This global recession is a moment of truth. Industries once thought bullet proof have been shot to pieces, and some companies have been caught living a bold face lie. Warren Buffet says: "It's only when the tide goes out that you learn who's been swimming naked." A true story; there are plenty of cases of indecent exposure.
Nouriel Roubini, the economist who predicted the recession, says even if we do everything right, things will only get worse. OK, but I prefer my eggs sunny side up. The way to flip them is to start with the answer and work back. The answer, if you want to understand or shift behavior, lies in understanding not what people are doing in these tougher times, but how they are feeling.
I'm a passionate lover of Italy and its luxury fashion houses, so consider what's happening at the top end of town.
Luxury brands are hurting. The spending behaviors of luxury consumers are distinctive, but arctic winds still penetrate the insulation in those fur-lined jackets. As recession deepens, even wallets made by Berluti open less often. There are less luxury consumers with money to spend and they are spending more cautiously.
In the US, luxury hotel bookings are down 24% and sales for luxury auto brands are down to 1996 levels. This is a widespread problem.
Top end to low end, there is a new sensitivity to price, and yet I don't see price as decisive. Every income bracket knows that price and value are not the same thing. Price is what companies put on the tag; value is what consumers feel they get out of the experience, and, people from all walks of life are seizing control of that feeling.
Consumer sentiment is shifting. People are evaluating their habits and familiar ways of choosing and using. They want to experiment with fresh ideas and opportunities as they redefine what value can mean. And they can juggle stuff, indulgence and health; novelty and familiarity; time and money; shopping more and spending less.
And of course we're more connected than ever before. The search for value is no longer about private discipline. It's gone social and viral.
The affluent are a part of all this. A Ferrari driver feels admiration or admonishment as much as a skateboarder. No wonder some luxury customers reportedly have been asking cashiers at pricey boutiques to put their purchases in "plain bags."
How do you build a luxury house in this environment? Reducing prices is not recommended. For one thing, it awakens the commodification monster. For another, the very wealthy may be buying less, but they aren't reducing their standard of living. In a recent survey of the superrich, 82% said they would make fewer purchases, yet 72% said they'd make "more upscale" purchases.
You'll find the answer lies deep in the value equation, in shifting from price to priceless. In logic-laden times, true luxury customers will always pay for what is rare and special. Value is in a purchase that feels personal, unique or original, or gives access to knowledge or wisdom. It's there in a purchase with immediate impact, a "wow". And in purchases that respect or give back time, and have utility.
As recession deepens, value becomes about something more. More than a product, more than a service, more even than a brand. It's something not just irreplaceable, but irresistible. We call it a Lovemark, a brand with loyalty beyond reason. These are the brands where you say: "I'll make sacrifices before I give this up."
The shift in luxury will be from value to meaningful value, where brands make an increased effort to connect with consumers around shared interests. By responding to what people value most in these times with what brands can uniquely or best deliver, you attract. This way, luxury shoppers ask for branded not plain paper bags.
It's about balancing high status with a definite value proposition, about responding to needs and wants. It's about a long term relationship, not a one night stand. I think the next luxury stars will frame indulgence with universal values like experience and wisdom.
And it's about ideas, generated through new and surprising insights to make the connection. True luxury brands gain share through recessions because they innovate. Flexjet reframed its private jets from a luxury item for rich people to a valuable business tool.
In a downturn Apple doesn't purge staff or stop innovating. Instead Apple invests heavily in R&D, because their premium is creativity.
In December 2008 Apple had their first decline ever in year over year sales of computers. But in the third quarter of 08, Apple's sales were up 6%, cracking the 10 billion mark for the first time.
Apple stores haven taken in $4000 of revenue per square foot of retail space. That compares with around $700 at Saks Fifth Avenue. But what Apple delivers to consumers in the store is value at every point, whether shoppers buy or not. This is in Apple people interacting with you - behind the Genius Bar and on the floor. Information, stimulation and entertainment - irresistible!
Lovemarks open a priceless and shared space, and each time you enter, it's more luxurious than the last. I'm with Robert Polet, Chairman of Gucci Group. "You cannot put a price on a dream."
No comments:
Post a Comment