Harmonious Luxury Marketing

In the Hutong
In the groove
2059 hrs.

On Monday I explained why I felt that the restrictions placed on luxury outdoor advertising in Beijing are aimed not at the goods themselves, but at ending ostentation. While it is too early to say whether the restrictions will be broadened to other cities or other media, there are several reasons that the measures should give pause to all of us in the business of marketing luxury items, whether they be gadgets, gold, leather goods, or private aircraft.

First, the measures are a reminder that advertising luxury goods in China’s mass media is wasteful. Too many of the “impressions” in outdoor advertising are people who not only have no intention or ability to buy the product advertised, they will likely never have the ability to do so. Media companies may argue that those impressions that are not wasted are worth all of the waste, but let us not forget that the waste factor is immense.

Second, the measures are a signal that there may be such a thing as “negative effectiveness” when making desirable the unaffordable and unreachable. We assume there is spillover, but we never actually track the effects those spillover impressions have on the “wasted” audience. Are the messages and ads simply ignored? Or do they engender a negative reaction? Are we, as the Beijing Administration of Industry and Commerce apparently fears, seeding resentment that undermines social harmony? How do we know?

Third, the measures are a reminder that the end (selling more baubles) does not always justify the means (any creative that gets the buyer to pay attention). There are ways to create mystique and value with an advertising campaign that are more imaginative than pairing a luxury good with panorama of a luxurious lifestyle or with a half-naked supermodel. Are there ways to ensure that the results of the spillover are positive? And if so, shouldn’t we be pursuing such a course?

Why Should We Care?

All of those questions can be dismissed by marketers as “not our problem,” and a fair case could be made that we would be technically correct in doing so. After all, we are paid to deliver sales, not worry about people who are angry at being unable to buy our product. In fact, when you think about it (we tell ourselves), such frustration might actually be a good thing.

Such rationalization is perfectly true, right up to the point where the government decides that your ad pisses off too many migrant workers. At that point, you may lose the ad, or you may lose access to a channel completely. The smart move is to think ahead, and that begins by buying into some basic principles.

Four Principles

Principle I:  There are more effective ways to market luxury goods in China than mass media. A corollary: there are now more ways than ever to conduct effective luxury goods marketing. Even if you have a fixation with paid media, you are better off using direct mail, flagship stores, relationship marketing, and carefully selected online media and, when it comes, mobile media. In fact, luxury brands should be driving the push to online marketing that individually targets a user, rather than just takes space on a page.

In luxury goods more than any other industry, it is even possible to lead with below-the-line approaches like tightly targeted public relations, trunk shows, store openings, and other tactics that take a personalized, bespoke approach to marketing and eschew writing advertising checks altogether. The options continue to grow, and they keep getting more tightly targeted. A close friend of mine gets a birthday card every year from Cartier on the basis of a single small purchase she made on the basis of word-of-mouth.

Principle II:  We need to learn to understand, measure, and avoid “negative effectiveness” in marketing in a country with deep and active social fault lines, regardless of what we are selling. This does not apply only to China, but to any country in which a luxury brand sells. We are very good at understanding the positive consequences of our communications, even if we do a mediocre job of measuring them. But we ignore the negative consequences until they blow up in our – or somebody else’s – face.

But for every Groupon/Tim Hutton Superbowl gaffe, there may be two – or dozens – of campaigns, ads, or messages that don’t just fall flat with our non-targets, they get people to actually hate us. Until we learn to measure how many people our marketing pisses off, why it does so, and understand what that means for the brand, we may well be doing more net damage than good.

On the other hand, if we create campaigns that get our target audience to buy and engender goodwill from people who will never buy our products, we will have lifted our brand and our products to an entirely new level. See Principle IV.

Principle III: In our own enlightened self-interest, all of us in the marketing profession need to behave with greater sensitivity to the people at the bottom of China’s pyramid. This requires no great explanation, just a thought. After nearly 34 years of reforming and opening, China is still home to hundreds of millions of people who live on less than $1 a day. Before you submit that ad for approval (or before you approve it), picture in your mind a photograph: your ad, on a bus shelter, with a poor Chinese farmer in a threadbare blue Mao suit walking past. If that image looks wrong, rethink the ad, if not the campaign.

Alternately, imagine your copy or your messages being read aloud to a meeting of senior Party ideologues. Does it still sound okay? If not, rewrite.

Principle IV: Great luxury marketing goes for the organ between the ears. It is a huge temptation to conduct marketing that appeals to our baser instincts. It’s easy, it gets attention, and it sells. Leaving aside any moral issues, using such an approach to sell luxury goods is probably what got us to the current situation with the outdoor advertising restrictions. And it is just unnecessary.

Take, for example, Rolex, a great luxury brand. For decades, the company has been running a campaign celebrating explorers, pioneers, and other people of noted excellence in their fields of endeavor. These are not people getting out of Bentleys or fondling the latest Victoria’s Secret model. The ads have a distinct aura of class, style, and excellence, and have helped establish Rolex at the top of the luxury timepiece market, all without sex or decadence.

Not every luxury company can use the same strategy as Rolex, but marketers are paid for creativity. Any half-wit can conjure (or approve) an ad campaign that speaks to greed or the gonads. Good marketers – and wise clients – know that they don’t have to. That applies triple when selling high-margin merchandise like luxury goods.

Selling Baubles Better

There is a business case behind each of the principles above, either maximizing efficiency, minimizing the chances of blowback, or creating more memorable and meaningful campaigns. But there is a moral point to be made, and with your permission I will finish on this note.

When we market luxury products, we create desire for the unnecessary. That is the hard truth. Doing so is defensible, though perhaps not a virtue, when we create that desire in people who have more money than they can spend. But it is indefensible when we do so in people who have less money than they need, and it is reprehensible to say that such accidents are not our problem.

Great companies, great brands, and great executives do not shy from that quandary. Instead, they let that struggle be a part of what defines them, not just because doing so offers great commercial rewards (it does), but because it is the right thing to do. That essence should be a part of every brand, but the obligation rests heavier on those who create and sell “the finer things in life.”

Beijing’s Outdoor Advertising Restrictions: It’s Not About the Goods

In the Hutong
Peking Spring
0928 hrs.

In a loosely worded statement released March 20, the Beijing Administration for Industry and Commerce announced a ban on outdoor advertising in the capital that “promotes hedonistic or high-end lifestyles.” The statement was specific on three counts: a list of words that were banned from usage (“royal,” “luxury,” “supreme,” etc), a 30,000 RMB fine for violating the edict, and a deadline of April 15 to comply.

My first concern was that this was part of a move against luxury goods generally, and one reporter I spoke to even suggested that this was a veiled form of protectionism to speed the emergence of Chinese luxury brands. But after spending much of the last few weeks digging into this issue, I think something different and more fundamental is at work here.

All Luxury, No Class

What the Party is concerned about is not luxury, but class. Whatever compromises have been made with Marxist-Leninist-Maoist doctrine over the past 34 years, the nation’s leaders are not prepared to allow China to become – or, more important, appear to become – a society divided by class as it was before the revolution. Allowing people to get rich is acceptable, as long as the Party can cling credibly to a claim that New China is fundamentally an egalitarian society.

The problems begin when people start believing, to paraphrase Orwell, that some pigs are more equal than others. When a poor farmer walks through the nation’s capital and finds himself surrounded by advertisements for goods and homes he will never be able to afford, or when he sees the owner of the Ferrari parking illegally and getting away with it, the farmer is going to start feeling excluded and resentful. Marx called this “alienation,” and alienation fuels resentment, frustration, anger, a jump in property crime, and even unrest.

Dump Your Billboards, Keep Your Stores

What the policy does not appear to be is a move against luxury goods or their manufacturers. In fact, the day after BAIC released its statement, Minister of Commerce Chen Daming told attendees at the 12th China Development Forum that China will resolve the price discrepancies between high-end goods in China and the same items sold overseas. Far from seeking to inhibit the sales of luxury goods, Chen’s ministry is looking for ways to make them cheaper for Chinese to buy here at home.

This is a smart move. A recent report from CLSA Asia-Pacific projected that by 2020 Chinese consumers will snap up over 44% of the world’s luxury goods. As more Chinese who can afford luxury products are able to travel abroad, the government has a choice: keep taxes high on luxury goods and force prosperous consumers to buy knockoffs or, more likely, go abroad; or cut the luxury taxes and take the increased VAT revenues and the increased employment in retail and distribution. If 44% of the world’s luxury goods are coming here, the latter move sounds like the right one.

“A Man’s Home is his…” Oh, Wait…

Casual research suggests that local real estate barons will be more hurt by these restrictions than foreign luxury brands. First competing with each other to see how many Chinese McPenthouses and McMansions they can squeeze onto a hectare of land, developers then battle to see who can best liken his cookie-cutter rabbit warrens to Buckingham Palace in a hyperbolic war of words played out on billboards and glossy handbills. Indeed, while all types of luxury products seem to use outdoor, high-end real estate appears to take up the plurality of luxury outdoor ads in Beijing.

Contrast this seeming oversupply of high-end (and to most Beijingers and migrant workers, unaffordable) Sino-chateaux with the government’s growing concern about a shortage of affordable housing in the capital, and the specific move against outdoor seems more understandable. Indeed, one could argue that the Party is more concerned about the housing issue, but again, the question appears to be much larger.

The Problem is the Sizzle, Not the Steak

It is likely, then, that we are watching the early salvoes in a long-term Party campaign not against luxury goods, but against overt privilege and ostentation. In addition to the new strictures on advertising luxury goods, Beijing’s traffic police have been ordered to start getting tough on drivers of luxury vehicles who are traffic and parking scofflaws. The messages are clear: go ahead and sell luxury goods, but do not do so in a way that reminds China’s masses that many of their comrades live lifestyles they can never hope to afford. You are free to buy and drive a Mercedes S600, but you are not entitled to any special consideration as a result.

Given the political climate, the campaign is probably just building steam. Wen Jiabao’s public comments in March regarding the 12th Five Year Plan’s focus on “resolving unfair income distribution” suggest policies that will be as much about addressing appearances of inequality as about redistributing wealth. Three matters will be important to watch in the coming months:

  • The extent to which the BAIC enforces its own edict, something we will know based on what is showing up on billboards in the capital;
  • Whether this effort will end with Beijing, or whether the State Administration for Industry and Commerce starts encouraging other cities to take similar measures (I’m thinking Shanghai, Guangzhou, and the other coastal metropolises);
  • Whether the strictures on outdoor ads are then extended to television, print, radio, or other media.

Movement in any of these directions will signal a widening of the campaign, so luxury marketers and media companies would be wise to keep a careful watch over how this evolves. This is may turn out to be one of those years in China when flexibility will be a marketer’s most treasured virtue.

In the longer term, though, this may mark the beginning of a larger change that may force everyone selling expensive baubles in China to reconsider the way those goods are marketed.

A Hint of How Bad Things Are at Nokia Product Development

In the Hutong
Re-wired
1904 hrs.

In the January edition of WIRED magazine, in an article entitled “Shanzhai,” Frog Design‘s Jan Chipcase takes writer Bobbie Johnson on a tour of Shanghai’s electronics markets. If Chipcase’s name does not ring a bell right away, you may have encountered one of the articles that were written about him when he was Nokia‘s leading human interface designer and wandering cultural anthropologist.

The Invisible Competition

Chipcase makes great copy. In the course of perusing the fetid underbelly of China’s mobile phone industry, he offers entertaining pearls of insight. Of particular interest was this little chestnut:

Although some shanzhai phones are obvious imitations, others are harder to spot as fakes. Pausing by a stall, Chipchase rolls one example around in his palm, feeling its weight and examining it. Counterfeit phones usually have surprising features: unexpected video cameras, extra ports or unusual connectors. He notes that it’s worth checking for a spare SIM-card slot: many pirate handsets are targeted at consumers who run a second line to get cheap calls by switching between telecom providers.

“Dual SIM is probably the most easy to spot,” he says, pointing to the extra slot. Whereas legitimate mobile companies have shied away from second slots, shanzhai manufacturers were quick to spot consumer demand. “They met it, while the incumbents had trouble meeting it because of their existing relationships.” (emphasis mine)

Indeed?

Motorola, whom I think could be classified as a “legitimate” mobile company, began offering dual SIM phones, MING A1800 and the VE-75, three years ago, and has been selling dual SIM devices in China ever since. One example: Motorola’s XT 800, launched in December 2009, is a dual SIM Android device. (Full disclosure: Motorola is a client.)

We could chalk this up to the reporter not fully understanding what Chipcase meant, or to Chipcase not knowing what the competition was up to (he is, after all, an interface designer, not a sales, marketing, or strategy guy.) Until we read this, anyway:

Shanzhai has shown that there is consumer demand for more than one SIM-card slot. So last summer Nokia announced the introduction of two dual-SIM phones, the C1 and C2. The launch tallied with Chipchase’s vision: manufacturers borrow from each other and quickly iterate, responding to local tastes, while also improving products. Rather than cheap knock-offs, shanzhai represents a radical new model of business innovation.

Whoops.

Out of Touch, or Just Broken?

So, here is the score: either we are to believe that both Nokia and one of its most important, globally plugged-in designers were ignorant of the fact that a global competitor had beaten them to a major design feature by over two years in the world’s largest mobile device market, or that they are being willfully ignorant of the facts.

If the former, the most benign way to read these quotes, this serves as prima facie evidence that Nokia was, as of nine months ago, seriously out of touch with its markets, and it had been for at least two years. The implications are alarming: the people hired to bring essential market intelligence of this nature back to the designers and executives in Espoo were unaware that the competition had already gazumped them on a critical feature.

But even if Nokia and Chipcase knew they had been beaten by a competitor and tried to hide it behind PR spin (apparently effective as far as WIRED was concerned), the dual SIM matter suggests that Nokia’s product development problems go deeper than a smartphone operating system. Even when Nokia is copying innovations from others, it is unforgivably slow in doing so. Think of it: Nokia was two years behind Motorola, whose mobile phone division was distracted at the time by its most tumultuous  upheaval in at least a quarter century.

The Platform Isn’t Just Burning: It’s Structurally Unsound

It is possible that Nokia CEO Stephen Elop understands how deep his product development problems go, and that he is already trying to fix the problem. He may realize that Nokia needs to create an entirely new approach to – and infrastructure for – more market-centric product development, and to stop assuming that simply doing business somewhere and occasionally sending your designers there to take pictures puts you in touch with the market.

Sometime this fall, Nokia will launch a new generation of smart phones to answer the four year old challenge of iPhone and the three year old challenge of Android. The success or failure of those devices, based on Microsoft’s Windows Phone 7, will determine Elop’s future, and possibly Nokia’s. Elop knows this, so we can expect Nokia to unleash an expensive global sales and marketing blitz to support the launch (as will Microsoft.) No doubt, the sheer volume of noise will help initial sales figures.

So if nothing else, Nokia is buying itself some time. The company’s true test will come later, probably in late 2012, after the market has taken the measure of Nokia’s partnership with Microsoft, and, critically, whether Elop will have built a product development team that can get the company back up to the front of the industry. Or, at least, not 2-4 years behind it.

But it won’t be easy. Apple, Samsung, RIMM, LG, Motorola and the shanzhai guys all have a running start.