As showrooming and online price comparisons induce brands and retailers to lower prices, many products and services essentially have become commodities. Differentiation has emerged as the key element in engaging and exciting customers, as well as tapping their willingness to pay a higher price for a unique experience.
Successful luxury brands excel at creating exceptional experiences that make shoppers feel special and inclined to pay more. Another key focus for luxury brands is developing loyal, long-term customers. For these consumers, "it's not about price and product, but the great experience they had, why they like the luxury item they just purchased, and why they think the higher price was worth it," stated Jan-Patrick Schmitz, President and CEO of Montblanc North America. Montblanc markets high-end writing instruments, some priced close to $800,000, as well as watches, jewelry and leather accessories of the same high quality. "For luxury brands like ours, it's not about the one transaction customers made today, but the next 20 or 30 they will make over the next three years."
During the 2012 Leadership In Retail And Consumer Products Forum held in September, in a session hosted by Retail TouchPoints Associate Editor Alicia Fiorletta, Schmitz spoke about the new era of retailing, the market's shifting behaviors and business strategies, and how luxury brands such as Montblanc can yield high price points in a cost-conscious industry. His comments are summarized below:
Retail TouchPoints: In an increasingly price-focused industry, what prompts the average consumer to pay much more for a luxury item?
Schmitz: In a nutshell, differentiating the retail and brand experience is a determining factor of the price retailers can charge. Today, customers are willing to pay that price.
Our mission is to give customers a true experience. Premium products like ours can justify higher prices with value propositions that embrace customer service, quality, design and after-sales service. We cater to how consumers feel during the entire shopping experience, either online or in stores, as well as after the purchase, which is a crucial component.
As such, during the recession, we at Montblanc did nothing. We did not touch the brand. Our goal was to maintain the distinct experience that's at the core of the trust and loyalty we've earned from our customers.
Consider the Main Street retail model. Years ago these more personal, brick-and-mortar Main Street retailers knew their customers, interacted with them and understood what they wanted to buy. Shoppers trusted them, had a relationship with them. That's what luxury retail is today: understanding our customers and delivering a product and service we know they'll love, both during and after the purchase. Yes, there is an infrastructure behind that process that makes the brand differentiation more expensive, but customers appreciate the trust and a relationship they have with our brand.
RTP: How can retailers begin the shift from a price-centered model?
Schmitz: Most retailers must re-learn to curate their product portfolios as well as revisit their strategies of stocking and moving product as quickly as possible. One of the fundamental rules of Retail 101 is that with a diversified product portfolio, certain products may not be your hottest sellers or bring the highest margins, but they're driving a certain consumer to your store or to your brand. Once you have that consumer through the door or engaged with your brand, you have a much higher chance of selling something else during that transaction or in the near future.
So the shift starts with the product concept and the merchandising mix you put into your stores, then the packaging and presentation of your product, and the after-sales service.
Look at Apple: I am fascinated by the Internet launch of the iPhone 5. Apple states that the phone is closer to a fine watch than it is to a smart phone, and supports that claim with a video about the craftsmanship that goes into creating the device. Here's a technical gadget that had no emotional connection five years ago, and now Apple is touting its craftsmanship, longevity and the details that make it more like a fine Swiss watch than an electronic gadget ― which, by the way, will be outdated within a year as Apple comes up with something new.
Apple pays close attention to the design and functionality of the iPhone, but most of us also celebrate the nice backpack-like bag we receive with our purchase, the product wrapping, the fun of opening the package, and the manual and little sticker we also find inside. It's all a meticulous part of the post-shopping experience which actually reaffirms, "Yes, I just spent $600 on a phone, and I'm excited about it!"
RTP:How do luxury brands maintain a differentiated experience in their online stores?
Schmitz: Just a few years back, if you mentioned the word "Internet" in the boardroom of any major luxury brand, you ran the risk of losing your job. The Internet was perceived as the devil's work that endangered brick-and-mortar stores; it only existed to erode pricing; and, to some extent, was just a phase that would go away. On all three counts, these companies were wrong.
We at Montblanc consider e-Commerce a very viable channel for our brand. Our online store, which opened September 2011 for North American sales, today is among the top 10 of all stores in its region. By the way, we have 360 brick-and-mortar stores around the world, and are now rolling out the e-Commerce shop to Europe.
So even online, retailing is all about the experience we communicate about the Montblanc brand. The products still sell at full price, with Internet transactions reaching about $15,000. In our brick-and-mortar stores, the top price point is close to $800,000 for a writing instrument. At that level you do not talk e-Commerce.
Originally we hesitated to make the move to an online platform because marketers cannot create the same personalized experience as they can in a store environment. Technology today, nevertheless, allows organizations to actually interact with consumers, tell the story of the brand, convey the company's values, and actually engage. Shopping, let's face it, is an experience. To a certain extent, it's entertainment. You want to be indulged. You want to be told why you need that product and why you'll love it. Technology allows that.
A differentiated product experience can be provided, even in part, to most online purchases: Fashion brand eTailers, for example, can't offer the same physical customer service experience, but they can convey their uniqueness with online messaging, images, videos, etc. Then, when their products arrive at the customer site, they're wrapped in some really nice paper with small, personalized thank you notes, and maybe a special storage case, all of which helps engage and excite consumers and connect them to the brand.
The smallest detail is crucial to earning a customer's appreciation. But brands committed to cutting costs by 10% to undersell the competition don't recognize the differentiation. "Packaging? Thank you notes? Storage cases? Who cares? Just get the product from Point A to B." That's what efficiency and convenience experts say, but can be so wrong.
RTP:How has the advent of social media changed how you market your luxury brand?
Schmitz: I'm amazed at the power of social media. In just a few seconds, consumers can speak to the world about their experiences with a brand, stores, associates, products, packaging, etc., and in turn drive decisions for other consumers. The power of these insights as well as customer ratings should not be underestimated. We take them very seriously.
In fact, above a certain price point, roughly 90% of decisions begin on the Internet, from reading consumer reviews and searching sites to comparing products and prices, etc. This development certainly has made a dramatic impact on our marketing organization and, well, virtually everyone in our company. We clearly changed the way we craft our communications and the stories we tell about our product and brand in order to impact a purchase decision long before a consumer comes to the point of actually seeing a luxury Montblanc product live, let alone buying it.
RTP: Please talk about the importance of carrying that unique and compelling brand experience across channels.
Schmitz: This is a crucial point that is sometimes overlooked. You have to provide a very consistent experience to consumers, whether it's through print communications, in a store, online, email or however you reach them. When a brand message is not conveyed consistently across these touch points, customers disconnect and much of the brand value is destroyed.
Back to Apple, every facet of the iPhone experience not only is consistent across channels, but pleasurable and rewarding, and bonds customers to the brand. Just as I was excited to pay hundreds of dollars for a phone, Montblanc customers, whether online or in our stores, are happy to spend thousands on a writing instrument.
This is luxury marketing. When retailers create loyalty by connecting with the consumer, that's magic, because, as I said, ultimately the game is not about selling today, but selling over the next 10 years.