Almost a year ago I published an article titled “Value for Money?” (http://www.janusthinking.com/2012/07/value-for-money/), questioning the logic of this economic axiom. I proposed instead that we should examine an offer either along its money (cost) parameter or along its value one. This basic approach (value or money) is not only mine.

Daniel Kahneman and Richard Thaler, the Nobel laureates in economic sciences in 2002, already questioned the microeconomic theory that people can relate interchangeably to an item or to its monetary value. They demonstrated that the perceived value of an item actually changes. Specifically, Kahneman and Thaler, among others, empirically proved that ownership has a tremendous effect on an item’s perceived value. Observation of a myriad of domains, ranging from everyday items such as coffee beans and mugs to nonmarket items such as air quality, has shown that people value more those items they already own. Hence, when they want to buy they will pay less than what they would charge when selling the same item.

The reason behind this discrepancy is psychological. People are loss-averse, meaning that they put more weight on losses that they do on equivalent amount of gain. Correspondingly, people focus on different parameters when buying versus selling. In short, economic exchanges are not about trading money for a particular value, but about the psychology of the buyer and seller.

This modern behavioural economic view is not new. The Talmud distinguishes between money, which is used to purchase, and the item purchased, which the Talmud coins “fruit”. This view leads to interesting discussions. For example, when we borrow money, we have to pay attention to the currency we borrow in. If, in America, we borrow 10K€ Euros that we then exchange for $10K dollars, did we borrow money or did we borrow a kind of item/value that we then exchanged for money? This specifically becomes an issue when returning the loan. What if the Euro dropped relative to the dollar during the course of the loan and now the 10K€ loan is only worth $9K?
If we consider the American dollars we received in exchange for the Euros to be the money, and the Euro to be some sort of value – we only have to return $9K – which is currently equivalent to the value we originally borrowed. But if we relate to the Euros as money that we borrowed, we would have to return €10K.
Introducing the term “value” adds a new dimension, which is discussed in the Talmud as well. An item might be of a certain value to one person and of a different value to another. Hence, we always discuss a chain of value-item-money which has a different meaning to different people.

Recently, I reflected on these ideas when the new Israeli finance minister announced his initiatives for the forthcoming annual budget. One of Mr Lapid’s questions during the election was, “Where is the money?” reflecting on the enormous deficit of over $10 billion in Israel’s budget. As we read now, Mr. Lapid’s initiative is to fill the gap by cutting the budget, raising taxes or getting the money somehow. It seems that Mr. Lapid really doesn’t care where the money is going to come from as long as he can fill up the deficit. It is a power struggle and the budget cuts are based on skirting the people resisting them or not stepping on those with a popular cause. But is this the right way to go?

Having a balanced budget is important but, as we discussed, what counts are the values we seek. Mr. Lapid needs an agenda that he is building toward – even if it is simply economic growth. With a limited budget in one hand and clear values in the other hand, we can start looking for the “fruits,” or items we should spend on so as to fulfil our values’ needs.

As a leader, the task is especially difficult. Israeli society is far from being homogenous and many sub-groups have different and even opposing agendas. Nevertheless, a leader must find a goal, a flag to unify the nation behind. It is not always possible to find one common denominator, although it is possible, as we have witnessed, when going to war. However, we don’t need war to find one big goal, deeply rooted in life values, that seems worthy to pursue. Such a goal is based on values defined by Milton Rokeach as long-held, difficult-to-change beliefs. These are the kind of beliefs, which when looking back we leave this world, make us feel that our presence on earth was worthy despite all difficulties. This kind of goal provides hope and stimulates the entire nation.
I keep searching for a goal like this in Mr. Lapid’s financial program. Unfortunately, his agenda seems purely money-oriented. I do not find in it any larger goals or values. Yair Lapid, where are your values?

We are happy to announce that we opened our page on Facebook. Our Facebook page is for you. You can post whatever you wish. It is less formal and I would be delighted to comment on those posts which I find that I can comment in more detail.

While I will try to enrich the page with your help, i was surprised to see how helpful a simple presence on Facebook can help.

Measuring Janus Thinking’s reach I am happy to see how many are checking the blog daily. come and let’s make together a better world to live in.

Hope to see you on Janus Thinking page,

Isaac

I am an avid reader of Issamar Ginzberg’s blog (www.issamar.com). Issamar claims that he is self-educated, which is not entirely true. Growing up as the great grandson of the Grand Rabbi of Nadvorna OBM he could not avoid being exposed to the pearls of wisdom that his grandfather and uncles provided to those seeking help. Just listening to the hundreds of medical, family and business issues that his forefather dealt with successfully is the best education one can aspire to have.

Though Issamar is aware of the need to be empathic with the customer, he cannot show a level of empathy akin to that of his forefathers, who were able to totally immerse themselves in and live the problem of the other. Those holy men always based their answers on knowledge and not on interpretation. Empathy goes hand in hand with knowledge. Interpretation is based on the interpreter’s subjective experience and worldview and can therefore, prevent a person from understanding another’s situation and showing empathy.

I was provoked by one sentence that Issamar wrote that perhaps exhibits this lack of empathy: “diamonds are […] considered horrible when someone getting married doesn’t buy a diamond engagement ring… which, from a financial standpoint, is a bad investment”. Issamar attributes the need for a diamond engagement ring to the brilliant marketing campaign of De Beers, but is he qualified to make such a claim?

Issamar belongs to the ultra-Orthodox Jewry.  His marriage was pre-arranged by a matchmaker. For marriages like these, most of the “dating” is done by the couple’s parents while the young couple meets for a few hours at most, to provide their final approval. Issamar never proposed marriage to his future wife nor was he involved in purchasing the diamond ring that she got as part of her dowry. So, not even being part of the world in which engagement rings play an important role – can Issamar really make a statement?

Comparatively, in a world of courting one’s girlfriend and where the burden of proposing marriage lies squarely on the shoulders of the groom, offering a diamond ring makes a lot of sense.  The seeming romance of the situation, combined with the need for the man to offer something symbolic of the newly forming commitment in exchange for the woman’s consent – are good reasons for diamond rings to have become the standard engagement gift that they are today.

On the surface, it looks as though Issamar’s path to marriage is radically different than the modern man’s. His traditional standard for dating and marriage did not include romance and made him cynical toward the modern practice of buying engagement rings. But is Issamar really so different from the modern man in his pursuit of a spouse? The interviews I conducted tell a different story.

I was fortunate to interview many men married for different lengths of time, including one who has been happily married for over fifty-seven years. All have one thing in common when asked why they proposed marriage to their wife. None of them said that it was out of love. People sat with me for several hours, discussing their preparation for engagement, now with many years to reflect in retrospect, and one word was missing – love. Why is that?

One way of understanding why love may not be integral to choosing a life-partner can be explained by George Kelly, the father of Cognitive Psychology. Kelly posits that individuals explore in order to evolve and sustain an optimal scheme for anticipating events. Thus, one would choose marriage if it appears to provide him with the opportunity to enlarge or secure his anticipatory system. While it carries some uncertain implications, eventually he hopes that through marriage, his world will become more predictable. In short, marriage, according to Kelly is the realization that one is able to have a more predictable, fertile, and evolving life with the woman of his choice at his side.

Given Kelly’s approach, it looks like the men I interviewed knew what they were doing by not marrying out of romance or love. It also seems that Issamar may have made an optimal choice. If, as Kelly says, married life is about a better future and about dynamic evolution, fertility, and development of the anticipatory system, the less we know the woman (and the less we choose her out of love), the better marriage will serve us. As Kelly says, if future events are already known there would be no evolving in the direction of optimal anticipation of the future. “Marriage would introduce him to no fascinating future. He already knows the woman. For her to be his wife would add nothing to his experience. He already knows all there is to be known about marriage. Married life is cut and dried. Why marry?”

Though Kelly’s description is not the only reasoning we can give not to marry purely for love, it opens us up to the idea that there can be much more behind an engagement than simple romance. Issamar’s process of choosing a wife may not be that different from the modern man’s after all. Had he realized that even within this non-romantic framework, proposing with an engagement ring plays a role, (the role of self-expression for the man) perhaps he would have been less critical of the practice.

I don’t expect the world to follow Issamar’s practice of pre-arranged marriage. Nor do I hope that the world follows this approach. I prefer a bit of romance; after all, my business does benefit from this romance. However, I have learned that, at least from a business perspective, it is important to bring a man to realize that when proposing and purchasing the diamond engagement ring there should be much more to it than romance. We successfully demonstrate this lesson at our venture in Raleigh NC – Kahro Diamonds (www.kahro.com).

One last word about Issamar, who I personally don’t know. It really doesn’t matter what Issamar wrote; what counts was how I was provoked by his writing and this is actually the secret of good marketing.

Six years ago, in one of my first blogs, titled:  What is luxury? “The no-need need”, I introduced the reader to the six attributes of luxury as first proposed by Dubois and his colleagues. The six attributes are:

1. Extreme Quality
2. Expensiveness
3. Scarcity
4. Aesthetic Appeal
5.   Superfluousness
6. Time Incorporation

Though Dubois and his colleagues established these attributes based on empirical research, my research provided a theoretical basis for them, and showed that there are no more and no less than these six attributes. As I progressed, I also found that these attributes can be understood in a more abstract way such that they can be applicable in any case when personal choice is manifested. Consequently, I showed how these attributes are manifested in leadership and organisational behaviour, for example.

Regarding these attributes, J.P. Kuehlwein of Classified Branding commented a few weeks ago as follows:

I don’t think criteria like quality, scarcity or expensiveness can be assessed objectively.  In fact, if objective assessment was possible, it would make it irrelevant for luxury brands.  That is because luxury brands live on perception.  All brands do – otherwise the product becomes a commodity – but luxury brands particularly depend on perceptions because most are bought to make us feel a certain way and/or make us be perceived in a desirable way rather than to serve a utilitarian purpose.  You don’t buy a Louis Vuitton suitcase because it is practical or long lasting.  Its celebrated craftsmanship served to make it practical a hundred years ago.[…]  A middle-aged man does not buy a Ferrari because it is comfortable, reliable, economical or in any other way ‘rational’.  Emotional needs are the main drivers.

Luxury brands also do everything to NOT be comparable. Nespresso tries everything NOT to be compared to a homemade cup of coffee.  It wants to be seen and experienced as an incomparable gourmet snob experience.  Did you read that Starbucks loses in blind tests to Folgers coffee?

So, it does not matter if a TVR, Ferrari, or Land Rover is not reliable, that is not the criteria by which the buyers assess them.  It does not matter that Nespresso is (no longer) physically rare, as long as it succeeds to remain a rare experience in the mind of the drinker and host offering it to her guests.  And a Hummer is beautiful in the eyes of the beholder because it expresses the virile masculinity they want to project.

Mr. Kuehlwein makes an important point, and I agree – the six attributes are assessed subjectively. This is one of the reasons that these attributes can be applicable in almost any situation. A person can always perceive an item to be scarce, have aesthetic appeal, be superfluous etc. However many luxury users are unaware of that they assess luxury according to these attributes. My research, which is based on a system that listens to the inner voice of the consumer, has nonetheless shown that people use these six attributes even when the meaning they give to them is subjective.

These attributes do not need to be present in an item in an objective sense. Buyers perceive items to have these qualities, or interpret the items to have particular meanings to them.  This interpretation is always emotional and never logical. Nevertheless, interpretation of luxury follows a very distinct model.

Even though the six attributes do not need to be present in luxury in an objective sense, they are still a core part of luxury buying. Understanding how customers perceive these attributes in products enables us to satisfy our customers more fully and sell luxury successfully.

A recent article in the Economist of October 27^th, titled “The rise of no-name designers”, illustrates how some online companies have succeeded in creating the necessary cachet for their products without using brand building. For example, Naked Wines, the UK fastest-growing online wine distributor sells wine from New Zealand, bypassing the middleman. However, Naked Wines does not sell cheap wine. To the contrary, they look for the yet unknown, high-quality wine that can still be purchased at a cheap price. Naked Wines reduces prices by buying their wines in bulk and shipping directly.  Needless to say, they have to offer new wines every week and for the sake of their reputation, they need to be careful what wine they choose to offer.

Ning Li, the founder of Made.com discovered that furniture sold on the UK high street is made in his China hometown, Foshan, at a tenth of the price. He sells similar quality furniture at 50-60% of the high street price, cutting showroom expenses.

Now that people can get good quality, no-brand goods for cheap prices, is luxury as we know it going to disappear? Are we entering the world of brand-less, cheap “luxury” as the Economist claims?

Not so, in my opinion. The Economist made a common mistake here and monitored a change in behavior. Of course, the way people behaved in the past has changed and people behave differently with technology nowadays. However, the author forgot to ask two important questions – “Why do people behave in this way?” and “How does this behavior (ie purchasing these products) satisfy what they’re looking for?”

The Economist was right in labeling as “luxury” the behavior behind purchasing online at Naked Wines and Made.com, despite these products being cheap and their brand unknown. However, it was not aware of the ‘why’ question, i.e. why people buy these products. The ‘why’ question – or people’s motivation behind buying is what makes this behavior true luxury, and not some modified version as the Economist might have thought. The ‘why’ of luxury is that it enhances our self-esteem. If a way of purchasing enhances self-esteem, as the above kinds of purchasing do, you’ve found a luxury behavior.

Luxury often comes in disguise. In 2001 Casella wines, an obscure Australian wine producer, successfully introduced [yellow tail] wines to the highly competitive wine market and by 2003 became the most sold wine on the US market, outstripping California labels and selling more than all imported French and Italian wines combined. [yellow tail] was presumably cheap: a bottle was purchased for the same price as a six-pack of beer. On its face, it looked as if US consumers were shunning prestigious labels (shunning luxury) and buying cheap wine instead. However, [yellow tail] was never competing with wine; it was competing with beer. Their market was fun, social, drinkable beverages. They claimed that if you’re looking for a good beer, you should choose their wine instead. Actually, [yellow tail] was selling luxury beer.

Naked Wines approached luxury from a different angle. Their claim is that they are ahead of the times and the wine they sell today might fetch higher prices once it becomes famous (and the chances for becoming so are high). They tell the customers that they do not buy the brand of yesterday, but the brand of tomorrow and like any future option, these brands come with a discount. In a way, these wines appeal to the customer even more. Being innovative, smart, and ahead of the pack are all self-esteem enhancers. Naked Wines sells luxury.

Made.com interpreted luxury from another angle, revealing the weakness of luxury brands. Most, if not all luxury brands are not owned by their founders, but are run by professional managers who care about the bottom line first. Consequently, in order to reduce manufacturing costs, most items are manufactured in cheaper countries – China – in this case. Made.com does not have to offer high quality per-se. Instead they offer comparable quality claiming that they manufacture their furniture on the same premises as luxury brands and at comparable quality. They tell the customer to be smart without compromising on quality or design. Doesn’t this practice also enhance self-esteem?

Labels can be misleading. We may have a certain image of what is and what is not luxury. When we see a case that does not fit our image, we may think that luxury behavior is changing. Though we’re tempted to look at companies like Naked Wines as a “brand”, we call it a “no-brand brand” because this allows us to preserve our previous image of what a brand is. However the image we have of luxury is probably a superficial one. Cheap, no-brand luxury was never fundamentally different from expensive, brand-name luxury and it is not going to replace it.

We should not be asking “What is luxury?” but rather “What does luxury do for a person?” Looking for what luxury provides to a person, what luxury does, so to speak, would cause us to delve deeper and start asking why luxury exists in the first place. From there it is easy to confirm what King Solomon said 3000 years ago – there is nothing new under the sun.

Internet technologies in general and mobile devices in particular allow us certain independence. For example, today, many people book their flights online, check in online and get an electronic ticket, and use their mobile device to show that ticket at the gate. Unfortunately, these technologies can potentially be exploited by our service providers.

A recent study illustrates how financial service companies are promoting the idea of the self-service customer. These financial institutes provide increasingly sophisticated self-service information, used especially on mobile devices, to help people find various financial offers, compare between various products and services, and manage their accounts. The author raises two interesting points. Firstly, he argues that self-management may lead to more and more customers making wrong decisions without the help of an expert. While the author proposes some suggestions for overcoming the lack of expert service, much has yet to be accomplished to put such a service on par with the current offline practice.

However, the interesting nugget in my opinion lies in companies’ reasons behind their online services. The author states: “many financial service suppliers are under pressure to improve efficiency and margin, in some cases to increase the contribution to improving their balance sheet in the wake of the problems of the last few years. This financial pressure is leading some of them to choose the perceived win-win of a self-fulfilled customer experience with minimal staff intervention.”
These financial institutes are self-concerned. They see their margins eroding and their balance sheets heading south and they look for ways to offer an efficient service while cutting overhead and excessive staff. What is wrong with their approach is not that they are striving for greater efficiency, but that their main motivation is self-concern. While they claim that they want to offer a win-win solution, all that is sure is that they are winning. Whether the customer wins is unspoken for. What is wrong here is not what these institutes are doing, but what is behind it – concern for their own issues.

An example on the other side of things –Starbucks started enabling customers to use their mobile devices to order their preferred beverage online, pay for it by waving a barcode on their mobile device in front of a scanner, and send invitations to friends to meet at a certain coffee shop, complete with a map and the option to order their favourite beverage en route to the store. The report that appeared on Bloomberg is full of financial data. It shows that Starbucks invested $25 million in the venture, that Starbucks hopes to pay fewer fees on credit card transactions, and that Starbucks hopes the system will make the company more efficient and increase its sales.
Again, the interesting nugget is not what Starbucks is doing but why it is doing it. Years ago, Starbucks discovered that people are ready to overpay for their coffee and since then sells coffee at a premium price, as luxury. However, the luxury is the cup of coffee, not the experience of purchasing it, which can actually become a drawback. Being the provider of a mass-market luxury therefore, Starbucks suffers from its success. During peak hours people waste a big part of their lunch break standing in line and waiting to be served. Starbucks’ offer started to become a burden. Starbucks found a way to peel off that burden while keeping its luxurious offer intact. With its new program Starbucks manages to offer its luxurious coffee again without taxing its customers. Was it a sound business decision? Of course, more people will buy this expensive offer more frequently, Starbucks will operate more efficiently, and ultimately increase its bottom line. However, the customer only appreciates this program because in his eyes, it is for him and not to enrich Starbucks. Ask the happy customer and he’ll tell you that Starbucks is concerned with the customer’s needs.

Over time any offer should be updated to incorporate new technologies and new social behaviours. Nevertheless, we should not lose our focus. If we focus on our own needs, we will eventually be punished by the customer. However, if we use the same technology, but focus on the customer’s needs, we will be rewarded handsomely.

The luxury world’s relationship with the counterfeit industry is puzzling. The counterfeit industry seems to cannibalize the luxury industry by offering products that presumably people would have bought from the luxury industry in the first place. However, as I commented in the past (I need to find the article) the luxury industry does not fight the counterfeit one wholeheartedly.

The luxury industry has very good reasons to allow the counterfeit industry to exist. Having counterfeits means that the original has increased status, as Prada’s CEO announced recently, “We don’t want to be a brand that nobody wants to copy.” The counterfeit industry allows the wider society to become fans of the brand while those who use the true product feel more elite and more respected. More significantly, a Sloan MIT business professor Renee Richardson Gosline found that people use counterfeit as an entry-point to luxury. Gosline discovered that within two years, 46% of buyers of counterfeit subsequently purchased the authentic version of the same product they had purchased the counterfeit of — even though other people could not necessarily tell the difference.

However, there are problems with buying counterfeits. James Lawson, director of Ledbury Research, points out that most of the time their quality is inferior and it is socially uncomfortable to admit to using a fake. Therefore Lawson suggested that renting luxury products could become a superior substitute for counterfeits, and provide an entry-point to the brand as well. Renting genuine luxury products seems to offset the problems of low-quality and social discomfort associated with fakes. One can experience the thrill of having true luxury products at a lower cost, and then return them later.

It is true that renting luxury may eliminate some of the problems with buying counterfeits. However, from the luxury marketer’s perspective, a major difference exists between them: the time span. People who buy counterfeits become accustomed to having the product in their lives. They identify with the brand that the counterfeit is imitating, and often seek to buy the real thing eventually. Renting luxury doesn’t give this experience at all. People have the great feeling of using luxury, but for a short time only. They don’t necessarily identify with the brand, and there is so far no evidence that they move on to buy the real product. While renting luxury may replace buying counterfeits in the short-term, it is clearly inferior from the perspective of being an entry-point to the brand.

I feel ambivalent about this increasingly popular phenomenon. I would argue that a major component of the luxury experience is purchasing a luxury item at a high price. Renting luxury does not provide a luxury experience just because it involves luxury products. Unlike counterfeits, it is also not an entry point to luxury. However, while it may not fit the definition of luxury, nor lead to a luxury experience, who does not want to be king, even if only for one day?

According to the economic news, Graff Diamonds, founded by Laurence Graff, recently pulled its IPO offering just before its deadline. At the time it had orders for just half of its $1billion initial public offering.

Who is Laurence Graff? Allow me to share a short story with you. Between 1998 and 2000, Enea Galucero, the late David Kiets – one of my colleagues at De Beers – and I tested the high-class jewelry market by sending people to pose as diamond jewelry shoppers along Old Bond Street in London. For the most part, they had horrible experiences in the most glitzy shops. But one of my “shoppers” had a great experience at Graff. She entered the shop, telling the salespeople she couldn’t afford a thing and that she was probably in the wrong place. Laurence Graff was present and, making her feel like a queen, managed to turn her initial impression on its head and almost convinced her to buy.

When the group of “shoppers” met afterwards, everyone wanted to know what Graff diamond she had been offered. However, even though she was a pro in diamond lingo, she was not sure whether the diamond had been round or square and remembered only vaguely that its weight was close to 1.5 carats. And yet she almost bought it! Graff had spoken to her, about her – and not about diamonds. With this approach, despite his diamonds going for prices of 25k and up – he was almost able to sell to someone with no intention to buy at all! One must bow his head when seeing such a master.

Sadly, now Laurence Graff seems to want to bail himself out of his diamond inventory by using part of the IPO proceedings to buy out his own diamonds. Does the master not believe in his own sales skills to turn his diamond stock liquid?

But he never saw his sales approach as his truly unique offering, and therefore did not spread that to his other shops. That was the mistake that put him in the position he is in today. Exceptional salesmanship – like Graff’s – sells; reputation is not enough. And now he seems to be jumping ship and just trying to liquidate funds. Hopefully Graff will overcome the current economic pressure. Even more so though, hopefully he will realize that his power is in his customer-oriented sales – and use that to appeal to more clients and build himself up.

A recent report by TAMBA notes that luxury brands, which shunned social media in the past, are embracing it much more today. Consequently, the report questions the status of exclusivity, a term that has been used interchangeably with luxury. The report claims that identifying luxury with exclusivity is an “old European myth” that does not appeal to today’s young, more democratic audience.

Showing the importance of social media among luxury shoppers, Kay Hammond of TAMBA points out several takeaways. First he claims that the notion of exclusivity is changing and that young people are purchasing luxury brands as a way of expressing personality as opposed to acquiring rarity. Secondly, he says that social media is about personal connection; despite its being seemingly removed from the customer, it is actually used to reach customers in more personal and direct ways. Lastly he proposes that luxury consumers are increasingly prominent social and mobile media users.

I think that some of Hammond’s claims are questionable. Throughout his article, Hammond refers to luxury products and services as “exclusive”, relates luxury to “exclusivity” in general, and then claims that “exclusivity” is an unappealing “old European myth”. However, throughout my years of research I never found “exclusivity” used to describe any facet of luxury. I personally do not fully understand what the term “exclusivity” is meant to convey. Though customers might use the term to inaccurately describe the value they find in luxury items, serious luxury researchers never refer to “exclusivity” when talking about luxury. Hammond presents a quasi-professional claim with no serious basis about “exclusivity” being related to luxury, and then claims that times have changed and this relation no longer stands. However, without first establishing what “exclusivity” is, it is meaningless to say that people shun it in luxury today.

A term more accurately used in luxury is rarity (which was perhaps what Hammond intended by “exclusivity”). However, without understanding what rarity it, it is impossible to judge its value among luxury consumers. Rarity comes in two forms, depending on the individual. Some see rarity in a product itself. To this person a diamond would be rare, since there is only a small amount of diamonds in the world. Others perceive rarity in the difficulty of obtaining a product. Such a person would not perceive diamonds as rare if he worked in diamonds because they would be easy to obtain, but would perceive as rare an antique Persian rug that took him years to acquire.

If you see that luxury consumers are less interested in certain items that are generally perceived as rare, that does not mean they are not interested in rarity. It just means that those items do not satisfy their definition of rarity. Rarity is not a European myth, although it is very old. Searching for rarity is based on a psychological need that is embedded in human nature and it is certainly still a part of luxury consumption.

Once we understand rarity, we can critique Kay’s claim that customers are concerned with “personality…over the notion of rarity.” Personality and rarity were never competing values. People use what they perceive as rare to express their personality. One person might use an unusual, handmade dress that she searched many stores to find to express her personality, while another might invest in an expensive pair of shoes to express his personality. Both perceive the items they acquired as rare. And both use those items to express their personalities. People did not choose the value of personality over the value of rarity – the two values work hand-in-hand.

Regarding Kay’s other claims about social media –though Kay may be correct that marketing luxury through social media is effective, we have to keep in mind that selling luxury is a different matter. Proper marketing and sales require a dialogue between seller and consumer. It is easy to engage in this dialogue face-to-face but difficult when our connection with our customers is purely technological. For most luxury products, selling requires establishing a relationship with the customer through direct contact – and for this contact, social media is not quite direct or personal enough. Perhaps established brands, such as Tiffany’s and Burberry, can cash in today on the successful dialogues they created over the years. However, it is worth checking whether these dialogues become richer and spread wider. Without continued direct contact with their customers, it is hard to imagine that they would.

Luxury consumers did not change, they simply changed the way they express their interest in luxury (which is something that will always be changing!) Rarity is and will always be an aspect of luxury. If we see luxury consumers losing interest in what we think is rare, we have to question what rarity means for them. Also, though social media is widely used by consumers and may be a useful tool for marketing luxury, it cannot provide the necessary personal dialogue between seller and consumer that selling luxury needs. Only being faithful to the principles of proper luxury marketing can assure us that we will thrive in today’s luxury market.

People sometimes ask me what is so special about Janus Thinking. In my previous blog, I positioned myself as operating within the qualitative research field. We cannot expect people to be fully aware of their deepest, most hidden motivations. Even when they are, not many would be able to express themselves in a coherent way. That’s why people use metaphors when discussing these motivations. For example, a customer called us and asked us to visit him. When we agreed upon a date he asked us whether we were going to offer his staff some training. However, when we asked him what issues he wanted us to address he said: “With me, it’s different”.  Well, the customer did not invite us to check what his problems were but asked for ”one size fits all” training while telling us that whatever we were going to provide would be rejected because with him “it’s different”. Some psychologists would use this as an example of how irrational human beings are, and criticize such behavior. But we think differently. There was a hidden message within that customer’s request, disguised within an oxymoron, which we needed to discover. Our client simply expressed his concerns in a very precise, yet illogical way. I do not know of any quantitative method which would be able to shows what exactly was on this person’s mind. Only systematic exploration could have revealed what those concerns were.

Well, Dichter emulated this approach too and we at Janus Thinking operate in the same manner, with a slight difference. To expand on this, I will explain a little about psychology. It all started with Sigmund Freud, the champion of behavioural psychology, who theorized that we have our preconscious and subconscious which guide us. Our motives are deeply hidden in our psyche and influence our behavior. Freud went on to develop psychotherapy, a dialogue between the therapist and his client to treat diverse psychological distortions. Over the years, different theories emerged and different techniques were introduced. However, all these techniques and theories had one thing in common – you need to delve deep into your client’s psyche if you want to really understand him.

Cupid and Psyche

Dichter was the first to adapt this approach to marketing. The popular maxim in marketing is that people   buy with their heart and attempt to justify their behavior, post-sale, with logical arguments. Dichter explored the first part of the maxim and gave it a scientific basis. However, he did not have the tools to address the second part of the maxim and did not understand the psychology of this logical justification. To understand what lies behind the logical justification we need to explore another branch of psychology, the cognitive one introduced by George Kelly in the 1950’s. Kelly’s theory, the Personal Construct Theory, postulated that “a person’s processes are psychologically channeled by the ways in which he anticipates events.” In other words, we constantly build theories that will arrange the world around us according to our own brand of logic. We see a series of dots and immediately we look for a pattern whether it exists or not. Using Kelly’s work, I was able to find out the way people try to explain their behavior. These justifications have nothing to do with our perceptions but with the format they use. However, understanding the language allows us to read between the lines. Again, one of the most important tools for discovering what lies behind these claims of logic is developing a dialogue with the client.

Each approach, whether Dichter or Kelly’s, has its own merit. When dealing in mass marketing, for example, then we actually try to go over the head of the salesperson to have a dialogue with the customer. We may find that in that situation, there is nobody there who is qualified enough to build such a dialogue at all. Things are different in luxury, for example because we mainly deal with our clients face to face. I haven’t met every diamond salesperson on the planet, but after thirty years I can recommend only three who are able to do a good job.

Dichter, following the tradition of behavioural psychology, faced an ethical challenge. Behavioural psychologists deal with our ugly hidden secrets that we try to repress. Taking these theories into marketing, there was always a sense of trying to manipulate the customer using sophisticated methods. Since Dichter was aware of this possible negative manipulation he tried in his books to persuade readers that this was not the case.

However, are our motives based on these ugly hidden, archaic and primitive motives? I don’t think so. The role of these unchanged, hidden values is to help us find our ultimate goals that are worth pursuing. Such a noble task cannot be based on ugliness and cruelty but on something very pure and beautiful. One man to address this in a professional way was Victor Frankl, the father of Logotherapy whose approach was to search for real meaning in life. Yes, this search puts the responsibility of searching squarely on us. We, as consultants, cannot advise because this takes away the responsibility from our client. Our job is to guide them to face reality, to discover their beauty within and to use it for self-development.

The marketing of luxury is a challenge. It is very easy to manipulate people to spend more and more; neuroscientists show that by acting this way we manipulate the region in the brain called Nucleus Accumbens which is responsible for our pleasure and laughter but also for addiction, fear and aggression. However, other areas in the brain can be influenced which are responsible for altruism, for example. As a marketer, understanding this and choosing the right way to use this is key to sales. And it needn’t all be about fear – when we manipulate the positive values of man then we can create through marketing someone whose self-esteem is enhanced, who is more refined, and who cares for the world around him.