January 12th, 2004

The new premium:

Becoming a modern premium brand

A Global Audit

Prepared For LVMH Australia

“Innovation Workshop”

The old face of ‘dinosaur luxury’

The death of dinosaur luxury

Old luxury is declining:

• Weakening of traditional luxury brands through

diffusion lines – luxury is no longer the preserve of

an elite

• Descent of luxury brands into ‘Bling’/‘chav’ culture

e.g. Burberry

• Move away from status-driven 1980s/1990s

• Growing environmental concerns – ostentatious

consumption no longer desirable

However, luxury hasn’t died; it has simply moved on…

A new consumer mindset has evolved

‘Yuppies’

• ‘Young Urban Professionals’

• Work hard, play hard, 1980s/1990s

entrepreneurial generation

• Into ostentatious displays of wealth

and materialism

• Unashamedly selfish and status driven

‘Bobos’

• ‘Bohemian bourgeois’

• A new breed who marry the liberal

idealism/intellectualism of the 1960s with

the self-interest of the Reagan/Thatcher

generation

• Still high spending, but want to combine

consumerism with ethical and

environmental awareness

• Value creativity and ideas

New modern premium brands have

emerged

Modern Premium: Six rules

New premium brands…

1. Are born not manufactured

2. Pay attention to detail

3. Promise life enhancement not status

4. Are passionate about the issues that matter to them

5. Change and evolve

6. Are people-focused

Rule 1: Modern premium brands are born of

conviction, not retrospectively

manufactured

• The best modern premium brands have a distinctive and

engaging brand story and they aren’t afraid to tell it

• They’re often strongly linked to a founding individual or place of

origin, and they emphasise and celebrate their ‘founding myths’

• They’re authentic, rather than born out of marketing spin

Ben and Jerry’s

• Founded in 1978 by childhood friends, Ben Cohen and Jerry Greenfield (later sold to

Unilever for $326 million)

• Brand built on the personalities of Ben and Jerry themselves, described in their

company literature as ‘the two slowest, fattest kids in the gym class’, with a brand

mythology built up around their original deliveries from an old Volkswagen station

wagon

• Their hippy ‘grass roots’ image is taken through to all aspects of the brand, from

packaging, to flavour names, to advertising etc

Aveda

• Aveda founded by Horst Rechlebacher, son of a herbalist and

naturalist

• Company mythology tells how he began working in a beauty

salon at 14, then collaborated with physicians, chemists and

traditional healers to create Aveda

• He is an active environmentalist and philanthropist, values

which are again continued in the brand’s mission

• Rechlebacher’s vision continues to be spread through his

books/guides to a balanced lifestyle and health

New Mini

• A small car that is given premium status through BMW ownership, but

that is also given premium status through its heritage and strong brand

story

• New Mini design harks back strongly to the original Mini

• The brand repeatedly emphasises its quirky British roots and racing

heritage

When it goes wrong…If brands are praised for authenticity, consumers increasingly see through

marketing spin and reject artificially contrived brands.

• Dasani

– Dasani launched in the US in 1999 to huge success

– However, UK launch in 2004 was one of Coke’s biggest

flops

– Press and public reacted angrily to purified tap water being

sold as mineral or spring water

– Product withdrawn after just 5 weeks

• Sunny Delight

– Sunny Delight was the marketing success of the 1990s

– However, by early 2000s, consumers turned against the

brand as inauthentic, rejecting it as a fake rather than

healthy brand

– Without genuine product quality, brand went into rapid

decline

Rule 2: Modern premium brands have

a high level of attention to detail

• Modern premium brands hold the key values of craftsmanship,

quality and expertise

• They often focus on key product details and their benefits,

showing how they demonstrate product quality or make life better

• Their products live up to or exceed expectations – usable,

intuitive, personalised, visually and tactilely rewarding

craftsmanship

• They are transparent about exactly where and how their products

are made/sourced

Virgin Atlantic

• Virgin Atlantic is a brand that is built and sustained by the ‘details’

• Unable to compete with BA on frequency of flights or destinations, therefore

focus is on quality of service and ‘extras’

• Brand built on the desire to become known ‘internationally for innovation,

quality and a sense of fun’ – this sense of fun and quality taken down to the

smallest level

– First airline to provide all economy class passengers with seat-back

entertainment screens

– Upper Class pioneered limousine pick-up (including fleet of V70 and

S80s) and ‘drive-thru’ check-in

– Virgin lounges branded as ‘Clubhouses’, and deliberately built to

challenge the conventions of traditional lounges. New ‘Revivals’ lounge

opened at Heathrow arrivals where Virgin flyers can freshen up after

flights

– Safety video made quirky through music, celebrity speakers and

animation

Virgin Atlantic

• Salt and pepper pots in Upper Class shaped like little characters with

propellers

• Each one stamped on the bottom ‘Pinched from Virgin Atlantic’

Virgin Atlantic

• New magazine developed for Upper Class called ‘Carlos’

• Articles by respected writers/personalities such as Woody Allen, Michael Faber

etc.

• Printed on matt brown paper, with line drawings rather than photographs – the

design smartly taps into the mindset of the new ‘bourgeois bohemians’ with its

sense of ‘luxurious frugality’

• Available in Upper Class, and also in Paul Smith stores, Zwemmer bookstores,

the Serpentine Gallery, Tate Modern and Magma

Paul Smith• The Paul Smith brand is translated into every single aspect of the brand

experience to create a dense, multi-layered brand:

– Signature ‘stripy’ design taken into carrier bags, packaging and marketing

– Quirky product details (often on the inside where only the owner can see

them)

– Shops designed to feel like a home or small boutique

– Products manufactured in England whenever possible

– Paul Smith publishes books detailing his creative process e.g. You Can Find

Inspiration in Everything

Rule 3: Modern premium brands sell

life enhancement not status

• Old luxury was all about ostentatious shows of wealth – ‘see and be

seen’

• New premium brands are inwardly rather than outwardly focused

• No longer about showing off labels (in fact other people might not even

know what brand you’re using)

• In a time of worries about terrorism/climate change/food scares etc,

modern premium brands focus on personal wellbeing of mind, body and

soul

• The experience of using the brand is its own reward

North Face

• North Face based around the idea ‘never stop exploring’, urging people

to realise their potential and live a life full of adventure

• North Face have financed and led expeditions since 1969, with them

now running ‘Team North Face’, a team of elite climbers, skiers,

snowboarders and endurance athletes

• Brand based around doing, living and experiencing

Fresh and Wild

• Organic food sales in UK have doubled since 2000, now worth £1.2bn each

year; organic food sales in the US growing by 15% each year

• This month, Walmart, the world’s largest food retailer announced plans for a

huge expansion into organic food

• Fresh and Wild are one of the brands that have spearheaded the organic

revolution in the UK (now owned by US company Whole Foods Markets)

• Fresh and Wild brand based around holistic living (eating better and feeling

better); products promise not status, but improved health, wellbeing and

vitality

The new intelligentsia

• Brands offer holistic living and health, but also mental stimulation and creativity

• Growth of book clubs, growth of literary and arts festivals.

• New premium brands don’t ‘dumb down’ but provide stimulation and ideas:

– Pret a Manger provides recipes showing how to make their products at

home

– Channel 4, Dazed and Confused and TopShop run an annual creativity

awards (re:creation) with music, design and fashion events etc.

– Peugeot sponsors bi-annual car design competition

– BMW creates films, comics and short story podcasts

Rule 4: Modern premium brands are

passionate about the issues that matter to

them

• Old luxury brands simply shored up the status quo

• Only had views about their own specific areas (e.g. fashion, travel)

• New premium brands have a vision of the world and opinions on everything

• They challenge assumptions and stir up opinions

• They align themselves with ethical or environmental causes

• They find innovative ways of marrying consumerism and responsibility – ethical

behaviour no longer requires sacrifice or abstention, but can actually be fun and

easy, or even glamorous

RED

• The Red Project launched this year, masterminded by Bono and Bobby

Shriver, Chairman of DATA

• The project aims to team up with iconic brands to produce Red-branded

products, with a % of all profits going to the Global Fund which supports

women/children in Africa with HIV

• Launch partners are American Express, Gap, Converse and Emporio Armani

– e.g. 1% of all money spent on the American Express Red card donated to

the fund

• Products explicitly marketed as a way of combining consumerism with

philanthropy

American Express: From blue to red

• All about ‘you’

• Cashback of 1-2%, no annual fee

• Sold on image, kudos and style (links with music, entertainment and technology brands)

• Targeted at young professionals who want the status of an Amex card

• All about ‘others’

• Charity donation of 1-2%

• Sold on philanthropy – ‘desire can

be virtuous’

• Targeted at ethically-aware young

professionals

• Extras include the ‘RedPass’ – one

user every three months wins a

unique holiday or experience

Al Maha Desert resort

• ‘Green travel’ or ‘eco-tourism’ is growing 3 x faster than traditional tourism*, with a

whole section of the Lonely Planet website devoted to responsible travel

• New resorts expected to provide luxury, but also to be environmentally friendly

and ethical

• An example of new premium travel is the Al Maha Desert resort - luxury suites

furnished with antiques, deluxe spa treatments, gourmet food etc, but also uses

solar power, practises water recycling, donates 5% of profits to local conservation

and has 15% of its staff permanently employed on conservation projects.

* Source : WTO

Rule 5: Modern premium brands

change and evolve

• Old brands were ‘timeless’, fixed and unchanging

• New premium brands are aligned with creativity and individuality,

so just like individuals or a creative process, they grow and

change

• Never afraid to stretch out or to head in a new direction

• Not afraid to challenge and break category codes

• Loved for their unpredictability and innovations

Apple• Apple loved for their constant change and evolution

• Brand rooted not in one particular area, but in the marriage of

creativity and technology – Apple can therefore jump from

computers, to music, to video technology etc.

• Their products themselves enable constant change and flexibility

– IPods let users change their music as frequently as they change

moods

– Apple Stores mix up products and create experience zones,

thereby encouraging people to look at new products

Rule 6: New premium brands are people-

focused

• Old luxury stuck to rigid rules (e.g. ‘no jacket, you can’t come in’)

• New premium bends over backwards to make life easier for its

customers

• Service is the new luxury differentiator

New premium brands take their services

out to you• New premium brands don’t wait for consumers to come to them, but take the

brand out to meet people in the places where they already are‘

• Topshop to Go’ sends a style advisor and a selection of clothes to people’s

homes

• Dutch Bank, ABN AMRO, runs a special lounge at Amsterdam’s Schiphol

Airport for key customers (savings >€50k or monthly income of >€5k)

• Lounge opens from 6am to 10pm, providing a meeting space, online access,

food and drink and foreign currency exchange

New premium brands take their services

out to you

• In the Netherlands Orange has created ‘Powerstations’ where people can put

their Orange phones in special lockers to be recharged while they are out

and about

• Nokia created silence booths for their customers at music festivals, so that

Nokia users could make phone calls without interruption

Brands are founded on exceptional service• First Direct founded upon customer service

– First bank to offer 24-hour online/phone contact

– Customer retention levels of 97%

• Rise of concierge services such as ‘Quintessentially’ providing round the clock

service, bookings and advice

• Lexus Australia offers its customers the Encore privilege scheme

– Extended breakdown assistance and service

– Invitations to special cocktail evenings, a annual charity ball, access to an

art valuer, priority ticketing and parking at cultural events, access to

exclusive golf courses and special travel and luxury holiday offers