LUXURY REPORT: Walking the tightrope
Luxury brands may not want to openly admit it, but the state of the market is this: luxury players are currently re-evaluating their spending by taking a more conservative approach to marketing. Many have suffered a double-digit decline in sales, and many luxury brands have cut their budgets extensively. Many are experimenting with digital, but their trials seem to be temporary and fleeting as the trend shifts towards ROI and direct response communications.
The downturn has resulted in part to a niche industry becoming even more niche. The scaling down of large scale events, campaigns and investments to more targeted and integrated marketing allotments. Luxury brands such as Cartier and Ports were reluctant to speak to Marketing for this article, but the owners of magazine titles, PR and media agencies have unanimously agreed their clients are carefully taking stock of their activities and holding their purse strings tightly.
Adrian Peh, vice-president of consumer at Weber Shandwick Shanghai, says luxury brands have cut back on spending throughout the entire marketing mix, with some facing intense pressure to get rid of stock which has led to rock-bottom discounts "unseen before in the luxury brands retail outlets".
As budget cuts become a reality, the Financial Times has seen some luxury brand marketers increasingly focus on local spend and exploring more creative options such as producing single-market special reports. Angela Mackay, executive director and head of Asia Pacific for the FT, says she has noticed a decrease in advertising from luxury property, cars and fashion but watch brands are big advertisers in its luxury lifestyle magazine How to Spend It, along with high-end jewellery, yacht manufacturers, hotels and airlines.
The Chinese luxury market remains fairly robust and Mackay says the company is able to access budgets there through FTChinese.com and FT Rui, which celebrates its one-year anniversary in July, which has top luxury companies like Mercedes Benz, Rolex, Shanghai Tang and Cartier as advertisers.
Rival The Wall Street Journal Asia, which launched its inaugural issue of WSJ. magazine in September, has added more than 40 new advertisers to the Journal franchise. Shawn Hiltz, director of marketing Asia for Dow Jones Consumer Media Group, observes luxury marketers have become savvier over the past year in the way they select media and evaluate effectiveness. To increase its appeal, Hiltz says advertisers with her company get to sponsor recurring features, giving them ownership of a specific topic or environment that is relevant to their communication objectives. For example, Mercedes Benz sponsors "The Interviews: Managing in Asia" series and Ascott sponsors the "City Walk" and "One Hour Out" monthly features in the The Weekend Journal Asia.
Hiltz says that clients could also build measurability into their own campaigns (brand-building campaigns traditionally have been difficult to measure ROI) by incorporating a direct response mechanism. For instance, a print ad from A. Lange & Sohne includes an invitation to "try on" the new 1815 model at the distributor's store location was shown at the bottom of the ad.
Roger Searl, publisher of Millionaireasia, concurs with Hiltz that there is a move towards greater ROI and more targeted communications. "This year is all about return on investment," he says.
Searl explains that luxury brands need to know the money they spend on marketing will actually have a direct, positive impact on sales. Brand managers are questioning what do they really achieve, from who they actually reach to what impact it has when placing an ad in yet another magazine that sits on the shelf of a coffee shop with several other similar products, hoping someone that matches their target customer picks it up and flicks through long enough to see the ad.
But it is not just in print where luxury brands are trying to sharpen their approach and be more direct. Events have long been a big part of the luxury marketing arsenal and they have been overhauled. Searl says the type of events his company organizes has "changed a great deal" over the past 12 months. Last year was about bigger, bolder, large-scale luxury parties with around 200 people in a hanger filled with private jets, luxury limos, celebrities and press. This year, the trend is for much more low key, intimate gatherings such as wine tastings and private dinners for a group of 30 to 40 carefully selected members. Sear says the events part of their business, especially smaller events where brands can really connect with guests, is booming across Asia.
In Singapore luxury events continue to be very popular despite the downturn. Livinginstyle-international.com is organizing a week-long luxury event to be held around the Singapore Grand Prix which showcases the best and finest in luxury, from fine dining to travel, yachts, jewellery and watches. The event includes exhibitions, parties and conferences on social issues for the select number invited. Belvedere is another brand which has employed targeted PR and exclusive events to launch its vodka product Belvedere IX in Asia. The premium vodka was unveiled in Singapore in March through the Belvedere Beat festival and a series of parties held in popular local nightspots.
While PR and events remain staples of the luxury marketing sector, digital continues to make inroads into the mindset of luxury marketers as more and more regional consumers head online. In March Microsoft Advertising released its findings from the latest 'Luxury Lovers' survey, revealing that Asia consumers are increasingly using the internet to help them make luxury purchase decisions.
The global survey, conducted by Essential Research in conjunction with Microsoft Advertising, proves the Asia market represents a huge opportunity for online luxury advertising as Asia represents a younger breed of luxury consumers compared to the European sample. They are also generally more internet savvy, particularly in China, where the largest Asia luxuries spend reached $134 billion last year. The survey found that across Asia, the internet (63%) is second only to magazines (65%) as biggest inspiration source for luxury brands. It jumped to number one as the most frequently used medium for gathering information prior to a luxury purchase, with official brand websites and search engines topping the source list.
Two-thirds of the survey's respondents use the internet to regularly find luxury goods, and while the majority of purchases are offline, $40 billion in luxury goods were purchased online. Kenneth Andrew, marketing director for Microsoft Advertising, says the volume of enquiries over the last few months from luxury brands have increased. In light of the downturn, brands are starting to see advertising online as a cost effective way to drive more value that allows them to quantify and target specifically to reach the audience.
Andrew adds its rich media solutions in particular are getting a lot of interest from luxury brands as an attractive ad format to air commercials online to reach people at the right time and right place. While there has been a lot of interest in exploring online, it still has not translated into significant ad spend increases by luxury brands according to the FT's Mackay.
"Online may hold great potential but it comes with a different set of issues and challenges that will need to be overcome before it is embraced by luxury brands," she says.
At this year's FT business of luxury summit in Monaco Diego Della Valle, chairman & CEO for Tod's Group, said the internet is very important but the form it will be used in remains uncertain.
One trend is luxury companies jumping on the e-commerce bandwagon as a way to boost profits, but their focus should be on the distribution channels rather than flooding with products to make money. Luxury brands are concerned this route makes it easy for the brand to become devalued depending on the site it is being sold on. Dow Jones' Hiltz shares the same sentiment that online ad spend has certainly been increasing but not entirely at the expense of print. Instead clients are seeking integrated print and online solutions versus selecting one medium over the other.
Julian Peh, group publisher & CEO for The Luxury Insider Group, says there has been a steady shift of budgets to online marketing in the past two years and the current economic climate has accelerated this shift. Pey says its online platforms Luxury-Insider.com and InLuxe.cn are enjoying "extremely high growth" this year compared to previous years with hotel, cars, watch and jewellery brands investing heavily and accounting for more than 60% of their revenue. Peh also observes a lot of new interest this year from categories like alcohol, fashion and spas.
While Peh's job in convincing luxury clients to invest in his digital platforms have become much easier compared with 2005 when it first established, some luxury companies are still insisting only a negligible proportion of their present and future target customers are using the web. "For most companies, the online environment must be harnessed effectively if they truly wish to have a complete marketing mix," Peh adds.
Interactive media sales network Pixel Media Asia observes that luxury brands are moving more aggressively online to reach their audience. Winky Chan, managing director for Pixel Media, says some of the more active ones include the Richmont Group (Cartier, Van Cleef & Arpels, Piaget, Chaumet), while others such as Bulgari, Rolex, Tudor and Mercedes Benz have also started to include online as part of their media mix. Like other media, Chan says luxury advertisers use online to achieve brand building or sales promotion objectives. Most of the brands she mentioned earlier use digital campaigns to launch new products and brand awareness. She adds Lane Crawford, Joyce Boutique and Burberry have recently used digital for sales promotion.
Inez Albert, BBC.com sales director who oversees Asia, agrees that more luxury advertisers with more traditional marketing strategies are embracing opportunities online. While they are behind their European and US counterparts in the level of spend and the frequency of their campaigns, the change in Asia is happening very quickly. Albert says BBC.com is working with a large number of luxury brands including those who advertise online for the first time. She adds these brands "are not looking for any radical changes to their advertising, but rather the need to reach their audience online and enhance their brand". Although the size of budgets for luxury brands online are smaller than other elements of the advertising mix, Albert says the number of them moving online is growing.
Social media is another part of the digital advertising pie that luxury brands are experimenting with. Several social networks have emerged that target affluent consumers which brands can tap into. A Small World is an online community that boasts half a million members worldwide, and in 30,000 in Asia, who are connected to each other by three degrees of separation. Dopplr is another modern social network designed for smart travelers, which allows members to share personal and business travel plans privately with their networks and exchange tips on places to stay, eat and explore in cities around the world. The service, accessible via a personal computer and mobile phone, presents the collective intelligence from travel patterns, tips and advice of the world's most frequent travelers through its social atlas.
BOXOUT: THE CHINESE LUXURY LOVE AFFAIR
In China, the story for the luxury sector looks most promising and brands are still investing in the market because of its enormous potential. According to annual report "Insights China" by McKinsey & Company, the number of wealthy households in China reached 1.6 million in 2008. The report stated that by 2015, it will have more than fourth million households to become the world's fourth largest country in terms of number of wealthy households after the US, Japan and the UK. Despite the downturn many large-scale boutiques to high-end products have continued to launch in China, for example Gucci recently opened the world's largest flagship in Shanghai and luxury watch maker TAG Heuer will soon launch the Meridiist, an ultra high-end mobile phone. BBDO China launched a new business unit in April 2008 called Proximity Live which provides communication insights and creative marketing initiatives for China's highly competitive luxury brand market. Angelito Tan, managing partner for Proximity Live, says the proper use of PR and digital channels can be helpful in building a luxury brand as they offer a very targeted and measurable way of communicating to consumers. By consistently communicating to your audience in a targeted manner, Tan says luxury companies work towards not only building brand affinity and credibility to your audience - you are sharing your story with them. An example of a targeted approach is the "Belvedere Luxury Reborn" campaign that included a series of ad visuals called "Jagger Dagger", which featured Jade Jagger (Mick Jagger's daughter). To launch the campaign in China, Proximity China created a series of E-teasers using provocative and intriguing taglines with the global ad visuals. These were sent to the invited media a week prior to the event date in a specific order, whereby slowly revealing the whole campaign. To create curiosity and buzz, the Belvedere logo was only revealed in the final e-teaser featuring the visual where Jade Jagger (Mick Jagger's daughter) was chipping off the ice wrapped around the Belvedere vodka bottle. Following the final e-teaser, an actual formal paper invitation was sent to the media guests, building excitement towards the event which had 100% media attendance.
- BBC World
- Dow Jones
- Financial Times
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