Janus Thinking

From the International Herald Tribune this week: Louis Vuitton took part in its first “film collaboration” this year by giving director Wong Kar-wai carte blanche to use its products however he wanted in his new film “My Blueberry Nights,” which debuted at the Cannes Film Festival two weeks ago. Louis Vuitton participated (at the request of the director) because the road film matched brand values. LV president Yves Carcelle said, “The greatest voyage in life is one of self-discovery, and we wanted to be a part of that. It fit well with the identity of our brand.”

Subtlety is the key for successful film branding. The film uses Louis Vuitton apparel and accessories (including a LV key chain, blueberry-colored dress and luggage) in pivotal scenes, but it’s never actually about the products.

According to Leeza-Maria el Khazen, the founder of Reelbranding, a product placement firm: “The worst thing that can happen is that the audience feels like it is watching a commercial. It can have a very negative effect on the film and the brand because it draws the audience out of the movie. Sometimes it’s kind of shocking.”

The article mentions several successful efforts in film branding, including Armani’s dressing of Richard Gere in the 1980 film “American Gigolo” and Daniel Craig’s wearing (but never mentioning by name) Brioni suits in the latest Bond film “Casino Royale.”

In discussing “Casino Royale,” the article doesn’t mention Sony, by whom I personally felt offended while watching the film. Sure, Sony owns the movie studio so you might expect some “synergies”—but the blatant and constant use of Sony computers and Sony-Ericsson phones in the film, along with product tie-ins outside of the film, really did draw me out of the movie and make me resent the company behind it.

The lesson: content producers, if you’re going to place products at all, keep it subtle and don’t compromise your artistic integrity!

scenarioDNA, a research and branding consultancy based in New York, published a very interesting trend report ‘Redefining Luxury’ earlier this month.

The basic premise: for Generation Y (the cohort born after Generation X, now in their mid-twenties or younger) to choose a given product, it really needs to captivate. Just being tied to a well-known brand won’t be enough, because with more information and the tools to hunt and find what they want, Gen Y are less likely to stick with a name.

The article discusses how young people long for rare moments and special, unique experiences. As Gen Y grew up in McMansions, luxury brands became increasingly ubiquitous at the expense of originality and exclusivity. Now young people have fractured expectations for luxury.

This theme resonates with an article in the FT from earlier this month by Michael Schrage, “Customers want loyalty not perfection.” Marketers and brand managers are upset that consumers today are “brand sluts” who seek immediate gratification without any loyalty. But really “established brands have cheated on and betrayed their most loyal customers” as they’ve charged more and more for less and less and added complexity rather than value to their products.

Once again we’re reminded that unique experiences and value worth the premium are what keep people coming back to the brands they trust.

Interesting story out of Minnesota today. Last March, the Minnesota Department of Human Services erroneously sent a check for $2.6 million dollars to a high school employee after mistyping a single digit in directing the check. Instead of going to the Hennepin County Medical Center, the check went to 37 year old Sabrina Walker, an ‘equity and integration specialist’ offering student support at Hopkins High School in Minneapolis.

The interesting thing, aside from how such a mistake could be made and not noticed for two months, is how Ms. Walker spent the money. She and her boyfriend did have a bit of a shopping spree. They purchased luxury cars (a classic Buick, Chrysler Crossfire, and two Land Rovers), $5,500 in jewelry and $3,800 in electronics.

But she also opened a portfolio account at Wells Fargo, with a $100,000 opening deposit linked to a $2.4 million dollar brokerage account. She also maxed out her Roth IRA (individual retirement account) and purchased a $500,000 U.S. treasury bond. She told Wells Fargo that the money came from a sealed settlement with the state.

And she might have gotten away with it for longer than she did. The error wasn’t discovered until Ms. Walker herself called a financial services employee of the state’s Department of Human Services on May 17 to ask why she had received the money. The state has now requested the money’s return and charged Walker and her boyfriend with four felony counts: theft by swindle, loss of property, failure to pay over state funds and concealing criminal proceeds over $5,000.

What would you have done if you were put in such a position? I’m sure I would have reported the error immediately (if only due to the guilt that would come from knowing it was an obvious mistake to which I wasn’t entitled). While ethically dodgy, part of me *theoretically* could see how one might feel entitled to any interest accrued before returning the initial amount when the state notices its own error. What do you think? The comments are open…

Luxury in the air was a hot topic this week as three different stories appeared. First, Versace announced that they had teamed with TAG to design a luxury interior for the Airbus 319 jet. Versace has already designed interiors for helicopters, homes and other jets. The design is fairly spartan, with black, white and silver accents. The plane is for a European client and will go into service in Q4 2008.

Not to be outdone, Boeing unveiled mockups of potential interiors for its 747 and Dreamliner 787 VIP lines (more photos on Gizmodo). The 787 VIP costs $153 million and has a 2,404 square foot cabin. The 747 VIP has a 4,786 square-meter cabin (typo? that seems pretty big), and features a loft, vaulted ceilings and spiral staircases.

And finally, the Australian airline Qantas opened a new flagship First Class lounge in Sydney’s airport, designed by industrial designer Marc Newson. The lounge features concierge and spa services, large American Oak sculptures, a library, and decked-out entertainment and business zones.

All these announcements show an industry fulfilling demand for a more exclusive, more luxurious experience. It’s certainly a far cry from being crammed in the middle in coach. But as fuel costs continue to rise, it will interesting to see if demand remains for such extravagant luxury.

CNBC’s Margaret Brennan made a few interesting observations about luxury this week, triggered by the proposed purchase of Valentino by private equity firm Permira Advisors. This buyout is an example of a private equity firm paying a great deal (€2.6 billion) for a brand itself—past private equity purchases in the luxury / fashion retail space (such as Texas Pacific’s purchase of Neiman Marcus) had a great deal to do with the value of the retailer’s real estate.

Valentino is interesting because as Brennan notes, unlike other luxury brands it hasn’t made a masstige push and licensed out its name into high margin accessories. In Brennan’s opinion licensing brands “commoditizes them in a way that undermines the value of the name.”

This topic is no stranger to Janus Thinking. I’m of the opinion that when pursuing the masstige option, it’s a matter of keeping enough exclusives at the high end to keep buyers feeling special, and educating them that the difference at the high end is worth the price premium (without alienating the buyers of the less expensive goods who are really helping the bottom line). It will be interesting to see, if the purchase goes through, whether Permira will force Valentino to license its name.

Earlier this month the Luxury Institute released a survey that found that when buying a handbag, men in the US are more concerned with the label than with the price compared to women. 73% of men looked first to the label when buying a handbag (compared to 50% of women), and men were three times as likely to choose Chanel.

It would have been interesting if the Luxury Institute had determined (or at least released) what the actually percentage of spending on handbags is for men versus women. I have a sneaking suspicion that women purchase the vast majority of handbags for themselves and men buy only a tiny percentage as gifts. US leather goods seller Coach was the most familiar brand of designer handbags, recognized by 52% of respondents. 24% recognized Gucci, 22% Louis Vuitton and 21% Prada.

This makes sense—Coach bags are relatively mid-range (costing several hundred dollars) compared to European labels whose bags can cost in the thousands. Men may choose the fancy bags on the basis of brand but women are buying more of the cheaper Coach bags as they’re less concerned with label compared to other factors like price and quality.

If it is true that women buy the vast majority of handbags, the marketing challenge is then to get men to buy more handbags for women. This completely opposes the status quo in the jewelry industry, in which the goal is for women to buy more jewelry for themselves.

This week Toyota announced a new luxury performance sedan, the Lexus LS600h L. At $104,000, it’s the most expensive car ever offered by the company. Decked out in leather and high-tech amenities, the car goes from zero to 60 miles per hour in 5.5 seconds and has 438 horsepower. It’s also “green”—its hybrid gasoline-electric engine gets it better gas mileage than a gasoline engine alone.

But is it really the perfect car for the rich but environmentally-conscious consumer? I can’t say I think so.

I don’t want to go so far as to call putting a hybrid engine into the car a gimmick, as it’s surely a well-engineered, luxurious vehicle (and admittedly it does emit less pollution), but the car only gets 20 miles per gallon in city driving. That’s less than many non-hybrid sedans and only a third of the city mileage that Toyota’s first hybrid, the Prius, gets. The Prius is also a quarter of the LS600h’s cost.

You don’t exactly scream environmentally-friendly when you’re using more petrol than many non-hybrid cars. Are consumers wealthy enough to spend six figures on a car are concerned about this? For now it’s unclear, but car makers and other luxury businesses are increasingly offering green choices.

The fruits of green technology should themselves be green, but this Lexus isn’t (or at least isn’t as green as it could be). As consumers become more aware and discerning of green choices, they may want a car with four times the gas mileage of the Prius if they’re spending four times as much.

Is it connoisseurship when people overpay? Shouldn’t they know better? Or are they just putting their appreciation of the object they’re buying above all else?

I pose these questions after Sotheby’s and Christie’s held fine art auctions this week. Souren Melikian posits in yesterday’s IHT that the link between the price paid for items and the artistic achievement displayed was tenuous at best. Sure, these were one of a kind pieces from some of the masters—but if nothing else bidders were inconsistent. At Sotheby’s, a Cezanne watercolor went for an “unthinkable” $25.5 million, but was quickly followed by sketches that went for a “modest” $2.28 million and an “absurdly low” 1.27 million.

Melikian acknowledges that it is difficult to tell what the price of a very rare work of art should be, but two paintings that were certainly worthy, a “breathtaking masterpiece” by Maurice de Vlaminck and a “beautiful” painting by early Impressionist Eva Gonzales, found zero bids.

Of course the bidders were paying what they thought was a fair price for the art—but if the art lacked the quality and aesthetics expected for how much was paid (at least in the opinion of the IHT reporter)—can we consider the buyers to be connoisseurs? Maybe. Beauty remains in the eye of the beholder / holder of wealth.

When items that were once exclusive, sought after and expensive become commodities, branding suffers. 2 examples:

The Wall Street Journal had an interesting report this week about the recent pet food contamination incident in the US. A bad batch of wheat gluten caused more than 60 million cans of pet food to be recalled.

Pet owners were surprised to learn that a single company, Menu Foods Inc., manufactured all this pet food for dozens of competing brands. While the recipes (and supposed quality) differed, the contaminated wheat gluten did not.

“The sheer magnitude of how many branded products come from one source erodes the whole basic premise of what branding is in the eyes of the consumer — they feel duped,” says Eli Portnoy, who heads Portnoy Group Inc., a Los Angeles-based brand-strategy firm.

Pet food is especially interesting because its purchase plays upon the emotions of pet owners—no pet owner wants to “mistreat” his or her pet by giving them bog-standard pet food. Jack Trout, president of a marketing strategy firm in Connecticut said:

If the public begins to get the perception that there’s not much difference, then you can’t hold your prices — that’s the bottom line of the whole [pet food] scandal. Commoditization is the real enemy of branding.

Commoditization is also happening in electronics. Wal-Mart, with its extraordinarily efficient supply chain, got the ball rolling towards making flat screen televisions commodities by offering 42–inch sets for less than a thousand dollars during the past holiday season. This significantly undercut “big-box” retailers such as Circuit City and Best Buy; they had lousy first quarters because demand for their more expensive TVs dropped.

Wal-Mart offered both little known brands (Viore) as well as mainstream brands (Panasonic) for significantly less than competitors. I can imagine two things going through customers’ heads as they’re staring at TVs in a Wal-Mart: (1) there’s no reason to pay more for this well-known brand at another retailer and (2) the difference between this well-known brand and this unknown brand is pretty small—let’s get the cheap one.

Effective marketing can combat these sorts of thoughts and bring luxury back into the equation. However, this is difficult when people are reminded by things like the pet food scare that the products they select might not be as different as they seem.

Yesterday the New York Times published a revealing review of Tom Ford’s much ballyhooed new men’s store in New York City.

The reviewer, Horacio Silva, walked in to the store one day expecting massive amounts of attention to match the massive amounts of money that Ford wants for his designs (day shirts from $350 to $795, off-the-rack suits starting at $3,000, silk pajamas $1,900, monogram not included). The store offers a ridiculous amounts of choice, so much that shoppers almost require a steward or guide to help them find things in “unwelcoming,” “border[ing] on claustrophobic” areas of the store.

But Silva was offered no assistance, and gruffly informed by a security guard that he couldn’t go upstairs to the “appointments only” part of the store. When he made an appointment for the next day (and the staff found out that he was a Times reporter), the store and staff were welcoming and pleasant—”Champagne and smiles all around.”

Tom Ford has spoken a great deal about wanting to redefine luxury and create a truly sumptuous store. But the exclusivity he’s trying to cultivate depends upon treating everyone like a VIP. The store may drip luxury, but “Brand Ford” will suffer it doesn’t back up the luxury idea of the brand that Tom Ford has worked hard to create.