Hermès Family Fortunes

Luxury group LVMH acquired what is to be a 17.1% stake in Hermès, it was announced at the weekend. Historically, the group has a tendency to purchase a minority stake before settling in for a full assault on the target acquisition. In order to leverage such a purchase, it is rumoured that LVMH is considering selling off the “MH” part, Moet and Hennessy, which Ogilvy client Diageo is understandably very keen for. Any rumours of takeover may just be that, of course.

But what of Hermès? Zeitgeist has paraphrased current IPA chairman Rory Sutherland before when he spoke of clothes today being about much more than mere “atoms”; these goods, especially in the realm of luxury, are sold on their intangible benefits, not on the assumption that they will merely keep you warm. Hermès, futhermore, really is a world unto itself, having been controlled by the Dumas family (offspring of Thierry Hermès) since its inception. The death of the brand’s patriach clearly left room for a potential hostile takeover.

LVMH must tred lightly however. One of the things that makes the Hermès brand so coveted by so many people around the world is that it is fiercely independent. Its heritage is bound up in the history of a single family, rather than a more homogenous consortium of initials. This family history has, without doubt, strong – though intangible – brand equity for its consumers, for obvious reasons. If it is to become subsumed into a phalanx of other brands however, the loss of this familial association might having a thoroughly tangible impact on the brand’s bottom line.

Chinese Whispers in London – Chinese brands in the UK

Charles de Gaulle once commented, “China is a big country, inhabited by many Chinese.” As astute as this observation was (and is), it was hoped that a trip that Zeitgeist paid to London’s Victoria and Albert Museum ten days ago, entitled ‘Going Global: Advertising Works UK China 2010’, might provide a little more insight. The Institute of Practitioners in Advertising described the morning as,

A conference in association with UKTI and linked to London Design Festival looking at the value of advertising and how the UK can act as a creative hub to Chinese brands seeking to go global.

Hosted by the IPA, the conference involved talks from a series from numerous luminaries from Ogilvy, BBH, McCann Erickson and JWT. Our emcee for the morning, IPA Director of Marketing Ms Janet Hull, noted that the UK was the fourth largest market in the world for ad expenditure. Ms Hull also talked about the increasing interaction between UK and China advertising; senior BBH and M&C Saatchi people have been on IPA visits throughout China over the past 18 months.

The great Rory Sutherland (whom Zeitgeist has mentioned in previous articles on behavioural economics and neuromarketing) was next up, speaking in an introductory manner to the morning’s proceedings, stressing that “value is subjective”, that it is created at the point of consumption. Added value exists mostly in the mind, he went on, not in the physical atrributes – “the atoms” of your product. He gave luxury brands as an example of this. He also pointed out that China currently has six brands in the top 100 (six years ago they only had one), according to WPP’s BrandZ survey (which Zeitgeist played a small part in helping develop). He foresees many more Chinese brands entering this pantheon in the next few years. One of those brands is China Mobile, and it was the Chief Representative of this company, Henry Ge, who would speak next.

Launched in 1995, China Mobile is now a $53bn brand. A recent survey conducted revealed 74% customer satisfaction with the brand, higher than any landline or mobile provider in the US. Curiously, not only do they have a very high loyalty rate, they also have a very high return rate, suggesting that perhaps of those who do leave, most will come back. Mr. Ge talked next about brand strategy, talking about how the company offered different plans (divided by pricing, services and rewards) in order to exploit customer segementation, while also seeking differentiation from competition and pricing for sustainable growth. Also of interest was to hear the development of the brand’s USP over the last ten years. In 2000, the brand’s selling point was coverage. In 2010, it’s platform, referring to Apple’s iPhone and Google’s Android OS, as well as more specifically mobile shops and apps. The future? Well, according to Mr. Ge, the future is all about experience, putting the consumer in control. Nothing new you might think; it will depend on how China Mobile and others execute this. It gels well with a recent article in the New York Times which stated “spending money for an experience… produces longer-lasting satisfaction than spending money on plain old stuff”. Of course, as a company comprised principally of engineers, Mr. Ge confessed that those at China Mobile would be understandably nervous about such a shift in power.

Orlando Hooper-Greenhill, Director of Global Planning at JWT spoke next on HSBC, aka Hong Kong Shanghai Banking Corporation, set up in 1865. Any regular traveller would be able to tell you of the bank’s perpetual presence on “jet bridges” – the bits linking the airport to the plane – the idea behind which, Orlando stated, was to say goodbye to you as you left one country, and for it to be the first thing that says hello in a new country. HSBC’s proposition rests on the suggestion that even though their offices are spread the world over, they still provide superior service through their local knowledge. This was exemplified when Orlando showed the room two TV ads for HSBC, one from the US and one from China. Zeitgeist has had a terrible time tracking down the Chinese ad, and at the time of publication Orlando hadn’t responded to our request for where we could get our hands on a copy to post here. Needless to say the ads demonstrated an insight into each audience that it was targeting more than simply laying its cards on the table as to what services the bank could provide. He also presented the audience with a fascinating graphic, which Zeitgeist did manage to track down, see below. It puts into context just what a large audience is waiting out there for your advertising messages (albeit an audience with some maturing to do still).

Next up was Li Fangwu, Assistant Secretary General of the China Advertising Association. He began by mentioning that it was in 1978 when the ad industry as we know it (or don’t) today was “restored”, presumably as part of the Beijing Spring, currently with 170,000 agencies and over a million employees, which is quite staggering. However, Mr. Fangwu was forthcoming as he showed that year-on-year advertising turnover had declined since 2005, which made Zeitgeist realise that China is not completely immune to the effects of a recession. Most amazing was the advertising law dating from 1994, currently under revision. The levels of bureaucracy involved in getting advertisements legally processed was stupefying. Hopefully the blurry pictures below of the numerous government bodies needed to rubber-stamp their approval of a campaign gives an impression of the dizzying complexity currently involved. The word ‘byzantine’ comes to mind.

Nick Blunden of Profero was up next, who spent part of the beginning of the conference polishing up his presentation sat on the row in front of Zeitgeist and a colleague. Mr. Blunden was full to the brim with interesting, topical statistics proving the oft-proved power of the Internet etc. One of the more interesting stats was that smartphone handsets will find their way into the hands of 250m pairs of hands this year, quite a figure. Among some of the more innovative and intriguing case studies he mentioned were Pepsi’s superb Refresh campaign, Lufthansa’s MySkyStatus and Diageo’s Windsor campaign in Korea. Last but certainly not least was Chris Macdonald, CEO of McCann Erickson did his best to convince Zeitgeist that he shouldn’t shoot off to the Cote d’Azur when the Olympics (and the unwashed masses in their millions) descend upon London in 2012. An informative talk all round, and surely but a taste of things to come as China’s sphere of influence grows.

Neuromarketing Explained

“The trouble with market research is that people don’t think how they feel, they don’t say what they think, and they don’t do what they say”

– David Ogilvy

On Wednesday night, part of the Zeitgeist entity found itself at a Holiday Inn. No, it was not part of a dare. The Account Planners Group [APG] had chosen this venue in central London to host a conference on neuroscience, with specific reference to its application in marketing. Neuromarketing involves using tools, tasks or tests from the realm of cognitive psychology and neuroscience to measure non-conscious reactions in the brain to marketing stimuli. The use of the above image was made even more appropriate given that the organiser of these events goes by the name Steve Martin (I kid you not). AdAge recently featured a pretty good article on the subject.

Our host for the evening was Gemma Calvert. As Warwick University notes, “In 1997, Professor Calvert established the world’s first neuromarketing consultancy, Neurosense Limited, which has undertaken numerous fMRI studies for clients in the advertising, marketing and pharmaceutical industries. The company’s clients include Unilever, Viacom Brand Solutionts, GMTV, Omnicom, Quest International and McDonald’s Europe. This expertise has formed the basis for the establishment of a dedicated academic group at WDL which aims to help marketers and manufacturers understand how the brain responds to products/fragrances, brand extensions, packaging design and marketing messages.”

Ms Calvert began by talking of Descartes, one of the leading figures of the Enlightenment, who espoused philosophies on the inherent superiority of human beings to primates, because we had the rational mind. But then, more recently, in the 90s, some dude came along called Damasio. Damasio claimed that we were at heart (or rather, in brain) emotional beings ruled by emotive impulses. This theory, it turns out, is closer to the truth. While our brains have expanded as we have evolved, our limbic brain sits comfortably over our reptilian one, and our neocortex rests on this. The cortex makes our rational decision for us, while the more base parts of our brain do the instinctive “fight or flight”, “must have sex now” stuff. Unfortunately for those supporting the rational part of our brain however, the cortex makes no decisions without consulting the limbic part, subconsciously. Our brain is unable to tune into all the information it needs to, so sometimes we block out things that we see as extraneous. This is dangerous as it can lead to unexpected dangers down the road (see global recession and the premise of Black Swan). It’s well-illustrated by the following video:

Remarkably, we even rationalise post-hoc, telling ourselves something we know is not true but forcing our rational mind to accept it. There is an excellent article here on the subject of confabulation (link updated 2014). Zeitgeist watched this video last night at the conference and did not believe that there had been a gorilla in the video the first time it was shown. Watching the YouTube video this morning, he now believes this is a different video that does contain bears in both clips. It is very unlikely that he is correct. Ms Calvert also highlighted the fallibility of focus groups, as evinced by the great Mr. Ogilvy at the beginning of this article. One of her more whimsical comments came after her statement that 97% of new products fail in Japan within the first 12 months (there are specific reasons for problems in this region). This despite months of testing, focus groups and general consumer research. Ms Calvert’s opinion was that you were just as – statistically speaking, better – off flipping a coin, as at least with that you had a 50-50 chance. Neuromarketing on the other hand can give you an insight into how consumers actually feel, rather than merely what they are telling you. The application for this study is done through eyetracking, fMRI scans and EEG. MRI involves the rather unnatural state of lying down surrounded by a gigantic magnet. Wearing fibre optic glasses, the subject can be shown pictures, movies, or even be given a joystick to engage on a virtual shopping trip. It can be used to study how a 30-second spot holistically effects the brain. EEG on the other hand can be used to examine how someone feels about something on a second-by-second basis, with a positive or negative timeline.

Ms Calvert also spoke briefly on behavioural economics. Zeitgeist has commented previously on behavioural economics – which, contrary to classical economics, argues that we are not all inherently rational beings making purely rational decisions –  which is a methodology that, according to Ms Calvert, aims to effect large-scale population change. Thinkbox has the pleasure of hosting none other than Ogilvy’s very own Rory Sutherland on the subject on its website, video of which can be found here. These methodologies can help validate and measure effectiveness. It can help divine brand empathy, loyalty, liking and recognition. The findings were most interesting for subjects where the consumer was actually lying to themselves. When Dove tested to see whether they should enter the house cleaning market, those tested with neuromarketing revealed they were very turned off by such a notion, with their brains showing high signs of disinterest and even disgust. In focus groups though they told researchers they would be quite happy to consider buying such a product. Brain imaging better predicts intended purchases than what consumers actually tell researchers. How to reconcile these contrasts? Well perhaps the fact that fully 85% of consumer behaviour is driven by non-conscious awareness is part of it; we are not even aware of most of the decisions we make. Now neuroscientists are. Sounds like a movie I saw this summer…

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.