The Wall Street Journal recently published a fascinating video that gives a tour of A, the $300 million, Philippe Starck-designed luxury superyacht owned by Russian billionaire Andrey Melnichenko:

It’s the first time that the interior has been shown to the public, and its uniqueness suggests to me that Melnichenko is a Lambda. The 394-foot yacht is filled with mirrors, Baccarat glass, and crystal. The main stairwell is lined with scalloped silver leaf (with hand-carved banister that cost more than $60,000). Many of the walls are covered with animal skins, including the guest room, which is covered entirely in white stingray hides. There are three pools, and the bottom of the massage pool is glass, opening over the entry hall / disco. The garage (which houses with 3 designer launch boats) can also serve as a disco. The unique furniture includes a Michel Haillard chair made from alligator hides and Kudo horns.

Some might say that the boat is gaudy or tacky. However, luxury is in the eye of the beholder; it depends on how it is interpreted. If Melnichenko worked with the designer to ensure that it is filled with things he perceives as luxurious, then he will enjoy it and its idiosyncrasies for years to come.

While there was not doubt that Aston Martin is a brand aimed strictly at Lambda personalities, the recent product release by Aston Martin proves it anyways.

Coming optional with the purchase of a new Aston Martin Rapide is a $33,000 watch. And with this watch and your new Aston Martin Rapide, you can lock or unlock their car doors by simply touching the sapphire-crystal face.

Only a handful of individuals can afford to buy even the Aston Martin. Even fewer could afford the optional $33,000 watch. The timing of this is interesting, because while the global recession is receding, it is not completely over, yet.

Watches are a much-loved item amongst Lambda personalities, because they bestow status and are durable. They’re seen as investments and heirlooms.

During the worst pont in the recession, The Wall Street Journal published a column “How to sell a $35,000 watch in a recession”, which offers a look into the new methods that luxe retailers are using to keep sales moving.

After years of double-digit sales growth, sales of Swiss watches have fallen off drastically. Watchmakers like IWC—a 140-year-old company whose watches are considered collectors’ items and generally cost between $3,000 and $300,000—are having to re-learn the old-fashioned art of salesmanship.

The ‘old-fashioned’ art of salesmanship that is used is selling the experience as tantamount to the product itself. In luxe, people buy because it looks good, feels good and it makes them appear important.

He used PowerPoint to impart what he calls the “macaroon technique,” referring to the sandwich-like French macaron pastry. This can be applied to most any product (including, presumably, a Xerox machine) and goes something like this: “Madam, this timepiece (or diamond or handbag) comes from our finest workshop and it has a value of $10,000. If you buy it, your children are sure to enjoy it for generations to come.”

This tactic by Aston Martin to package the watch with the car is an extension of the salesmenship methodology talked about in the Wall Street Journal article: Show a Lambda personality how well their new, ultra-exclusive watch works with their new, ultra-exclusive car.

The expression also suggests the person will have a long family line, which causes them to envision their children and grandchildren as Lambda personalities, enjoying and cherishing this watch that their father, also a Lambda personality, purchased years ago and passed onto them.

A  true Lambda Personality won’t be able to resist it, and Aston Martin knows this.

Here’s an interesting interview in the Wall Street Journal with Carolina Herrera that I caught via Luxist. Like most in the luxe business, she, too, felt the pinch from a faltering global economy. But now she sees things changing.

I saw the impact in the beginning. I saw it with the women who used to come to the boutique to buy. They bought less. All the information in the newspapers makes them nervous. When you see a lot of people losing their jobs and they have children to send to school and other commitments, then you think [more before] buying.

…..

Lately, it has been better. At one point, I used to see the people who used to buy a lot, and they were a little concerned about buying. Now they are shopping again.

It’s good to see major players in the luxury scene express this level of optimism publicly, not just retailers. She explained a bit about what her strategy was during the worst of the recession.

During the downturn, she has had to walk a fine line, trying to cater to frugal consumers without damaging quality or image. … Ms Herrera responded by cutting prices about 10% and making tweaks to trim costs. She is also expanding her lower-priced CH Carolina Herrera line, adding 17 standalone shops this year to the current 48.

Her strategy speaks to an interest in not alienating a core Theta personality customer. If Ms Herrera had reduced her prices to 15% or 20%, her brand may begin to be seen as masstige. This would alienate both Theta personalities and any potential Lambda personality as a client.

Because she resisted that, her brand’s position is in good position to grow more as the recession fades.

If the statistics found in a Wall Street Journal article published yesterday are to be believed, then Silicon Valley in California may be the signal we’ve been looking for of a return to norms in the American luxe market.

According to the article, there has been a recent spike in the number of luxury and higher-end vehicles sold in the region.

Over the course of 2009, Silicon Valley’s sales of the priciest car brands rose, according to R.L. Polk & Co., which analyzes the auto industry. In November, for instance, 15 Lamborghinis, Bentleys and Maseratis were newly registered in the Bay Area, up from four in January 2009, notes Polk.

While not a bell-weather event, it is encouraging to see American luxe figures doing something other than nosedive.

Vincent Golde, general manager at Qvale Auto Group’s British Motor Car Distributors in San Francisco, also noted the up-tick in sales:

[S]ales of luxury brands improved in the second half of 2009 with his dealership—which handles Lamborghinis, Bentleys and others—particularly experiencing an increase in Bentley sales. Most of the car brands at BMCD start at $180,000 per vehicle.

What could this be attributed to? It’s possible that the region’s Theta personalities are regaining some confidence in the market and are feeling more comfortable spending larger sums of money, as the economy continues to slowly improve.

Mr. Golde said many of the transactions were for used vehicles rather than new cars as customers wanted to “let the [financial] crisis pass a bit.”

I expect that more recent figures will show that the market has continued to improve alongside the economy, which bodes well for the luxe industry across the country and even globally.

The Wall Street Journal’s Wealth Blog recently posted about how true luxury — “goods that are rare, expertly made and sold to a select few” — is on the rise in spite of the recession. The wealthy seem to appreciate the exclusivity of luxury, and the economic climate has widened the gap between those who can afford to spend on true luxury and those who can’t. In a recent survey of private jet owners, 94% defined luxury as ‘for one’s self’ rather than for the masses. This is in line with my my thinking, that luxury depends on how the individual interprets it.

While I didn’t have the chance to research this for my PhD, my feeling is that Lambda personalities are the early birds and will be the early majority to start spending on luxury again. I hope to have the opportunity to research in the future whether the purchasing cycle from early birds to late comers follows from Lambda to Theta. My colleague Randy has observed that Lambdas tend to spend more than Thetas on similar offers. Theta buyers buy smaller diamonds, for example.

We are now seeing Lambda consumers interested in bespoke (and more expensive) purchases while Thetas will potentially follow later. This could be explained by the yearning of the Lambda for novelty while Theta look for social affiliation so the society has to be created first so they can join it.

It seems that the economic crisis has put many luxury shoppers into a state of shock. We can’t forget that luxury is what makes us human: it allows us to choose. People learned quickly how to overcome this shock.
Lambdas have already started but Theta will follow. Thus all the claims that the cheaper stuff is out is premature. People will go back to Burberry but it will take some time since the more expensive things will be sold first. However, if we talk about an economic recovery in 2010, luxury recovery will start earlier, maybe in 2009.

As stories continue about how much the wealthy are suffering in this economic downturn, it’s interesting to note what people are still spending on. This article from the Wall Street Journal reports that many luxury firms have so far been resilient in more difficult economic times, finding consumers at the high and low end of the luxury market who are still willing to spend. The article includes examples from three individuals:

Jordan Shapiro, a 25-year-old Wall Street recruiter, says he isn’t sure what his income will be this year, so he put his plans for an African-safari honeymoon on hold. But he splurged a few weeks ago on a $3,000 Omega watch, which he considers an investment. “I hope it’s going to retain or gain value,” he says.

Stephanie Wickouski, a 55-year-old New York attorney, walked out of an Hermès store this week with a “heart-stoppingly expensive” $950 cashmere shawl. Despite the price, she says the shawl is a good value for the money, because it has “range and permanence,” meaning it can be worn over a dress, paired with a skirt or even worn on an airplane when it gets cold.

Margaret Schwartz, a 24-year-old assistant ad-sales representative in New York, shops for clothes at cheap-chic chain H&M. Yet she recently bought a $300 pair of Bulgari sunglasses — one of the Italian jewelry label’s least-expensive items — because she figured she could afford an “investment piece.” “Aviators are always in style,” she said, strolling past Tiffany’s Wall Street store.

This small amount of information about each individual is enough to categorize them as Lambda or Theta. I would consider Mr. Shapiro and Ms. Schwartz to be Thetas. In their mid-twenties, they consider their luxury purchases as investments. I would guess that they are also using their purchases as a way to stand out among their peers (Mr. Shapiro can be seen in his watch on Wall Street, and Ms. Schwartz’s sunglasses are “always in style.”). This desire to fit in is a typical Theta characteristic.

Ms. Wickouski, on the other hand, seems to be more of a Lambda. She recognizes how expensive her new Hermès shawl is, but the pleasure and utility she derives from it makes it completely worth it to her. She interprets “range and permanence” as something highly desired; the shawl makes her unique.

An awareness of what Thetas and Lambdas are looking for, and of what products represent to them, can help marketers reach these individuals more directly.

Photo by Doozle

The Robb Report, the monthly magazine and website about luxury goods and experiences, has just announced its annual holiday gift guide. While I haven’t been able to find the full ‘Ultimate Gifts’ section online, the Wall Street Journal Wealth blog has had a look and noted a few highlights, including a $250 million yacht (with 13 suites and two helipads) and $16 Ferrari package (with a F1 Ferrari, 2 VIP passes to all 20 Formula One races next season, and lunch with Ferrari personalities).

These are not the only luxury items the Robb Report has recently promoted–earlier this month they began offering the Robb Report Limited Edition Series from their website’s Marketplace section. It’s an elite offering, including a car (a bespoke commissioned Rolls Royce Phantom for $493,272.00), wines (Ultimate Burgundy or Definitive Bordeaux from the Terroir Company, $1 million each), jewelry (Beaudry diamond and platinum bespoke ring, bracelet and earrings), and travel (golf, shopping and winter sports trips with a Sentient Jet membership $195,000-475,000) among other offerings.

Does the fact that the Robb Report is offering such luxury directly (in addition to highlighting items in guides) suggest that demand exists and that the economy isn’t doing as badly as we might think? Are they (cynically) in it for the high margins luxury products often offer, or do they really want to bring their readers the very best luxury they can find? The answer is probably somewhere in between.

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

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

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

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

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

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

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

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

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