Janus Thinking

An article in the IHT highlights a renewed interest among manufacturers in niche market luxury handsets. Vertu, the sector heavyweight, simply can’t turn out their precious-metal phones fast enough, as they are restricted by the limited capacity of their workshop in the UK.

However, if Siemen’s venture into the luxury market can be taken as an example, evidence would suggest that mass production and (relatively) affordable pricing is not the way to go. Their Xelibri line was culled after only 18 months in the market - but the Gizmodo article doesn’t quite tell the whole story. While the Xelibri handsets were undeniably oddball, and had only a limited feature set, the same could be said for Vertu’s line-up. Less quirky, perhaps, but a far cry from today’s smartphones in terms of functionality.

Is a high price a key determinant of appeal, then? The Xelibri range retailed for hundreds of pounds, whereas Vertu’s premium range starts in the tens of thousands; had Siemens added a couple of zeros to the prices of their fledgling range, woud they have fared better?

Economists call products which exhibit this characteristic Veblen goods, after Thorsten Veblen, who was among the first to examine the purchasing of luxury items. To anyone involved in brand strategy, this concept won’t be at all unfamiliar - by pitching to a higher price bracket, the sense of exclusivity is increased.

However, all of this comes with a caveat: unless the expensive product is backed up with outstanding customer service, great packaging and comprehensive after-sales support, the appeal may quickly fade. Simply slapping a bigger price tag onto a poor product experience won’t drive new custom.

At the GIA International Gemological Symposium, Elliot Tannenbaum of Leo Schachter Diamonds told delegates that the diamond supply chain had been ‘flipped on its head’.

With the advent of widely available and reliable data online, consumers are no longer passive or reliant on retailers; in fact, as Tannenbaum pointed out, we should not be surprised if they are better informed than the retailers on whom they previously relied.

This presents an incredible challenge for traditional retailers and distributors; they can no longer rely on ‘custom by default’. Tannenbaum suggests that the time for generalists is over, and that only by finding niche markets and products can retailers survive. This sentiment was echoed in a further presentation by Paco Underhill of Envirosell, who warned retailers of the dangers of resting on their laurels: “If you don’t use the Internet in 2006, goodbye, because you won’t be here in 2010.”