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Romancing the stone?
An increasingly crowded marketplace | Dangling the carat | Enhancing the marketing mix
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 'scarcity value'.

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

However, 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," she explains.
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

But 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.
"But 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.