Selling the extraordinary

“Everything has become more experiential”

– Dante D’Angelo, brand and consumer development director at Valentino

It is an odd state of affairs indeed for the retail sector at the moment. On the one hand, consumers are flocking to digital devices like never before, particularly for their shopping. Conversely, this means that the physical experience of shopping becomes rarer, creating more opportunities for specialism. An article in the Financial Times a few weeks ago read as if a commercial plague had swept through the UK high street over the past few years. With 4,000 stores affected, 2012 was, according to data from the Centre for Retail Research, the “worst year since the start of the credit crisis in 2008”. Names of erstwhile stalwarts like Woolworth’s, Jessop’s, Peacocks and Clinton Cards have all fallen under the knife. As we wrote at the beginning of last month, what little salvation there is lies in embracing digital technologies.

The luxury sector however has its own special, gilt-edged cards to play. In St. Tropez, the Christian Dior boutique’s ample courtyard has recently been made use of with an all-day restaurant. Louis Vuitton have a cinema screening classic Italian films in their Rome boutique. It’s no wonder such brands have also branched into the hospitality sector, the former working with the St. Regis to develop branded rooms, the latter into full-scale hotel management. Ferragamo have been involved in the hotel sector for years. Two recent examples show how companies can extend the experience for visitors, and help drive revenue at the same time.

The auction house Sotheby’s will tomorrow auction a rather large collection of surrealist art. One of the few things that definitively puts it ahead of Christie’s is that it has its own cafe, which, last week and this week, is pushing the surrealism theme into its catering (see above menu). It’s a simple, creative idea that creates a cohesive brand, celebrates a big event, and ultimately hopes to drive revenue from peripheral streams around the auction. The RA’s current Manet exhibition is taking a leaf from this tactic, opening later but charging double the usual rates for a special experience, including a drink and a guide. The other interesting news of note was a new tactic being employed by the fashion company Valentino. Not content merely with having a major exhibition at London’s Somerset House, the label is also tinkering in an innovative way with its event structure. As detailed last week in Bloomberg Businessweek, Valentino is opening a new boutique in New York later this year, during which the typical glitterati will be in attendance. However, the new idea comes in the form of the company inviting prized customers to the opening for the chance to rub shoulders with said VIPs, for a steep price. Similarly, Gucci is offering its non-VIP customers tours of its Florence workshops for the first time.

Something that Zeitgeist has been noticing for a couple of years now, recently echoed by Boston Consulting Group (BCG) senior partner Jean-Marc Bellaiche, is the importance, particularly for those in their 20s – like Zeitgeist – that people place in defining themselves by what they’ve done rather than what they own: “In an era of over-consumption, people are realizing that there is more than just buying products… Buying experiences provides more pleasure and satisfaction”. On a macro level there is significant bifurcation in the retail market; not everyone will be able to afford in creating extraordinary experiences for their customers. A recent BCG report helps illustrate this, noting that while the apparel sector as a whole saw shareholder returns fall by 1.3% for the period 2007-2011, the top ten players produced a weighted average annual total shareholder return of 19%. Expect then for retailers – those that can – to increasingly provide exclusive experiences to their customers, beyond the celebrity, whether it be early product releases, tours, or events. Just don’t expect it to come without a pricetag.

The Art of Behavioural Economics

Much proverbial ink has been spilled on the coinciding of two events on September 16th, 2008. This was the day that, as Lehman Brothers collapsed, artist Damien Hirst made off with a cool £111m, “the largest single artist sale ever held” for his show Beautiful in my Mind Forever, according to the Wall Street Journal.

On Monday evening this week, the auction house Sotheby’s held an Impressionist and Modern Art sale, after a large article in the FT that weekend, detailing how the pieces to go on sale, which included a self-portrait by Edouard Manet (above), were expected to fetch record prices. This following recent all-time record sales, first of a Giacometti sculpture for £65m in February, which was then eclipsed three months later by a Picasso that sold for £72m.

The sale, which ended in the Manet being sold for £22.4m – a record for the artist – was not deemed a success. This morning on BBC Radio 4’s ‘Today’ programme, Sotheby’s representatives were quick to reference “unsophisticated buyers” from the Middle East, Far East and Russia; there was also vague talk of buyers looking for something that looked “like a painting for the 21st century”.

Looking at the sale holisitcally, which we can do purely in financial terms, it was an unqualified success. The result was seen as disappointing only because expectations had been raised considerably, based on – what? There was nothing to suggest that this sale would break major records, only the knowledge that certain pieces of art had recently been sold at high prices.

The problem then, a term used in behavioural economics, is one of anchoring. Behavioural economists disagree with classical economists’ view that people act on a rational basis. The anchoring rubric is a question of framing. In this case, because expectations had been raised artificially by recent news of record auctions, the sale at Sotheby’s was viewed as a disappointment, when in fact, in purely financial terms (i.e. “did the objects on auction meet and surpass their reserve?”), it was a success. In much the same way, the Hirst / Lehman Brothers coincidence is used to illustrate the robustness of the art market, irrespective of global financial turmoil. This framing fallacy concept is of course by no means exclusive to the high-end art world. In fact it can be found everywhere in the natural world as a way of helping judge the relative value or worth of an object, by positioning it relative to its peers. It is done in the supermarket every day to help consumers make a choice between peer products. The different prices and attributes anchor the shopper, giving them a relative understanding of the value of each product. Without this, a shopper would have no idea how much a product or feature was “worth”, or how the product sat on a hierachy with it’s competitors.