On Site: Luxury Summit 2010- Morning #2

April 29, 2010 By: Kirk Cassels

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From left to right: McKinsey & Company's Demetra Pinsent, Yuval Atsmon, Lisa Sun and Jim Brennan

 

After a Monday that was packed with a morning session about what does, or does not, define the new luxury, followed by an afternoon that focused on the roles of loyalty, community and technology in branding oneself, attendees at the American Express Publishing Luxury Summit 2010 were treated to some positive news Tuesday morning about luxury in the face of the Great Recession and what they can do to take advantage.

The session began with a presentation by partners and principals of McKinsey & Company. The company's primary message remained that luxury has never been recession proof as this recession has been worse than normal and has, therefore, accelerated some key issues, including:

*    Shift to Value— There's been an acceleration of trading down and a loss of "aspirationals."
*    Emotional Backlash Against Spending—All consumers are wary of appearing "inappropriate."
*    Slowdown of Global Travel Industry— Tourism has slowed, reducing consumption opportunities.
*    Foreign Exchange Volatility— There's been a significant impact on manufacturers' cost basis.

Meanwhile, the four major trends McKinsey & Company have discovered during the recession have been as follows:

1. There is a desire for tasteful and responsible consumption, with some responses focusing on social causes (i.e. health and wellness, environment and sustainability, fair and ethical trade, community involvement and employee welfare).
2. The past wave of luxury "democratization" is shifting to personalization.
3. Timelessness and authenticity matter in capturing demand.
4. Luxury consumers are spending more time and more dollars online.

So what do these trends mean? According to Lisa Sun, associate principal at McKinsey & Company who was recently named The Washingtonian's "Best Dressed Woman," the four trends mean there are four key actions one can take:

1. Invest granularly
2. Increase operations flexibility
3. Harness new sales and marketing channels
4. Connect with consumers differently

Sun added that substantial operating changes can also drive advantage for sellers of luxury. This includes identifying cost-savings opportunities across the supply chain and supplier base; reviewing marketing spending to improve return on investment (doing more with less); optimizing wholesale distribution and renegotiating short-term leases on owned retail; unlocking one-time cash and reducing capital consumption; and re-sizing the organization from top-down to identifiy efficiency opportunities.

"The recession made us feel bad about things that are supposed to make us feel good," Sun said. "It's important to help customers justify the value of a luxury purchase. They are willing to pay a premium on items that will last over time."

Once again, service and value were brought to the forefront of the Summit as McKinsey's principals emphasized that selling luxury now should be more about harnessing the power than doubling the investment. Focus on the consumer, the category and the occasions, not the discount of price. McKinsey also shared an interesting fact about new media and luxury: a multi-channel consumer is two- to three- times more valuable, engaged and brand loyal than a single channel consumer, but is also more likely to be disappointed than a single channel consumer. What does this mean? Learn how to manage your brand becoming transparent as consumers become more savvy as they leverage multiple channels.

Taking a break from the logical and trend-based thinking at the Summit, John Rushworth, a partner at Pentagram, followed McKinsey with a presentation on design and creativity in bolstering one's brand. "Identity is not the same as brand," Rushworth said, alluding to a clip from The Devil Wears Prada in which Meryl Streep's character castigates Anne Hathaway's character for not noticing the difference between two nearly-identical turquoise belts.

Rushworth's bottom line remained that the more innovative you design your brand and operations, the more appeasing it comes across to the consumer. When one's business is quite close in measure when compared to another, the visceral response to that business' brand can tilt the consumer in its direction.

Returning to trends and information, Dr. Jim Taylor of Harrison Group Research started his presentation with some news that will make sellers of luxury smile: luxury consumption is expected to increase by $28 billion. Luxury travel advisors will enjoy reading that Taylor belives "travel will have a great year in 2010."

Not a bad way to start! But there's more. According to a Harris survey conducted for the first quarter of 2010, consumers are growing more extremely/very optimistic about the future for themselves and their children, with 59 percent feeling optimistic about their future and 53 percent feeling optimistic about their children's future (up from 48 percent and 38 percent, respectively, in the fourth quarter of 2009).

As these targeted markets begin to rebound, Taylor made note of their behavior when it comes to media indulgence. As much as new media is the next big step, Taylor pointed out that there is still value in print. Here are some stats he shared to back up his statement:

*    78 percent of those surveyed said they enjoy reading print magazines even though they know they can find most of the same information online.
*    68 percent tend to pay greater attention to print advertising in magazines or newspapers than advertising on the Internet.
*    68 percent find print advertisements in magazines and newspapers to be more engaging than Internet ads.
*    49 percent "regularly" read newspapers and/or magazines electronically.
*    46 percent of those who read media electronically spend only 23 percent of their time reading it online.
*    4 percent made a purchase decision based primarily on research and feedback received on Facebook.

So what does this mean? Don't give up on targeting consumers through print, but be mindful of your brand online as new media makes companies more transparent.

Taylor's summary of his information analysis was simple: income and happiness are up; spending is showing signs of increase (particularly in category specialization); traditional media is still king as social media is social and digital publishing is coming and commericial; consumers are moving from preferring career- to life-oriented success; and luxury advisors have the opportunity to be a pioneer in a new world of resourcefulness.

As much as Taylor's researched implied that multi-channel communication is not overtaking traditional media just yet, he did have several recommendations for how luxury sellers can leverage the emergeing technology. Here are his five main suggestions on communication theory in a multi-channel and multi-message environment:

1. The greater the required dimensionality of product representation, the great the need for simplicity of message.
2. The greater the variety of campaign media, the greater the demand for consistency of presentation.
3. The greater the range of price-value choice in a category, the greated the demand for specificity of detail.
4. The greater the proportional cost of acquisition, the greater the proportional value of retention.
5. The greater the per-product yield curve, the greater the marginal value of scarcity, given desirability.

We know that's a lot to take in, and it was just in one morning. Keep coming back for more as Luxury Travel Advisor continues to provides updates on the information we acquired and lessons we learned at the American Express Publishing Luxury Summit 2010.