THE WHITE about the luxury lifestyle. At the 2012...

AMERICAN EXPRESS PUBLISHING LUXURY SUMMIT 2012 MAY 6-8, 2O12

Scott Keogh, CMO of Audi of

America

Trevor Neilson, cofounder and

president of Global Philanthropy Group

Maureen Case, president of specialty brands at

Estée Lauder

Katherine Chenault

John McDonnell, COO and

executive VP of Patrón Spirits International

John Galantic, president and COO

of Chanel

Alexander Gilkes, cofounder of Paddle8

Robert Frank, CNBC

editor and correspondent

TV host and author Chris

Matthews with Kathleen

Matthews, executive VP of Marriott

International

Mike Steib, CEO of vente-privee USA

Wendy Goodman,

design editor of New York Magazine

Sherrie Rollins Westin, executive VP and CMO of Sesame Workshop, with Grover and his Muppeteer

Xoliswa Ndoyiya, personal chef to Nelson Mandela

Stephen Doyle, creative director of Doyle Partners

Ed Kelly, president

and CEO of American Express

Publishing

Ken Chenault, chairman and

CEO of American Express

THE WHITE

PAPER REPORTFor three days in May, the conversation was all

about the luxury lifestyle. At the 2012 American

Express Publishing Luxury Summit at The Breakers

in Palm Beach, influential leaders from such topical

arenas as travel, design, fashion, beauty and finance

gathered together to share ideas on

HOW WE LIVE NOW.

What follows are the facts, figures, opinions and

visions of those individuals.

Prepared for American Express Publishing by Catherine L. Carlozzi

LILA PHOTO

Contains copyrighted and legal information for American Express Publishing and Harrison Group.

CONFIDENTIAL, PROPRIETARY & TRADE SECRET INFORMATION This document contains confidential, proprietary and trade secret information of American Express Travel Related Services Company, Inc. (“American Express”) and must not be disclosed in whole or in part to any third parties without prior written consent of American Express.

The White Paper Luxury Summit 2012 American Express Publishing

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INTRODUCTION ...........................................................................................................................................................................................................2

I. STayINg TRUe TO yOUR BRaND DNa ...............................................................................................................................................................4

Decoding the DNA of a Luxury Brand ...........................................................................................................................................................4

the Brand is What the Customers Believe it is ...........................................................................................................................................5

the Price Will Be What it Will Be .....................................................................................................................................................................6

Broadening the Brand..........................................................................................................................................................................................6

think Global, Act Locally ....................................................................................................................................................................................7

CaSe STUDy ONe transformation of an iconic Brand: American Express .....................................................................................8

II. lUxURy IS a CONveRSaTION ............................................................................................................................................................................10

CaSe STUDy TWO Changing the Luxury Conversation: the Branding of Audi.........................................................................10

Craving magic ......................................................................................................................................................................................................12

tastes of South Africa ........................................................................................................................................................................................12

Connecting through the Power of Philanthropy ...................................................................................................................................13

CaSe STUDy THRee Digital media Success for a Global Luxury Spirits Brand ...........................................................................14

Curating the Luxury Conversation ...............................................................................................................................................................15

Selling in the Digital Space .............................................................................................................................................................................16

Engaging through Social media ..................................................................................................................................................................17

CaSe STUDy FOUR reinventing travel at 35,000 Feet with Some Help from Social media .................................................18

III. POlITICS aND THe WORlD OF WealTH .....................................................................................................................................................20

Presidential Campaign 2012—the Socio-Political Debate Over Wealth .......................................................................................20

the Anxious Elite ................................................................................................................................................................................................20

Selling to the Anxious Elite—Luxe Learnings ...........................................................................................................................................22

the Changing Face of the American Luxury Consumer—Keep an Eye on Gen y......................................................................23

What About the rest of the World? ............................................................................................................................................................24

What Does it mean for the Luxury market? .............................................................................................................................................24

IN ClOSINg .....................................................................................................................................................................................................................25

American Express Publishing Luxury Summit 2012 The White Paper

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Introduction

The 10th american express Publishing luxury Summit convened at The Breakers Palm Beach from

May 6-8, 2012. In attendance were some 250 delegates representing a cross-section of the luxury industry.

With What Works Now: Luxury to Believe In as its theme, the Luxury Summit examined how—amid a

confusing array of channels and choices and against a backdrop of political and economic uncertainty—

companies can transform themselves in powerful ways, distinguish their offerings, hone their messages and

strengthen ties to their luxury consumers. The agenda—developed under the guidance of the editors of

Departures, Travel + Leisure, Food & Wine, Executive Travel and Black Ink—featured top luxury leaders and

marketers, industry analysts, journalists and innovative thinkers from inside and outside the luxury arena.

The program kicked off with a conversation between Departures Editor in Chief Richard David Story and Chanel President and Chief Operating Officer John Galantic. Their wide-ranging conversation, centered on how Chanel has achieved a position at the pinnacle of the luxury industry by remaining true to the brand’s authenticity and authority over the years, set the tone for the three days of dynamic, interactive discussions.

The major themes and subthemes that emerged from those discussions, as well as from the case studies and research findings presented at the gathering, are summarized in the American Express Publishing Luxury Summit White Paper. It is a comprehensive report that captures the different perspectives reflected in our program, pulling them together to create a snapshot of the state of the luxury industry.


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The following is an excerpt from the welcome remarks of Ed Kelly, president and CEO of American Express Publishing, given at the opening dinner on Sunday night.

Looking back over the years since the first Luxury Summit in 1999, I can’t remember a period when we’ve experienced more change. We’ve endured the effects of terrorist attacks, war, natural disasters and the worst recession in modern times. After the big tech boom and bust and boom, we’ve had incredible wealth creation both in the U.S. and around the globe. The digital age brought us e-commerce and mobile and social media, as well as a bewildering assortment of social start-ups with names like Zynga, Instagram and Pinterest.

But it’s not as much the volume as the pace of change. Digital social networking wasn’t even on our radar in 1999—not even in 2009, in a meaningful way. Now it consumes almost 20 percent of the time we spend online. It’s shocking to realize that we’ve only had Facebook for eight years, iPhones for five and iPads for two. And about 6,400 more mobile apps will be introduced during the three days spent at the Luxury Summit.

Although much has changed, some things have remained constant. Customers still care about the core values of luxury: quality, craftsman-ship, authenticity and service.

Looking forward, are we optimistic? Every day we’re hearing news and seeing signs that things continue to get better. Wealth is on the increase, and the authentic luxury consumer—who never really went away—is buying. Sales at LVMH and PPR’s luxury division were up over 25 percent for the first quarter. At Hermès, sales were up 22 percent. Last month, the IPOs of Brunello Cucinelli and Tumi made big headlines! American Express had another record quarter, fueled by the strength of consumer spending. Demand for some luxury goods—Birkin bags, Hermès scarves, high-end cognac, luxury watches— is so strong that producers are struggling to keep up. The luxury-car sector has been performing well. Rolls-Royce had a record 31 percent increase in sales last year. The new McLaren MP4-12C is flying out of U.S. showrooms at more than $230,000 a pop! Sales of men’s apparel and accessories are on target to set a 20-year growth record. And the art market is screaming hot. How about $120 million for Munch’s century-old pastel on cardboard?

This growth is driven not only by developing markets, but by American consumers—a focus of our program this year. There’s a lot of wealth in the U.S. market not to be overlooked. A Deloitte study shows that the number of American millionaire households will double—to nearly 21 million—by 2020. With their collective wealth projected to increase from $39 trillion to $87 trillion, they’ll account for 43 percent of the global wealth held by millionaire households. And luxury

consumers from the BRIC countries are spending plenty of their money here, snapping up multimillion-dollar properties in New York and Florida and shopping at places like Bergdorf Goodman and Tiffany’s.

We have good reason to be optimistic, but we’re not totally out of the woods. There are double dips in Europe, and U.S. consumer confidence is bumping along. They’re still sorting things out in Washington. And luxury consumers are more discerning than ever. So we need to keep rethinking how we engage and execute. Through-out the Luxury Summit, we’ll hear how brands are experimenting, innovating, evolving and transforming themselves to keep pace with the rapid change in consumer behavior and expectations.

ed Kelly, president and CEO, American Express Publishing


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I. Staying True to Your Brand DNA Luxury to Believe In is rooted in a brand’s fidelity to its heritage and core values. The most enduring companies—including category leaders in the Fortune 500—still operate with the values their founders established. Adherence to brand DNA, as Estée Lauder executive Maureen Case described it, is the source of authenticity and authority. Everything else—product development, pricing and distribution, marketing, design, customer interaction, local relevance, philanthropy, corporate transformation and innovation—emanates from it.

Decoding the DNa of a luxury Brand • In his conversation with Chanel President and Chief Operating

Officer John Galantic, Departures Editor in Chief Richard David Story began by asking why no company is more closely synonymous with luxury than Chanel. Galantic credits that to Chanel’s dual focus: heritage preservation and unfettered creativity. He told the delegates that everything goes back to Coco Chanel. Customers appreciate the spirit of the 19th- century entrepreneur who got women out of their corsets and freed their hands by putting chains on handbags. It’s about chic with practical application, he said. In the spirit of Coco, the company strives to define style—a sensibility that touches every part and product of the company. Continuity and authenticity are ensured through a culture that is unified,

collaborative, creativity-driven and based on a shared com-mitment to and passion for the brand. Inherent in the Chanel culture is an obsession with quality, materials and craftsmanship, which extends to cultivating the roses and jasmine for Chanel No. 5; using pavé diamonds of VS2 or higher quality on the inside of a ring; and acquiring six craft ateliers—including the famed Lesage embroidery workshop—to keep alive the artistry that is so important to the brand.

• For Maureen Case, who is president of Estée Lauder specialty brands Bobbi Brown, Jo Malone and La Mer, the authority of La Mer lies in its origins. The product is based on a kelp-derived “miracle broth” created by a rocket scientist who was burned in a lab accident. “We use the product as hero, continually retelling the story of how it was created,” she said. The authority of Jo Malone is its quintessentially British character—an authority that is enhanced by the brand’s favor with the Duchess of Cambridge Kate Middleton. “When you remain true to your brand DNA, you develop organic relationships with key influencers.”

• “We can’t have luxury to believe in unless the product delivers,” John McDonnell, chief operating officer of Patrón Spirits International, told the group. “Everything we do at our company honors the traditions tequila producers have followed


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for centuries.” He noted that every step is carefully performed by hand, with 60 hands touching every bottle. “No shortcuts and no second best, despite the pressures we might face from all customers around the world. That’s part of creating a premium brand—always staying true to the highest quality.” (See case study on Page 14.)

• Over the past 40 years, Sesame Street has become the gold standard in children’s television programming—and the world’s largest informal educator—by remaining true to its founding mission: harnessing the power of media to promote literacy, numeracy and gender equality, particularly among disadvan-taged children. Sherrie Rollins Westin, executive vice president and chief marketing officer of Sesame Workshop, said that what the brand stands for and its essence are clear: quality, high standards and trust. She described the depth and breadth of research that goes into every piece of content and the testing that is done to ensure that the brand is delivering on its promise.

The Brand Is What the Customers Believe It Is“The brand is not what I believe it to be; the brand is what the customer believes it is,” American Express CEO and Chairman Ken Chenault

told delegates in describing the role core values play in digital trans-formation at American Express. (See case study on Page 8.) Customers ultimately define brands based on their ongoing experiences with a product or service. “If you have a strong brand, they will often give you the benefit of the doubt,” he said.

In the 1980s and ’90s, American Express protected its image of elitism and exclusion at the expense of keeping pace with customers’ evolving desire for value over image. Because of their rational and emotional connection to the brand, customers gave the company time to expand its merchant base and improve product offerings. “We learned that our brand has flexibility and depth, but only if we’re true to its core attributes for all customers and prospects regardless of the segment or price point,” Chenault said.

He noted that customers also stayed with the brand during the recent financial crisis. As commercial funding markets froze, the company began providing CDs and online savings accounts without marketing the new services. It took in almost $15 billion over three months on the basis of what the CEO described as “the depth of the brand and the level of trust people have in our name.”

Building on Chenault’s observations, Creative Director Stephen Doyle said that brand transformation cannot begin without an understanding


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of the consumer’s image of a brand. His design studio, Doyle Partners, often comes back from the research phase of a branding project with surprising findings because there is a discrepancy between client and consumer perceptions of what the brand is and what it stands for. “We think of the identities we create as a kind of workout program, where we take the DNA of the brand and give it a good scrubbing, workout and haircut and a little tailoring.” The result is recaptured authenticity.

Dr. Jim Taylor, vice chairman of Harrison Group, said that luxury companies need to find their brands’ truths and test which of those are meaningful to consumers. The next step is determining which of the meaningful truths distinguish the brand within its category. “You want to make sure that the values that cause the brand to be worth buying continue to be part of the daily expression of business life.” Luxury consumers want to engage with companies that share their value systems in ways that are expressed through the transaction

process, design and advertising, noted Taylor. Their confidence in the company is a factor of the extent to which those values remain consistent over time. Echoing Chenault’s statement that trusted brands assume renewed importance in the chaos of the online world, Taylor said that brands and their reputations are becoming more important than ever in a time of almost continuous scandal.

The Price Will Be What It Will BeMany presenters heralded the consumer’s return to paying full price for luxury goods. But for brands such as Audi (see case study on Page 10), Chanel, La Mer and Patrón, discounting—even at the height of the recession—was unthinkable.

Noting that a haute couture dress takes 800 to 1,000 hours to make, Galantic said that when you are driven by creativity rather than the market, “the price will be what it will be. We have an authentic brand. We’re about creating the dream.” He also commented that there are points in the Chanel brand—lipstick, handbags, shoes—where the young, aspirational consumer can enter and grow with it.

Patrón is one of the only spirit brands that charges the same price everywhere in the world. “It’s as sacred as law that we maintain our premium price position,” McDonnell stated. “Protecting the brand’s integrity—and I mean globally—is worth much more to us than any short-term volume.”

“Your distribution defines your brands,” Case said. “Anchor your distribution at the top of the pyramid in order to be exclusive and aspirational. Ensure you’re in a place where you can cultivate your brand. That’s about working with great retailing partners around the world.” The Estée Lauder executive cautioned not to allow distribution to precede demand. “Where you don’t sell is as important as where you do. When you are tempted to go down the pyramid during a recession, you need to practice tough luxe.” During the recession, her cult brands did not scale down, broaden distribution or make gift-with-purchase offers. “We stayed true to who we are and took the hit for the moment,” she said. “The brands now are growing over 25 percent each year and very healthy, with their authenticity and authority intact.”

Broadening the BrandCan a luxury brand successfully serve a broader audience without losing cachet with the luxury consumer? Taylor expressed a belief that luxury brands are not structured only for the elite. He gave the example of fathers giving daughters Chanel No. 5 to mark the rite of passage from childhood to womanhood, not because the perfume is expensive but rather because it is a powerful symbol.

“The extent to which your price structure can accommodate more people, it creates more depth for the brand,” he said. “I have no doubt


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that if we can make a brand comfortable for a larger audience, it won’t affect the smaller audience it had before.” While acknowledging in the Survey of Affluence and Wealth in America that exclusivity enters into purchasing decisions for a small category of luxury, he said that most of the affluent grew up in the middle class and “are surprised and joyous about the things they discover they can buy.” Quoting John Kenneth Galbraith—that everyone is a luxury consumer to the extent that he or she can be—Taylor said that it is in the interest of the industry to educate consumers about the values of craftsmanship and artistry so they can better understand what constitutes true worth and engage in it to the extent that they can afford to.

In talking about expanding American Express services to include underserved, nonaffluent populations worldwide with prepaid products, Chenault said that if its affluent customers see the company providing the best quality and value to meet the needs of these new customers while serving them with dignity and respect, those core customers will say, “I want to be associated with a company like that.”

Think globally; act locally For a luxury brand seeking growth through penetration of the global marketplace, local relevance is crucial. The challenge is adapting

products to local cultural preferences and tastes. Here again, authority and authenticity play an important role.

Jo Malone’s transparent scents play well in the U.S. and U.K., but how to leverage the brand’s equity in markets where fragrance tastes differ was a major issue. Case spoke about introducing a cherry blossom scent to ease the entry into the Japanese market. And in the Middle East, the brand worked with local teams to develop more intense and expensive scents that appeal to local tastes.

When Sesame Street first aired, in 1969, founder Joan Ganz Cooney talked about creating a quintessentially American show set on an urban street. Today the show is seen in 150 nations. In her conversation with Sherrie Westin, McKinsey Director Joanna Barsh asked how the show can ring true in all of them. Westin said that they begin with the Sesame Street model and partner with local educators— often ministries of education—and producers to create a curriculum designed to meet the needs of local children. They also develop indigenous Muppets. In South Africa, for example, there is a focus on education about HIV/AIDS and a Muppet who is HIV positive. In each country, the show has the same high quality and standards and the same core mission, but is adapted for local language and respectful of local culture. “It is true to the brand, but locally adopted and relevant,” Westin said. “That’s the key to our success.”


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CASE StuDy ONE

Transformation of an Iconic Brand: American Express

Transformation has characterized the 162 year history of American Express, moving the company from freight to travelers cheques to credit and charge cards. But as Chairman and CEO Ken Chenault observed, adapting now to the digital age and the convergence of off- and online commerce represents a serious challenge for longstanding companies. “We don’t have the benefit of starting a business specifically designed for this new era,” he said. “We have legacy assets, established business models and company cultures that we’ve built over years.”

Noting that “transformation is a continual process, with successes and failures,” Chenault shared some of the lessons the company has learned over the years that are helping it through a digital transformation.

• Transformation is about taking measured riskand altering the status quo.

“You must be willing to break your own business model and cannibalize your own products, because if you don’t someone else will,” Chenault told the delegates. “Transformation is about making some people in your company uncomfortable,” he added. “Our objective is to design a company that will put us out of business and then become that company.” He gave two examples from the company’s history.

In the 1950s, in the face of heated internal debate and against the advice of its strategic consultants, American Express launched the Green Card at the risk of cannibalizing its highly profitable travelers cheques business. The now iconic card has defined the company for more than 50 years.

In the 1990s, the company also faced heavy internal resistance when it opened the American Express

network to other card issuers, exposing its propri-etary products to direct competition. The result was improved brand relevance and an expanded global presence and merchant base. Chenault commented that the move also unleashed creativity and innova-tion in the existing card businesses. “Everyone across both businesses upped their game.”

Discomfort is an important part of transformation. “If you are totally comfortable, you b come complacent,” Chenault said. Bringing outsiders with digital-world experience onto the leadership team helps ward off complacency and ensures that the leadership team has the capacity for transformation.

• Successful transformation requires an ongoingbalance between reinvention and consistent values.

“As you reinvent and transform, you have to do it within the context of who you are and what you stand for as a company,” Chenault said, noting that integrity, trust and service are the core values that have supported continualevolution at American Express. Although these values have become more important than ever in the e-commerce world, where customers face unlimited choice and fears about fraud and privacy in online transactions, the company recognizes the need to adapt to stay relevant. At a time when the digital marketplace has raised the bar on scale, it is broadening its customer base to maintain leadership and achieve growth targets.

Using its prepaid products and digital payments platform, American Express is targeting underserved customer populations in the U.S. and emerging markets—including those who do not meet the criteria for its charge and credit products. It is also

• Transformationisabouttakingmeasuredriskandalteringthestatusquo.

• Successfultransformationrequiresanongoingbalancebetween reinvention and consistent values.

• Don’tallowyourselftobedefinedbytheexistingcompetition.

• Accepttheneedforchange.


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reaching out to younger consumers, who represent the biggest increase in luxury spending. At the same time, it is deepening its relationship with its traditional affluent consumers and will continue to expand offerings for Centurion® members as part of the digital transformation.

“As we transform the company for the digital marketplace, we accept that we’ll be expanding our customer base, products and distribution channels,” the CEO said. “What we won’t and can’t accept is launching a product or service that doesn’t live up to the promise of our brand.”

• Don’tallowyourselftobedefinedbytheexistingcompetition.

Defining your competition too narrowly limits creative thinking, Chenault warned. “We’re not focused on the piece of plastic; we’re focused on the platform and the ability to provide a range of services. That means the competition is anyone who helps bring buyers and sellers together.” Noting that the strongest competition may come from companies that don’t yet exist, he talked about keeping an eye on market trends while staying focused on changing customer needs and how best to serve them.

• Accepttheneedforchange.

At a time when the marketplace and society are being transformed, companies face a choice: “You can feel threatened by change, maintain the status quo or play defense. Or, you can accept that the greatest opportunities present themselves during times of change and take the challenge of reinvention and innovation,” Chenault concluded. “Consumers truly value creativity, innovation and service. They want to affiliate themselves with companies that will live up to their expectations and stand for something. They’ll be loyal to businesses that keep customer commitments and earn their trust, particularly in times of substantial change and uncertainty.”

From left: ed Kelly, president and CEO, American Express Publishing, with Ken Chenault, chairman and CEO, American Express


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“Luxury is a conversation; it’s not an idea or an ideal,” Scott Keogh, chief marketing officer of Audi of America, told Luxury Summit delegates. “It’s a conversation about what we most admire and what we most desire, and clearly that evolves as consumer preferences evolve.” He added that consumer interaction also has become a conversation.

In the age of the Internet-enabled and empowered consumer, the nature of the brand-customer relationship has altered radically. It is no longer based on the traditional push of marketing messages and a series of discrete interactions. Instead, it is based on a continuous dialogue and a set of related interactions. Taken together, these add up to an experience. The quality of that experience influences the customer’s perception of what the brand is and what it stands for and determines the customer’s degree of engagement and loyalty to the brand.

In an example of the holistic nature of this relationship, Chanel’s John Galantic talked about the importance of analyzing and under-standing the quality of the customer’s shopping experience. “If it’s only the product she remembers, we’ve missed,” he said.

The conversation needs to take place wherever consumers are— offline or online—and via whatever channels they prefer. Ken Chenault cautioned that communicating in a multichannel world heightens the need for consistency of words and actions and for transparency. “In the digital environment, you really can’t keep secrets,” he said. “Customers will know what the real deal is. They’ll know that moment of truth. So you might as well be open.”

CASE StuDy tWO

Changing the Luxury Conversation: The Branding of Audi

When Scott Keogh became chief marketing officer of Audi of America in 2006, Mercedes, BMW and Lexus controlled 60 percent of the country’s luxury auto market. “We were not part of the American luxury conversation,” he said. Keogh noted that two important elements were behind this fact. First, the brand was selling Audis in America the way it did in Germany. Second, it was buying into an antiquated ideal of luxury and luxury marketing focused on high-end cars as status symbols, not meaningful purchases. “It was more about badge and bravado than actual substance,” he observed.

Audi of America decided to change the conversation by writing a new marketing playbook based on four key principles.

• It’snotaboutwhatyou’redriving;it’saboutwhatyou’redrivingtoward.

“Behind every car there needs to be a cause,” Keogh stated. At a time when the trend was corner-cutting

and superficial nuance over quality, Audi focused on its “authentic engineering story”—its commitment to engineering excellence from the inside out. “Ultimately, those of us in marketing face a choice: we can work to find a better story to tell, or we can tell our story better,” Keogh said. “These are the vehicles our engineers build for themselves.”

With “Truth in Engineering” as its brand anchor, Audi began to link its vehicles to powerful causes. The company launched its TDI® clean diesels with a dramatic commercial, “Oil Barrel,” focused on a simple message: if one-third of Americans drove clean diesel vehicles, we would consume 1.5 million fewer barrels of foreign oil daily.

“We’re working toward defining the future of luxury by redefining the future itself,” Keogh told Luxury Summit delegates. “We want to be smarter, more sustainable, more beautiful, and more progressive than ever before.”

• It’snotaboutwhatyou’redriving;it’saboutwhatyou’redrivingtoward.

• Luxuryshouldseekadmiration,notconfirmation.

• Inluxury,it’sokaytoletthemseeyousweat.

• Experiencesareasimportantasobjects.

II. Luxury Is a Conversation


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• Luxuryshouldseekadmiration,notconfirmation.

“By linking our vehicles with causes, luxury evolves from seeking confirmation from others to achieving admiration from them,” Keogh added. “We won’t be the vehicle where you’ll see 10 of them in the parking lot. But we know that when people see you in an Audi, they’ll admire it.”

In launching its Q5 SUV, Audi created the commercial “School’s Out,” which turned the popularity of the Lexus RX into a vulnerability. As students stare at a line of look-alike RXs, unable to pick out their parents, one student steps into a distinctly different Q5 and heads home. The commercial shifts the conversation from “he’s one of us” to “I want to be him.”

• Inluxury,it’sokaytoletthemseeyousweat.

Recognizing that the majority of American luxury consumers worked hard for their wealth—and that rooting for the underdog is quintessentially American—Audi positioned itself as “the unlikely hero” challenging the market leaders on their own turf. Audi’s “Guidance Counselor” commercial blew away the “rule of three”: the only luxury car choices are BMW, Mercedes and Lexus. Although it was not in the traditional luxury playbook, Audi took off the white gloves and created a series of Super Bowl commercials to put the competition on notice. The first of these ominously parodied the horse-head scene in The Godfather.

• Experiencesareasimportantasobjects.

“Money clearly can buy you happiness if you spend it right,” Keogh said, citing studies done by Harvard University and the University of Virginia, that concluded that people achieve more satisfaction from purchases viewed as experiences rather than as material goods.

“You have to find a way to market your products as essential, memorable parts of people’s lives, which is why we focus on making the morning commute a flawless experience.” From the smell of the leather to the resistance of the knobs and dials, and from the sound of the doors closing to the fit-and-finish tolerances, “this is a type of luxury that announces itself in the aggregate— everything just feels flawless inside and out.” This attitude also extends to the dealership experience, with major investments in dealership design and technical and hospitality training.

Noting that consumers reevaluate their brand commitments during an economic downturn, Keogh said that Audi of America stuck to its plan even in the depth of recession, increasing its marketing budget and introducing new models. “We captured market share as the economy declined in order to capture volume as it rebounds. It wasn’t just about capturing volume; it was about capturing admiration.”

As a result,

• Audi of America set sales records during every month in 2011, with annual sales up 15 percent from 2010 and nearly 23 percent from 2009.

• On average, it transacts $8,000 more per vehicle than three years ago.

• Some 60 percent of consumers in the luxury market are looking at Audi, up from 30 percent, and it’s the second most cross-shopped brand.

• Audi is the preferred luxury car brand of Gens X and Y, lead-ing BMW, Lexus and Mercedes in sales penetration of younger consumers.

“You can fight a lot of things in business, but you can’t fight demographics,” Keogh said. “We think we have the pole position in the most important race of all: the future of the luxury market.”

Scott Keogh, CMO, Audi of America


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Craving MagicWhether achieved through creativity and design, playfulness and fun or surprise and delight, magic as an element of the luxury conversation wove its way through Luxury Summit discussions.

Using Design to Enchant was the topic of a conversation among Nancy Novogrod, editor in chief of Travel + Leisure; Wendy Goodman, design editor of New York Magazine; and Stephen Doyle, creative director of Doyle Partners. In exploring the role of design, Goodman said that it can surprise and delight us, enhance and bring magic into our lives, and also help us experience the beauty we may have missed in the everyday. Doyle described design as a translator for a brand and its story and values. Good design goes beyond beauty for its own sake. For Goodman, part of that is making the functional beautiful. But it is also about finding harmony in a design element that is either startling or authentic. Doyle, as a designer, often strives to make something as perfect as possible and then “messes it up a little” to make it more memorable. He said that playfulness is part of the design process and both are messy.

Quoting author Pico Iyer, Doyle said that luxury is a function of scarcity. The scarcity of magic in today’s world makes it something

the award-winning designer craves. He spoke about the role of “the happy factor” in brand reinvention, using several examples from Louis Vuitton: creative director Marc Jacobs’s use of graffiti to slather the brand’s name on products in paint; his collaboration with Japanese artist Takashi Murakami; and his shop windows designed with a moiré pattern to create a sense of motion for the viewer. Doyle commented, “When somebody throws a firecracker into these brands, it keeps them alive.” Asked about measuring the value design adds to a brand, the designer replied that he would forget metrics and put his money on magic making a difference in people’s lives.

TaSTeS OF SOUTH aFRICa

Engagement through storytelling, authenticity and experiences—widely discussed through-out the Luxury Summit—infused Monday’s unforgettable luncheon, sponsored by South Africa Tourism. Summit delegates experienced a special menu developed by Xoliswa Ndoyiya, personal chef to Nelson Mandela for more than 20 years, and Anna Trapido, a chef, food historian and writer who is also an anthropologist by training. The co-authors of Ukutya Kwasekhaya: Tastes from Nelson Mandela’s Kitchen used ingredients brought from South Africa as well as adapted local ingredients for the meal, which was prepared by Executive Chef of Banquets Jeff Simms and his staff.

From left: Jeff Simms, executive chef, the Breakers, with anna Trapido, chef, food stylist, food writer and broadcaster, author of Hunger for Freedom, xoliswa Ndoyiya, personal chef to Nelson Mandela, and David Digregorio, marketing and communications manager, South African tourism

From left: Stephen Doyle, creative director, Doyle Partners, with Nancy Novogrod, SVP and editorial director, American Express Publishing, editor in chief, Travel + Leisure, and Wendy goodman, design editor, New York magazine

Trapido, who also wrote Hunger for Freedom: The Story of Food in the Life of Nelson Mandela, introduced each course with commentary about the significance of the dishes to Mandela’s life. The meal began with four tasting plates, including dishes Mandela’s mother and wife Winnie would prepare for him, and continued with lamb bredie, a stew smuggled to him by friends while he was incarcerated. The dessert—koeksister and fruit—recalled the reconciliation tea that Mandela attended with Betsie Verwoerd, the widow of apartheid’s chief architect, Hendrik Verwoerd. It combined syrup-infused fritters made from Verwoerd’s personal recipe with Ndoyiya’s dried-fruit compote.

This special luncheon was an experience that brought the iconic leader’s journey to life and underscored the connection between food and love.


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There were numerous examples of the fun and creativity inherent in social media. Paddle8, Patrón and Virgin America all use social media platforms to foster consumer engagement through games and contests or provide memorable experiences that surprise and delight their customers. Scott Keogh talked about how Audi responded to one Twitter user’s personal “I want an R8” campaign by delivering an R8 to her driveway and giving her 48 hours to test-drive it. The company then created a contest to do the same for four more Tweeters. “That’s a brand that’s listening and that engages,” he said. In the 2012 Forbes Luxury Automotive Outlook report, Audi was listed as the most buzzed-about luxury car company in social media and second overall.

And what could be more illustrative of the power of magic than the surprise appearance of Elmo the Muppet, who fielded audience questions for Sesame Workshop executive Sherrie Westin and McKinsey’s Joanna Barsh after their Luxury Summit conversation? It brought home the incredible sense of engagement the iconic Muppet characters generate with the show’s young audiences worldwide.

Connecting Through the Power of PhilanthropyPhilanthropy is an increasingly important way for luxury brands to distinguish themselves and improve their competitive position. Biologically programmed to feel good when we do good, we as human beings aspire to be associated with other people and efforts that benefit society. According to Trevor Neilson, a strategic philanthropic adviser and co-founder of the Global Philanthropy Group, tapping into this “altruistic aspiration” is a way to connect with luxury consumers in a powerful way.

a New Model for Corporate Philanthropy

Neilson contrasted the old model of corporate philanthropy—reactive, driven by executives’ interests and not focused on impact or customers—with the model he advocates—proactive, customer-orient-ed communication of impact is key. “It’s about involving your customers, including issues that are aligned with their interests, and measuring and communicating your impact back to them.”

Citing the 2011 Cone/Echo Global CR Opportunity Study and 2012 Edelman Trust Survey, he noted that consumers have come to expect businesses to allocate resources for societal good.

• If price and quality are similar, 94 percent of consumers are likely to switch to brands that support a cause.

• Some 93 percent would boycott a product for irresponsibility; 56 percent say they have done so.

• Business has built more trust with the informed public than government has, although only 42 percent of the public believes business is delivering on the expectation that it will act responsibly.

Neilson, whose organization works with high-profile individuals as well as companies, said he believes that “brands have a bigger opportunity to improve the world than individuals do—even celebrities.”

Referring to the viral impact of the KONY 2012 video about the Lord’s Resistance Army in Uganda, he talked about the importance of using social media to maximize the impact and reach of cause-based marketing—particularly with respect to younger consumers, who tend to be passionate about social causes and integrate them at the core of their online activity.

altruism Has to Be authentic

Neilson cautioned that like everything else the brand does, altruism has to be authentic and emanate from the company’s core values. “Trust, worth, authenticity, values, integrity and passion are all words that have been used here to describe the best luxury brands,” Neilson said. “Think about these words as they relate to the notion of philanthropy.”

One of the examples he gave was fashion designer Tory Burch, who created a foundation that is partnering with the microfinancing orga-nization ACCION USA to provide economic opportunities to women and their families in the U.S.—a mission that is authentic coming from a female entrepreneur serving a female clientele.

Altruism that is tied to La Mer’s close connection to the sea is an important aspect of its brand positioning. Maureen Case told delegates that since becoming part of Estée Lauder in 1996, La Mer has contributed $1.2 million to World Oceans Day, an initiative of the environmental organization Oceana. “We know that the sea is our most precious resource, and that luxury consumers generally love the sea. So it’s a wonderful way for us to give back and appeal to tastemakers around the world.”

From left: Sherrie Rollins Westin, EVP and CMO, Sesame Workshop, with Joanna Barsh, director, mcKinsey & Company

Trevor Neilson, cofounder and president, Global Philanthropy Group


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Using Celebrity to Do good

Chefs leveraging their personal celebrity to create foundations was among the trends Food & Wine showcased this year. Editor in Chief Dana Cowin commented that when interviewing Emeril Lagasse for the magazine’s Chefs Make Change feature, she felt she had met “the master of personal philanthropy.” A recent inductee into the James Beard Foundation’s Who’s Who of Food & Beverage in America, Cowin is a passionate philanthropist whose Skip Lunch, Fight Hunger campaign has raised more than $3 million since 2002.

In an interview with Cowin, Lagasse avowed that he was not thinking of his brand when he started his foundation in 2002. Rather, inspiration came to the acclaimed chef while he helped raise money for Andre Agassi’s foundation, which created a successful K-12 public school in Las Vegas. Motivation stemmed from the desire to give back to New Orleans, where he first established his reputation, and resolve

CASE StuDy tHrEE

Digital Media Success for a Global Luxury Spirits Brand

Patrón began in 1989 as a thousand-case experiment to reinvent tequila, creating a luxury product and brand in a category antithetical to luxury. Available six years ago only in the U.S. and two Caribbean nations, the ultra-premium tequila is now sold in more than 130 countries. Today, it is the world’s 18th most valuable spirit brand. Patrón Spirits International has leveraged this success to build a portfolio of 11 distinctive ultra-premium spirits.

The company’s effective use of experiential and interactive marketing focused on social media and digital technology has contributed to this success. Acknowledging that the Internet is forcing everyone to reinvent, Chief Operating Officer John McDonnell told delegates, “What we found is that the more personally we can relate to the individual, the stronger the connection—and the loyalty that results.” Among the digital campaigns he shared were the following:

• PatrónSocialClub:MixingOnlineandOffline

More than 250,000 consumers—typically age 21 to 44, single, college-educated with above-average income—have joined this online club. As part of the application process, they provide information about their favorite pursuits (e.g., gourmet dining, music, car racing). Patrón works with partners to develop relevant content and experiences tailored to those interests.

One example of the latter is the Patrón Secret Dining Society—a series of mysterious, exclusive private dinners in cities throughout the country. These one-of-a-kind experiences feature world-renowned chefs, noted mixologists and unique venues. The event is announced to local social-club members, who must solve a riddle to gain an invitation. Patrón uses images and video from these

• PatrónSocialClub:MixingOnlineandOffline

• PatrónCocktailLab

• SocialLifeAuditbyUltimat

• PatrónXOCaféMusicProject

Dana Cowin, SVP and editor in chief, Food & Wine, with emeril lagasse, chef, restaurateur, and TV host


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events to create new content and, through strategic partners, reach potential members.

• PatrónCocktailLab

Not wanting to be “a typical brand page talking about ourselves” but rather to use social media as a way for consumers to experience “the personality and promise” of the brand, Patrón was not a presence on Facebook until late 2010. It launched its page with a crowd-sourced mixology initiative intended to promote the use of Patrón tequila in cocktails. Users were challenged to craft cocktails, post recipes, photos and inspiration, try each other’s recipes and vote for winners.

• SocialLifeAuditbyUltimat

Achieving work/social life balance is the advertising focus for Patrón’s Ultimat Vodka brand. That message became the basis of a buzz-generating Social Life Audit Facebook app, which analyzes photos posted to the users’ Facebook pages and rates the happiness of users and their friends and how often users are

tagged in friends’ photos. It also analyzes users’ Facebook check-ins, rating their activities and activity level and the trendiness of the places from which they check in. Passing the audit confers bragging rights. Advertising Age named it one of the “10 Best Social Media Campaigns” of 2011.

• PatrónXOCaféMusicProject

To highlight the style and youthful sophistication of its coffee liqueur and establish it as “the right thing to sip while enjoying music,” Patrón used Facebook to bring emerging musicians and music lovers together interactively. Consumers were empowered to take on the role of record executives, listen to the competing groups, read their profiles and participate in several rounds of voting. Participating artists received valuable public and music-industry exposure, and consumers had the chance to win tickets to a major music festival and other prizes.

Patrón continues to expand into other platforms, including mobile, with initiatives such as a Drink Maker app for the iPhone. Asked how the company balances print and digital advertising and marketing, McDonnell indicated that Patrón has increased its spending on digital media from 1 percent to 20 percent of the media budget over the past five years—largely at the expense of outdoor and TV.

Invoking the conference theme, Luxury to Believe In, he said, “The more we, or any marketer, can get consumers to interact and engage with a luxury brand, the more they’ll believe in that brand and integrate it into their lives. With all the new capabilities we can all employ these days, this is probably the most exciting time to be building a luxury brand.”

came when Lagasse recognized that his restaurant empire and TV audience of 90 million viewers provided the resources for effecting change.

The Emeril Lagasse Foundation supports educational initiatives and not-for-profit organizations aimed at teaching life skills to children and creating opportunities for them. Using events such as the Carnivale du Vin and Boudin & Beer—at different price points to promote inclusiveness and broaden awareness—and drawing on support from other chefs and celebrities, Emeril has raised $15 million in the past decade.

Initiatives have included rebuilding a charter school post-Hurricane Katrina; adding an edible school yard, cafeteria and culinary school classroom; and creating a soil-to-plate education program for students and their families. For Lagasse, mentoring and inspiring young people, with a focus on the culinary arts, are central to the

foundation’s mission. “If no one is teaching and mentoring to help our young people evolve, how is our industry going to evolve?”

At the end of the day, he said, the numbers tell the story: 25,000 square feet of teaching kitchens in the Gulf Coast area; 10,000 kids in summer programs; 1,200 daily school meals and 130,000 summer meals; and scores raised from the 56th to the 80th percentile.

Curating the luxury Conversation “In an age of plethora, with so much saturation, curation is important,” said Paddle8 cofounder Alexander Gilkes. He told the delegates that they, as luxury marketers, need to think about how to better streamline products for their audiences.

Curation is part of the brand DNA for Paddle8, a nascent online art portal. Developed for wealthy, time-starved collectors and younger

John McDonnell, COO and EVP, PatrónSpiritsInternational


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collectors intimidated by the saturation and elitism of the art world, it provides privileged access to the world’s top art experts, galleries and museums and the best artwork and educational material. Paddle8 prequalifies collectors and partners with handpicked galleries, muse-ums and curators. It also alleviates the pain points of buying art, han-dling everything from payment to shipping and insurance.

As luxury brands increasingly find themselves in the content business, they are finding that engaging, brand-curated content is crucial. Across categories, presenters shared examples of using storytelling; education; news; entertainment, games and contests; and customer-generated content on a variety of media platforms to communicate the heritage, meaning and depth of the brand. Porter Gale, a marketing consultant and digital expert, stressed the importance of being authentic and curating content on the basis of what people need. “You also need to engage people in dialogue to see what’s working and what’s not.”

Selling in the Digital SpaceiShopping: Inside the Race to Personalize E-Commerce featured a lively conversation among George Scribner, senior vice president, account planning at Digitas; Alexander Gilkes, cofounder of Paddle8; and Mike Steib, CEO of vente-privee USA. Rich Beattie, executive digital editor of Travel + Leisure, led the conversation.

Drawing from a variety of sources, including proprietary research conducted by Digitas in partnership with Ipsos Mendelsohn, Scribner said that 38 million affluent adults shopped online in 2011. Catego-ries of interest included travel, sports/outdoors, food and wine, health/fitness, automotive, home, lifestyle/leisure and apparel. Full-price luxury spending online increased dramatically. At the same time, a third of the top 20 online retailers for affluent adults were flash-sale sites.

Vente-privee USA—a joint venture between American Express and vente-privee, one of Europe’s leading e-commerce companies and a pioneer of the flash-sale model—is a luxury flash-sale site that launched in November and is positioned primarily as a benefit to American

Express cardmembers. It works with high-end brands that have excess inventory, investing heavily to create online boutiques for each brand. “We’ve taken what used to be a liability—unsold inventory—and turned it into a marketing asset,” Steib said. He supported this claim with data: 40 percent of those who shop in the online boutiques go to the brands’ stores and buy at full price within the next six months; 92 percent of those who shopped in a particular boutique had not visited any of the luxury brand’s stores during the previous year.

Zeroing in on mobile commerce and its rapid growth, Scribner said that the tablet is emerging as the driver of e-tailing. Tablets increasingly outpace smart phones for use in browsing, researching and purchasing products. Citing proprietary data, he said this is of importance to luxury retailers because tablet ownership increases with the level of affluence. “The affluent, wealthy and rich are locked and loaded and ready to buy high-ticket items through their tablets.”

Beattie commented that luxury flash-sale site Rue La La had just reported that more than half of a recent single day’s sales originated from mobile devices. Steib countered, saying that it is unproductive to obsess about the form factor. Acknowledging that a smart phone’s location-aware capability is of value to very savvy marketers and retailers, he said, “The right way to think about mobile is that it’s just another Internet device.”

One of the challenges for luxury marketers is how to achieve balance between the expanded reach—mass pluralism—of digital and remaining true to the authenticity and DNA of their brands. Chanel’s John Galantic confessed, during his opening-night interview with Richard David Story, that this keeps him up at night. “We don’t want new Ready-to-Wear customers to discover us on a three-by- three screen,” he said. “We can’t create the proper experience.” He advised starting with the brand, rather than technology, and focusing the use of digital tools on the service experience to enhance brand presentation.

From left: george Blair Scribner, SVP, account planning, Digitas, with Mike Steib, CEO, vente-privee uSA, Richard Beattie, executive digital editor, Travel + Leisure, and alexander gilkes, cofounder, Paddle8


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In the same vein, Gilkes said that one of Paddle8’s biggest challenges in selling art online is recreating the experience of engagement that comes from physically encountering a piece of artwork. “What we’ve understood with mobile devices is that you have to focus on the tools and services you are providing to collectors and vendors rather than on how you better display artworks on the device.”

Beattie observed that hyperpersonalization—based on all the information consumers give away online—is the Holy Grail for many digital marketers. “Personalization on the Web will be one of the, if not the, most powerful assets available to anyone who is building a brand or selling products,” Steib said. But, at this point, it is not being done well. “Machine learning hasn’t caught up to human intuition,” the former Google executive said. “What you’ll see from a good e-commerce company today is the use of technology and machine learning balanced with an expert touch and curation to create a great experience for users.”

engaging Through Social MediaLuxury marketers are embracing social media as an important part of their conversation with consumers. They are finding that social media is about:

• The purchase funnel—Digital media have turned the traditional purchase funnel on its head, according to Travel + Leisure Executive Digital Editor Rich Beattie. By way of illustration, George Scribner of Digitas cited research showing that 71 percent of affluent adults research luxury purchases online and 27 percent get advice from friends and family, while only 14 percent get advice from an expert.

Scribner noted that the top 10 fashion brands on Twitter and Facebook have a total of three million and 40 million followers, respectively. He added that nearly a quarter of those who use Pinterest, one of the fastest-growing social media platforms to date, report purchasing items they found on the site. Social media is a channel too big to be ignored.

“You really have to be in play everywhere to get the full value of it,” he said. “And it has to be integrated into your website experience and purchase path. Sites that have social function-ality built into the product level have twice as much traffic, on average, as those that don’t.”

• engagement and community—“Social media is not about the number of fans you have; it’s about how engaged you are,” said Estée Lauder executive Maureen Case. “It’s not about speaking to the consumer; it’s about engaging with her. Engagement sparks conversation, and conversation drives commerce.” She commented that social media amplifies the word-of-mouth effect—the traditional means of making an insider luxury brand more widely known.

According to Case, social media is the perfect channel for Bobbi Brown. The company has leveraged the voice of founder Bobbi Brown and her message—that women want to look like themselves, only prettier and more confident— to connect with women through Facebook, Twitter, Pinterest, Instagram and Bobbi’s blog EverythingBobbi.com. Case shared the example of an online campaign that encouraged women to share their before-and-after beauty stories and photos—an effort that resonated and created a rich dialogue with consumers.

What’s most important about social media is “engaging with a community that cares about and can tell their friends about you,” Mike Steib said during the e-commerce discussion. Alexander Gilkes added that “an endorsement from someone close to you within your community is so much more important than advertising.”

• Customer service—For Audi of America CMO Scott Keogh, the long-term play in social media is not promotion and marketing but customer service. “Our owner base is 100 percent

John galantic, president and COO, Chanel, with Richard David Story, editor in chief, Departures, editorial director, Black Ink, SVP, American Express Publishing


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on our Facebook page—from R8 owners all the way down to A3 and A4 owners.” He talked about the value of being able to communicate with and provide information to owners instantly without resorting to mail and e-mail lists, which need constant updating.

• generating buzz—Throughout the Luxury Summit, presenters gave examples of the publicity value of social media.

– When Kate Middleton chose a Bobbi Brown make-up artist for her wedding with Britain’s Prince William, it was discreetly covered on the Bobbi Brown Facebook page with permission from Buckingham Palace. The posting generated almost instantaneous, widespread press pickup.

CASE StuDy FOur

Reinventing Travel at 35,000 Feet With Some Help from Social Media

By the time Virgin America launched in 2007, it had fought an expensive four-year battle with the U.S. Department of Transportation (DOT) for the right to fly. Against a backdrop of rising fuel prices, SARS and the flying public’s increasingly negative attitude, it set itself the challenge of creating an airline people love.

Porter Gale, then vice president of marketing for the nascent airline, told delegates, “Budgets were definitely stretched, and we were in survival mode. We looked for every single tool to build awareness.”

Geography helped inform the strategy. Based in San Francisco, the airline recognized that its local client base was digitally oriented and that social media offered the key to reaching it.

• Findthepeoplewhoinfluenceyourcategory.

The marketing team created a “Help VA Fly” campaign around a YouTube video showcasing the airline’s

differentiating features (e.g., outlets at every seat, food on demand, specially designed leather seats, great entertainment). It targeted key digital influencers in the Bay Area, asking for their help in getting the airline off the ground. The campaign attracted the attention of the DOT, which helped open the door to approval. “Techlebrities” continue to be an important compo-nent of Virgin America’s outreach strategy.

As an aside, Gale noted that Klout and Kred, organizations that measure and rank the market-ing influence of individuals, make it possible for companies to target key influencers in their market segments, follow them on social media sites and build relationships.

• Enabletheconversationwithyourcustomer.

Virgin America was the first airline with fleet-wide Wi-Fi, providing a captive group of customers with the tools

• Findthepeoplewhoinfluenceyourcategory.

• Enabletheconversationwithyourcustomer.

• Everydetailisasocialmediatalkingpoint.

• Analyticsareinsightful.

• Socialmediatakesavillage.

Maureen Case, president, specialty brands Bobbi Brown, Jo Malone, La Mer, TheEstéeLauderCompanies,withRichard David Story, editor in chief, Departures, editorial director, Black Ink, SVP, American Express Publishing


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– Porter Gale spoke extensively about the amount of earned media and buzz Virgin America’s use of social media has generated. Loopt—a location-based social media site similar to Foursquare—was used to promote a two-for-one offer at a taco truck in conjunction with the airline’s Mexican launch and drew 600 people. More important was the media coverage, which included a full-page article in USA Today. “Innovating in your space can generate a lot of talk value, earned media and word-of-mouth, which we all know is more powerful than traditional advertising.”

– Media innovation is part of Sesame Street’s DNA. In devel-oping nations, for example, the show reaches audiences

via rickshaws and vans. With children gravitating toward digital media, the educational program is developing podcasts, apps for mobile phones and tablets, video for YouTube, and interactive games for Wii and Microsoft Xbox 360. “We go to great lengths to use social media and to try to keep a certain buzz,” said Sesame Workshop executive Sherrie Westin. All the Muppets tweet, for example. Cookie Monster, who has four million Facebook fans, mounted a successful campaign to host Saturday Night Live. “We have a lot of fun with it.”

to tweet, blog, e-mail, take photos and post online regarding their flying experience. The airline launched its in-flight wireless service with a live YouTube broadcast from on board and, later that year, with a “Day in the Clouds” online scavenger hunt contest between passengers on two separate flights.

Capitalizing on this captive audience, the airline monitored passengers’ Twitter streams for opportunities to “surprise and delight.” One example: having other passengers deliver champagne to a flier who tweeted she had just graduated from medical school. These types of experiences become part of the brand’s storytelling. Social media is used to involve the public in things such as plane naming and developing in-flight beverage menus. The airline also works with partners, such as Twitter, on initiatives with causal components, generating a high volume of re-tweeting.

• Everydetailisasocialmediatalkingpoint.

“Innovating in your space can get a lot of talk value, earned media and word of mouth,” Gale told the delegates. The airline’s many social media partnerships—with Gilt, Groupon, Instagram, Loopt, Twitter and others—generated so much earned media that it became a strategy to use every detail about the brand as a social media talking point.

The creatively executed safety video not only engaged passengers on board, it subsequently received some 800,000 views on YouTube. When it became necessary to charge for headsets, the marketing team fought “mediocrity in the category” by designing them in cool colors. The $2 plastic headsets went on to become a status item, with people posting photos to their Facebook pages and wearing them everywhere—including on other airlines.

• Analyticsareinsightful.

“Now, in real time, you can figure out sentiment and influence,” Gale commented. “You can rally around a cause, build communities

and fan bases, and show immediate feedback. You can even have your community, close the sale.” By using analytics, Virgin America was able to correlate spikes in the brand’s social media activity with surges in sales.

• Socialmediatakesavillage.

Gale noted that the lack of silos within the startup company was a benefit in the pursuit of a social media strategy. “Look internally for people who share your passion and vision. Try to find cross-depart-mental allies. Social media is a space that really does take a village. For us, it included corporate communications, marketing, human resources, operations and our guest service team. The dialogue is huge, and it has to be woven throughout the entire organization.”

Porter gale, author, marketing consultant, and digital expert


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III. Politics and the World of Wealth

Presidential Campaign 2012— The Socio-Political Debate Over WealthLast year, the Occupy Wall Street movement forcefully injected the growing disparity in wealth into the national conversation with its “We are the 99 percent” slogan. As the U.S. presidential primary season nears an end, wealth and class has emerged as the predominant issue guiding electoral politics.

Hardball host Chris Matthews—a former congressional staffer, speech writer to Jimmy Carter and top aide to House Speaker Tip O’Neill, who has covered seven presidential election campaigns as a journalist and political commentator—outlined a number a factors that are pushing this issue to the fore.

• Thehistoricaldistrustofwealthmadebywealth

Americans respect and admire wealth acquired through building or making things, but are suspicious of money made in the equity market. “Financiers are never popular in America, but builders are,” he said. That is going to be an issue for Mitt Romney, who—according to Forbes—would be the wealthiest White House occupant ever. Matthews, whose latest book is Jack Kennedy: Elusive Hero, commented that Romney lacks the “street cred” of John F. Kennedy, whose heroism and leadership in military service helped him overcome his wealthy background with voters.

• Growingsectarianism

“There’s a growing sense in this country that our kids aren’t going to make more than we did, and that is a new American development,” Matthews said. This sense of a lack of upward mobility is breeding a visceral, class-based set of attitudes that is not healthy. “We are getting more sectarian and polarized in our voting—what we see in Europe and have always looked down on.”

• SuperPACspending

Matthews expects huge amounts of Super PAC money to pour in, particularly on the Republican side, as a result of the Supreme Court ruling in Citizens United vs. the Federal Election Commission. “Preservation of capital and wealth, lower taxes on income, less regulation, more ability to make money of the kind they already have—you see the 1 percent really making an effort to involve itself rather dramatically,” he said. While the public looks up to the real stars of American capitalism, it does not like attempts to buy the government.

• Thefocusonfairness

The Republican campaign will be all about economic condi-tions. Romney will say that he’s the role model for America

and will open the door so that others can achieve his kind of success. Unable to focus on current conditions, the Obama campaign will push hard on fairness and the Buffet Rule tax increase for the super wealthy.

“It’s not about whether you’re wealthy or not,” Matthews concluded. “It’s about whether government should operate in the interest of the top or the interest of the middle. It’s about who’s on your side—who cares about people like you.”

The anxious eliteSuccess Under Siege and the Static State

Harrison Group Vice Chairman Dr. Jim Taylor noted that the central debate of the election hinges on a concept—fairness—for which each side has a fundamentally different definition. “The entitlement of the wealthy is perceived to be their ability to continue to rake it in. The entitlement of everybody else comes from needs-based issues driven by the increasing role of poverty. There’s a lot of rhetorical ugliness in this process.”

Taylor has provided insight into the American luxury consumer at every Luxury Summit since 2006—the year American Express Publishing launched the annual Survey of Affluence and Wealth in America in partnership with Harrison Group. The study looks at the attitudes, life-styles and luxury-category spending patterns in the top 10 percent of the American household income spectrum, beginning at $100,000 in discretionary income and including analyses of the top 1 percent.

Chris Matthews, host of Hardball on mSNBC, The Chris Matthews Show on NBC, and author of Jack Kennedy: Elusive Hero


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The findings of the current survey indicate that the debate over wealth and fairness has fostered a growing sense among the wealthy, especially within the 1 percent, that success itself is under siege. This largely self-made group did what they were taught: worked hard, did well and gained financial success from that, Taylor said. “They don’t understand why the country is fingering successful people as the source of American difficulty. They’re looking to be included in the solutions and not blamed for the problems.” He noted that 75 percent of the respondents favor a significant tax increase on their income, although not their assets.

In an engaging interview with Kathleen Matthews, a former award-winning broadcast journalist who is executive vice president of global communications and public affairs for Marriott International, Taylor provided a top-line look at other key findings from the current survey.

• Total discretionary spending in the luxury market for 2012 is estimated to be $375 billion, nearly two-thirds of which is by the top 12 million families.

• That translates to a projected 3 percent increase in over-all spending on luxury goods and services led by the top 1 percent, who will spend 4-5 percent more than last year.

• Average per household spending will remain static. The increase will come from the addition of 500,000 families to the pool of affluent and wealthy.

• On average, the families in the study are saving 23 percent of their income, which swells to 34 percent among the top 1 percent, who hold roughly $4 trillion in liquid assets.

“The wealthy are still stacking their money under their mattresses, waiting for something to happen,” Taylor said. “People are afraid to invest right now.” He predicts a real estate boom in 2013-14 as they begin to move their liquid assets.

This static state of spending and investing stems in large part from the respondents’ continued concern about the fundamental stability of the economy, which undermines their confidence in the future. Among the survey results Taylor cited to support this were the following:

• Roughly three-quarters of respondents believe we’re still in a recession and half of those believe it will last at least another year.

• About a quarter of CEO respondents still believe their businesses are in danger of failing.

• The timeline over which respondents think they have effective control of their own lives has shrunk to six months. It will take a six-month period of relative stability to really loosen their wallets.

The sense that their success is under siege is another important factor. As a result of their growing sense of antagonism, these affluent and wealthy consumers are beginning to withdraw. What Taylor refers to as their circle of trust continues to contract, meaning they continue to strengthen the bonds of family and friends while reducing the degree to which agents, vendors and marketers influence their spending decisions. Philanthropic spending has become more focused on personal life (i.e., church, schools, health care) and less on social and environmental causes.

The volatility of Wealth

Robert Frank, the long-time wealth reporter for The Wall Street Journal and author of Richistan, augmented Taylor’s insight into the current mindset of the affluent and wealthy American consumers. The staggering losses of the wealthy during the recession— observed first hand as Frank followed up with people profiled in his first book—led him to do the research that became his latest book, The High-Beta Rich.

Before 1982, the wealthy were the most stable line on the income charts, not sharing as much in the good times or hurting as much in the bad times as the general population. Suddenly, they began soaring higher in good times and crashing harder in bad. The reason for this high-beta behavior, Frank said, is that the increasingly global, volatile financial markets became the main generator of wealth. “The wealthy have become the tech stocks of our economy, with these euphoric rises and huge falls.”

The volatility of their income is reflected in the volatility of their spending—up to 10 times more volatile than spending for the rest of the population, according to Frank. “More importantly, a higher percentage of spending for the wealthy is completely discretionary, so they can shut it off and on like a light switch.”

The bad news is that these hyper cycles of wealth are going to be faster and more frequent and extreme. The good news for the luxury industry is that we are currently on the upswing of a cycle. Referring to it as a tale of two recoveries, Frank said that while most Americans derive their wealth from their homes and jobs—two economic

Dr. Jim Taylor, vice chairman, Harrison Group, with Kathleen matthews, EVP, global communications & public affairs, marriott international, inc.


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sectors that have not recovered—the wealthy are benefiting from the recovery of the financial markets. And when their financial assets, which constitute 40 percent of their wealth, are on the increase, so is their spending.

Frank told the audience that the wealthy are not a static group. Studies are revealing them to be one of the fastest-changing groups on the income and demographic scales.

• One-third of the top 1 percent and 20 percent each were replaced from 2007-09.

• Nearly 40 percent of luxury buyers in May 2010 had not been luxury consumers prior to the recession, according to American Express data.

“Rather than having this prominent plutocracy or the 1 percent everyone talks about, in fact what we have is more like a revolving door of riches,” he said. “It’s a very fluid group.” He pointed out that we created 200,000 millionaires in the U.S. last year—the same number as in China—even though that represented comparatively low growth. Talking about Facebook’s acquisition of Instagram and the Facebook IPO, he said that huge wealth is still being created today.

a New Mindset

Taylor and Frank, who moved to CNBC shortly after the Luxury Summit, outlined their often overlapping views of the current mindset of affluent and wealthy consumers.

“There’s been a real increase in the sense that people have saved enough, gotten out of debt and brought down their mortgages, and that they’re relatively immune from further effects, Taylor said. “As people have become confident that their personal balance sheet is in pretty good shape, they’ve become less attracted to discount shop-ping and more attracted to the pursuit of things that are truly worthy— by which they mean, ‘I know I spent too much, but it was worth it.’”

Worth is defined as the point that separates the merely excellent from the truly sublime. These consumers are buying less but looking for sublime products, services and experiences: five-star luxury travel; cars that ratify the search for performance; extraordinary clothing, jewelry, collectibles and art objects. Taylor said, “It’s the search for details of astonishing distinction, craftsmanship and artistry and for extraordinary quality and service.”

SellINg TO THe aNxIOUS elITe—lUxe leaRNINgS

• Make them feel comfortable. “They’re looking for a sense of welcome and a refuge right now,” Taylor said. “They don’t want to be in places where their own success creates an anxiety among the people they’re around.”

• Positionwhatyouaresellingasalong-termfinancialorlife investment rather than consumption. “It has to feel to them like they’re investing either in a financial return or a life return,” Frank said. “That’s why the art market’s doing so well and why real estate is coming back.” He noted that the world of collectibles—wine and cars as well as art—has done an excellent job of shifting the conversation from luxury consumption to investment. “It’s about convincing people that not only is it an investment, but one they and their family and friends can enjoy while it’s appreciating.”

• Knowyourclients’wealth. Understand where it comes from and how stable it is. “That will tell you how stable your own business will be,” Frank said.

• Keep up with the new wealthy. If the pool of the wealthy is essentially refreshed by a third every two years, luxury marketers need to do their homework to keep pace, Frank said. The fact that wealthy Russians pulled $87 billion out of their country and invested much of it in U.S. real estate and that the Chinese behaved similarly is not a good sign for the sustainability of wealth in those countries. “The U.S. is regarded as the safe haven for the wealthy in the world,” he said. “Yes, of course, you have to chase the emerging markets. But I would be focusing more on the newly wealthy in this country.”

Robert Frank, CNBC editor and correspondent


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According to Frank, “What the wealthy want from their spending is essentially a hedge against all the anxiety and volatility of their financial lives. Instead of stuff and status, they want memories and moments. Instead of complexity, they want simplicity and transparency—and they want value.” He gave the example of how the ultra-wealthy have eliminated layers of household staffing and are looking instead for someone like Alice from The Brady Bunch, who offers good value and can help improve their quality of life. In travel, for example, they are looking for new experiences that broaden their perception of the world, bring the family together and create great memories.

Taylor and Frank both commented that one important thing these consumers want from a luxury purchase is a source of conversation. The search for worth gives people something to talk with those in their inner circle about—a moment of expertise, whether it’s in a bracelet or the details of how a bespoke suit is made, Taylor said. They want to go to a charity ball and talk to their peers about the color of the desert at sunset in Namibia, Frank added.

The Changing Face of the american luxury Consumer—Keep an eye on gen yThe picture of the American luxury consumer that emerged from the Luxury Summit shows a continued evolution. Although the core consumer is still a female baby boomer, luxury brands would do well to pay close attention to Millennials (age 18 to 33)—especially those in Gen Y and, increasingly, those who are male.

• In talking about moving into new market niches, Ken Chenault cited American Express transactional data showing that the greatest increases in luxury spending come from market newcomers who are younger, less affluent and male.

• The latest Survey of Affluence and Wealth in America documents the rise of what Dr. Jim Taylor calls Generation Luxe. For the first time since the early 20th century, the U.S. has “an almost Gatsby-esque” generation of inherited wealth, raised by the entrepreneurs of the 1980s and ’90s. Of the Millennials covered by the survey, 34 percent have known wealth since birth. Nearly 70 percent are working, and a quarter of those are running their own businesses.

Noting that living well is learned, Taylor said these affluent

Millennials are quite different in that they are already very experienced luxury consumers. The good news for luxury brands is that brands really matter to affluent Millennials. They select brands that

– Help define their sense of self – Make them feel successful and communicate their success – Reflect their values – Express their personal style – Support social causes – Have a history, heritage and reputation for design – Make them feel they own something rare

They also prefer the brands their friends buy and like to share information about brands with friends and family.

• Designer Stephen Doyle commented that the graduate design students he teaches have become interested in working with their hands, which extends to an interest in objects that are handcrafted and made slowly and in shops and restaurants where the experience is completely authentic and individual.

• When it comes to digital commerce, Digitas Senior Vice President George Scribner advised the delegates to keep an eye on Gen Y. “Boomers may currently be the biggest buyers in luxury, but Gen Y is your new and most important consumer.” Scribner was the driving force behind a 2011 proprietary study on affluence in America done in partnership with Ipsos Mendelsohn. Citing that study and American Express Business Insights 2012, he told delegates that

– Of all affluent adults, Gen Y is most likely to shop online

– When it came to buying full-price luxury goods on a year-over-year basis, Gen Y spent 31 percent more compared with Gen X (23 percent), boomers (19 percent) and seniors (6 percent); women outpaced men (22 percent vs. 13 percent)

– Seniors and men led year-over-year growth in luxury flash-sale spending

“Gen Y is also most likely to be connected to your brand through social media and be avid about it,” Scribner said. “When not shopping, they’re still engaged in content that’s relevant to us, in areas where we provide product and service.”


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What about The Rest Of The World?Expanding the focus to the geopolitical situation and its impact on the global luxury market was the task of journalist John Andrews. Andrews spent most of his career as a foreign correspondent or editor for The Economist and currently serves on the editorial team for its predictions almanac.

Regarding the outcome of the U.S. presidential election, Andrews observed that the rest of the world—Western Europe, in particular—tends to sympathize with Democrats but would be “fairly relaxed” if Romney won, given his background and experience in business and as governor. What really matters, he said, is how the winner handles U.S. foreign policy. There are plenty of problems to be dealt with: an increasingly antagonist Russia under Vladimir Putin, leader-ship transition in China, currency disputes, the cyber-terrorism threat, the nuclear risk in North Korea, the possibility of an Israeli attack on Iran, potential instability in Afghanistan after troop withdrawals, the ongoing Israeli-Palestinian conflict and a prolonged Arab Awakening that benefits Muslim parties.

Speaking about the European debt crisis, Andrews said he does not see the euro zone unraveling even if Greece does withdraw. Rather, he believes there will be a smaller euro zone or a hard and a softer euro zone.

What does it all mean for the luxury market? • The impact on travel—“Europe’s attractions will not suddenly

disappear because of a financial crisis the truly rich can simply ignore,” he said, but added that there will be an impact of a different sort. “When the people of a country feel miserable, they don’t exude a spirit of welcoming hospitality. That means the European tourist industry is going to have to try a bit harder to attract the foreign tourist.”

Andrews observed that German tourists are avoiding Greece, which blames Germany for the imposition of austerity, and Americans also avoid Greece because of the riots and protests there. He added that a feeling that “it may seem unseemly to be enjoying yourself when others are in turmoil is raising a very big question mark over tourism in North Africa and the Middle East.” On the other hand, he said, change is overdue and welcome in the Arab world. Reasonably fair democratic elections are on the rise in the Southern Hemisphere, making it is easier for a hotel to fill rooms in Africa today.

• It’sbacktothefutureonglobalwealth—The BRICs continue to grow, if more slowly of late, and provide spending power for the luxury sector. “Spending is coming from sources that barely existed a couple of decades ago, which reflects the


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changing landscape of economic power,” Andrews said. “In the great sweep of history, Western dominance is at best a brief aberration.” Andrews, who is co-editor of Megachange: The World in 2050, said that by mid-century Asia will again account half the world’s wealth, as it did before the Industrial Revolution.

• look to africa—“Six of the world’s ten fastest growing economies are in Africa,” Andrews said. Citing the continent’s natural resources and young population—which, in contrast to the aging populations of China and the developed nations, offers economic dynamism—he said that Africa could replace Asia as the boom story in economics by 2050.

In summary, Andrews said, “Our reality actually isn’t at all so bad. The world is recovering economic health after the shock of 2008. There are plenty of very rich people willing to pay for luxury and many more joining their ranks.” Borrowing an Arab proverb, he added, “Patience is the key to happiness.”

In ClosingAlthough still concerned about the future and made anxious by the focus on wealth and class in this election year, America’s wealthiest consumers are growing in number and will spend on Luxury to Believe In. A shift from value- and price-based consumption to worth-based consumption places a premium on positioning luxury products as long-term financial or life investments. Luxury brands would do well to pay close attention to Millennials—especially men—who are emerging as an important force in the market.

Even with continued global political and economic uncertainty, the luxury marketplace offers exciting opportunity for brands that are willing to enter into a dynamic conversation with luxury consumers. The Luxury Summit showcased creative use of branding, design, philanthropy, storytelling and social media to engage consumers in an ongoing, meaningful, personal dialogue. Fidelity to the values and heritage that give a luxury brand its authenticity and authority—and that resonate and build trust with consumers—is fundamental. Core values must inform virtually every aspect of the brand and its interaction with consumers and serve as the starting point for every step toward growth, innovation and transformation.

John andrews, co-editor, Megachange: The World in 2050


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We are pleased to announce that the American Express Luxury Summit 2013 will be held at the St. Regis Monarch Beach in Dana Point, California, from April 21-23. For more information, visit www.luxurysummit.com in the fall.

Formediainquiries:Jill S. Davison Vice President, Corporate CommunicationsAmerican Express Publishing [email protected] (office)

Forinquiriesaboutsponsorshipopportunities:Peter J. BatesPresidentStrategic [email protected] (office)

ForinquiriesaboutTheSurveyofAffluenceandWealthinAmerica2012:Jessica AielloDirector, Luxury Market InsightsAmerican Express Publishing [email protected] (office)

American Express Publishing Luxury Summit 2013

Follow us for the latest on our brands and the luxury lifestyle industry:

www.luxurySummit.com

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The American Express Publishing Luxury Summit White Paper was prepared by Catherine L. Carlozzi, a speech and business writer and talk-radio-show host who has been involved with this event for nine of its 10 years.

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