marketing

Value for Money?

Isaac Mostovicz writes...

Value for money is a well-known economic concept – but does it really reflect the reality of how people buy? Years ago, economists observed that individuals pay a price for service or a product. However, observing individuals was not very helpful for economists who always try to measure and quantify. So they exchanged individuals with “the market”, a virtual entity that is difficult to define. This allowed them to talk more generally about the exchange of money for products or services in a way that was detached from the human psyche and its motivations. Next, the principle of exchange was introduced. Economists argued that we determine the value of products and services by the amount of money we are willing to pay in exchange for them. Following this logic, economists claimed that a person will always try to pay the least amount of money possible for the goods or services that he desires. The term “value for money” (VFM) was born.

Exchange Value and Commodities

In this discussion I’m focusing on exchange value and how it relates to marketing. This term, widely used in political economy and especially in Marxian economics, is one of the four major attributes of commodity. Commodity is defined by its fungibility, or the ability for one unit of the commodity to be fully exchangeable with another unit of the same commodity. For example, a $10 bill can be exchanged with another $10 bill or one barrel of petrol can be exchanged for another one. However, would you exchange a $10 bill for a stack of quarters? Are all petrol barrels similar? Finally, did you notice that services were dropped out of my discussion?  Actually, whenever we exchange our money for goods they are always bundled with a service, whether it is in the form of who serves us, how easily we can obtain the goods, or something else. How do we factor service into the value of the “commodity”? We’d like to think we can talk about two items that cost the same or that are exchangeable having the same value, or being similar to commodities, but in reality it’s hard to find such items. Practically speaking, value is hard to quantify.

And yet, economists tend to relate to all products as commodities. From the buyer’s perspective, when we relate to an item as a commodity, we tend to feel that the supplier has no right to mark up the item by one cent. We should be able to pay the cheapest price available and nothing more. Think about exchanging money in the airport – who doesn’t resent have to pay a commission? Because money is a commodity, we don’t think anyone should be able to charge more than it’s worth.

Luxury – the Antithesis of VFM

Luxury is the antithesis of the value-for-money economic thinking. Luxury consumers are definitely not looking to maximize value by taking the cheapest offer. After all, the principle of luxury is needlessly overspending. Moreover, the element of paying in luxury is not just about exchanging a price for the goods or services received. Paying is an integral part of the luxury experience. Luxury can never be free and the more we pay, the stronger the luxury experience is.

A Different Principle: Value or Money

From my experience, value for money is an illusion based on only observing the act of exchange without really understanding the psychological dynamics behind it. I have found that economic exchanges are always about either value or money. When we focus on the value we’re getting, we do not think much about the price. Nobody chooses a dish in an expensive restaurant based on its value for money, (“I think the 250g entrecote is a better deal than the sea bream, price-wise”), unless he is an economist. We have a general idea how expensive the meal might cost and we simply select the dish according to our liking.  Likewise a person who values high quality, comfortable shoes does not fret over their expense, nor does he extensively weigh the value against the money he spends. Because he values the shoes enough, he regards the price as simply instrumental in getting the value.

By contrast, when we focus on the price of an item and not its value, we commoditize the item and start looking for the cheapest price possible. We will buy because an item is comparatively cheap or not buy because an item is comparatively expensive – and not really consider the value at all. We all know of items that we choose based on price. For some people maybe it’s napkins in the grocery store, for some maybe it’s movie tickets or a music album. Somewhere in our minds, the value of these items is unclear or appears insignificant. And the moment we disregard value, we tend to focus on price alone. “The supplier shouldn’t charge more than the bare minimum” is the mantra here. And if a person were to choose not to buy at all for this reason, often it is not be because he thinks the value and price are not commensurate. He doesn’t really think about the value, he only thinks that the offer is “too expensive,” a term that economists cannot live with because it is unquantifiable, subjective, and personal.

How We Feel About It

When we buy based on value we feel positively toward the offer and sense that we are getting something we need and desire. When we buy based on price, we feel hostile toward the offer, as if someone is demanding that we pay money that we would rather hold on to.

Price and value are not two sides of the same equation. We either purchase for value or we purchase based on price. Moreover, whether we relate to the price or the value of a product is psychologically determined, and is subjective, personal, and unquantifiable. I do not know what economists do, but as a marketer I know that by creating value my customers will recognize, I can always get a good price.

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Best of British celebrate the Queen’s Diamond Jubilee

Isaac Mostovicz writes that celebrations in 2012 could lead to a profitable summer for British brands based in London ...

The Evening Standard reported recently that luxury brands are set to benefit from a series of notable events taking place in London this year. From the Queen’s Diamond Jubilee to the biggest sporting occasion of 2012, notable high net worth retailers such as Burberry, Walpole and Selfridges are all hoping to see sales increase as they take part.

Image courtesy of Stock.XCHNG

Luxury department stores Harrods and Selfridges are also gearing up for increased footfall from the influx of international visitors expected in London around that time.

 

Walpole, the body created to promote the British luxury industry, will hold a Jubilee Pageant along the Thames and is joining forces with the Queen’s bank Coutts and Getty, the photography agency, to host an exhibition of photos with the Queen – some of which have never been seen in public before. The exhibition will move around London, stopping at suitably luxury venues including Claridge’s in Mayfair.

 

Stacey Cartwright, Burberry’s finance director, said: “Due to our heritage anything that celebrates Britain is good for us. The jubilee will be a key time in the UK this year.”

 

Previous blog posts have discussed the cachet of luxury British brands abroad; with the world’s eyes upon London during this key time, UK luxury retailers look set to profit from the celebrations.

 

 

 

 

Luxury Lifestyle says of this article...

I have noticed that several brands are in fact launching Jubille related campaign such as the Faberge Diamond Jubilee Egg Hunt,
http://www.luxeinacity.com/blog/win-the-diamond-jubilee-egg-valued-at-100000, and the Johnie Walker Jubilee Decanter, http://www.luxeinacity.com/blog/diamond-jubilee-by-john-walker–sons-for-sale-at-100000.

Both items are worth an estimated 100 000$.

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Causesurism: The Rise of Luxury and CSR

Isaac Mostovicz writes that that the rise of luxury brands embracing causes and CSR can be positive...

A recent article by Vanessa Friedman in the Financial Times talks about the recent trend towards “causesumerism”, a new term that has been coined by Lisa Ann Rochey and Stefano Ponte in their new book Brand Aid.

Causesumerism refers to

” …the increasing tendency of luxury and fashion brands to help consumers justify purchases by injecting a note of do-goodism into the selling of the product.”

The book focuses mainly on product (RED), which aims to stop the spread of AIDA in Africa by using the sales of branded goods such as Armani and GAP to support the global fund for fight AIDS, tuberculosis and malaria.

I have previously written about the relationship between luxury brands and CSR, and I believe that luxury and good causes are not mutually exclusive. This not only makes good sense for the long-term prospects of the brands in question, but can also be a positive attribute in luxury marketing – particularly if the brand aligns its CSR initiatives to core brand values and identity, and resonate with consumers.

Kahro, a jewelry stores Raleigh NC store which I run, has teamed up with Kay Yow Cancer Fund, a Raleigh NC based charity that work to fight female cancers. Giving to charity is seen as an aspect that Kahro shares with its customers; just as they spend extra, Kahro spends extra. This charitable giving builds self-esteem for all the Kahro employees, as they know that their workplace gives something back to the local community. In turn, this raises productivity and staff commitment.

Is this good in terms of marketing? Yes. But I also believe that it can deepen brand identity, and that it is not always driven by profit – it may make sense from an employee satisfaction perspective, or from a genuine wish to impact local communities.

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Luxury at your convenience

Isaac Mostovicz writes that luxury marketers are finding increasingly creative ways to target South Korean consumers....

Image courtesy of Homeplus

In the wake of Kim Jong Il’s death and the changes taking place in North Korea, I was interested to read a recent article on Reuters that discussed the ways luxury marketers are targeting South Koreans.

 

I have previously written on the trend for Chinese consumers to purchase fake luxury carrier bags, demonstrating that the Asian love affair with luxury seemingly continues to go from strength to strength.

 

As the world’s 13th largest economy and an increasingly affluent base of consumers, marketers have offered consumers there a novel way of purchasing luxury goods – through mass-market access.

 

South Koreans will now be able to purchase designers items during their weekly shop at Seven Eleven. The chain, ubiquitous throughout South East Asia, also sold Gucci shoulder bags and wallets during Korea’s Thanksgiving festival in September.

 

“It was a big success, and we are thinking of expanding our luxury gift line to other accessories for the New Year,” said Seven-Eleven marketing official Cho Yun-jung.

 

But it’s not just convenience retailers like Seven Eleven that are cornering this market. Retailers Tesco and Lotte Mart, an Asian hypermarket, are also selling Chanel, Prada, Ferragamo and Balenciaga.

 

The luxury goods market is booming in Korea, with sales growing “at least 12% to an estimated $4.5 million last year,” according to a report by McKinsey & Company in August. This can be attributed to demographics – with more working women who have additional disposable incomes – as well as tourists from nearby China and Japan, who stock up on luxury goods in trips to the region, attracted by South Korea’s cheap currency.

 

Furthermore, South Koreans have increased access to credit as local banks are eager to provide shoppers with tailored credit cards to fund their spending habits, for example the Hyundai Card which offers “the Black” and “the Purple,” with various luxury life style-friendly features.

 

The Financial Times has reported that the latest strategy of French luxury giants in Korea is investing in affluent districts such as Chungdham and Apgujeong-dong.

 

It seems South Korea is the latest strategic location where luxury marketers are investing to strengthen their brands.

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Theta and Lambda: Understanding Luxury Consumers

Isaac Mostovicz writes that that in order to understand customers, luxury marketers may benefit from understanding Theta and Lambda personality types....

A recent article on Triple Pundit talks about the definition of luxury changing, both for affluents and non-affluents, due to the current economic climate.

The article quotes an Advertising Age report, saying

“The desire for luxury experiences has not disappeared, but has been redefined for a new era… expressions of luxury have become smaller, more personal and intimate.”

I have written about this previously, arguing that luxury marketers need to focus on getting to know their consumers and on encouraging them to behave according to their own personal values, not simply acting as a sales person but rather as a trusted advisor.

In order to better understand consumers, I have developed a simple characterisation consisting of two personality types – Theta and Lambda.

The Theta personality seeks affiliation and control as an ultimate life purpose, so they loom 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/prevents them to stand out, and how the product benchmarks against their regular consumptive patterns.

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Luxury Defined?

Isaac Mostovicz writes that that luxury brands are having to adapt to today's 'connected consumer' in order to provide them with the unique experiences that they desire...

I was interested to read this article on the definition of luxury and how brands are managing dual expectations of exclusivity and creating a dialogue with consumers.

The article says that luxury is “more than ‘something adding to pleasure or comfort but not absolutely necessary’… to be truly luxury you have to have an element of exclusivity.”

I have previously written on the importance of exclusivity for luxury brands in my articles on the recent trend towards exclusive experiences such as ice sailing, and the rise of ‘no-logo’ luxury.

The article raises the point that brands are trapped between investing in social tools – important to not get left behind, but counter-intuitively making the brand more accessible – and trying to maintain exclusivity.

According to a new study on ‘New Affluents’, the qualities that they value in brands are quality, aesthetics, uniqueness and authenticity, not necessarily a high price tag. They are looking for more brand interaction, and for brands to in a dialogue with them – even to be part of the product development process.

This, I suspect, is why we are seeing more luxury brands than ever throwing themselves into the digital media space, with brands like Oscar de la Renta using platforms such as Facebook to sell exclusive products. But they are also offering tailored services, with Burberry offering a bespoke trench coat service for $9,000 – exclusive, with an element of personalisation.

It is important for luxury brands to connect with their current and prospective consumers, and it is interesting to watch the different ways that brands are going about doing this. Kahro, (the Raleigh NC jewlery store that I founded) for example, differentiates itself by providing consultancy on what kind of diamond would best suit each individual, enabling the customer to make a choice which is both personal and which they are deeply involved in.

Luxury may mean different thing to different people, but if a luxury brand can differentiate itself by both remaining exclusive and interacting with its consumers, it will surely do better than those brands that refuse to change.

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Luxury Brands Need To Become Digitally Competent, Study Finds

Isaac Mostovicz writes that though luxury brands are taking steps to become more digital, there is still a lot more work to be done if they are to truly compete in a global market place...
L2, the think tank for digital marketing innovation, have carried out a study into the digital aptitude of European luxury fashion brands.
The study found that a third of brands did not support e-commerce despite predicted growth in this sector over the next three years, with those who did support it gaining on average 35 Digital IQ points higher than those who did not. It found that only a third of the brands provided mobile experience, with one on five on the brand websites not loading on a smartphone. Less than half of the brands surveyed were participating in paid search.
As Scott Galloway, L2 founder said:
“Digital could be the differentiator for brands that become iconic, and those that become irrelevant. Establishing direct relationships with end consumers through e-commerce and social media provides an opportunity for European niche fashion brands to punch above their weight class.”
It also found that brands head-quartered in the UK registered higher ‘Digital IQ’s’ than those from other countries, with Italy and France still lagging behind.
Interestingly, none of the brands surveyed received a ‘genius’ grading.
This demonstrates that, although luxury brands are taking steps to become more digital, there is still a lot more work to be done if they are to truly compete in a global market place, particularly in key growth areas such as China that demand a strong level of digital and online presence from brands.
The top ten brands were:
1. Agent Provocateur
2. Ted Baker
3. Stella McCartney
4. Superdry
5. Moncler
6. Moschino
7. Lanvin
8. Emilio Pucci
9. Jean Paul Gaultier
10. La Perla
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Affluent Consumers, the Interet and Luxury Marketing

Isaac Mostovicz writes that that with luxury consumers embracing online shopping, there is a stronger need for brands to maintain an insightful online presence than ever before...

Unity Marketing have carried out a report on “Affluent Consumers and How They Use the Internet, Social Media and Mobile Devices“.

Their key finding was that luxury consumers passionately enjoy the online shopping experience, and that those affluent consumers shopping online were those spending the most in support of their lifestyles.

The report also reported that:

  • Virtually all affluents using the internet; 80 percent of which use social media
  • Affluents who shop online are luxury brands’ best customers and best prospects
  • Affluents value internet shopping for its convenience, ability to shop 24/7 and its time saving aspects
  • Only 11 percent of affluents surveyed liked shopping in store more than online
Luxury consumers value on-line shopping for its convenience and speed

Luxury consumers value online shopping for its convenience and speed

The report predicted that in the next year, we will see more of social media being used to connect with luxury brands. As it stands, social media is used socially, not commercially.

The report concluded by stressing that there is a need for luxury brands to invest in understanding the needs, desires and motivations of their target consumers.

Luxury Activist says of this article...

The funny thing is that for many years, Luxury Brands thought that Internet was a cheap communication channel. Then, they changed their minds because unfortunately it is the Distribution and Retail stores who became cheap. So hopefully Internet ables Brands to communicate on the right way. We can also see the tremendous efforts that Brands made in terms of content. They are really good now.
LA

Isaac Mostovicz says of this article...

I have learned to communicate using “cheap” channels many years ago when I was looking to market some superior diamonds in Japan. The help I got from De beers was a list of glossy magazines where publication costs a fortune and I was not convinced at all. I found out that my target audience reads the gossip columns in three trash newspapers. It was easy to ask those three ladies writing the gossip columns to mention us. It was for free!
It is all about thinking on ourselves or on our customers…

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Augmented Marketing For Luxury Brands

Isaac Mostovicz writes that about the need for luxury retailers to take marketing to a new level...

I have recently written on the need for luxury retailers to take marketing to a new level, ensuring that their endeavours are commensurate with the sophisticated consumer audiences they are targeting.

Therefore I was not surprised to read this recent article on Luxury Daily, which explains that mobile applications with augmented reality features are becoming increasingly popular amongst luxury brands. This is because their customers have come to expect a certain high level of innovation, quality and engagement.

Many luxury brands, such as Audi, BMW and Zenith are using this technology to introduce new product lines and promote events, and are able to highlight their products in a way which seems more immersive than traditional marketing methods such as placing advertisements.

For example, Zenith, a luxury watch maker, have developed an application where the user can browse the digital selection of watches and see how they would look on their wrists. And BMW is taking its digital marketing strategy to the next level by incorporating mobile augmented reality in its promotion of the new X3 model.

BMW's X3 mobile augmented reality app

The article’s author stresses, however, that it is important for brands to remember to use technology to add meaningful experience, not just for the sake of it.

As technology advances and luxury consumers become more tech-savvy, as well as less easily impressed, it is clear that marketing – whether through new technology, innovative concepts or novel experiences – has a strong role to play in developing the luxury sector even further.

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The best–for what?

Isaac Mostovicz writes...

I recently came across an article about marketing by Louis Cheskin and L. B. Ward, originally published in the Harvard Business Review in 1948. In discussing the difficulties of marketing nearly 60 years ago, it’s interesting to see how there’s still a lot to learn about customer preferences. Participants in their study made unexpected choices: when asked to pick “the best” or “most beautiful,” their answers were different from what they said they would choose for themselves. Could the same be said for diamonds?

I would ask the following questions:

1. When you are offered a selection of diamonds, which one is the best?
2. When you are offered to select a diamond for use, which diamond will you select?
3. Will you select the same diamond in each case?

I doubt it. Beauty remains in the eye of the beholder, with respect to different situations and different purposes.

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