing the luxury marketers is that the mass market players such as Tesco and their pioneering work with Dunnhumby in customer analysis and insight is exactly the sort of initiative that many luxury brands are going to require in the future. They may be masters of brand image management but they appear to have a limited knowledge of their customers and their segmented lifestyles. Given that they are dealing with generally higher margins and lower numbers in the customer base this seems an oversight.

What the luxury industry does understand very well however is that perception is everything. If any other customer can access what I can access then it is commoditised and will eventually 'go to value'. Why pay US$100 for a pair of Levi's when similar if not the same jeans can be purchased for US$10? Creating artificial scarcity and rationing supply can actually increase the consumer desires for the product. Sainsbury rediscovered this truth by serendipity recently when a £5 re-usable shopping bag suddenly became a very 'cool' item to possess and started to be re-sold on E-Bay auctions trading at many times the market value.

If everyone else can have it then by definition it is no longer desirable as a luxury. Mass marketers running customer loyalty schemes would benefit from revisiting this truth from the luxury markets. You cannot be everything to everybody any longer without becoming irrelevant. The real value of customer loyalty schemes is the deal that consumers understand all too well in developed markets. I give you some information on my life and will only lie a little; you as a supplier then use this information to supply me with goods and services that I may want (not need), at a time and place of my choice (not yours or the dictates of some higher 'company policy') and you also only lie a little.

Both mass and luxury brands could learn a little from each others experiences. Luxury needs to deploy the mass market skills of getting better customer insight by better identifying their customers. Mass market loyalty schemes need to deploy some of the 'experiences' and artificial scarcity techniques into their industrialised processes for managing their memberships.

A bit of glamour might go a long way.