Sustaining a Luxury Brand

In the marketplace for luxuries, there are two kinds of customer: those who seek luxury for its own sake, and those who seek luxury as a means to bolster their social image.  My sense is that if a luxury brand is to be sustainable, it must embrace the first and shun the second.

For the hedonic customer, luxury is access to pleasure, and there is a strong and sustainable demand.   So long as the brand delivers the pleasure that was expected, its consumers can remain engaged (and re-engaged) and the only means of competition is to deliver a substitute product that legitimately provides greater pleasure.

For the status-seeking customer, luxury is a means to gain approval, and the demand for the brand is only sustainable so long as others approve of its consumption.    Because there is no evaluation of the qualities of the brand itself, only of the opinions of those the status-seeker wants to impress, there is nothing that the brand can do to the product itself to reinforce and retain the loyalty to the customer.

To compete with a luxury brand for the status-seeking market, one need only to sway public opinion: the product can be unchanged and objectively just as good as it ever was, and the competing product does not have to be any better – it only needs to be more fashionable.   This is easily accomplished by advertising and publicity efforts: get a person who has high social esteem to endorse the brand, directly or indirectly, and the flock of status-seekers will follow.

Fashion is innately perishable: when one group adopts a brand to distinguish itself from other, lesser, groups, its inferiors will seek to imitate it, which tarnishes the cachet of the brand in the eyes of the group that wished to differentiate itself.   Because those with whom they do not wish to associate are using the brand, they must abandon it to seek another brand to remain distinct.

In this sense, pursuing the status-seeking market will drive short-term revenue but will not sustain the brand.    If the quality of the product is not harmed, then the hedonic customers will remain after the status-seekers have moved on to the next brand – because it is the quality of the brand, not its public image, that results in their satisfaction.

But very often, the quality of the product is compromised to gain popularity, whether directly (the product is changed to suit the perceived “tastes” of a majority of its customers, who are now status seekers who have no taste at all) or indirectly (the product is compromised to lower its price so that it is affordable to a broader market).

This may be the reason that many of the luxury brands of the past have fallen from grace or disappeared entirely, while certain other luxury brands have stood the test of time: if it remains indifferent to the demands of the status-seekers, it may enjoy temporary popularity while retaining its core customers.   And it seems that few are able to do so.

Selling Envy

Advertisers are often accused of spreading envy and encouraging irresponsible spending by marketing to people who cannot afford their products.  My assumption had been that this is accidental - that because mass-media is not precisely targeted, their intention was to reach those who could afford their products, but because they cannot control who might be watching a program, attending an event, or driving past a billboard they could not avoid having their message seen by those who were not in their target market.   It turns out, I was completely wrong about that.

I had the opportunity to speak to three markers who work for genuine luxury brands - not merely the brands that want to pose as luxury but are affordable to the middle classes, but those products whose price is well beyond the means of anyone whose economic class doesn't end in "illionaire."  All of them openly admitted to sending out marketing messages to people who could not afford their products, and doing so intentionally.  And it makes a great deal of sense.

Esteem as a Benefit

There are two reasons that consumers purchase a specific brand (or even a specific product): practical benefits and psychological benefits, the most significant of which is esteem.   Often, people are motivated by a combination of the two, but sometimes one takes precedence over the other.

The consumer who seeks practical benefits needs a product to accomplish a task or convey an experience.   To this customer, a car is "basic transportation" - although their desire for certain qualities (smoothness or ride, fuel efficiency, etc.) also falls into the category of practical, although they are not strictly necessary to the functional benefit.  This customer may seek quality, but the quality is for their own experience - it is something that exists between themselves and the product they use.

The customer who seeks psychological benefits is indifferent to whether the product actually does anything practical.   They wish to own a product because it makes them "feel" a certain way about themselves - and because extraverted personalities take their emotional cues from others, they can only feel a certain way about themselves when others express or validate certain complimentary emotions.   In terms of esteem, am extraverted person can only feel he is important if he notices others expressing admiration or envy toward him.

This quality is not unique to luxury products, as there are many cheap products that cause a person to experience self-esteem.  Indeed, many people seem to take a certain satisfaction in paying very little, and brag to others about how cheaply they obtained things, with the desire to have others admire or envy them for their thrift.   With very few exceptions, luxury brands play on the same psychological tendencies, but in the opposite way: they wish to demonstrate their wealth (or pretend to have wealth) by owning very expensive things, to be admired or envied by others.

The psychological benefit of a product only occurs if people recognize it.  Therefore in order to be admired for owning an ecologically-friendly vehicle, people who do not wish to purchase one must recognize what the brand means so that they can deliver the admiration or envy that owners crave.  If they did not, then conspicuously consuming the product would not deliver that psychological benefit.   Likewise, if the ownership of a luxury brand is to confer any esteem on the owner, those who cannot afford the item must recognize it as being beyond their means in order to feel admiration or envy toward those who can afford it.

Therefore, it is important to the establishment of prestige to make the general public, not just prospective buyers, aware of the qualities of the product that they will likely never own. And this is the main reason that luxury brands advertise in a seemingly indiscriminate manner: to those they know cannot afford the product, their message is "you cannot have this, and must envy those who do."   Without that, the benefit of esteem cannot be delivered by product ownership.

Self-Esteem as a Benefit

While the extraverted personality craves the admiration and envy of others, the introverted person is largely indifferent to the reaction of others and his feelings of self-worth come from within.   But even self-esteem must be based on something, and the introverted person must be taught what will grant him self-esteem.   For this reason, luxury advertising is not lost of the introverted customer, but functions in a different way.

In terms of esteem, it would be accurate to state that the introverted person admires and envies his future self - the future self who has achieved the goals to which the present self has not yet achieved. In this way, luxury advertising teaches the consumer what he ought to want, and what he ought to be fulfilled by achieving, by showing him the goal or reward of behavior he has not yet undertaken.  In that way, luxury product is a way for the customer to reward himself for success - without being prompted, he may not know precisely how to do so.

The distinction may be difficult to assess from an external perspective: when we are aware that a person possesses a luxury product, our assumption about his motivation is inaccurate (and is often reflective of what are or would be our own motivation to engage in the same behavior).   Given the predilection for absolutes, we like to declare that all people who do a certain thing do so for the exact same reason, and fail to recognize that their actual motivation may be different to our assumption.

The only instance in which it can be confidently declared that a person is motivated by self-esteem rather than esteem is when they are discreet in their use of luxury products - but because they are discreet, it is difficult to observe.  The discreet consumer removes the tags and labels of luxury items, or purchases items whose marks of brand identity are subtle enough that they will be unnoticed.

As such, the advertisers of luxury products must be discreet in appealing to the introverted customer for whom luxury is personal:: make too big a splash, and luxury seems vulgar and ostentatious, done for the sake of impressing others rather than rewarding oneself.   In these instances, the original assumption that any non-qualified audience is accidental is partially correct - only insofar as the advertiser sends a message to those who may be able to afford their product in the future, but cannot presently.   If they were more capable of predicting which persons might have greater wealth in future, they could more precisely target their advertising.

Fiscal Irresponsibility

Thus far, I have considered the idea that advertisers seek to promote envy of their products, or more accurately they promote admiration and envy of the people who are able to afford them on the part of the people who are not.  What remains is the notion of encouraging fiscal responsibility.

It can be argued that by causing people who cannot afford a product to envy those who possess it will in some instances cause them to purchase things they cannot afford, to the detriment of their other needs.  It is very much like addiction, in that an addict will neglect every other responsibility in order to feed their addiction.   And it is also very much like addiction in that it is atypical behavior: not everyone who drinks is an alcoholic, and not everyone who envies luxury spends irresponsible to obtain things they cannot afford.

"We don't want poor people using our brand," one marketer told me.  "We would end up like Mercedes."   Which is to say that when a luxury brand loses its esteem when is conspicuously consumed by too many of the wrong kind of people.  It may still fall into the "premium" category of brands, but it is no longer a luxury item and is no longer capable of drawing attention or inspiring admiration or envy.

Unfortunately, this cannot be avoided: a manufacturer cannot (legally) refuse to sell its product to anyone who can afford it.  And they are unaware of whether a customer has the funds to purchase their product because he is wealthy, or simply because he has scraped together the means to purchase by neglecting other responsibilities.

It is also difficult, if not impossible, to make a non-qualified individual aware of a luxury brand so that he may give esteem to those who can afford it (or can consider it to be something he can obtain to reward himself for his own success) without also causing some of them to seek to pacify their envy or satisfy their own craving for esteem by purchasing things they cannot afford.   It is not an intentional effect of luxury marketing, but an unavoidable side effect.

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The question as to whether it is "right" to sell envy is a moral consideration rather than a practical one, so I don't intended to explore it fully here.  I'm generally satisfied to accept that envy is something a person can choose to feel, and can choose not to feel.  If it weren't for luxury advertising, those who are prone to envy would find something else to covet.

And the question of whether luxury brands are to blame for the fiscal irresponsibility of others is likewise a moral consideration.  And again, I tend to accept that it is more a matter of personal morality: advertisers don't "make" people purchase things they cannot afford simply by promoting them to those who can.  If this were intentional, it would certainly be entirely immoral.

But the core accusation, that luxury advertising sells envy, is entirely true and entirely intentional - of that there can be little argument.

The Luxury Strategy

I recently read Kapferer and Bastien's book on Luxury Strategy, which started off dismally enough: a couple of snotty Europeans insisting that no-one born outside of France, Italy, or England quite grasps the concept of luxury accurately, particularly Americans.   A couple of chapters into the book, I found myself in complete agreement with them.

Their definition of "true" luxury pointedly excludes providers who are merely better than average or those which have a level of quality that is not strictly necessary to accomplish the basic function.   Luxury is a very small and highly exclusive group of brands, the superlative items that are affordable only to the top one percent (or even less) of the population - and in that regard there is definitely a distinct difference, though the point is largely moot for anyone who works outside of the fifty or so firms worldwide that produce goods in this category.

What is of interest to the rest of us, who work in the lesser strata of the hierarchy of consumer products, is that the notion of quality on any level (except the rock-bottom of the economy goods market) derives from some of the basic principles that define the luxury market, but executes them far less effectively.   And more importantly, the factors that lead to a impression of quality cannot be sustainably faked, but must derive from practices that genuinely follow at least some of the laws of luxury.

In particular:, consider three of the qualities of luxury borrowed by some premium products:

• A premium product appeals to hedonism rather than functionality, and the focus must be on the pleasure that the consumer derives from the product rather than the specifications and features of the product itself.
• A premium product is merely an artifact in a service experience that is focused on the needs and desires of the customer, such that if those needs and desires are not addressed, the artifact is not regarded as premium
• A premium product conveys a benefit related to the self-esteem of the owner, such that ownership and use of the product is regarded as a kind of privilege to which they are entitled 

There's a great deal more to be said in regards to luxury, as it was rather a lengthy book, but these three examples serve to explain why even a premium product is capable of commanding a price that exceeds the value of the mere functional benefits delivered, and implies the very reason that some brands are unable to sustain the price premium they hope by attempting to instill a sense "luxury" into a product without changing any other of their practices.

Ultimately, this means that there are very few brands that fall into the luxury category, though many claim to be.  But the pretenders are not luxury, are not genuinely attempting to become luxury, and do not have a sufficient understanding of what "luxury" truly is ... but a luxury strategy, like a luxury product, is not for everyone.

In all, it's given me a great deal to meditate upon, and much to reconsider about the notion of quality as I previously understood it.

Lifetime Value versus Market Share

In a discussion forum, someone asked "When will companies finally figure out that market share is leading them in the wrong direction?"   My sense is that it was a rhetorical question, asked in a tone of despair at the failure to adopt a lifetime value metric, and with the sense that lifetime value is not sufficiently considered in decision-making.   I'm inclined to agree.

Market share is inherently a short-term metric that focuses on one-time sales and neglects to consider the profit (rather that revenue) derived over a longer period of time.   Firms speak about the market share they had last quarter, the market share they hope to achieve next quarter, and implement myopic strategies to push immediate sales to the neglect, and often to the detriment, of customer loyalty.   Market share thinking does not care if a person has ever purchased before, nor if they every purchase again - it's about making sales right now.

Another participant in that discussion alluded to the fable of the little red hen, which is a favorite of mine when speaking to those who don't seem to recognize the problem of myopic marketing plans.   Nobody wants to help the red hen to plow the fields, plant the seeds, pull the weeds, cut the wheat, thresh the stalks, grind the grain, and so on - but all the other animals in the barnyard show great interest when there's bread to be eaten.  It's particularly germane to the financial services industry, whose business it is to help clients manage their wealth - but who show utter disinterest in helping those who are not yet wealthy manage their investments to become so.   Products and services are restricted to those with sufficient liquid assets, generally about $1 million, and anyone with less is unqualified and treated with disdain.

Perhaps they fail to consider that the vast majority of wealthy individuals were not born into wealth, but earned it slowly over their lifetimes.   They certainly fail to consider that those who spend years managing their own finances do not suddenly feel the need for assistance when they have achieved success on their own - and often resent the firms that come crawling out of the woodwork when they've made their bread.

Granted, that's an individual perspective - I've only known a small number of people who have amassed wealth in excess of $1M, but I have heard the same story from a few of them, who feel a sense of disgust when they hit the magic number and firms that could not be bothered to serve them, and even those who treated them with an air of contempt while they were struggling to build their wealth, suddenly come calling.

It would seem to make sense for firms that seek to serve the upper income levels to take a look not at the present market of qualified customers, but to consider what their customers looked like before they became qualified - and to reach out to customers who are not in their desired income bracket, but who show signs that they eventually will be.  I'm not aware that's a common practice - they are still fighting over share of market, showing up on the doorstep of "new" customers who have matriculated into the market they prefer to serve, and wondering why it is so difficult to gain their trust and their business.

This is true of other industries as well, and I do see some signs of improvement in this regard.  Consider the Mercedes-Benz C-class of automobile, affordable to the lower ranks of the bourgeoisie, as an overture to a long-term relationship.   It is likely easier for Mercedes to usher them into an S-class vehicle after providing them with years of service that it is for them to woo affluent prospects whom they had previously treated with disdain.  I've seen information about an A-class (which has not yet hit the American market) at an even lower price point to begin the brand relationship even earlier in life.

Naturally, there is some argument that reaching out to scruffy people denigrates the brand, and that a luxury product that stoops to serve the lower income brackets loses its appeal to its wealthy customers.   Said another way, there is not nor should there ever be an entry-level Rolls Royce, but it should remain aloof as a trophy for those who have arrived at a certain level (I understand their target market to be individuals with a new worth of $30M or greater) an unavailable to them until they have qualified, if for no other reason than to maintain the prestige of those who have earned their rewards.

But arrogance is not becoming, and many brands wish to perceive themselves (or to be perceived as others) as luxury when they are merely premium brands.  Mercedes is an excellent example - even their most elite model is not a luxury car, but a premium one (people choose between a Mercedes and an Audi or BMW, not between a Mercedes and a Rolls or Bentley) - and pretensions to the contrary are counterproductive.

As such, a luxury brand must remain aloof, keeping a distance from the customer until they are qualified to join the club of the economic elite, but other firms must be careful to be objective and humble about the status of their brands.  Automobiles, clothing, jewelry, and the like have the qualifications to claim luxury status, in that their conspicuous consumption is a badge of social distinction to their owners.  The car you drive speaks to the world of your status, the brokerage house that manages your money does not, nor do many other categories of product.

I sense that I have transitioned to an entirely separate meditation about the nature of luxury, having wrung out the original topic of the difference in the nature of short-term and long-term measurements of success - and may need to consider splitting this meditation in future.