Dear Colleagues:

This issue of Marketing Coach looks at trends in marketing and branding for the luxury category. While the economy would steer us to "need to have" vs. "nice to have" consumables, there is much we can learn from decisions and effective approaches for marketing luxury products and services - both for those marketing to affluents and those looking to be relevant to anyone.

Will luxury brands tarnish or disappear in 2009? Who will buy luxury items and how will savvy marketers maintain their brand's luster and customer base?

Read more to hear what experts from Interbrand, Morpheus Media and Spafinder.com say about luxury marketing trends and learn from brand successes and failures.
All the best,
Ivy

Four Lessons in Luxury for 2009

An Interview with Interbrand's Andrea Sullivan

1. What maintains a brand's luxury status? Brands will hold on to customers who want what is most rewarding to them...the handful of things they will never give up. All brands have to work even harder to earn that status - as a "must have". In the luxury category, this will not come through advertising, but through intimate personal experiences and relationship activity.
2. What is the best pricing strategy for luxury brands? Major luxury brands like Louis Vuitton and Moet will hold their pricing. This strategy will likely be valuable for their reputations, but not necessarily for their sales. Some such brands have lines with varied price points, which will position them for the best ability to hold revenue, as exemplified with champagne.
3. How can a luxury brand expand its audience beyond the wealthiest shoppers? A luxury brand like Tiffany has done a good job of retaining their core high-end luxury customer. At the same time they have been able to attract mass market shoppers while protecting the brand by providing lower priced entry points, such as their silver jewelry line, while retaining quality and style expectations. This has been an effective trial strategy to allow younger people to sample the brand. We are also seeing innovation with luxury brands like Chanel expanding product into new categories like eyewear.
4. Is it a good idea for luxury brands to discount? Right now, many are questioning the practice of discounting and the degree to which it hurts brands. This is an issue for the whole retail industry and all who make and market products. At stake is the possibility of educating customers to only buy during a sale. The challenge: whether affluent or aspirational shoppers still want to feel like they get a good deal. Some luxury brands with a discount practice have lost some prestige and are losing the top end of the luxury shoppers. For example, Coach's earnings for outlet vs. retail sales has now been combined, which seems to reduce attention to the major force that their discount plays in their revenue.

e-marketing Serves Luxury

"The biggest trend across luxury brand marketing in 2009 will be their initial move to online marketing," said Shenen Reed of Morpheus Media. While Neiman Marcus and Bergdorf have been involved with e-commerce and e-marketing for several years, many others have only just initiated online marketing. Previously, web marketing focused on driving traffic to brick and mortar retail, talking about a product launch, or reminding consumers to choose their brand as a holiday gift choice.

Reed has found that luxury brands that have been conducting interactive marketing for a while have been more ROI focused, and are concerned about exploring alternative online strategies because they fear that sites that may be relevant to their brands -- and the companies, products or services they represent -- could be inconsistent with their core brand identities. As they allow technology to play a bigger role, behavioral targeting will enable luxury brands to be strategic at the individual shopper level, and to identify luxury consumers based on e-tail paths rather than solely based on finding them at a handful of competitor sites that have similar brand profiles.

For example, a women's fashion retailer or designer probably wouldn't buy online ads on ESPN directly, but if they find an affluent consumer who has been tagged at that site or looks like somebody who had been tagged at that site, they may serve an ad to them. If an online user visits sytle.com, babycenter.com, instyle.com and buys on Neiman Marcus, there are four points of reference about where they've been online. Another person who has a similar profile on 3 of 4 points may appear to be a prospective customer.

In 2009:

• More luxury brands will have e-commerce capabilities
• Many more will play in the social media space: Facebook fan pages, building content and adding more value to their customers' lives through their own websites
• More dollars will shift to interactive (percentage of media mix) because there is such great accountability for every dollar
• Strategy will focus on search engines and anything driving ROI; every penny is being scrutinized even more carefully
• Strategies are already shifting away from narrow brand consciousness to being more direct response driven; there will be more sophistication about cookie targeting to find potential buyers
• Even luxury marketing will seek out approaches that are fairly low cost, though high return, i.e. social media cost to set up and maintain is less than traditional ad buys
  
  

Marketing Experience over Stuff

Spafinder.com has found the promotion of stress relief to be a winner with luxury consumers. The solution offered in the form of spa services is addressing a major market trend: consumer health and wellness. Spas and their offerings have changed in recent years to respond to this trend. Those who once shopped for pampering are now set on quality of life experiences and are purchasing aromatherapies, acupuncture, skin detoxification and other relaxation services.

As the gift card and gift certificate markets continue to explode, Spafinder.com launched an entire platform in 2008 for spas to promote and sell their offerings, and for consumers to select a spa by location, choose treatments, schedule and pay for services - all from their personal computer in real-time. Even buyers of luxury services are welcoming elimination of a concierge with whom you have to communicate back-and-forth. We can look forward to seeing the same personalized services for spas available for salons across America and worldwide this year.

As consumers are reducing their spending, Spafinder.com sees top luxury spas and local day spas challenged to attract and retain customers. "Those committed to spa treatments within their health and wellness regimes are NOT giving them up," says Steven Kane, Senior Vice President, Gift Sales at Spafinder.com. He sees that "uber" spa users are traveling less and substituting their hotel spa for a day spa near home. The occasional spa goers are reducing the frequency of their treatments and supplementing with services they can get more cheaply at local salons, such as manicures or mini massages.

The message Spafinder.com is communicating to its customers and prospects in a time of economic uncertainly is that "Looking at your life and priorities - how much more stuff do you need to accumulate?" Knowing that luxury consumers will continue to look for ways to take a break to manage their stress, Kane and his team believe they will be successful by promoting experiences over "stuff".

Who is the (online) Luxury Buyer in 2009?

Generically speaking, a luxury customer has a household income of $100,000, male or female, according to Shenen Reed of Morpheus Media. Those brands with the highest price point items have higher income thresholds.

Most luxury brands marketing over the internet are focused on a 25-45 demographic. "A significant percentage of those 28-35 meet the luxury demographic and need to be profiled to find those websites that have traction from consumers with the household income level and mindset that luxury brands need to reach," Reed explained. Newly married couples ages 28-35 with kids and dual incomes typically drop off the luxury target list.

Some brands that are technically luxury, such as wine and spirits, are still obtainable luxury and may do well in a down economy. In this economy, you could find a luxury consumer choosing to buy fancy lipstick over pricey sunglasses or a purse to satisfy the need for a consumption treat.

In paid search marketing and natural search engine marketing, internet behavior and sites visited are all part of a self selection process, so sellers don't need to be concerned about the demographic of buyers who self-select to purchase from their e-commerce shop. The aspirational shopper who has a high disposable income without mortgage or kids will purchase a luxury watch and handbag to keep up with her boss. Consumers like these are potential customers across life stages depending on their financial situation at any given moment.

While many luxury shoppers are 50+, this group is less visible online and is expected to have developed brand loyalty through other marketing channels, including print, direct response and relationships with sales representatives at the brick and mortar retail location. This does not mean that they do not have a strong online presence; however, marketers tend to be looking to the internet to attract new customers and hunger for the lifetime value of a younger customer who spends a significant part of their day online.