A recent article in Marketing Week describes how the luxury goods sector, as one of the few within general retail that has endured the muted financial environment, is marketing itself to its customers. Brands such as LVMH continue to post excellent profits and consider their outlook for 2012 as “excellent” whilst ordinary high street retailers struggle.

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As a result, more and more brands are reaching upwards to try and appeal to these high net worth consumers. But some marketers claim that there’s no secret formula to attracting the attention of luxury purchasers – and that tried and tested is the best way forward.

Peter Cross, business partner of Mary Portas at the retail branding agency Yellow Door comments that while luxury purchasers are now more open to value purchases and more discerning of what they actually buy, traditional luxury marketing is still very much at the fore.

“True luxury is still based on exclusivity, rarity and scarcity,” he says.

By making their most valuable customers feel special and singled out – for example, through special “gifts” that may not be available to other consumers – marketers are able to generate emotions of goodwill, rarity and exclusivity – as well as word of mouth from their customers.

Looking at this from the point of view of Janusian thinking, it could be argued that this classic “exclusivity, rarity and scarcity” tactic will affect one type of Janusian personality differently to another.

Lambdas, who seek achievement and uniqueness as an ultimate end goal, are likely to be very influenced by an individual, personalised gift or product as this will help them to stand out against the crowd – a key goal for Lambdas. Thetas, on the other hand, who generally seek acceptance into their social crowd, may find this technique attractive as it will help to establish themselves within their specific social class.

Within luxury marketing, one size does not fit all and marketers must remember that overarching “rules” may not suit every brand when considering a tailored strategy.

A recent article in the Financial Times discusses how Western retailers are attempting to capitalise on the Chinese love affair with luxury and woo high net worth consumers from that region.

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To coincide with the Chinese New Year, Affinity China, a luxury club for the wealthy Chinese organised a tour of New York where several brands “hosted” their high net worth visitors – among them Mont Blanc, the pen maker, which treated the shoppers instore to a recital by Lang Lang, the Chinese pianist.

These kinds of tailored experiences are just one of the ways that upscale Western brands are trying create and nurture relationships with affluent Chinese shoppers – and are discovering where the differences in these consumers’ attitudes lie.

Even when luxury stores accommodate Chinese shoppers by hiring Mandarin speaking staff and accepting the China UnionPay credit card, there are still contrasts. China engenders a “natural distrust” of overeager sales associates and many of the rich guard their privacy carefully – meaning that the cosy relationship Western luxury brands try to initiate with their most affluent customers is not a viable route.

Furthermore, as the desire for more flashy means of demonstrating their wealth recedes, there are many Chinese millionaires who are now interested in the provenance of their goods – or rather, what justifies the high price tag attached to them.

As per previous posts on this blog around the Lambda / Theta distinction of luxury shoppers, these kinds of Chinese consumers could be classed as Lambda – who see the item’s value not in terms of price, but rather, in terms of craftsmanship.

Victor Luis, president of Coach’s international business comments of these shoppers: “They are interested in understanding the history of the product, how it’s made, the quality, how to take care of the leather. ”

What do high net worth individuals look for in their goods? A recent study from the Luxury Institute has identified what attributes of luxury products affluent consumers value the most. Analysing wealthy consumers from across the globe with a minimum annual income of $150,000, the study found that the top attributes that they value are superior quality (73%), followed by craftsmanship (65%) and design (54%.)

Customer service is a key brand attribute that was cited by 47% of correspondents – and interestingly, one of the most important to Chinese consumers who cite it as a one of the main considerations. However, it’s also one that US consumers feel has deteriorated in recent years (34%,) alongside craftsmanship (17%.)

In China, however, satisfaction levels remain high. In the world’s most rapidly growing luxury market, 63% of affluent consumers say that customer service has improved and the vast majority applaud higher quality, craftsmanship and design.

Previously on this blog, entries have explored the success of those brands that tap into their customers’ emotions, providing a positive experience and remaining relevant to their contemporary customer through multichannel platforms such as social media.

At Janus Thinking, consumers are characterized into two different groups – or world views – Lambda and Theta, which explain how our different personality types influence our choice and perception of luxury.

The Lambda personality will see an item’s value not in terms of price, but rather, in terms of craftsmanship. If the item has taken a long time to make, is unique or has a story behind the item’s creation then it is more likely to be valued by a Lambda. On the other hand, if the item is attractive, and something that’s likely to establish them within their preferred social class, it will be valued by a Theta.

While the luxury industry identifies what attributes customers value in their goods, it is a good time for brands and retailers to understand how consumers’ core differences can assign different values to luxury items.

A recent article in the Sunday Times writes that manufacturing is on the rise in the UK, particularly when it comes to the creation of luxury goods. It reports that a number of high-end fashion houses are using not only British materials to create these goods but are also using UK factories to manufacture them.

British success story Burberry hand-makes its trench coasts in Castleford, Yorkshire. Pringle, the Scottish knitwear retailer, creates its goods in a factory in Hawick, Scotland. And it’s not just UK brands that are sourcing and manufacturing in the British Isles – even the European and American fashion houses such as Chanel, Prada and Ralph Lauren manufacture their own cashmere, tweeds and shoes in the UK.

As provenance becomes less of a marketing term and more of an intrinsic demand for affluent consumers, the appeal of manufacture in the UK becomes obvious. Buying a British-made product is seen as akin to buying a quality investment piece, with lasting appeal.

Says James Eden, managing director of English outerwear brand Cooper & Stollbrand: “People want more understated, credible garments that are steeped in authenticity.”

Sustainability is also a key factor of “buying British.” There are no ethical concerns for either manufacturers or consumers around UK labour laws as with lesser economically developed countries; all goods are created under EU labour directives. And of course, the amount fashion miles within the supply chain are significantly reduced compared to manufacture in the Far East.

There are a number of factors that influence consumers’ buying choices – at Janus Thinking, these consumers are separated into two categories; Lambda and Theta.

For a Lambda, the provenance of British goods would be the key attraction – knowing that they are purchasing a product with an impressive history embedded within it. For a Theta, the appeal would come from the high-end brand and the well-known cachet of “buying British” amongst their social group.

All of this would mean little without significant demand for products that are “Made in Britain;” however – Burberry’s recent financial results indicate that their appeal is not only widespread, but looks likely to continue.

A recent article in the Wall Street Journal wrote that Richemont, the Swiss luxury goods group, has reported third-quarter sales of €2.6 billion ($3.3 billion) – in no small part down to its Asian, and in particular Chinese customers.

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The Asia-Pacific region cemented Richemont’s position as one of Europe’s most important luxury manufacturers, with results of €1.05 billion, 36% up from the previous year. However, it is not only the domestic Chinese market that is prompting such strong profits. Sales in Europe also rose 16% to €914 million as Chinese tourists are purchasing the group’s goods – with items such as Cartier jewellery and Jaeger-Le Coultre watches finding favour – whilst visiting European cities such as Paris, Rome and Geneva.

Bernard Fornas, chief executive of Richemont’s Cartier brand commented: “The number of Chinese tourists is growing… and will help to “cushion the landing” in case things get worse in Europe’s economy.” 

As previously discussed, South-East Asian demand for luxury looks set to continue. Sparkle Roll Trading Development, a distributor of luxury goods in China, has five boutiques in Beijing and Shanghai selling Richard Mille and Parmigiani watches – with the average Parmigiani watch costing around 68,000 Swiss francs ($71,882).

“Sales are really good at the moment. At one of our boutiques we sold 60 watches in one month,” commented Mr. Firth, Sparkle Roll’s Chinese Marketing Director. By comparison, their stores in Europe sell on average five or six watches a month.

The year 2012 – which in Chinese horoscopes is the Year of the Dragon – is also affecting luxury sales. Chinese New Year is on January 23, with the emblem of the dragon being symptomatic of wealth, royalty and nobility. To celebrate this, independent watchmaker Parmigiani has created a dragon clockwork automaton crafted of white gold, imperial green jade, rubies, sapphires and a diamond.

At Janus Thinking consumers are characterized into two different groups – or world views – of Lambda and Theta, which explain how different personality types influence our choice of luxury.

The Parmigiani automaton might appeal to Lambda consumers due to the level of its craftsmanship, its uniqueness, and the fact that it there is a meaningful story behind its creation – rather than because of its price.

Theta consumers, however, will be attracted to such an item as it is a one of a kind, high-end design, and its high price helps to establish them within their preferred social class. Thetas seek acceptance, and their purchases reflect that.

Priced at 3.5 million Swiss francs ($3.7 million,) regardless of whether Theta or Lambda, its purchaser will no doubt have a strong affinity with the symbolic dragon.

A recent article in the Economist describes how Ernest Dichter, “the Freud of the supermarket age,” transformed marketing in the USA through his behavioural research and ground-breaking ideas around the role of the unconscious in sales.

Dichter was convinced that traditional analysis of consumers (at the time carried out through speculative and somewhat slapdash polling techniques) offered very little insight into buying psychology and presented a limited view of what makes consumers opt for one product over another.

Rather, by advocating in-depth psychoanalytical research in lengthy interviews, Dichter gathered that subconscious urges and socialized inhibitions are what affects consumers’ buying habits. Furthermore, Dichter understood that possessions are extensions of our own personalities, serving as “a kind of mirror, which reflects our own image.”

I have argued previously that luxury marketers must focus on the human characteristics that drive consumers. By a simple characterization of consumers into two personality types – Theta and Lambda, I created a dichotomy that allows marketers to better understand how consumers behave according to their values, unconscious motives, and desires.

The Theta personality seeks affiliation and control as an ultimate life purpose, so they seek acceptance to fit in within a desired group and use socially-derived understandings of product characteristics as a basis for their consumption.

Lambdas, on the other hand, seek achievement and uniqueness as an ultimate end goal, and so are more likely to interpret products based on their individual responses to the product, how it helps or prevents them to stand out, and how the product benchmarks against their regular consumptive patterns.

Today, in addition to the empirical analysis marketers carry out through geographic location, gender and income, new research and developments based on neuroscience show that Dichter’s insights are coming back into fashion.

I am often asked about the connection between my two areas of interest, namely organisational behaviour and luxury marketing, since they seem not to have any connection at all. My response typically points to the gap between two schools of psychology, one of which is called behavioural psychology and the other cognitive psychology.

The behavioural school is closely linked to people’s physiology and reflexes. It gained wider fame from the experiments of Ivan Pavlov who caused his dogs to salivate whenever they heard the ring of a bell because of its association with feeding time, despite some having had their throat slit and being unable to eat. Pavlov influenced two well-known American psychologists, J.B. Skinner and J.B. Watson, who followed his experiments and further showed that it is possible to influence behaviour.

Most of us are now familiar with the result of this school of behaviourism. Marketing campaigns are mainly based on the findings of this school, and we are constantly influenced to purchase one product or another. The fashion industry uses this knowledge as well by telling us how to dress, and celebrities are used as role models to put social pressure on us to copy their behaviour.

However, under the surface runs a different current. Many of us were brought up on the idea that “money talks”. After all, were we not incited by sales and discounts of all kinds, the industry would have abandoned this practice long ago. However, many studies show that monetary incentives do not play an important role in people’s decision-making. When asked, people place cost and other similar money matters at the bottom of the list even when choosing a bank. So who is right in this debate? Is it the researchers looking at cognitive views or the marketers who influence behaviour by offering us sales and discounts?

The answer is that both researchers and marketers are correct. There is a gap between what we say and how we act. While we say that money does not matter, we behave differently and we are enticed by monetary offers. I recently met an executive who explained this phenomenon succinctly. When commenting on the huge bonuses that executives receive, sometimes even when their company fails, he told me that even when people receive these fat bonuses their heart tells them a different story. By referring to people’s hearts, this gentleman actually talked about our values and worldviews which are not in sync with our behaviour.

So, how does out heart function? Back in 1955, George Kelly published his seminal work, The Psychology of Personal Constructs, based on his 25 years of clinical experience. This work describes how people interpret and anticipate their personal experience. Kelly was able to describe the rules upon which people interpret and the meaning they attribute to the events in their lives. Explaining the meaning and interpreting events is a verbal exercise and as Kelly noted: “If you do not know what is wrong with a person, ask him, he may tell you.”

However, the language we use to describe our experience is metaphorical. That means that we do not express the meaning we give to an event in a mere poetic way and even our conceptual system that is guided by our values is metaphorical, emphasising certain aspects and hiding others. In other words, different people will explain their worldview in a different language that reflects their values or conceptual system.

Our conceptual system is not something of which we are usually aware. One of Kelly’s last students, Dennis Hinkle devised a system to record this conceptual system. In my research, I provided the structure of this system and showed that two systems identical in structure, yet opposing in meaning, exist. I named one conceptual system Theta and the other one Lambda.

Looking at the behaviour manifested we now have two types of worldview to explore. The first one is the actual one which is influenced by all kinds of bias. Part of it is social and part of it results from a lack of awareness of our conceptual system and an unwillingness to follow it for various reasons. My research into organisational behaviour reveals the magnitude of that bias, which comes at a dear price. Not only does it cause personal damage leading to many phenomena of physical and psychological disorders such as addiction, neuroses of various kinds and more.  Acting not according to our values and worldviews damages the very fabric upon which our society is based and leads to social destruction and to corporate disintegration.

On the other hand, luxury enhances our awareness of our value and conceptual systems. When we use luxury, we pit our actual behaviour against our belief system and worldview; we become more aware of our worldview and act accordingly.

Hence,  I believe that whilst research into organisational behaviour highlights the tension between the two behavioural systems, luxury offers us the needed remedy.

Last month I attended the 10th European Corporate Governance Conference that focused on making corporate governance more effective. In addressing the many burning problems that the corporate world suffers from, many speakers offered a utopian, logical and rational solution. Unfortunately, nobody from the world outside the few people who attended the conference will ever pay attention to this. This happens again and again. Scholars point to flaws and have a wishful thinking that if we were to learn the lessons they teach and impose the rules they advocate, the world would be a better place.

Well, people won’t change and even when they listen they will not internalize the lesson and consequently, the world won’t change. For 2500 years we have been told that if we act rationally and logically we will understand the world. Yet even after Freud told us that we have to deal with our sub-consciousness and that nobody is immune from social bias, scholars still believe that it is possible to change this world if only we were acting rationally and logically.

At that conference, and on other occasions, I argued that my colleagues fail to recognize that we do not deal with computers or psychopaths or some economists and lawyers who seem not to have emotions and values. We all love and hate, motivated by our hidden agendas that sometimes we are not even consciously aware of. That is the essence of human material and if somebody doesn’t feel comfortable with everything he only has to look for some extra-terrestrial creatures to do the job.

On the other hand, I also claimed that we need to understand humans. If they are motivated by their deeply held values then our role should be helping people act upon those values and according to their worldviews. We do not follow our inner voice and when we listen to it we bias its recommendation. In fact, our ability to argue logically and rationally allows us sometimes even to act in ways that oppose our values and our worldviews while justifying our actions as being in line those values.

Rationality and logic are helpful when solving a problem that has only one correct answer; when we have to distinguish between good and evil. However, most of the issues we face are a matter of choice which can be as simple as choosing a dish from a menu to choosing a spouse. Choosing between two good options is what makes us human and the mechanism of it is totally different from that of logic and rationalism. It is underdeveloped and obscure and causes us to make wrong choices. Adding logic to it just turns our wrong decision into an unsolvable mess. It is time for change, not in the world but in ourselves. Let’s start to listen to our inner voice, act according to our deeply held values and behave in line with our worldviews. If we start moving in this direction we will not suffer from so many problems in corporations, politics or elsewhere.

The results of a recent McKinsey Global Survey show why the personal strengths and values we develop individually can produce the best leadership traits in the workplace. The research identified common traits of leaders around the world, to determine whether the personal characteristics of centered leadership were beneficial to being a good leader.

Centered leadership is a concept that is based on the existence of five key capabilities. These five dimensions are meaning – using your strengths in a way that inspires you, positive framing – seeing the upside of every situation, connecting – building relationships, engaging – taking risks, and energizing – keeping energy levels high.

The survey showed that when leaders embraced all five dimensions of centered leadership, they were most satisfied with their performance in the workplace and with life in general.

The importance of personal values in leadership is reiterated in another article by McKinsey, which states “the purpose of leadership is to change the world around you in the name of your values, so you can live those values more fully and use them to make life better for others.”

Self-awareness, whereby one can understand their own working style and their own strengths, and recognize whether they are Thetas or Lambdas, is important for becoming a good leader. Equally, people must be able to work with others, and whilst that means making your own values compelling to others, it also means connecting with people – one of the key five capabilities of centered leadership, revealing ‘real moments of truth’ to accomplish a successful relationship with employees.

I read a very interesting opinion piece by Karen von Hahn in the Toronto Star recently, about how people’s tastes for luxury can grow. For example, after someone has slept on soft 100% cotton sheets, he or she can’t go back to percale, and will soon be wondering whether he or she can have even better sheets of Egyptian or Sea Island cotton. The same can be said for coffee; people used to expect bad drip coffee in an office — now offering visitors a cappucino or espresso has become standard.

Says von Hahn:

In the sport of appreciation, it seems, we are always in training. But then, whichever direction our stylistic hamster wheel happens to be turning, it seems we just can’t help cranking it up a notch.

While I do think ‘upping the ante’ (as von Hahn calls it) and always looking for better experiences is important for connoisseurship and appreciation, I also believe that one can go too far in this direction, and begin to stop appreciating what he or she has. The pursuit of something better then takes the joy away from the experience.

Luxury always depends on the way you interpret it, and if you can’t be satisfied with and appreciate the luxuries you have now, ‘greater’ luxuries aren’t going to make you feel more fulfilled or self-actualized.