Branding Strategy Insider

Marketing Luxury Brands Q&A

Not too long ago I was interviewed by Amanda Tattam of Melbourne University's Up Close program. Here's the discussion that transpired.

Amanda Tattam
The massive growth of luxury goods has now extended deeply into China, India and other markets. Estimates vary, but some say the luxury market is worth between 60 billion and 20 trillion US dollars, including consumers who are trading up. That is, the increasingly wealthy middle classes, who 30 years ago, would have thought it luxurious to have two TVs in a household. Mark, can you explain how a luxury brand distinguishes itself from other brands?

Mark Ritson
The question today of what makes a luxury brand a luxury brand and how do we distinguish it is very hard to answer. The standard business response is to say, ‘they are more exclusive’. And we get exclusivity by having high price and relatively small amounts of the product available. The reality, however, of luxury brands is that they are sold in their millions, and in some cases, are not priced that much higher than the standard output. The only way I can really answer your question is to say, it is all relative. As you said in your introduction, it wasn’t that long ago in Australia that we would have considered two televisions to be a luxury, or even further back, one colour television. And you can make a strong argument, for example, that Starbucks in China, right now, is a luxury purchase – because of its cost, because of how frequently it is purchased by many people. So, I think the long answer is a complicated one, but the answer is, it depends who you talk to. I think in the business community what we would say, is that there is a small cluster of ‘more expensive brands’ which have a distinct strategy that we would identify as being ‘luxury brands’ and they start with the Rolls Royces and the Tiffanys and the Louis Vuittons of the world. And, I think that tends to be how we see them.

Amanda Tattam
Okay. So, what is the difference between ‘old’ and ‘new’ luxury for example?

Mark Ritson
It is an interesting one. It isn’t actually related to the age of the brands. So, two of the new classic luxury brands would be Coach, which is more than 60 years old, and in many cases would refer to Burberry, as using new luxury strategies. And Burberry is 151 years old. So, it isn’t their actual age. The term, ‘new luxury’ refers to a different approach to marketing luxury brands. A different approach in the sense that there is more focus on customers, greater production of the numbers. So, they might still have higher prices, but if you look at the typical Coach handbag, which is a well-known brand Japan, China and America, Coach would be making significantly more of it than the ‘classic’ old luxury brands like Gucci or Prada. And the final limit of new luxury which is of, I think, great distinction, is the new luxury brands have embraced production in China, far more so than the older luxury brands that continue to make most of their products, in some cases, in the traditional European artisan centres.

Brand Management From The Field

The Damned United, a film charting the tumultuous 44-day reign of Brian Clough at Leeds United FC, opened recently. UK Marketers under the age of 30 will probably remember him as a rather melancholy old man, but the young Clough was a wonder to behold. Imagine a manager today leading a club toiling at the bottom of the Championship to win not only the Premier-ship but two back-to-back Champions League finals as well. That was, in essence, the equivalent of Clough's astonishing achievement as manager of Nottingham Forest in 1979 and 1980.

He was a genius. But what can the Clough School of Management teach all marketers about marketing?

Keep it simple

Clough had a simple philosophy. He believed that defenders should defend, midfielders create chances and strikers score goals. There was little else to his tactics. His simple approach carried over to his coaching 'technique' in which he would stand on the training ground holding a big stick shouting 'hit the target' repeatedly at his players.

The simplicity of his approach was its biggest strength. As John McGovern, one of his players, explained: 'He made everything crystal clear to ordinary working men, which is what footballers are. If you make things clear to them and make them work hard, you will find you have an amazing product.'

One of the biggest weaknesses of some marketing strategies is their complexity. It's easy to come up with a brand strategy that no one can understand, much harder to devise one straightforward enough for everyone to be able to execute.

Take Procter & Gamble's chief executive, AG Lafley, who is widely regarded as a great leader. Under his 'Sesame Street simple' philosophy, brevity, repetition and simplicity have replaced complex corporate buzzwords. P&G's entire corporate strategy fits onto one sheet of paper.

Pick an enemy

Clough was a man who bore grudges. Throughout his career he picked fights with anyone he felt opposed his own viewpoint. His most famous feud centred on his hatred for the tactics of Leeds United and the club's most successful manager, Don Revie.

Testing Marketing Competence

It has been my experience that "marketers" are quite varied in their ability - from "clueless" to "brilliant." The problem is that many people can't tell the difference between these two extreme ends of the continuum. Here is a list of questions that should help you sort the wheat from the chaff. Ask these of the person in question. His or her answers should help you make up your mind where he or she belongs on the scale of marketing competency.

·Who is your primary target audience and why?

·What are the most efficient media and other vehicles to reach this audience?

·What is the best way to segment this market?

·What is your brand's top-of-mind unaided awareness among its primary audience?

·What is your brand's primary point of difference? Explain why it is compelling to your brand's target audiences.

·Why will your target audiences choose your brand over competitive brands?

·What are your brands "proof points" or "reasons to believe"?

·Please list or articulate your marketing strategies and tactics in decreasing order of effectiveness? That is, which would you invest in first, second, third, etc.?

·How much do you spend on PR as a percentage of paid media spend?

·Describe some of the insights that you have gained from research about your target audiences. What are their hopes, fears, anxieties, attitudes and values? Are there any insights that lead to a "hook" or "way in" to the target audience?

Marketing's Two Guarantees

It was a brutally warm day in Melbourne. But the temperature was even hotter inside the city's Exhibition Centre where the Winemakers' Federation of Australia was holding its annual Outlook conference. Kicking off the event, and boy do I mean kicking, was Tesco's director of beer, wine and spirits, Dan Jago.

Jago didn't pull any punches during his 30-minute session. First, he accused the Australian wine producers of complacency: 'For too long you have been saying, "This is good because it is Australian".' Then he challenged the audience to alter its approach. 'I would also urge you to make your wines lighter and more refreshing. Wines with 13% or 14% alcohol just aren't exciting any more, and customers are looking to the Old World for more refreshing wines.'

Finally, he pointed out the urgent need for staying up to date. 'If you don't change, others will change faster,' he said, and pointed to both South American and South African wineries as evidence of strengthening New World competition for the British market.

To say that the Australian winemakers in the room weren't impressed with Jago's presentation would be an understatement. Rick Burge, of the Burge Family Winemakers in the Barossa Valley, spoke for many in the room. 'The British have a grocer's mentality. They want Australian quality at Chilean prices. I don't want to be dictated to about flavour by a British supermarket.'

Alternative Marketing Now Traditional

I was on a panel of experts recently at a big conference in Asia.

The conference dinner the night before had been far too vigorous and an old friend from the drinks industry had been updating me on Asian drinking alternatives. It was now the morning after the night before and I was nursing the mother of all hangovers. I found myself gulping down water, wincing every time a flashbulb went off, and looking out into a sea of marketers hoping desperately that nobody would ask me anything tricky.

Which was when a voice from the darkness asked 'What are the traditional communication tools and what are the non-traditional ones?' I gulped. This was actually quite an interesting question and, as with most interesting questions about marketing, the answer was: 'It depends'.

In the olden days the answer was simple. Anything above-the-line - advertising - was deemed to be the traditional communication tool for building brands. The less traditional, and somewhat less glamorous tools, such as direct marketing and sales promotions, were the alternative approaches. Below-the-line did not just refer to the method of commission for these alternative methods, it was also a way of positioning them as sub-standard and unconventional compared with the gold standard of advertising.

Things changed in the 80s. Once-frowned-upon tools such as direct mail and sales promotions became increasingly accepted as advertising's equivalent and often its superior. A proven ability to deliver big ROI and the emerging agency expertise in these approaches meant these tools became traditional in every sense of the word.

Direct Mail: Marketing's Negative Tidal Wave

Direct marketing has become a profligate disaster of epic proportions.

The relatively low cost of direct mail ensures that a campaign can prove profitable even if less than 2% of those targeted actually respond. But while direct agencies celebrate the profits from these tiny minorities they rarely pause to consider the implications of the enormous majority who do not respond. Most consumers have only negative perceptions of direct marketing. Indeed eight out of ten people now believe that unsolicited letters have no relevance to them whatsoever. The traditional mantra of direct agencies the world over: 'People will always open a letter addressed to them' has become a fallacy.

The current sad state of affairs contrasts with the bright vision offered to marketers back in the 70s from visionaries like Lester Wunderman. Direct marketers were set to revolutionise the world by targeting tightly defined customer segments who were identified as having particular needs and preferences.

A relationship would be built between marketer and consumer over time and the potential to understand customers, provide information, and build brands was enormous.

Direct campaigns rarely achieve these laudable goals. Instead, the true potential of direct marketing has been drowned out by a plethora of non-targeted, non-valued, non-helpful junk designed to instigate a single transaction. Brand managers must now offset the power of direct marketing against the stigma that this unpopular media confers on their brand should they use it.

The Demise of Direct Marketing?

It started seven-and-a-half years ago when a woman called Eliza Jones sent me an email enquiring whether I was comfortable with the size of my penis.

I remember reading her email in a state of absolute panic. I could not even recall meeting Ms Jones and, worse, it had never occurred to me before that there was anything wrong with the size of my penis. It was two days before one of my colleagues mentioned that he too had received a similar email and I finally relaxed.

By the end of that year, of course, I was more than used to receiving junk emails for penis-enlargement cream, hardcore web pages and money-making proposals from African dictators. Like the rest of the UK's growing online population, I became adept at ignoring any and all commercial emails.

Last week my thoughts returned to Eliza Jones after I received a spate of phone calls at home. Either our household has suddenly become very lucky, or telemarketing has recently increased. So far this week we have been called six times by a computer informing us that we have we have won some dubious prize and asking us to call back immediately to claim it. So frequent are these messages that we have started screening our calls using our answer machine.

The most probable reason for the rise in telemarketing is its forcible eviction from its traditional home: the US. In June of 2003 the Do Not Call Registry was launched in the US, and it has been a remarkable success. In its first week of operation, more than 10m households signed up to avoid telemarketing calls. The figure now stands at 63m+ US households, two-thirds of the country's population.

Marketing Budget Requests: Getting What You Need

This is the time of year when many marketing departments decide how their particular share of the industry’s enormous marketing spend will be applied in the following year.

In practice this means senior marketers make predictions for the coming year, perform an objective review of the performance of the previous year's expenditure and then finally allocate their spend across their chosen marketing investments.

The vast majority of firms still use a top-down budgeting system. Senior managers decide on the total marketing budget for the year and leave marketing to allocate it accordingly. This figure is usually calculated in one of two ways. In its most pathetic form, top-down budgeting involves senior management looking at last year's budget and then increasing it or decreasing based on expectations of turnover.

Or else they apply an 'advertising:sales ratio'. Senior managers estimate how much they expect to sell in the coming year and then apply a completely arbitrary percentage to this estimate. Thus the marketing budget is set.

The problems with a top-down approach should be obvious. It is non-strategic, takes no account of new initiatives within the company, and ignores changes in the external market.

Marketers Are Weakening Marketing

I had a wonderful experience with Harrison Troughton Wunderman a few years back. I was invited, along with Martin Thomas, then with Nylon, to discuss 'responsible communications' in marketing.

Thomas's point was simple. Marketers spend their lives ensuring that wherever and whenever the consumer looks, they see the message. Usually this results in a diagram of an unfortunate consumer being assuaged from all sides by an army of communications arrows. We 'immerse' the consumer, with 'total communications' that are experienced '360 degrees'. We trade utility and discernment for ubiquity and repetition.

And as we do this, the clutter that marketing communications has become, increases. Three billboard ads where once there was one. Four pop-up web ads per hour on a screen when once there was none. As an industry, our prime goal is to discover ever more annoying, repetitive and unwelcome ways to immerse our unfortunate target segment (and the rest of the population) in the brand. Our response to clutter is more clutter.

The marketing communications industry must pull itself out of this ever-decreasing spiral of clutter. But how is this possible? The only communications industry exempt from clutter is public relations. PR has avoided the clutter trap, not through any advanced approach from PR professionals (that'll be the day), but because any and all PR attempts are limited by the discretionary force that is the editorial team.