Marketing luxury in a downturn


Matt Morley | April 14, 2010

The commercial director of The Southern Africa Luxury Association cautions against a knee-jerk marketing response to the new economic climate

Matt Morley, Brand Strategist at Luxury Branding and Commercial Director of The Southern Africa Luxury Association (“SALA”), cautions against a knee-jerk marketing response to the new economic climate.

It’s no secret that the financial downturn has hit luxury brands right where it hurts. The all-important middle-income earners who once aspired to luxury have been forced to reign in their spending whilst the net worth of the seriously wealthy has been eaten into by falling stock and property markets. Sales figures are down across the board (by 40% in some cases) and the drying up of debt has put the brakes on all but the most modest of international expansion plans.

Add to that the related furore around corporate excesses and a societal drift towards a more considered form of consumption and you’ve got the makings of what may be the luxury industry’s defining inflection point.

Put simply, it’s a case of adapt or die but nor is it necessary to panic. Like any other, the luxury market is cyclical so a strategy for the medium term that anticipates a modest upswing in late 2010 is likely the best way forward, which just leaves the immediate challenge of surviving the interim…

Buoyed by a healthy economy and seemingly limitless consumer demand, luxury brands have enjoyed nearly a decade of profit-seeking self-indulgence. Their scramble for growth saw names that began life as niche market specialists ‘stretching’ across into loosely connected sectors of the lifestyle arena. From Armani to Versace and back again, everything from furniture to hotels, spas and mobile phones have been given the luxury brand treatment. By leaning on the cachet of their brand name, instead of the considered application of their core competence into truly adjacent market segments, these companies were left severely exposed once the credit crunch pushed them into steep discounting of unsold inventory.

Previously cash-rich consumers were happy to be seduced for a while but as the global economy faltered into recession, so they began to question the rationale behind their luxury purchases like never before. In the present climate, brands must deliver tangible value in order to substantiate their price premiums; sexy ad campaigns or celebrity endorsements alone simply won’t pass muster.

The remedy, unsurprisingly, lies in going back to the essence of any luxury brand: product, design and service excellence. As such, websites, press releases and all customer interactions must be carefully aligned behind those key messages. Where brand heritage exists, as in the case of Patek Philippe for example, that too can be leveraged to illustrate a proven track record of delivering on those fundamental attributes of luxury. Conversely, anything fashionable, flighty or fanciful should be toned down in favour of language that suggests enduring value.

“ Out of necessity comes opportunity though, as marketing heads are often more open to partnerships with peer group brands during these periods. ”

Marketing budgets have inevitably been shaved in line with dipping sales but only the short-sited would stop investing in brand support completely. With every cent of outgoing likely to be scrutinised like never before, the savvy marketer is looking to maximise efficiency. And that means a relentless focus on the truly wealthy rather than the merely aspirational. Limit advertising to a select few strategic titles and move away from all peripheral sponsorship deals. Look instead to personalised PR campaigns and micro-events for VIP customers as both offer comparatively low cost, low risk ways of maintaining these invaluable relationships.

Attracting new customers meanwhile is comparatively much more expensive, even at the best of times, and therefore not typically a priority during a downturn. Out of necessity comes opportunity though, as marketing heads are often more open to partnerships with peer group brands during these periods.

Sharing the limelight with one or two others at an exclusive event in exchange for a pooling of resources and databases is nothing new, but when properly executed, with the right affiliations and the right staff on hand to communicate those same core messages to guests, this too can be a high scorer on the cost vs impact scale.

Single out a regular customer for an invitation to one of these soft-sell events, whether a multi-brand showcase, preview of a new collection or General Manager’s cocktail reception, and the relationship is immediately personalised, leaving that person feeling valued and special. The aim here is to foster goodwill and lasting loyalty among a core audience.

Luxury brands should consistently tower head and shoulders above the mass market when it comes to service. Drop the ball here and new sales become a constant uphill struggle, the pipeline of returning customers will run dry and word-of-mouth referrals – one of the cheapest and most effective forms of marketing available – will soon be a distant memory.

If things are quiet on the shop floor, in the lobby or at reception, grasp the opportunity to spend more time listening to customers, deepening those relationships and, importantly, logging any relevant information that will help others anticipate their needs on a future visit. Luxury hospitality groups such as South Africa’s Singita and One&Only; are way ahead of the game in this sense, rarely missing an opportunity to add to the detailed customer preference profiles they maintain on each guest.

In smaller enterprises, whether it be a single-store retail operation on London’s King’s Road or an independent guesthouse in St. Tropez that data is often stored in the heads of the longest serving employees. While the temptation may be to cut back on senior staff to reduce overheads while times are tight, it takes time and energy to instill a similar depth of brand knowledge in a newcomer.

Those in consumer-facing roles must be especially proficient at communicating the brand’s values and philosophy at every interaction. It is often cheaper in the long run therefore to protect existing human capital rather than risk starting afresh with seemingly cheaper alternatives.

Similarly, luxury brands face tough decisions on whether or not to discount in the face of such drastic reductions in consumer demand. Many leap aggressively into prolonged sales in an effort to shift stock while a select few, often those with the most heritage and history to fall back on, such as Louis Vuitton, bullishly hold firm on their strict ‘no sales’ policy..

The danger in rushing blindly into discounting is that wealthy consumers soon work out what was previously over-priced and will likely resist paying full price again once the illusory bubble of premium has burst. An alternative solution is to offer discounts privately to top clients as a discreet ‘thank you’ for their loyalty, as the owners of the Paul Smith franchise in South Africa did last season; another is to deploy excess stock as a value-add for high-spenders instead of bartering on bulk discounts; or follow Dolce & Gabbana’s lead by reducing prices by a fixed amount right across the board, ending all talk of further discounts in the process.

Each of these alternatives is designed to help protect a luxury brand’s mystique whilst also recognising commercial market demands, blending the rational with the emotional. And that, ultimately, is the true art of marketing in this sector, no matter what the economy is doing.

Matt Morley, Brand Strategist at Luxury Branding and Commercial Director of The Southern Africa Luxury Association (“SALA”)