Marketing to the super rich
INTRO: The proliferation of luxury brands is forcing a rethink at many of the top-tier luxury retail houses and pushing some to go even further up the food chain. It's a challenging time for marketers of luxury products who spend millions of dollars every year trying to reach out to these big-spending and extremely time-poor consumers. The reality is that these sought after consumers who spend most of their time closeted in private jets and lounges and are not necessarily as exposed to traditional media formats like the rest of us. While the luxury category aimed specifically at ultra-high-net-worth individuals is in many markets experiencing a mega boom, it’s also presenting some major challenges, as Matt Eaton reports.
The luxury market in Asia knows no bounds. The spectacular rise in the number of multi-millionaires and indeed billionaires around the region has seen luxury brands flourish and show extraordinary resilience at a time of global economic uncertainty.
This growth in personal wealth has spawned luxury offerings from diverse corners of many consumer markets from property to consumer electronics goods, fashion, finance, the media and even the wedding and bridal industries. Sales of uber-luxury brands like Ferrari and Rolls-Royce are recording unprecedented growth around Asia, which for Ferrari meant a 47.2% jump in sales in 2007.
In the coming decade, the liberalisation of the Chinese and Indian markets is expected to give rise to a new wave of super wealthy Asian consumers, making the region a glittering jewel in the crown of the world's consumer markets.
But as the number of high-net-worth individuals grows and a type of democratisation spreads through the luxury market, producers of these luxury brands face a dilemma.
On one hand, the opportunities created by this new customer demographic are immense, but on the other, companies risk diluting the exclusivity of these brands by expanding their consumer base.
In a bid to get around this, a form of "uber-luxury" is rapidly spreading and finding growth where many of the more mass-market luxury brands are in some cases leveling out.
Barclays' just-released report into the global luxury market confirms that today, luxury consumers are changing. The report, which surveyed 790 people with assets of more than US$3 million across Europe, Asia Pacific and the US, says over the past decade, the explosion in the number of wealthy consumers worldwide has irrevocably changed the relationship between these companies and their clients.
"Previously, companies could count on knowing their clients, often for generations, and might have had a market of just thousands. Now, they are faced with many newly wealthy clients and their potential client base can be counted in tens of millions," the report says.
But as the number of people with increasing large amounts of cash to splash grows and the demand for luxury goods becomes far more demanding, what challenges do marketers face?
“The era of buying luxury goods only when you are rich is no longer a reality,” says Veronica Man, marketing communications manager at luxury appliances maker Miele Hong Kong, who argues that for many luxury is more of an attitude, as opposed to just a bank balance.
“People don't have to make millions of dollars to enjoy a luxury life nowadays. You can be sitting in your cozy 500 square foot apartment tasting the best coffee or you can be cooking a full fledge French meal in your newly decorated 1000 square foot kitchen, both to me is luxury.”
But despite these new entrants into the market, she says quality is still king.
“The good news is that market is growing very fast and people are still demanding quality instead of just good design. The world is going global, money well spent is what people are looking for.”
Others, however, say that the shift in the luxury has made it difficult for luxury brands, which now have to market themselves in a much more sophisticated to stand out.
William Hsu, vice president of advertising sales at CNN International Asia-Pacific, argues that as wealth spreads around the world, drawing general conclusions about the behaviours and expectations of the wealthy is increasingly a challenge.
"Globalisation has also caused a structural shift in the luxury categories of many products -- there are simply more products available, and it's increasingly difficult to stand out and break through all the competitive clutter," Hsu says.
"This presents an enormous problem with traditional marketing activity of high-end brands. In the past, marketing to this segment was limited to private invitations, and societal or news magazines, which have the right target but have highly limited reach, especially if the target audience is both expanding and experiencing a demographic shift."
So just how are luxury brands responding to these structural shifts and changing requirements and expectations of an ever-expanding customer base where time is a precious commodity?
"These are the some of the busiest people in the world and everyone is trying to get their attention and get a piece of their wallet," says William Adamopoulos, president & publisher of Forbes Asia.
"Global brands are discovering Asia in a big way and those media that can successfully tap the top end of the market will do quite well," he adds.
As part of Forbes' strategy to tap into the top end of the economic scale, in September this year the publisher will hold its annual Global CEO Conference, bringing together some S$165 billion in combined wealth.
"The business of Asia is capitalism and capitalism in Asia is driven by the tycoons. Yes they're thinking about fast cars and boats, but a lot of this market has gone beyond that. It's about building a relationship with them, building a community, connecting with them on the website and connecting them through the magazine."
Of all media, the luxurious lifestyle magazines of Hong Kong and Singapore are currently swimming in the hundreds of millions of dollars these luxury brands are bandying about.
According to Nielsen Media Research 46 of the top luxury brands in Hong Kong alone spent HK$471 million with a significant chunk of that going to luxury magazines. Since the beginning of 2008, the already packed luxury magazine market has been joined by no less than six new titles all targeting the luxury markets. Competition is set to further worsen with the Wall Street Journal launching a global luxury lifestyle title WSJ in Asia in September.
But how on-target are these luxury magazines for the tapping into the true wealth of Asia?
James Smyllie, regional account director at Carat Hong Kong, says the democratisation of the luxury market is making a lot of money for luxury publishers, but believes many of the magazines on offer are missing the target and says in some cases, cashed-up high-end advertisers are taking a punt.
"In my experience the media is not that targeted at capturing the top end; a product like the Economist, while it gets to that high end of the market, it also reaches a lot of students and professionals.
"Usually these are very high-margin products and can afford to take a gamble," he says.
Smyllie points out that within the luxury print market, there exists a high level of what he calls "dodgy unaudited magazines" being circulated, but he says this has not deterred high-end luxury advertisers which can afford to pay up to US$3,000 per page.
"A lot of these luxury magazines are so cluttered, everyone is trying to establish themselves as the luxury brand, but you have to be engaging and you have to stand out. A lot of these luxury brands will just take a punt."
William Hsu says CNN is currently benefiting from the luxury boom, particularly the super rich category.
"CNN International has greatly expanded our advertising base in the past several years in advertising to the "super-rich", especially in the private banking and luxury watch categories," he says.
"If you look through a typical high-end social magazine, you would find page after page of watches. Media owners that demonstrate the right audience and reach -- but don't have excessive clutter -- will benefit as advertisers seek to stand out. CNN offers the unique combination of the right target audience, and extensive reach."
Tapping into China's new wealth
One major beneficiary of the luxury boom is China, where newly rich Chinese consumers are developing a passion for high-end brands. The Hurun Report, a group which compiles a list of the wealthiest people in China, shows that among the nation's 1.3 billion people, the combined wealth of the 800 individuals on the 2007 Hurun Rich List amounted to RMB$460 billion, approximately 16% of China's GDP.
China is already the third largest market in the world of luxury goods, according to banking group Goldman Sachs, and will overtake Japan by 2015. BMW, LV, Benz, Cartier, Channel and Rolex are just a few of the top brands most preferred among China's newly minted millionaires, mostly 40-something Chinese male elites, according to Hurun, and luxury retailers like Louis Vuitton already has 19 stores around the country.
A recent Chinese Luxury Consumer briefing held by WE Marketing and Hurun, showed that the majority of the riches is concentrated in the properties and manufacturing and IT sectors, coming mainly from South Eastern China.
Viveca Chan, CEO of WE Marketing Group, explained the desire for living a luxury life on first-generation riches has been frozen for a long time.
"Nobility takes centuries to build and that's why they like to live in the castle," she says.
In China, below the level of the super-rich, there is also a rapidly expanding class of millionaires. The 2008 World Wealth Report by Merrill Lynch and Cap Gemini, shows that China has 415,000 people with US$1m in disposable assets, making it home to more millionaires in real terms than any other in the world.
So, can it last?
How long can the luxury market continue and can the high-level spending of the past few years continue at this rate? Even when the uncertainty of global economy continues?
The Merrill Lynch report shows the super wealthy segments tend to be latecomers to economic downturns. Industry analysts are predicting the total wealth of high-net-worth-individuals is projected to reach US$59.1 trillion by 2012, advancing at an annual growth rate of 7.7%. The report shows that investments in fine art, private planes, luxury automobiles and other high-priced collectibles have been more immune to economic downturns, as their ultra-HNW buyers tend to be less adversely affected by such trends. While the economies of the US and European markets are slowing, it is safe to say that for now, the ultra-rich markets of Asia are immune, for now.
CASE STUDY: Rolls-Royce case study
It's been a stellar year for British luxury car company Rolls-Royce, with sales in Greater China up more than 72% in the first five months of 2008. Brenda Pek, marketing & events manager for Rolls-Royce Asia Pacific spoke to Adaline Lau about how this tremendous growth was achieved and the challenges of reaching out to the super rich consumer.
What are the non-traditional ways Rolls-Royce reaches out to the super rich?
Our customers are very successful and busy individuals who are difficult to reach. We find that a personalised approach is appropriate and our dealers, who themselves are successful and connected to this group, are best placed to forge and maintain relationships with our potential and current customer base. Rolls-Royce Motor Cars communicates with its customers on a regular basis via personally signed letters from our chairman Ian Robertson to present a customer yearbook or special portrait of our new models, to an owner's magazine.
What role do events play in reaching out to this market?
Many of our customers are discreet and maintain a low profile in public. Such events are therefore exclusive and special, to justify our customers' precious time. Whether they are dinners, customer previews of new products or showroom launches, each is carefully tailored to our customers' needs and presented in a manner which befits our brand -- while they are of a high standard, these are neither opulent nor flamboyant.
Does experiential marketing apply to the luxury market?
Yes, particularly when it comes to driving and therefore experiencing our cars. While on paper it is clearly evident that our cars are hand-manufactured to a very high standard with enormous attention to detail with advanced technology, driving our cars proves to be a revelation. The Rolls-Royce Bespoke programme, for example, enables customers to order various features that go far beyond the options list, allowing them to create a car tailored entirely to suit their specific needs and desires. It is not uncommon for our customers to fly to our factory in England to personally specify their car.
China is the third largest market after US and the UK, what approach does Rolls-Royce use that works in this market?
Personalised marketing is key. China is the largest market in the world for the Rolls-Royce Bespoke programme. Our customers appreciate the ability to personalise their car to make it truly unique. A major difference though is the cultural context, especially with regard to timing. A purchase or delivery of a car can sometimes be aligned to a customer's personal agenda -- which could take into account festive occasions or the auspiciousness of the delivery date. In certain circumstances, we will fly in car to a customer should the need arise as opposed to shipping it.
Is China taking more focus than the Hong Kong market?
Not substantially. Mainland China is much larger geographically, so there will be variations in approaches from region to region. The Hong Kong market is very important, and is still a major contributor to Greater China sales, given the brand's long history of heritage in the city. It contributes from 20% of the total volume of sales in the Greater China region.
How does Rolls-Royce measure ROI?
Our key focus is on customer satisfaction and retention. In one case, we have a customer who has five to his collection. Our ability to attract new customers to the brand is key and this is shown by the way our two-door models have brought us new customers who have never before considered a Rolls-Royce. Two thirds of our customer base for the Coupé, for example, are new to Rolls-Royce.
- Carat Hong Kong
- Rolls Royce
- The Economist Newspaper
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