Research

The Humanity and Biology of Brands

First a confession: When I was at University, I struggled with the concept of branding. An odd thing for someone in the business of building brands to admit, but it’s true; as a concept branding never made much sense. Every book had a different theory, every agency offered a different approach and every expert had some unique model or metric. Depending on who you talked to, or what you read, a brand could be a pyramid or a personality, an experience or an equation.

It seemed that branding was either the most compelling and complicated topic in marketing, or it was a load of crap.

Now an insight: Brands are like human beings. They exist as a mirror of our motivations, reflecting our ideals and dreams, fears and frailties. Nothing can exist in branding that doesn’t already exist in our everyday lives. In fact, if we want to better understand brands, we don’t need more complicated metrics, we need to better understand ourselves.

So how can we gain a better understanding? We need to go back to basics and re-consider the psychological and biological parallels between human beings and human brands.

Just like people, brands are born. Where a brand is born and to whom, are important factors in determining its development. A brand may have great nature (visual appeal or personality) but without the right nurture (parental support and security) it may never survive. As marketers, what type of parent are you and how will that affect the development of your brand?

Just like people, brands go through adolescence. Very few brands can become an overnight success; indeed it takes time to establish an identity and become independent. Attempting to circumvent this process can be as detrimental for a brand as it is for a person; the childhood stars of today are the forgotten failures of tomorrow (think Macaulay Culkin or Extreme Football League). What was your brand’s adolescence like; did it experiment and gain experience?

Just like people, brands need the right environment. As Prof. Richard Florida found in his study of cities, “the place we choose to live affects every aspect of our being. It can determine the income we earn, the people we meet, the friends we make, the partners we choose.” The same can be said for a brand. A brand must pick a place that will help it build relationships and earn the income it needs to survive. Is your brand in the right environment, an environment that matches its motivations?

Just like people, brands can get sick. We like to believe that we, and the things we create, are invincible - but nothing could be further from the truth. Human beings and brands are fragile and prone to illness. Even the strongest leaders can get sick (Bill Clinton or Toyota) and without proper treatment they may die (Michael Jackson or Pontiac). When was your last brand check-up, do you have insurance, or are you working your golden goose to death?

Just like people, brands must reproduce. Reproduction isn’t just fun, it’s fundamental to our survival. By reproducing we allow our species to adapt to the environment and evolve. A brand must also reproduce; it must adapt and evolve itself in order to maintain relevance and to respond to changes in the environment. Is your brand ready to reproduce?

As a brand strategist, having worked across three continents with many multinational clients, I believe there is something missing in our understanding of branding. As a morphological researcher, I believe what’s missing is an understanding of their humanity. Because brands are more than a metric or a model, they are a mirror of our psychological and biological motivations; and to properly understand them, we must better understand ourselves.

By Nick Black, Vice-President of Strategic Insight, Concerto Marketing Group

Marketing's Outlook for 2010

This is year four of the CMO Council’s annual Marketing Outlook study that probes media and marketing intentions for the year ahead - and year two that CMA is a fielding partner. The study is fielded globally; to the CMO Council's members and through its partners, therefore, a comprehensive and valuable benchmark tool for any organization.

The study’s executive summary will be freely available as a download, and the full report available only to respondents.

You can link to take the survey here - takes about 15 minutes to complete.

Survey closes end of day on March 4th.

Early Adopters and the Mass Market

A well-established principle of marketing says that a small group of early adopters can spur mass-market acceptance of a new product. But how do early adopters react when its brand is accepted by the mass market? And do mass markets react the same way that early adopters do to the same brand? Marketers assume that dominating the first market (early adopters) will also help them dominate the second market (mass market).

Wharton marketing professors David Reibstein and John Zhang have explored the topic and say that a company could experience a backlash as early adopters move on to other new products. An example is Porsche, a successful brand for sports car enthusiasts. The brand saw a decline in sports car sales after it entered the SUV mass market. The backlash was significant.

In fact, as The New York Times points out, teenagers would rather text their friends a message rather than post it on Twitter. Instead, Twitter has been embraced by an older demographic. Twitter’s success has shattered a widely held belief that young people lead the way to popularizing innovations. The brand has proved that an offering can take off in a different demographic than you expect and become very popular. Twitter is defying the traditional model.

So why do marketers assume that success with early adopters will lead to quick adoption by the mass market? The "early adopter" concept is flawed because they aren’t always a good indicator of the growth potential of a brand nor do they have an extended Customer Lifetime Value. Most early adopters move on to the next big thing and may not be loyal to brands.

What is more important is to identify your most profitable potential customers. These profitable customers will eventually be the core of your growth strategy and profitability. The important indicator is the rate of adoption - the relative speed with which the most profitable consumers adopt an innovation. Success depends on an organization's ability to build and maintain loyal and valued customer relationships. Therefore, it is essential to build refined strategies for customers based on their value to the organization. The best marketing strategies pursue long-term relationships with profitable customers.

Two questions for you: (1) Who is your most profitable customer? (2) What is their lifetime value to your organization?

Please email me for our "View from the Top" series on best practices in customer satisfaction strategies.

Marketers, Beware the Decimal Point

In CMA’s Weekly Watching Brief February 5th edition (accessible to CMA members), there was reference to a study from the US-based CMO council regarding the value of loyalty programs. I found this posting very interesting for many reasons, but mostly because it illustrates how easy it is to potentially mislead people, whether intentionally or not, by including a few choice numbers. In the classic 1950s book called “How to Lie with Statistics”, the author Darrell Huff describes how easy it is to prove whatever point you want by choosing which numbers to present and how to present them.

In the case of this posting, I am referring to its fairly rash generalization regarding loyalty and reward programs. There are probably as many different types of loyalty and rewards programs as there are published studies about them. Loyalty programs could be something large and complex, or as simple as a frequent coffee-buyer card from your local shop. To state that 61% of marketers believe that the consumers who take part in these programs are their best and most profitable customers demonstrates such an oversimplification as to make this statistic practically meaningless. How did the survey respondents choose to define loyalty program or best customer and which ones were included, or excluded? There are no consistent definitions of these concepts and I have rarely met a marketer who has actually pursued a data-driven assessment of their own program to find this statistic to be true. It depends on so many factors including the type of products or services being offered, the competitive context, the types of rewards being offered and the types of consumer behaviours required to earn these rewards. Depending on how a program is set up, its heaviest users could actually be the least profitable customers.

Too often marketers are willing to turn over any quantitative assessment of marketing initiatives to the data geeks or finance and take the answer at face value, without questioning the results (unless of course they are positive). There are usually many ways to skin the proverbial cat, including such things as definitions of test and control cells, definitions of success and what costs are included in profitability calculations. And depending on how these various factors are defined you could come up with very different results. Since these calculations are used to support decisions about potentially significant major marketing investments, you need to be completely confident in how these calculations were done and what was, or wasn’t, included. I strongly encourage marketers to get more involved in the analysis and understand the definitions being used, how the results are calculated and what other factors could influence the outcomes instead of simply going along with an answer because it was calculated to 6 decimal places.

By Paul Tyndall, Senior Manager, Predictive Modelling & Segmentation at RBC. Paul is also a member of CMA’s Marketing Technology and Database Intelligence Council.

Sales and Marketing - Allies?

In many organizations, the reality is that sales and marketing relationships can be strained. In contrast, research shows that organizations that have embraced an integrated approach vastly outperform those that have not.

In conjucntion with the Canadian Professional Sales Association (CPSA), and SiriusDecisions, we (CMA) are examing what successful integration looks like through an online survey with the B2B community.

If you role is sales or marketing, weigh in and provide your persepctive -- take the survey now!

Survey closes on Friday - Feb. 5th.

Elizabeth Harvey

What Marketers Want...... to know

We strategize, develop campaigns, market products and services and engage our audiences. And in the end, consume – as typical consumers.

Because we are 'in the business' - will our opinions differ on consumer facing issues, such as the environment, packaging, innovation, buying organic? Hmmmm.

Brandspark’s 2010 Marketers Survey – now in field – will study these issues. More importantly, it will give you (marketers) a handle on the kinds of marketing strategies your competitors and peers in other industries are planning for 2010, where their marketing $$ are being allocated, their capacity to innovate, the issues most pressing related to brand management, etc.

Both CMA and Strategy are fielding partners of the survey - we invite the marketing community to complete the survey - we'll be talking more about what it means a little later. (Yes, there's a draw prize you can opt-in for (iPod Touch) at the end of the survey, and respondents will get survey results directly.)

This is our chance to get a pulse of how our operating environment may be shifting as we come out of the recession - please try to take a few moments [less than 15 minutes] to weigh in with your opinions!

Note: We'll be discussing more about the study’s implications at the Success Makers Workshop [a real WORKING workshop] February 11 2010 - where the focus is on leveraging digital tools and social media to connect with consumers to uncover brand insights.

Show Me How You Care

A new study from the Peppers & Rogers Group in partnership with SAS asked companies globally about their management of their customers’ experiences.

Almost half of the respondents (47%) reported lacking customer experience management processes, yet 85 per cent say the customer experience will play a critical role in their competitiveness. And we’re talking about companies of scale – one of the criteria to take the survey included revenue of at least $100 million (Canadian).

232 respondents at companies in the following countries completed the online survey (51 from Canadian companies): U.S., France, Italy, Germany, Brazil, Australia, India, Sweden, Canada and the United Arab Emirates.

It seems Canadian companies lead in the measurement of customer affinity compared to their global counterparts – 72% reported using key performance indicators such as customer satisfaction scores and 68% report measuring customer attitudes and perceptions of the company compared to the global benchmarks of 46% and 50% respectively.

But just 12% report being good or excellent at creating a complete and integrated view of the customer across multiple products and channels – insights that can lead to actions that will give customers cause to ‘feel the love’.

There’s a lot of rich data in the study report detailing the Canadian findings. There’s also a webcast (produced by SAS) where Canadian panelists react to the study findings (including CMA’s Chair of its Integrated Marketing and Customer Experience Council).

Finally – you can get a score of your company’s customer experience maturity by taking this 5 minute survey.

Green Marketing and Brand Strategy

The latest research indicates that uncertain economic conditions have resulted in a decline in the core group of “Green Involved” consumers who would pay a premium for green products (17% in 2008 to 15% in 2009). The study (nationally representative sample of 2,465 adults, ages 18+) indicates that 2.7% of shoppers account for 70% of “informed and conscious green” purchases. Moreover, only 1 in 10 “green” shoppers is an “organic” shopper. Grocery transactions tend to be larger when green products are in the cart. In addition, 38% (45% in 2008) of Canadian consumers feel "highly concerned" about environmental issues. Even though consumers who feel “highly knowledgeable” about these issues increased to 29% (26% in 2008).

Transition to the mainstream

The transition has been driven by mainstream brands. Today, green has become another product attribute in a matrix of good-better-best benefit hierarchies. Tide has "biodegradable" ingredients. Others are labelled concentrates and cold water detergents. These are add-on benefits and enhance the core value proposition of the brand. They do not replace that core value proposition (superior product performance).

Today's customers are more demanding. They don’t believe all the claims being made by marketers- a fall out of greenwashing. Consumer scepticism has led marketers to include eco labels in their communication strategies. North America has over 350 eco-labels offered by trusted third parties. Marketers have laucnhed blogs and social networks with "fans" who contribute new product ideas. Method has its own Facebook page complete with a wall of comments from many of their 7,415 "fans" and a Twitter following of 3,284 users. Tide has 104,235 Facebook fans.

Please email me for additional insights from Arcus Consulting Group's studies on changing market drivers & successful strategic responses.

"Confirmation Bias" and Brand Loyalty

Our minds hate change. Several studies have shown that people are twice as likely to seek information that confirms their beliefs than they are to consider evidence that contradicts them. This "confirmation bias" can influence how consumers and marketers make decisions.

Henry Ford famously said, "If I had asked my customers what they wanted, they'd have asked for a faster horse." In other words, the road to true innovation is rarely illuminated by customers telling you what to do next; they may often not know what they want next or rely on a "confirmation bias" about their preferences.

Most innovative marketers say that fighting confirmation bias is a never-ending battle. But if you can't conquer this gremlin of your own mind, you don't stand a chance of outwitting your competitors.

We see this behaviour in all our decisions. A case in point is how retail investors hold on to stocks in a falling market, believing that the markets will rise, without any empirical evidence that this is likely to happen. Consumer confidence is a big driver of purchase behaviour. If consumers believe this recession will last a lot longer than it will because they recently lost their jobs, they are likely to scale back discretionary spending even after they find a new job because of a "confirmation bias".

In short, the human mind acts like a compulsive yes-man who echoes whatever you want to believe. Psychologists call this mental gremlin the "confirmation bias". A recent analysis of psychological studies with nearly 8,000 participants concluded that people are twice as likely to seek information that confirms what they already believe as they are to consider evidence that would challenge those beliefs.

Why is a mind-made-up so hard to penetrate?

Psychologists say its easier for consumers to repeat decisions than to take new ones. Whatever decisions consumers are inclined to make, are the decisions consumers are likely to go about justifying. It's simply easier to focus our attention on data that supports our preferences, rather than to seek out evidence that might disprove it. "Confirmation bias" is one of the biggest drivers and often under reported influencers of brand loyalty. It transcends the usual influencers such as product performance, emotional empathy and brand recognition.

It also is easier for people to rationalize than to be rational. Consumers and marketers are very good at cooking up post-hoc explanations of why our predictions didn't work or why we made some decisions. We tend to reinterpret our failures as near-misses.

The more you learn, the more certain you become that you are right. While gathering more data makes people more confident, it doesn't make their predictions much more accurate. Each new fact makes you more inclined to find another fact that resembles it, reducing the diversity and value of your information.

Confirmation bias contaminates the thinking of brand preferences of consumers. A lot of psychological traps can be combated with humility, but on this one, that doesn't help. For example, several North American auto companies missed the significant growth opportunity in fuel efficient cars because they clung to outdated strategies for gas guzzling SUVs and eroded brand value with carrots such as 'employee pricing'.

So how can marketers counteract confirmation bias?

A way to approach it is to imagine that you have looked into a crystal ball and have seen that your strategy has gone bust. Next, come up with the most compelling explanations you can find for the failure. This exercise, which some of the most innovative and successful marketers have integrated into their research process, can help you realize that your beliefs regarding why consumers might or might not prefer your brand might not be as solid as you thought.

Try estimating the odds that your analysis is wrong. Let us say that you reckon there is a 20% chance of an adverse outcome; that is like saying you will be proven wrong one in every five times. This way, if the investment does go awry, you will be less likely to dig in your analytical heels and desperately try to prove that you are still right. This procedure provides "psychological cover for admitting that you're wrong."

Show your ideas and strategies to another person you respect whose ego isn't already invested in the decision. Ask: If you didn't have to take this decision, would you still agree with it?

Run an imaginary strategy alongside your real one. There, you can change it at will, with no risk to your brand portfolio. On that blank slate, would you do more—or less—of your existing approach to strategy and consumer engagement? Some organizations require each team member to run a stress test of their brand portfolio and to justify any differences between their paper strategies and the company’s real-world plans. It helps senior executives know what people really think.

Before you decide on a marketing or business strategy in the first place, write down a statement of what would compel you to change your view of the strategy. If any of those influencers come to pass, the written record will make it harder for you to pretend nothing has changed or that you don't have to do anything in response.

Please email me if you would like to receive Arcus Consulting Group's series on "Better consumer engagement strategies".

Consumption smoothing - how to stress test your marketing strategies

Will a cut back in consumer spending have a dramatic impact on your business performance? The key to succeeding in these challenging times is to explore scenarios that you haven't looked at in the past because business cannot use the same strategies for a different set of economic conditions or marketing outcomes. Consumption smoothing is an emerging trend that may be of interest to marketers. It’s a popular approach used by consumers to insure their consumption in the presence of risky and variable incomes.

What is Consumption Smoothing?

Consumption smoothing is an economic concept which seeks to balance spending and saving to attain and maintain the highest possible living standard over the course of one's life. This idea is notable because of its difference in approach to common knowledge about consumer behaviour during periods of economic growth. However, in uncertain times, the concept can have a significant impact on the growth and profitability of your brands if you identify customer groups who are most likely to experience consumption smoothing.

What does this mean for marketers?

Here are five ideas on how senior marketers could approach this emerging trend:

1. Explore new consumer segmentation models.

Account for risk profiles of your most profitable customers. Adding a variable that measures attitudes to risk may provide an indication of how consumers will react to changes in household incomes, economic conditions and pricing changes.

2. Revise price elasticity models.

Research indicates consumer behaviour in a crisis is characterized by consumption smoothing at various levels. In sum, these behavioural adjustments result in significant reallocation of consumption expenditures depending on the profile of your most profitable customers. Brand portflio pricing strategies that account for potential shifts in purchase patterns can deliver more profitable growth strategies.

3. Assess the potential impact of consumption smoothing on your brand portfolio.

Consumer smoothing is accentuated in some categories and for some brands that have specific profiles that make them more vulnerable to changes in economic conditions and consumer spending patterns. Using scenario planning techniques may result in increased visibility of potential strategies.

4. Ask the right questions.

Often marketers take the approach of looking at their competitors for cues on superior strategies. This could be a suboptimal approach if these strategies do not undergo rigorous stress testing for emerging consumer behaviour.

5. Look at best practices from past recessions.

Explore successful strategies adopted by brands with similar profiles in past recessions. The analysis may shed some light on opportunities for initiatives that can lead to superior results.

Please email me if you may have any questions or would like to receive more information about consumer smoothing trends in your product category.

From Pop Culture to Peep Culture

What does the behavioural trend mean for marketing strategies?

We are moving from a pop culture to a peep culture. In pop culture, we turn on the TV and watch our celebrities entertain us with their performances. In peep culture, we turn on the computer, we move through people’s lives on blogs, face book and Youtube. Instead of getting our entertainment from scripted performances, we get our entertainment from unscripted, supposedly spontaneous peeping into other people’s lives. It can be friends and family. It’s just as likely to be people we have never met around the world.

Susan Boyle became an overnight celebrity because of peep culture. The entire world was staring at her after her transformation from a resident of a small town Scottish town to a global celebrity. We like the story and the peep into her life. In many ways, the breakdown and her struggle will keep her story going.

We have entered the age of "peep culture": a tell-all, show-all, know-all digital phenomenon that is dramatically altering notions of privacy, individuality, security, and even humanity. Peep culture is reality TV, YouTube, MySpace, Facebook, Twitter, blogs, chat rooms, amateur porn, surveillance technology, cell phone and more. Can Facebook and Myspace be a cure for loneliness? It’s not the ultimate solution. That’s the irony. We are trying to look for community by moving in solitude into these technologies. You are more likely to see people in a social environment immersed in their PDAs instead of communicating with people in the room. The name of the game is the number of followers. It becomes a narcissistic obsession.

As a society we have become incredibly fast paced without really being aware of these seismic changes in our lives. Today’s generation is the most photographed generation. We are moving into a time where our virtual personality is going to be more important than our actual physical presence. It’s going to be more important what we have online vs. what we do offline. We are going to be judged by our virtual portfolios, socially and professionally. We are not having a substantive debate about this trend in society. What we need to think about is what privacy means to each individual - politically, ethically and socially. We are a highly atomized and fairly lonely society.

In the age of peep, core values and rights we once took for granted are rapidly being renegotiated, often without our even noticing. Author Hal Niedzviecki on his new project, the Peep Diaries says the more we reveal about ourselves, the more attention we seem to get. So what happens next? Does privacy matter anymore? Can we be too connected? Is there anything we won’t put out there? Suddenly we’re spending all of our time tracking other people. And we’re inviting them to watch us! People reveal themselves to get attention and to feel like they are part of a community.

Peep culture is intersecting with pop culture and is evolving it and coming to replace it. For example, we see reality TV as the primary entertainment mode on TV. The phenomenon continues to grow. Game shows from the 1950 are more like pop culture. Peep culture is more like Trading Spouses, John and Kate plus 8 which had 10 Million people watch the debut episode in North America. US Weekly had 5 covers in a row of John and Kate plus 8. That is peep culture.

This has never happened before, where we have turned the spot light on random regular people. It’s an ongoing fascination. It’s really about how underground cultures are changing people’s lives. The biggest problem is what happens when we turn our lives reflexively, without thinking about it, into entertainment product. We are seeing a clash of values of people who are facebooking, blogging, youtubing and being encouraged to do so by an overall entertainment culture that says more attention is better. In contrast, we see a traditional society that says that a very active online persona may not be a good fit with a job or university.

People are being turned into celebrity product. Popular culture is encouraging people to move forward with even less scrutiny with what they are doing. There aren’t any secrets anymore. The notion of private life has changed. First of all, people want private moments to reflect. But they have redefined the meaning of privacy. The problem is we are alone most of the time- in our houses, in front of our computers, in our cars, at work in our cubicles or offices. The fact is human beings are hard wired to be social. We are descendents of apes who spend 80% of their day picking nits out of each others hair.

There are two issues. We have moved in the spectrum of community all the way to the end of gated fences, SUVs and tinted windows, into the belief that the fantasy celebrity lifestyle of having your own limo, private island, bodyguard, and having every appointment vetted by your people is the way to live. That is the fantasy that we have, we think we want. But for most of us, the further we get along that spectrum the more alone we are. So then we move to the other spectrum which is constant flow of details about your life, your blog, and your status updates. That’s what community used to be. There is this flow of information from other human beings that connects us together, which makes us feel more intrinsically human and less like we need to constantly be proving ourselves.

90% of new products are not going to make it to the third year in the marketplace...

...and yet we still rely on consumer research techniques that were designed by statisticians in the 1950s. I'm not a psychiatrist, but it seems to be that there is something vaguely neurotic about an industry that continues to do the same thing, at great expense, knowing full well the outcome will have a 90% probability of being wrong. Innovation needs a fundamentally new and different approach.

Why does the traditional statistics based research not work?

I think the problem has more to do with the real lives of people in a world that is much less predictable than it once was. In the case of a high frequency CPG, let’s say toothpaste, it is almost impossible for someone to accurately predict how they will react when they are in the store buying toothpaste, unless they are rigidly brand-apathetic (that is, they always use the same brand no matter what, which is generally because it is easier to stay with what they are doing than try to figure out all the other alternatives).

For instance, a respondent might say in anticipation of buying toothpaste (in a research or interview or any other setting – even in-store) that he definitely will or is somewhat or very likely to buy a new product, even if it costs ten cents more. However, when I am actually in the process of buying the product, my actual decision will be based on a number of unanticipatable variables: how much money do I have in my pocket, how full is my basket and how much have I already spent, am I feeling frugal today, is the toothpaste only for me or is it for the family, what other brands are on sale, and so on.

Clearly people’s projection of buying behavior, which we call buying intent, is necessarily unreliable. In a simpler world, when brands behaved in an orderly fashion and consumers lived in a rigidly budgeted, regulated world, this may have been different.

What is the alternative?

Simply put, people’s predictions of amalgamated behavior is likely to be much more accurate than their prediction of their own behavior. This is at the heart of the economic principle captured in James Surowieki’s book, The Wisdom of Crowds.

ProteanPrediction Collective Wisdom Engine is a proprietary process that integrates this theory into a very practical market-ready system. As a component of any innovation development strategy it can be used to guide development teams in incremental steps, rather than quantum (and very expensive, but very risky) leaps.

The Collective Wisdom Engine is particularly powerful when used as a mechanism to involve the entire organization in the process. I am not sure there is any proof positive, but it makes sense that the collective wisdom of the people who work with the product and brand on a daily basis is likely to be more interesting than the collective wisdom of a random or specific external crowd (although, not necessarily more accurate). It can also be accomplished at a fraction of the costs of traditional, research based methodologies.

The New Luxury Consumer

A new sense of discretion in customers who once bought extravagance with pride

When the recession ends, there will be some fundamental changes. The luxury consumer is off the treadmill now. They're thinking about 'what do I need, what do I really want?' For high-end shoppers, the hottest must-have accessory for 2009 is not the 10 carat diamond bracelet or a python leather purse -- it's the plain paper bag. Top luxury marketers note a new sense of discretion. Instead of that coveted shopping bag with an iconic brand name, some are asking for something a little less ostentatious. As the global recession drags on, luxury brands and retailers are contemplating deep price adjustments and are focused on impeccable service to prove their worth. The larger question being asked by luxury marketers is whether a shift away from extravagance might be more permanent with significant consequences on consumption.

That seems to be the consensus of a recent Wharton panel discussion titled, "Can Luxury Survive the Economy". In the past, wealthy consumers would buy a product just to get the bag with an up-market label. But profligacy isn't what it used to be. These days, even the wealthy are feeling pangs of recession. Since the economy has soured, consumers of luxury items have scaled back on their spending and those still shopping are being more discreet. According to some luxury marketers, wealthy customers are asking for plain bags, no boxes, or requesting goods be delivered later. They don't want everyone to know nor do they want to flaunt their brands. Another study argues 62% of wealthy consumers say openly flaunting wealth is out.

Impact of the global downturn

The global downturn has claimed a high-profile brand in the fashion world. Christian Lacroix, a leading French fashion design house, has filed for protection from creditors citing a drastic drop in demand for luxury goods as the reason, according to the Financial Times.

Sales of luxury goods worldwide could fall by as much as 10% this year, according to some surveys. In the U.S., with a third of all luxury goods sold worldwide, the market is expected to drop by 15%. A recent report states 62% of wealthy consumers say the economy has changed their views on luxury purchases. Some are watching their budget more closely. Others say that flaunting luxury right in uncertain times is insensitive. These consumers would rather help others than spend on themselves.

Luxury at half price

Price-cutting is the new normal for luxury retailers. Some have slashed as much as 70% off designer fashions that usually don't get marked down until the end of the season. Discounting at luxury department stores made it tough for designers. Given that the price of craftsmanship doesn’t change, a drop in prices can have a significant impact on profitability. For example, Bottega Veneta, the Italian leather house, a subsidiary of the Gucci Group, is famous for their woven leather accessories like handbags, shoes and wallets. The brand saw its sales drop 8.8% in the last quarter of 2008.

Fashion designers are not the only luxury marketers who believe discounting is dangerous. Even restaurants are feeling the heat. The trend is resist a drop in prices, a sign of weakness, and target customers who are willing to spend to keep the integrity of the product they are being offered. Cutting prices could cause long-term problems for a luxury brand. Automotive News reported in April that sales of Maserati, a division of Turin, Italy-based Fiat, slid about 30% in the first quarter of 2009. Most marketers agree that if you drop prices, it's a big challenge to raise prices again. It isn’t easy to drop prices and add value. A strategy being adopted is to focus on the customer experience and value. For example, a Maserati is hand-built. That's where the value still is in the luxury business - not downgrading your product, focus on being inspirational.

Downsizing expectations

Some businesses that cater to the luxury market are modifying their products to make them more affordable. For example, restaurant customers are opting for inexpensive wines over cocktails. In response, restaurants may add new items to the menu. Another example of adding to a product line is the 'baby' version of the Rolls-Royce Phantom. According to the panel, Rolls-Royce sales dropped about 5% to 174 cars in the first quarter of 2009. The new smaller 200EX Sedan, set to hit the streets in 2010, will come equipped with many of the classic touches of its larger counterpart, but instead of a $400,000 price tag, it will sell for under $300,000. The new version is designed to appeal to existing customers as well as bring in new ones according to Rolls-Royce Motor Cars. They say a lot of owners see the smaller car as their everyday car. Offering a smaller version of a standard product, opening up a brand to a different segment.

Aside from trying to bring in new customers, luxury brands are also working harder to please their existing customers with flawless service. The focus is on being perfect, especially when responding to a request, retailers listen more intently. Superior services sets apart luxury brands. Customers will come back for the relationship with their sales associate. Luxury brands are also focusing on their existing customers.

The super-rich are also focused on frugality. Luxury brands are looking for new ways to stay viable. Some luxury retailers on the panel say they have had to cut prices, while others are wooing customers with new, more affordable products. Most argue that any type of discounting and price reduction would permanently hurt their brands. There is a significant shift in focus from glamour to hyping value and superior service.

A permanent shift away from extravagance?

The luxury industry is concerned that there has been a permanent shift away from extravagance. The recovery may happen differently for different types of luxury brands. It may be faster for Restaurants, because they offer a social event. But the recovery might be slower for retailers of luxury apparel and accessories. Consumers are starting to buy a lot less and are more discriminating. And deep discounts at mainstream stores may have permanently changed the perception of high-end retail. Consumers are questioning how much things should really cost more often. They are redefining the balance between the intrinsic value and emotional value of brands and experiences. Is a $5,000 suit really worth $5,000? The trend in discounting has led the customer to ask if these brands were really worth that much in the first place.

Additional Reading
Dreaming of Luxury Sales Amid Recession
Luxury retailers seek to rekindle the desire to shop
When not cutting prices becomes a luxury
The Forever Sale: Retailers Slow Pace of Markdowns
Getting to the Points

Market Research in Product Development

According to a recently released white paper by B2B International, about 90% of product research focuses on improvements to a product, such as ‘additions’ and ‘modifications’ rather than on an entirely new concept. And product improvements are more readily accepted over a brand new product, which can be more risky. The paper suggests using market research to minimize against the risk associated with any type of product development - sort of like a form of insurance.

The paper, Using Market Research For Product Development examines the role of market research at all four stages (below) in the product life cycle:

1. Pre-Birth – “Establishing Needs”
Can help determine the need for a new product, provide insight into a market’s unmet need, and provide a temperature check for the current landscape.

2. Youth – “Stimulating Product Take-Up”Can guide all elements of the marketing mix, to better understand your current position, where you want your product to be, and how to get to that point.

3. Maturity – “Improving Product Performance”
Can aid in determining optimal price points, market share and size, and interest towards the consumption of the product.

4. Old Age – “Determining The Future”
Can be used to revitalize a product through modifications and additions which help stimulate the life cycle.

The paper’s author also emphasizes that product development research should always be incorporated into the entire customer value proposition – that understanding that improvements to packaging, delivery, and/or any aspect of service support, could have just as big an impact as changes to the product itself.

Taking the Pulse of Marketing, Globally

CMA is partnering with the Chief Marketing Officer (CMO) Council in its 3rd annual Marketing Outlook survey - this year for the first time.

The CMO Council, a global network out of the U.S, has 3,500 members and is represented in 57 countries in multiple industries, segments and markets.

This survey is targeted to senior corporate marketing leaders who can provide for a review of marketing performance in '08 as well as challenges and intentions in '09. Those who complete the survey will receive a complimentary copy of the full report.

The survey report provides peer-level input and consensus on critical issues and priorities in the year ahead, such as planned investments, organizational changes, process improvements, and performance indicators.

A benchmarking tool in exchange for a 15 minute survey.....