Janus Thinking

Experian’s annual poll of shoppers reveals that residents of Barnes, a leafy London inner suburb, now spend an average of £150 a year on mail order goods.

From a Press Association article:

Experian said the typical home shopper was now a wealthy, busy consumer who liked the convenience of buying “aspirational, lifestyle” items from mail order catalogues.

Shoppers in Barnes fell into the “cultural leadership” group of consumers who were mainly well-to-do professionals living in exclusive suburbs in traditional family units, the report said.

Described as “assured, secure and very discriminating”, they spent their wealth carefully on understated, classic goods and services and had little interest in the “brasher aspects of contemporary consumer culture”.

As home shopping has moved upmarket, wealthy consumers have flocked to internet and catalogue shops in order to avoid having to prolong their working day by spending time shopping. As commuters, they prefer not to stay in central London after work to shop, and, given their professional status, are unlikely to take formal lunch breaks.

Of course, this scenario isn’t unique to London, and so we can ask the more general question - how can the luxury retailer reach the people who don’t shop during the week, and who would probably prefer to stay at home at the weekend? Online and catalogue shopping might seem the obvious answer, but the Experian report implies that luxury items aren’t in the average Barnes resident’s online shopping basket.

So much of the luxury purchasing experience depends on touch, taste and smell - olifactory components simply impossible to recreate outside of a physical shop - that it is questionable whether online shopping will replace the high street as the preferred purchasing mode entirely. Nevertheless, the growing demand for ‘masstige’ products means that consumers will increasingly turn to the internet in search of lower prices.

The dilemma for luxury retailers, then, is this - do I sacrifice some of my physical customer experience in order to better serve the distance buyers? Or am I confident that my customers appreciate being able to touch, taste or smell my products, and so will always come to see me, even if it means getting a later train home or skipping lunch?

Sales of jewelry and watches in the United Kingdom have seen strong growth since 2000, with the market reaching $8.1 billion in 2005. Much of this market growth, which averaged 8% per year, is due to higher levels of consumer disposable income. While this growth is expected to slow down to an average of 5% annually between 2005 and€“ 2010, there are many factors which will continue to support strong market demand.

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The diamond industry is billions of pounds in debt, with both prices and demand largely static. Despite the industry’s best efforts to reverse this trend, it’s possible that only a dramatic reform of the market can remedy these problems. In this article, Isaac Mostovicz argues that learning lessons from the coffee industry could make the diamond market shine again—but only if retailers are prepared to transform the way they work.

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The growth of masstige products is a well attested phenomenon—bringing luxury goods within reach of the hoi poloi. Porsche boxter, mercedes c class, jaguar x-type… the list is endless.

Edwin Collyer makes a really good summary of the phenomenon, over at brandchannel quoting a variety of experts….

Robin Koval says:
bq. There always has to be some sense of scarcity and being out of reach. Yes, you can buy a Mercedes for $30,000 or so, but the really cool one that you dream about is there next to it on the floor for $100,000…. It depends how well you can tier your offerings and reserve a special place for the true luxury consumer.

This is a typical problem with all masstige conversations. They tend to focus obsessively on the price of an item at the lever of luxuriousness, when price is just one facet of their exclusivity (you can add scarcity, sparse distribution, sourcing difficulty to this list). Exclusivity itself is just a tiny facet of luxury, and is primarily appealing to challenge-seekers, who find self-esteem in achieving their goals.

This sort of price-centred analysis fails on two levels. At a basic level it fails to acknowledge the alternative unity-seeking motivation of luxury, but also, at a much deeper level, it fails to recognise that ALL luxury is personal and relative. The masstige conversation falls headlong into the trap of seller-centric thinking, believing that producers can be manufactured.

Koval does clarify his point later in the article, when he says:
“Luxury is now more about emotion than price points. I think it will be more about mindset than wallet size or class. There will always be people for whom certain indulgences provide great meaning—whether for their badge value or intrinsic reward. And there will always be the millionaire bargain hunter as well. It’s all a matter of where your own definition of pleasure comes from.”

As Collyer says, Luxury can be a cream cake instead of a sponge.

Luxury can be a single chocolate with your evening coffee…

But the same chocolate can be emergency rations in the jungle…

The critical point is the brand owner does not determine luxury, the luxury is determined through the personal moments of intention, choice and consumption and remembrance…

Luxury starts well before the purchase, and ends only when memory fails.

The paradox here is that luxury is both utterly universal and entirely individual.

I thought it might be useful to have a simple definition of a luxury good on the site.

So I chose this, from wikipedia:

In economics, a luxury good is a good for which demand increases more than proportionally as income rises, contrast with inferior good and normal good. Luxury goods are said to have high income elasticity of demand: as people become more wealthy, they will buy more and more of the luxury good. This also means, however, that should there be a decline in income its demand will drop. It must be noted, though, that income elasticity of demand is not constant with respect to income, and may change sign at different levels of income. That is to say, a luxury good may become a normal good or even an inferior good at different income levels, e.g. a wealthy person stops buying increasing numbers of luxury cars for his automobile collection to start collecting airplanes (at such an income level, the luxury car would become an inferior good).

It’s worth noting that a luxury good is not the same as a Veblen good—which is an item for which demand propensity of individuals increases in proportion to the good’s increasing price, named after the most influential micro economist Thorstein Veblen.

This paradoxical outcome - pretty much a description of utopia for diamond retailers—is actually seldom found in its pure form in the real world, but is certainly present in the demand for supra-priced goods like Ferraris or Jimmy Choo shoes…

The outome of the alternative attitudinal pole ‘cheap is good’, is the so-called ‘counter-veblen effect’ which was only added much later, by Lea in 1987, but is obviously a much pervasive force in micro-economics. The cheaper something becomes, the more people want it…

There are two other interaction forces in play—whereby the overarching market conditions affects micro-economic demand.

The first of these is the snob value of a good—whereby its actual rarity and exclusivity paradoxically increases individual demand cf.. louis vuitton or chanel handbags—and then the reverse social effect—the bandwagon effect, whereby individual demand propensity increases with penetration cf. makepovertyhistory wristbands. These can be seen as the effects of preferences for belonging on the one hand, and for exclusivity on the other.

The interesting challenge for luxury brand owners is to predict the tipping point for these forces within their brand economics.

Burberry’s growth worked brilliantly for a while under the bandwagon effect, but it hit a tipping point as these de facto status-seekers and conspicuous consumers were from a social class that many legacy brand disciples shunned - the so called chav contingent.

The question is…could Burberry have reversed the bandwagon effect by apply the Veblen effect—raising the price to push out the downmarket social groups …or could it, paradoxically have reversed it be cheapening the offer—lowering the price to reduce the dissonance between the product’s pricepoint and its social status, and thus dampening the excessive consumption and damaging social prominence of its product?

It is critical, even at an economic level, to recognise that socially-motivated, and challenge-motivated individuals will require different treatment.

As with all paradox management, the answer is two optimally embrace both poles and both attitudes, thus targeting the different user groups with the right proposition. There is a real economic case here for a brand split, creating a new elite/bespoke range and also adding a lower-priced diffusion range…celebrating, rather than shunning, the chavs…

In the first of an ongoing series, we are sharing the perspectives of inidividual consumers, on their idea of luxury. Here is the testimony of Laura Meadowcroft:

To me luxury is new brushed cotton pyjama trousers and my aunt’s bedding (the pillows are feather and yet springy). To my aunt, luxury is a 5-star hotel in the Maldives with great room service. To the man delivering the room service, luxury is the superior brand of fish he can buy that evening with the tip given to him by my aunt.

Luxury is subjective.

The more you have, the higher the leap you make to achieve luxury. A Ferrari to my aunt would perhaps be as achievable, if not more so, than a weeks’ holiday with his family for the room service guy, or for me to purchase pillows like hers.

The ‘experience’, so key to luxury consumerism now, must also be subjective. Harrods—arguably the most famous of the luxury outlets in the UK is the outlet of choice for the rich and famous—it’s my idea of hell. Why? Because, although nobody looks tatty, it is always ridiculously busy, I can never find anything but the toy section, and it has a Charlie and the Chocolate factory style sweet section, in which I can barely afford a lollypop.

Then again, Mr. Al Fayed wouldn’t close a floor to the public if I asked.

This consumer discrepancy over the true meaning of luxury opens up the market; almost anything can be marketed as a luxury product to a certain consumer base. Perhaps then, it is easier to divide luxury into ‘mass luxury’—those, now nearly everyday products, which are consumed by the majority of the contemporary middle class, and ‘class luxury’, those items, which really are only available to the upper echelons of society.

James Twitchell, in Living it Up – Our Love Affair with Luxury states that: “the heart of luxury is the irrational acceptance of magical thinking. If we could own this one item, then things would somehow change”.

It is this key concept of luxury that provides the space for such a broad market. To me, what would currently (and indeed irrationally) make my life change is the purchase of an £800 Steve Job’s masterpiece, in the form of a top spec, black, mac-book—through this I will become a best selling novelist. To a daughter of a friend, whom I took shopping last week, a £40 outfit from Pilot (a somewhat trashy, harshly-lit high-street chain, was a luxurious aspiration—one which would make her look cool at school.

Once I’d purchased the said outfit for her as a treat, she bounced round the city overjoyed, and has worn it every evening since—the novelty will obviously wear off swiftly, as will that of my soon-to-be-purchased laptop as the rejection letters pile up. But they were ambitions and luxury in the first instance, and that’s the essential point.

Sainsbury’s bottled water sells because, to some, it is a luxury afforded over tap water. To others it’s Volvic; to some Evian; to others Perrier, (infused with magical bubbles). Each of these, essentially identical brand (they’re all Hydrogen and Oxygen in a bottle) survives because their branding and their cost makes them a luxury concept to a certain market.

As the Western World becomes ever more socially aware, if often inactive, the desire to ‘do good’ and help others is increasingly prominent in the minds of the middle and upper classes. But how do they square these social ideals with their thirst for personal differentiation and public display?

With media coverage of illness and deprivation forever shining into the living rooms of the moneyed classes, (from the flat, wide, HD screens that decorate their walls), a new class of consumption has emerged—and a new mindset: Boboism.

This combination of the Bourgeois and Bohemian ideologies is explored by David Brooks in his book, Bobos in Paradise; (Imagine the 60s meets the 80s, in search of a middle way). David claims that creativity and rebelliousness are as integral to economic success as natural resources and finance capital – you can be (or at least you can FEEL) both socially engaged and overtly successful.

The ‘New’ luxury that Bobos are seeking is increasing defined by the experience not the product, if the experience provokes guilt, it becomes negative. Embedded in the psychology of the consumer is a need to ‘do good’, which in turn makes them ‘feel good’. If the luxury market is about experience and feeling, then this becomes a key issue for its success.

An example from Danziger’s ‘Let Them Eat Cake’ - an American nonprofit organization ‘Ten Thousand Villages’ has marketed products collected from around the developing world, paying the artists or creators a fair wage, and selling back in America at a more elevated price than its competitors. It sells by advertising its fair trading practices – therefore setting them apart from cheaper, ‘immoral’ rivals.

The same principles can be seen in The Body Shop and Starbucks – humanitarian, environmental and fair-trade practices are fundamental standards; their success can be seen just by walking down any high street.

It is not only the price tag that makes these products worthy of the luxury market, it is the inescapable presence of a wonderful consumer experience – in the case of Ten Thousand Villages—you leave with a uniquely hand-crafted aboriginal mask (whether to your taste or not), and the knowledge that you, single-handedly, have just made a difference to the life of someone less fortunate – this makes you feel good, makes you look good, and ultimately provides you with a luxury consumer experience.

However, if these principles were entirely straight-forward, and the luxury consumer psychology that simplistic, Oxfam would be the first port of call for visiting celebrities, not Harrods!

Perhaps the occasional ‘do-good’ purchase offsets our indulgence elsewhere…
Not so much gesture politics, as gesture ethics

For all the doom and gloom in the diamond industry at present, the problem is clearly not at the demand end.

LMVH profits leapt way above expectations in the first half of the year to 817m Euros—easily beating the analysts’ consensus estimate of 766m…

Watches and jewellery were strong performers, but perfumes and cosmetics were the star performers.

Tony Manning, former head of the Institute of Directors in South Africa, points out the benefits of identifying and undestanding paradoxes as a means of creating competitive advantage.

He advises “Begin by listing the paradoxes you face right now. Then rank them according to the impact they have on your business. Finally, involve your team in thinking about how to embrace them, to “do this and that” at the same time.

For example:

• Making profits … but doing many things that eat into your ability to do it
• Driving value up … and costs down
• Being tough … and compassionate
• Being bold … and being careful
• Taking risks … and managing risks
• Continuity … and change
• Preserving what worked yesterday … and inventing what you need to do tomorrow
• Controlling costs … and investing boldly
• Innovation … and improvement
• Keeping a firm grip on things … and letting go
• Centralization … and decentralization
• Having a strong point of view … and allowing others to express their views

This can have a profound impact on your performance. For if you manage to get your arms around tricky paradoxes while your competitors are befuddled by them, you obviously gain the edge.

We could easily debate how many of these are genuine paradoxes, and how many merely require some semantic shuffling, but Tony is right about the power of paradox…

Working them through demands an effective analytical and transformation process. No paradox can be resolved in isolation from personal change.

The critical element is not to create false dichotomies, but to surface the genuine paradoxes that are stultifying progress, and focus on the counter-productive ‘coping’ behaviours which result from them.

The question is not about what you can do differently, but about how you can BE different…a constant learning cycle…

Laurie Taylor’s ‘Thinking Allowed’ is a constant source of stimulus.

Today Professor Taylor will be talking to three social scientists, each of whom in their different ways, want to argue that the emphasis on change—not just by politicians and management consultants but also by social scientists themselves—obscures the importance of continuity.

Simply delicious. Laurie’s point is that our commitment to the myth of change actually prevents change…wedded as we are to the an equal and opposite, but suppressed commitment to continuity.

Understanding the benefits of continuity, and the downsides of change is critical to moving change…

Change requires us to affect alterations in the underlying ways that we create and then re-assimilate meaning. In the language of Zen we must change deep structure, as well as surface form.