This afternoon I read a fascinating interview in The Wall Street Journal with Pierre-Alexis Dumas, of the French luxury house Hermès.

The interview was meant to get Dumas’ predictions about where luxury is heading. I found many of his predictions to ring true with how a Lambda personality views the world. Given his position in the industry, this could be a preview of what’s to come in luxury marketing.

There are two questions from the interview, the answers to which struck me as being especially telling:

Do you have a favorite disposable object?

A pencil. If you throw your pencil away, it means you’ve used it. It means you’ve used your brain, your imagination, you’ve been writing and drawing.

This is classic Lambda personality perspective. The value is entirely personalised, drawn from a sense of personal accomplishment. This outlook doubtless informs Dumas’ views on luxury and indeed life.

But it also takes elements of Theta. The idea that an ‘old’ product (with a history) is more luxurious is a very Theta-centric aspect.

The second question is to do with Dumas’ interest in designing luxury yachts.

And now you want to build yachts?

That’s a very large-scale design.

What is the price tag on that?

Between €80 to €110 million ($109 million to $150 million). The industry standard is €1 million ($1.4 million) per meter. A super-yacht is about 100 meters long. Our boat, which we make with the Wally [yacht-building] company, is 56 meters. And this is why it’s very original: Our boat is extremely wide.

A few key take-aways: Dumas is very candid about the pricing for an object that is, in reality, very expensive. A Theta would be more likely to reply in non-exact terms. There is an attention to detail in his answer, of understanding that price points and standards in the yacht industry. He knows whom he is marketing to with this product

The other point: He stresses originality. This is a key element of any sell to another Lambda personality.

Later in the interview, he makes a prediction about what the ‘future of luxury’ will involve. It’s a very Lambda perspective:

We have this odd shape because we decided to [build a boat that would travel] slow….Speed is so passé. What is the luxury for tomorrow? One of them is time.

In this case, the mantra ‘takes one to know one’ is accurate. Dumas is a Lambda personality. He knows what other Lambda personalities will look for in a luxury product, whether it’s clothing or a luxury yacht.

Earlier this month I reported that London’s luxury commercial property market was heating up. The trend continues to this day. But now it is being helped by a spike in London’s luxury home prices, which is seeing the highest price increase since March 2008.

BusinessWeek has more:

The value of houses and apartments costing more than 1 million pounds ($1.5 million) rose 3.2 percent from January, the London-based property broker said in an e-mailed statement today. The annual increase was the largest since the market peaked in March 2008 and compares with an 11.5 percent advance in January.

Overall this is good news for the luxe market both in the UK and abroad. But read a bit further in the article and you’ll see the emergence of a trend that I referenced in a previous blog post about Chinese Lambda personalities buying Western art and vintage wines, something that is somewhat uncommon in Mainland China:

The pound’s 22 percent decline against the euro in the past three years attracted purchasers from Russia, Italy and Greece, in particular, Bailey said. Foreigners bought 45 percent of properties sold for more than 2 million pounds in the past year, according to the broker.

Theta personalities typically own numerous properties across their homeland, and perhaps one or two smaller properties in other countries. Those properties are likely to cost <$1 million. So when we see that 45 percent of properties sold for >£2 million ($3 million), this tells us that these foreign buyers are likely Lambda personalities. Owning a luxury property in London is seen as an accomplishment, both personally and professionally.

Consumer confidence in the UK is on the rise, which helps to explain why this is happening now. Things aren’t great, but they’re better than than they were. Lambdas are seeing an opportunity to re-assert their dominance and be among the first to polish their images with spashy purchases.

Watch for similar trends in more traditional luxe markets such as Paris and Berlin. London could just be the start of a the new European luxe revival.

Here’s an interesting story about China’s pursuit of luxury goods. Agence France-Presse (AFP) is reporting that increasingly high numbers of wealthy Chinese people are traveling to luxury capitals such as Paris to purchase goods that are discounted.

I wrote previously that the global economic downturn has caused luxe companies and retailers to put products on discount in order the move product. It appears that the Chinese, who have become more involved in the Asian luxury market, are going where the deals are.

The AFP article offers more detail:

The Chinese bought tax-free goods worth 158 million euros (222.5 million dollars) in France in 2009. That was an increase of 47 percent from the level the previous year, according to Global Refund, a company specialising in tax-free shopping for tourists.

The article also notes that this has been part of a larger, growing trend:

Tax-free shopping by Chinese tourists has been increasing for the last two years, rising by 39 percent in 2007 and 23.3 percent in 2008. They now represent 15 percent of sales and 13 percent of transactions.

More Chinese people are going abroad to buy high-ticket items, which suggests a growth in the number of people who might be considered Theta personalities in China.

Year on year increases in the number of Chinese traveling abroad to do this kind of shopping suggest the figures will continue to grow. What will be interesting to watch is the impact this has on China’s burgeoning luxe market.

We are used to associating luxury with expensive cars, plush hotels and exotic resorts. However, once we understand what luxury means, we can find it anywhere, even in the Nazi concentration camps.

As a son of Holocaust survivors, I have encountered many people who survived because of the generosity of their mates who decided to share with them their own daily rations. Many of you might be familiar with the derogatory term “Muselmann”, which describes those victims in the Nazi concentration camps who had been broken psychologically and physically by starvation and life in the camps.

Some gave away their meagre food portions because they lost any hope, but many did so because they hoped to survive and wanted to bring that hope to others, even temporarily by helping them with a bit of extra food. While we have to hail this behaviour as heroic, from a scientific point of view, this is a very interesting example of a form of luxury behaviour.

Yes, luxury is behaviour. Contrary to conventional wisdom, luxury is not embedded in products or services themselves; luxury instead is a type of behaviour characterised by needlessly squandering assets. This activity seems irrational as long as we do not pay attention to the deep reasons behind it.

Research shows that people use luxury for enhancing their self-esteem. Two main schools provide alternative explanations along the Theta / Lambda dichotomy. The Terror Management Theory (TMT), a Theta school, claims that luxury’s role is to confirm one’s self-worth.

On the other hand, the Lambda school promotes the Self-Determination Theory (SDT) which argues that the role of luxury behaviour is to provide individuals challenges in order to grow and develop psychologically as well as to structure their life choices in alignment with their own perceived identity.

Overspending or squandering assets sends us the message that we are able, fit and worthy.  Amotz Zahavi, the Israeli biologist calls this phenomenon “the handicap principle” whereby one proves one’s abundance of assets by destroying them.

Understanding what is behind luxury behaviour, enhancing our self-esteem, demonstrates the importance of the role of luxury in our lives and saying bluntly that luxury is good for us. Nevertheless, Self-Determination Theory emphasises another key factor, that of choice.

When we spend on something because we need it, this behaviour will never be luxury. Luxury is based on a choice, when we do something even when we do not need to. Overspending is a choice that exemplifies the fact that there is a rationality behind the irrational behaviour of overspending in that it enhances self esteem. Spending needlessly enables us to express the element of choice.

When Holocaust victims were ready to share their food with their mates, they sent two messages. The first was that they did not need all of it, at least for the time being and that some of their food was excessive. Secondly, they had a choice between two, equally good options, either to eat up the food or to give it away. Either of these two aspects clearly define this behaviour as luxury.

The heroic behaviour of those Holocaust victims teaches us two lessons; one educational and the other moral. The first lesson is that luxury is beneficial to us and that we should search for it everywhere. It is important because in enhances our self-esteem. Life is full of choices and by identifying them and actually choosing between them we enhance our self-esteem.

Morally, it does not matter what we spend on as long as we act correctly. We do not need a heroic gesture of sharing our last piece of the extremely needed bread to tell us how worthy we are. There are many other, much more pleasurable means of sending this message.  Luxury is a choice of our own behaviour.

As the markets begin to heal and the recession comes to a close, investors are beginning to regain their confidence. A good example of this is the recent investments in a European start-up that is hoping to make an impression in the growing luxury mobile phone market.

Reuters has more:

Celsius X VI III, which was founded by four thirty-somethings a few years ago, has an ambition to take the 500-year old tradition of hand-made watches and use it to make a mobile phone that would replace chips and electronics with moving parts.

In total, about €3.3 million has been invested in the company, according to the Reuters article. It appears that they are marketing to the Lambda personalities in the luxe market. The company’s co-chief executive confirms this:

“Our target is the man who owns a few sports cars and is an aficionado of Swiss watches,” said Edouard Meylan, co-chief executive of Celsius, who plans for customers to keep his mobiles for decades rather than tossing them aside after a year.

Are mobile phones the new “hot item” in the luxe market? Judging by the size of this investment, it appears some have confidence that it will be.

As the global economy begins to recover, so too is the luxury industry. Leading the way is the luxury travel industry.

In Australia’s Sydney Morning Herald, Paul Jones, chairman of One and Only Resorts said:

“We still have business from families, and seasons such as Christmas are booked out. Luxury travellers are not prepared to forgo their annual family trips”.

What we have are a lot of Theta personalities who are hurting financially, however not so much that they forego a vacation, or exclude themselves from the social circle of friends and colleagues who are also going on holidays with their families.

For Lambda personalities, the re-born luxury travel industry is offering up new experiences that offer the kind of exclusivity that they would find appealing:

Given the high cost of real estate in the word’s main cities, space is today’s new luxury, according to Sonu Shivdasani, the founder and CEO of the Six Senses group, which has been a pioneer in sustainable tourism.

If you can say that you’ve got the largest villa, that gives the impression of great wealth. Since space is evidently considered a luxury, we could see more luxury vacation resorts offering fewer rooms, but the ones they do have will be significantly larger.

If the the 39-carat diamond auctioned by Christie’s recently, which went for $5.4 million, is any indication, then the luxury jewelry industry may be bouncing back quicker than other industries.

However the New York Times is suggesting something greater: that the entire luxury jewelry industry may, in fact, be recession–proof. Mark Dunhill, chief executive officer of Fabergé, is quoted:

“During times of economic uncertainly real luxury comes back,” Mr. Dunhill said. At the same time, however, “there is a tendency to approach special purchases in a more discerning and discreet manner.”

Jean-Christophe Bédos, Boucheron’s chief executive calls the new approach ‘Beyond Luxury’: “[A] unique expression of excellence in design and craftsmanship.”

What Mr. Dunhill calls “real luxury” are the kinds of things that Lambda personalities prefer — the truly exclusive products and experiences that bestow status.

This is consistent with what some in the luxe industry are calling a return to the roots of luxe. I wrote previously that it’s possible the only way back for the luxe industry is to go exclusive. Not all agree, however it will become a strategy for some brands going forward.

Here’s an interesting article on the state of the diamond market in Russia–they’re stockpiling diamonds while they wait for demand to return to protect the market in the long run. They’re also beginning to take charge in advertising diamonds generically the way De Beers used to. At the end of the article, the author sums up the major problem in the diamond industry, but also points to the solution:

“We have to tell people that diamonds are valuable,” [Aleksandr A. Malinin, an adviser to the president of Alrosa] said. “We are trying to maintain the price, just as De Beers did, as all diamond producing countries do. But what we are doing is selling an illusion,” meaning a product with no utility and a price that depends on the continued sense of scarcity where there is none.

At the Alrosa unit that receives diamonds, called the United Selling Organization, where about 90 percent of the output of the Siberian mines arrives for processing, Elena V. Kapustkina pours about 45,000 carats of diamonds though a stainless steel sieve every day to sort them by size.

“It’s just a job,” she said.

When asked whether diamonds had lost their romance for her, Ms. Kapustkina paused, looked down at the pile of gems on her table and blushed.

In fact, she said, her husband, a truck driver, gave her a half-carat ring 22 years ago. “Of course I love it,” she said. “It’s from my husband.”

I hope Malinin’s cynical comments won’t undermine the industry. The industry should really be focusing on people like Elena Kapustkina, who feel an emotional connection to their diamond. Understanding how people interpret luxury and how luxury can give people positive reinforcement will give marketers a distinct advantage–it’s the direction in which luxury marketing is going.

We’ve seen many a doom-and-gloom story about the economy and the luxury market recently, so here’s one offering a glimmer of hope. Unity Marketing’s latest Luxury Consumption Index showed a slight improvement, meaning that affluent people are starting to feel slightly better about their economic situations. They aren’t necessarily willing to spend again–over 40% of the respondents still said they planned on cutting their spending on luxury over the next 12 months–but nevertheless, any improvement in attitudes toward luxury should be welcomed. People need luxury–it’s a basic human need. They need to find ways to express themselves through it.

Unity Marketing’s chief economist Tom Bodenberg expressed a worry though:

The media’s focus on ‘recession chic’ – personal expression that deliberately excludes luxury goods – may leave a lingering distaste for conspicuous consumption and parading luxury labels.

I disagree–whether something is ‘recession chic’ depends on one’s personal interpretation, and this does not deliberately exclude luxury. Luxury companies that provide true value–financially, emotionally or otherwise–will emerge from the recession stronger than before.

Here’s an interesting debate on the role of luxury in our currently struggling economy. Recently on NPR’s Day to Day, Robert Frank of the Wall Street Journal talked about how the wealthy have curtailed their spending, not just on handbags, watches, jewelery, and designer clothes, but also on big-ticket items like yachts, private jets, and mansions.

Frank noted that this reduction in spending has an economic consequence–if the wealthy aren’t spending money, they aren’t creating jobs and supporting the economy. He also said those who are still spending are doing it on travel (to create memories), more sensible cars, things that are not as visible and could be considered to be ‘conscientious consumption’ rather than conspicious.

Then Frank made a slight dig at luxury magazines like Robb Report, which had been celebrating spending when so many people have become ashamed of it. This prompted Robb Report writer Jack Smith to respond in an op-ed in the Philadelphia Inquirer, saying that the rich are indulging too little and shouldn’t be ashamed — reiterating how their spending supports the economy. He had an example: stays at the penthouse suite at the Four Seasons New York cost $35,000 a night, and keep 12-15 staffers employed.

Frank in turn responded on his WSJ blog by agreeing that the wealthy should spend, but noting that the sales of personal helicopters, palatial mansions, polo ponies, and other big-ticket items might do more to make those who can’t afford such luxury upset at the fatcats who took advantage of bailouts and didn’t earn their wealth.

I think this was an interesting exchange, but it’s worth remembering that the true nature of luxury depends on how people interpret it. The wealthy might have a ‘responsibilty’ to spend to support the economy, but they also have a responsiblity to themselves to know what they want and make sure their spending is truly worthwhile.