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The marketing of luxury goods, such as jewellery, bucks
convention in many ways.
Expensive advertisements and high prices are not always enough and even
carrying recognised brand names does not always guarantee sales. Graham
Stacey finds out how the luxury industry sets its own rules
The traditional view of life taken by luxury goods
marketers has been to make it, advertise it expensively and sell it to
a grateful purchaser. And yet, despite such a basic premise, the luxury
goods sector has managed - perhaps more through luck than judgement -
to maintain market prominence, even showing growth in times when other
markets are prone to recession.
In many ways, the backbone of luxury goods marketing has revolved around
there being enough of the sought-after AB socio-economic class. As long
as there are enough of these, it follows that there should be a continuing
demand for luxury goods. To take the strategy one stage further, companies
have chosen to restrict distribution with the aim of creating a so-called
|An increasingly crowded marketplace
However, things have changed and the market has become more global. The
grey imports of designer clothing were just the beginning and the customer
now has more choice than ever before. Something had to give and margins
have come under increasing pressure, despite the market inclination to
maintain the snob value associated with expense.
This is where external market forces have come into play, with high street
perfume retailers battling with other chains over prices like never before,
being a prime example.
Understanding one's customers as well as prospective ones has become altogether
much more important and has led to more marketing research. The end result
seems to be that image-generating advertising appears to be giving way
to a subtler mix of targeted activities.
Partnerships and high-end associations have come to the fore, and the
recent collapse of Hennell, a Bond Street jeweller to nobility and royalty,
has served as a wakeup call to the industry. Losing an estimated $1.6
million a year, it was the epitome of the dinosaur retailer that fell
victim to a combination of poor management and changing fashions. Today
a revolution is taking place in the luxury jewellery and watch sector,
worth an estimated $6 billion globally, and it is being pushed on by slick
marketing and product branding.
As a result, analysts Salomon Smith Barney predict that the global luxury
market will grow by around eight per cent a year for the next five years
- with jewellery and watches up a further four percentage points. It seems
that a new professionalism has entered the top end of the business - and
not before time.
Already, US-owned Tiffany has had a bumper time with its clever branding
and clear message of affordable luxury. Whether you take its trademark
diamond crosses, as sported by Elizabeth Hurley, or the (relatively) bulky
gold diamond fob waist chains sported by Posh Spice, Tiffany's baby blue
wrappings have become a symbol of chic that shoppers crave.
But Tiffany isn't resting on its laurels and has brought in Elsa Perreti
cuffs and the innovations of Paloma Picasso. And as further part to the
merry-go-round, former Tiffany country manager Rosa Monckton has transferred
to the UK's Asprey & Garrard, bringing in jewellery designer and socialite
Jade Jagger in an attempt to rejuvenate the brand as an international
luxury gift retailer. As part of the strategy, Crown jeweller Garrard
will be separated and returned to its traditional roots.
Such shake-ups are happening all through the luxury good retailing arena.
Diamond cartel De Beers will see the first of a chain of own-brand jewellery
stores open next year. The joint venture with French luxury goods group
LVMH is all about associating the De Beers name with LVMH's retail expertise.
The initial plan is to open five stores within the next 15 months, costing
some $410 million. According to De Beers, the marketing spend on perfume
equates to roughly 10 to 16 per cent of sales while the comparable figure
for watches is a substantially smaller six to ten per cent of watch sales.
For jewellery this figure shrinks to just one per cent, meaning that a
significant investment could see the brand rocket up the big-name charts.
Moreover, it seems that more potential buyers will soon be around to lap
up that marketing activity. According to Gemini Consulting, the personal
wealth of the rich section of the population is growing at between 15
per cent and 20 per cent a year. Even following on from the tragic events
in the USA and the potential knock-on effects, brand names will often
withstand a downturn. An example is the Japanese market where spend on
jewellery is considerable. During the country's most recent economic downturn,
retailers such as Bulgari and Tiffany came out smelling of roses. The
key to being recession-proof is to have broad appeal and a global reach,
which is why some of the more upmarket jewellery groups will be better
placed to handle a spending downturn than others, should it come.
|Dangling the carat
this phenomenon cannot be taken for granted. Angela Summers of the Diamond
Information Centre, says: "Certainly luxury goods are mostly affected
by the economic dynamics of a certain region, since it is disposable income
that feeds on luxury goods. As an example, and to take a simplistic view
on the luxury goods market in the Gulf, the recent surge of oil prices
has positioned the Gulf as a prime and viable market for almost all luxury
brands. Luxury brands are realising that the pie is getting bigger and
they all want a share."
Perhaps the main concern with many such goods is who should do the marketing,
and where the budget should come from, the individual retailer or the
parent company? "In theory, it should be a combination of both, the
degree of control of the marketing message remains proprietary, in most
cases, to the biggest contributor. As such, it is important to realise
what the marketing objectives are. When it comes to global luxury brands,
the messages need to be uniform across all markets. Hence the need for
control by the 'parent' company and as such, the lion's share of the spend,"
Summer also adds that the Diamond Trading Company has a $180 million dollar
marketing budget worldwide. "We have always led the diamond industry
in advertising activity to increase sales of diamond jewellery. We are
now encouraging jewellers to take on tactical marketing activities themselves
in order to give additional clout to the DTC promotions."
Ramesh Prabhakar, CEO of The Rivoli Group agrees. "In most cases,
the parent company is responsible for developing the tools which the local
representative is free, or in some instances, compelled, to use,"
he says. "Comprehensive, global marketing strategies with clearly-defined
above-the-line, below-the-line and in-store activities are some of the
critical elements that a parent company provides its partners. It is usually,
then, the right of the local franchise holder to adapt those materials
to suit the prevailing environment, taking into account culture, traditions,
language and the like. "The local partner must make certain that
the message they are sending is consistent with the brand's global communications
strategies and it is also the franchisee's responsibility to select the
most appropriate means of delivering the brand message," he pursues.
Prabhakar offers Montblanc, Swatch, Bang & Olufsen and Longines as
examples. With each company it is down to the holder of the local franchise
to ensure that the image of the brand is consistently portrayed. A Montblanc
advertisement looks the same, whether it has been placed in Asharq Al
Awsat, Vogue or GMR.
Mohidin Bin Hendi, the head of the Bin Hendi Group, believes that standalone
stores play a major role in the marketing of the brand. "People want
to be seen shopping at Prada or Gucci, where they can expect a higher
quality of service as staff take a pride in the company they represent,"
he says. Benoit de Clerck, managing director (Middle East) of Richemont
Haute Horlogerie, concurs: "Stand-alone boutiques are important in
order to show the image of the brands while giving the true sensibility
of each brand. A boutique will enable the customer to get into and within
the boundaries of the product and its history.
"In the luxury segment, the overall environment is very important,
the location of the shop, position of the display and who your neighbours
are is also significant. When it is luxury, it has to remain luxurious!"
Gold is another sector where producers are likely to raise spending on
marketing in the coming year. Gold is historically cheap and it is thought
that a marketing campaign could lift annual gold jewellery demand of by
around 700 tons to just under 4,000 tons. On top of this, demand is set
to increase dramatically in China once the country becomes a member of
the WTO and its market is deregulated.
The World Gold Council's early 1990s marketing strategy was highly effective.
It focused its attention on market clusters - large populations with a
high degree of socio-economic integration - and targeted working women
with spending power. Alliances with retail partners that had the ready-made
network base to reach consumers also played a valuable role.
However, this is not to say that newcomers cannot buy into the market.
"In the GCC, nine times out of ten, a 'newcomer' is simply a company
or a product that is new to the region," Prabhakar says. "As
a result, the newly introduced brands are usually one step ahead when
they come to the Gulf. As consumers have been waiting for these brands
to become a part of the local retail environment, they are likely to already
be familiar with those particular brands and the quality from their travels.
The Gulf consumers are extraordinarily brand conscious and they follow
international trends closely.
"The local market is a reflection of the global market, only more
so. The high disposable incomes in the Gulf fuel the propensity to spend
on the latest, the most fashionable, and the 'best'. This fact alone allows
new brands to capture market share, however with widespread globalisation
there is less distinction between a 'newcomer' and a more mature participant
in this market," he believes.
|Enhancing the marketing mix
the GCC is not a unified market and can be broken down into several very
separate markets. Saudi Arabia is renowned for its wealthy population
and Bahrain also has a strong demand for such goods, whereas nations such
as Kuwait and Qatar are often overlooked when it comes to marketing priorities.
Bin Hendi explains: "We target a few countries more directly than
others, but things change. In Dubai we have seen tremendous change since
the mid-1970s and even over the last 7-8 years. That's when the rat race
started and now we have all branded goods represented.
"But it is an ideal market to be in. We are fortunate to have so
many visitors in the UAE and people spend more when they travel. Psychologically,
they want to shop." In other words, Bin Hendi is banking on a growing
influx of tourists.
The question therefore is whether the purely local trade is sufficient
to support the luxury retailers and brands or the re-export trade, particularly
for gold, and tourists actually are the key segment.
The Diamond Trading Company moved into the Gulf region in 1995 as it witnessed
a growth in trade. It was first focusing on the promotion of diamond wedding
sets. In the last six years, the Asia-Arabia market has grown to become
the world's fifth largest diamond market. Yet, even with such outstanding
demand unique to the region, the market is similar in many ways to those
in other parts of the world. The global market is characterised by high
customer expectations, consumers who purchase a product in the luxury
goods segment expect quality of workmanship, superior design and the finest
of materials. As Prabhakar says, Middle East consumers, and in Dubai in
particular, are no different from those in the major cities of the world
in their expectations. It is essential that products in this category
are presented in an atmosphere that reinforces the image of the brand.
"In most instances the parent company has invested a significant
amount of time and money in developing an appropriate milieu in which
to display its products in the best possible manner. Sophisticated research
tools are used to measure customer reaction to background music, wall
coverings, colour schemes, lighting and attention is paid to minute details
such as the temperature of surroundings and height of display cases. When
examining the cost-benefit ratio of having non-branded or multi-branded
shops in the Gulf, one must consider that residents of this region are
well-travelled and that many of the region's visitors are coming from
some of the most prominent fashion capitals of the world.
It is even more important here than in other places that the stores in
the Gulf mirror those in the rest of the world," Prabhakar says.
But all this presumes that the customer is enticed to the brand or store
in the first place. When it comes to brand awareness, more choices have
to be made as how best to market the product through advertisements, or
other forms of media. And this is an area where the industry seems to
differ in opinion product to product.
Even if Piaget's Middle East brand manager, Michel Eckert, swears by luxurious
qualitative magazines, he acknowledges that it is the "marketing
mix that is the most important." De Clerck concurs: "Word of
mouth works well [and] magazines work well too as long as the plan is
properly targeted. In magazines nowadays, thanks to the advanced printing
technologies, we can achieve excellent quality of visuals and pictures,
helping us to really show the product at its best. Newspapers have also
improved a lot in the region. Generally speaking, and depending on the
brands and the objective we want to obtain, we tend to use magazines and
newspapers. Our common goal is to achieve a full marketing mix shared
between advertising, PR and others."
In Prabhakar's view, there are also other factors for success: "Some
campaigns are better suited for newspapers than magazines, and the opposite
also exists. Some campaigns have a stronger message when expressed in
the English language rather than in Arabic while the opposite is also
true. One must also consider the demographic profile of the target audience,
in addition to the intended geographic coverage of the brand, before implementing
a comprehensive media plan."
Bin Hendi is currently assessing which media is best suited for his latest
product, Graff jewellery. Graff is an example of a real top-end product
and its marketing will have to be cleverly devised. Bin Hendi says: "We
have tried every kind of media and found that newspapers give the most
instant reaction. But for Graff, we want to wait for the right time, it
is not the best situation at the moment and we are prepared to wait.
we are confident that Graff will do well. Even when watches are priced
at around $15-18,000, you will suddenly find that there are people willing
and able to spend that amount. If you have the merchandise, people will
want it. But buyers are very sensible. As they travel a lot, they can
evaluate the prices. But the Gulf region is a very attractive market,
where the two factors of price and choice are equally appealing."
As marketing priorities change, so too do the allocated budgets. Prabhakar
recognises an upward trend in marketing budgets as a whole. "Divisions
in marketing budgets vary from brand to brand and from year to year. For
example, if it is a new brand in the market, it is important to focus
on building awareness with brand awareness campaigns. On the other hand,
if a brand is more mature and at a later stage in its life cycle, it may
be more appropriate to concentrate on sponsorship of exclusive events
that attract members of the brand's target audience.
Budgets are fluid and in constant need of fine-tuning. Marketing budgets
need regular reviews as they are closely linked to numerous factors such
as import figures, sales, international trends, to name but a few. In
general, however, I think marketing budgets have increased in recent years."
So what else could be improved in the region, to make the marketing of
luxury goods more effective? To Bin Hendi, the solution is simple: "We
have everything visitors could possibly want: golf, activities, entertainment,
shopping, the best hotels. Governments have done a great job in attracting
people from all over the world. All we need now is even more visitors."
Others, however, would point to the fact that selling and marketing require
different skills and while the region's jewellers and retailers are well
endowed with the former, a lot of work still needs to be done on the latter.
Creating an Eldorado for luxury brands here by simply making them available
may well have worked until now. The increased competition will now require
for professionalism to be enhanced too.
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