3.3 HNWI marketing solutions in Japan

There are several service providers that offer luxury companies in Japan access to tools necessary for both customer retention and customer acquisition of HNWI customers. Some of them are providing creative ways for accessing level 3 consumers, by increasing the marketing exclusivity of magazines, by creating special media solely for HNWIs, or by the use of direct marketing in cooperation with credit card companies and mileage clubs. What the companies have in common is that they all give access to selected databases of HNWIs, and then offer some kind of service to enhance the customer loyalty programs of client companies. The basic goal of all of them is to change the way rich marketing is performed: to get away from luxury marketing via normal media channels and go to a higher level of marketing exclusivity. By excluding customers from accessing special services, by limiting the audience and offering preferred treatment within a specially created marketing environment, the image of mass marketing is transformed into one-to-one marketing.
The most exclusive marketing environments, as mentioned before, are the conversations between consumers, or word of mouth. As will be outline in section 3.4, word of mouth marketing methods are especially suited to reach HNWIs. In order to make full use of this marketing approach, an environment has to be created where people with higher marketing exclusivity can meet and exchange information. This environment is always connected to a database of rich people—HNWIs and sometimes even ultra-HNWIs—and forms the primary asset of businesses that are presented below. The more detailed the information on their consumer habits and lifestyles and the closer the relationship of the service company to these rich consumers, the higher is the value that can be offered to luxury companies that want to do business with them. Taking care of such a database, keeping it up to date, devising creative methods to add detail to data sets, and creating new ways to increase the size of the database—all these are basic practices necessary in HNWI business that are often beyond the scope of the marketing department of even the most sophisticated luxury companies.
An important factor to consider is whether or not there are incentives for rich people to belong to that database, meaning that once the motivation on the side of a HNWI is lost, this specific data set is basically worthless. Just a list of addresses with income brackets can be useful but can't be used to generate marketing exclusivity. What the companies described below offer to luxury companies in Japan is the exclusivity of their contact to HNWI people. As will be seen, some offer more exclusivity and better contacts than others. To explain figure 3.3 again, high marketing exclusivity means the access to exclusive environments and the permission to contact people in those environments who refrain from the lower levels of marketing exclusivity. Furthermore, as described in section 3.1, getting contact is only one side of luxury marketing. For customer retention, special loyalty programs have to be executed, in order to keep the level of contact from declining, and the customers from defecting. Let us now take a look at the companies in detail.

Abraham-Holdings and YUCASEE
Abraham-Holdings is a small company specializing in on wealth management advice for HNWIs and consulting for companies that operate in the rich market. It describes two points as missing in present services for the rich: they are not accessible on the internet and do not offer the information wanted by HNWIs. According to the company, it is a widely known fact that the information literacy of the new rich in Japan is high, but the industry has not reacted properly to that trend. The danger for luxury companies that offer services on the web is a possible brand devaluation. The YUCASEE solution was developed with those two problems in mind. It forms a social networking service (SNS) only for HNWIs with assets more than 100 million Yen (approximately 600.000 Euros). Abraham-Holdings guarantees a strict system of invitation and checking of possible new members (Abraham-Holdings 2007b).
YUCASEE offers an environment for HNWIs to get access to products that are specifically keyed to their needs, meaning a mature SNS with high-class information and advertising limited to products and offers aimed at rich clients. By creating this environment, Abraham-Holdings separates the market for HNWIs from the normal mass market. The solution has some limitations. By limiting entry to only HNWIs with more than 100 Mill. Yen in assets, the clientele does not represent the customer profile of most luxury companies, but only consumer level 3 customers. A SNS benefits from the number of users in order to achieve significant network effects and the number of households with such high assets is severely limited. The main question for evaluating the service will be the number of HNWIs that are members of YUCASEE. Abraham-Holdings does not disclose this information due to confidentiality issues (Interview with Takaoka Souichiro, CEO of Abraham-Holdings, Tokyo, Kamiyacho, 01.04.2008).

Ypsilon Group
The club marketing strategy by the Ypsilon Group aims to provide high-quality services to client companies that want to execute premium treatment (“concierge services”) for special customers. The Ypsilon Group is offering its own “amusement menu” of art, travel experiences, exclusive restaurants, music events, and concerts. It then offers the created “amusement” to members of its own membership club or the customers of the tie-up companies (Ypsilon Group website, <http://www.ypsilon-group.com/service/business_service.html>).
Research executed for over five years gives Ypsilon Group a database on rich services and a network of shops, restaurants, and businesses that is probably the most extensive of its kind in Japan. Up to date, the Ypsilon Group is the only company that is able to offer concierge services on such a high level to companies in the premium market (This database is used by Diners Club Japan to give its elite members concierge services. American Express executes its own concierge services, attaining a quality level comparable with the one from Ypsilon Group. Quintessentially, a company offering concierge services, based in Great Britain, opened a subsidiary in Japan in October 2007, but is not yet able to support an infrastructure like this). Further, taking up the trend of art and culture within HNWI business, the “art produce” mechanism was created for the sponsoring of young artists. At present Ypsilon Group has monthly exhibitions at headquarters, connected to a party with many prominent guests. Companies who use these services are Diners Club, ANA, Mistukoshi Department Store, and the exclusive Japanese credit card JCB “the class.”
The goal of these services is to bring customers from client companies together with level 3 consumers from distant networks, therefore increasing social inter-connectedness and creating added value for the consumers who are participating. By providing events linked to their interests in the arts, culture, and music, an atmosphere is created that does not give the image of a direct marketing attempt. The networking among the participating level 3 consumers is now conducted within a neutral environment, as opposed to, for example, a trade show or a brand event for obvious deliberate marketing. This atmosphere accelerates word of mouth and, by bringing together people from different business fields, makes the passage of information from one network to another possible (Stroper 1997).

Ypsilon Group's goal is for the existing customers of luxury companies to associate art exhibitions and other events with the brands of client companies, and also to enhance their CSR activities. The manufactured image is regarded as being cosmopolitan and sophisticated—it is not only for status. From December 2008 on, Ypsilon Group plans to expand its services to offer client companies customized events that can be used to invite both existing customers and level 3 consumers from its own database. By inviting people from its own membership club, Ypsilon Group provides client companies with access to approximately 7,000 HNWIs. This will offer an opportunity for both customer acquisition and retention, as can be seen in figure 3.7.
As the people in the database are themselves customers of the personal concierge service
offered by the Ypsilon Group since 2004, not only customers of luxury companies, the database is not tied to any specific brand or company. This point is important, for they expect to be contacted for special services and events as they are members by their own initiative to get exactly this kind of attention. So the database of rich people offered has three important characteristics: 1) it includes many famous and connected opinion leaders that joined the database in order to get special privileges and services, 2) it is brought into connection with arts and culture considered to be sophisticated, and 3) any approach made to these people is not considered push but pull-marketing. No direct marketing effort is made but companies get access to a network of connected rich people, and get them to mingle with their own customers. This marketing environment can now be used to start word of mouth strategies (detailed in section 3.4) in order to enter the highest marketing exclusivity: one-on-one communication among the rich and influential about luxury products.
For companies in the development phase of creating membership services for their customers, the Ypsilon Group offers its own marketing experts and furthermore works together with KT Marketing (detailed below) and employs independent experts that have extensive know-how and connections in the HNWI business.

AdComm
The company led by the German CEO Andreas Dannenberg offers an interesting service for the acquisition and retention of HNWI customers with its luxury “Whitebook”, a high-class magazine that is published four times a year. It is filled with articles by an assortment of 8-12 brands, all coming from different consumer segments in the luxury segment, representing one company out of their field (automotive, jewelry, travel, fashion, interior, etc.). It is not available to the general public. Rather, it is sent to top VIP customers of each of the participating brands, each copy being personalized with the logo as well a letter from the president of the respective company that the customer has acquired a product from (AdComm website, <http://www.ad-comm.com/EN/whatsnew/index.cfm?news=8>).
The Whitebook is essentially a virtual database of selected, highly complementary brands and their most valued customers. It offers brands a platform to create associations and transmit images of their core values and beliefs in a less direct manner than plain advertising, and is designed to introduce current and potential customers of one brand to the products and services of others. The magazine has a unit volume (depending on the databases of participating companies) of approximately 20,000 copies. Cooperating luxury companies in the winter 2007 issue have been: Hennessy (fine wine & spirits), Porsche (automobile), Bang & Olufsen (audio & visual), Casina (interior), Steinway & Sons (musical instruments), Lufthansa (airlines), De Beers (jewelry), and Ralph Lauren (fashion). The magazine not only features brand stories, but original content created by a specialized editorial team with a different theme in each issue. Topics include the world’s finest chefs and cuisine, arts and music, as well as philanthropy, clearly taking up the trend in luxury for “informed consumption.” (Among the articles that have appeared on page 1 of past issues are essays by novelist Jiro Asada and other popular writers such as Natsuki Ikezawa and Nozomu Hayashi, and an interview with ballet dancer Tetsuya Kumakawa) The magazine has also published articles introducing people who engage in humanitarian and CSR activities (Examples are the Association for Aid and Relief, Japan, a nonprofit organization helping refugees, the Japan chapter of Medecins Sans Frontieres, the Japan Guide Dog Association and other organizations), and stories on the work of distinguished Japanese artists from a number of fields, including sculpture and calligraphy. It further features a password protected, closed-user group website with expanded features, as well as a series of special co-partnered events among the participating brands. Companies profit from the association with other strong brands and can reach the shared customer bases of all participating brands (Events include Christmas parties for readers of the magazine, trips to the French winery of Dom Perignon where readers can meet the chief vintner and another to visit the head office of Harry Winston on Fifth Avenue, in New York, to let participants see how jewelry is made).
By not directly advocating specific products but providing information on the brand values, the advertisement becomes a pull-approach that allows to “access the living rooms” of selected HNWIs who come from different networks.

KT Marketing
KT Marketing is a highly-specialized consulting company with specific know-how on the HNWI market in Japan. Prominent client companies include Lexus, Jaguar, Audi, Hummer, Mitsubishi Real Estate, Nomura Real Estate, Mitsukoshi Department Store, Diners Club International, Citigroup, Lexus and the extremely successful Isetan department store. It offers consulting on rich marketing and club-marketing strategies, as well as help for the execution of respective services. It proposes that companies who wish to expand their rich customer group should concentrate on the consumer rich and engage in collaborations with successful luxury companies and brands that have customers with similar consumption patterns (KT Marketing 2008).
The “VIP project” aims at increasing the loyalty of premium customers of client companies. After selecting premium customers who have to be cultivated, the loyalty of this group is increased by CRM measures and loyalty programs. The “blackcard project” maximizes the lifestyle experience of selected premium credit card owners, analyzing their consumer behavior and then constructing a membership service with especially high conditions for admission.
By accessing customer databases of credit card companies and mileage clubs, client companies can access HNWIs with an indirect push-approach. A cooperation with the Ypsilon Group for the execution of concierge services further adds to the assets of this company.

Roots and Partners
Several introduced companies have HNWI databases. The question is now what kind of relationship does the service company have with them? It can range from anonymous address lists (credit card companies), over customer databases that give legitimation to establishing contact (AdComm), to HNWIs that are themselves customers of the service company (as in the case of the private concierge services of the Ypsilon Group). But what about personal contact? What better legitimizing value for inviting someone could there be than to know them directly, having met several times, maybe even done business with them? Following the argumentation by Stanley (1997) direct contact and acquiring up to date information on HNWIs demands exactly this kind of personal involvement. There is simply no other way to get reliable data. Asking affluent for their incomes does not produce accurate results, doing business with them over several years does. As HNWIs tend to value their privacy and only trust sources that are not directly motivated by business alone, what is needed is an intermediary, an agent, someone who can convincingly claim independence and objectivity. Such a person (or an agency) could invite HNWIs, preselect them and act in the interest of both the affluent and the companies who want to do business with them.
Exactly this is what Tatsuya Masubuchi from Roots and Partners is doing. He has worked more than five years as the head of Seven Seas Magazine. During this time he was involved in the execution of up to 100 events per year for a selected audience of rich people, all of them subscribers to the magazine, roughly 18,000 individuals. He used that time to gather personal data and to network with those people and to select a core of approximately 6,500 individuals for a HNWI database. His main agenda is to keep the contact level to those affluent people high, and to engage them in conversations and business that will further deepen his understanding of their needs and business matters.
In January 2007, Roots and Partners started its own membership service and opened the “Root Galleries” salon—a high-class hideaway overlooking the Shiodome shopping district—catering exclusively to its members. Further, Eldorado is planning to hold various events in the salon specially for its members, including seminars and talk shows featuring special guests, as well as vintage wine-tasting parties. The “Root Galleries” aims to provide information and services for the benefit of an exclusive circle of selected HNWIs, and will have the goal to act as a media function for client companies, increasing their accessibility to networks and to buzz-marketing (Root and Partners, company web site, http://www.rpartners.jp/business/galleries.php). In December 2008, the "High Net Worth Magazine" will be launched. It concentrates on qualitative contents and editorials, and advertising space is used predominantly by companies owned by HNWIs personally known to Masubuchi. The goal is to keep a two-way flow of information.
Roots and Partners is currently giving management consulting and marketing consulting to companies catering to HNWIs. It further plans to expand its Business to Customer and Customer to Customer services by introducing companies to individuals in need of their offerings and by also introducing rich clients to each other. Roots and Partner's function in this process is as a mediator, as a filter function, to ensure that the privacy of the rich clients is honored and that they do not get the feeling of being marketed to, in short: to keep a high marketing exclusivity. In all this, Roots and Partners wants to refrain from any clear affiliation with any company, keeping its independence and therefore its credibility.

Figure 3.7 completes the luxury marketing model by adding social networks and concierge services. The small boxes represent the four companies that have been detailed and show which kind of services they provide. Other companies predominantly offer media channels for accessing HNWIs in Japan. These include E-marketing, which offers Seven Hills Magazine. Whatever tactic is chosen to interact with level 3 customers, push-approaches are only allowed after continuous pull-approaches. After word of mouth about the brand has set in, normal marketing barriers are broken and potential customers are ready to be targeted directly. The focus of the next paragraph is how this word of mouth mechanism is executed, and how the flow of information seen in figure 3.7 can be controlled and accelerated.

3.4 Using word of mouth marketing

Well before the consumer reaches the store there's a whole army of images that causes a customer to already have a definitive perception about the brand (Chadha and Husband 2006: 32), which is no longer simply a logo or an icon. Brands are conversations, the totality of perceptions about a product, service, or business. Simplifying a brand to the more tangible marketing communication elements that are building and supporting it, like advertising, can mean losing control and influence over brand perceptions. Word of mouth is happening anyway. People are talking about luxury products and the service level of premium companies. All activities of a company must therefore be aligned and integrated in order to gain a competitive advantage and to get positive word of mouth (Kirby 2006: 92; Kotler and Pfoertsch 2006: 298, 302; Stern and Wakabayashi 2006; Dunn and Davis: 2004). Companies are finally realizing that “the most powerful selling takes place not marketer to consumer but consumer to consumer” (Gladwell 2001).
Word of mouth marketing is defined by Nyilasy (2006) as interpersonal communication about a commercial topic with the communicators not perceived to be commercially motivated (For a more detailed definition of word-of-mouth marketing see the literature review of Nyilasy 2006: 161-184). Researchers found support for the hypothesis that word of mouth is stronger than advertising or other marketing communication forms (Nyilasy 2006: 170). It has a positive influence on brand awareness, brand evaluations (Udell 1966; Reynolds and Darden 1971; Laczniak et al. 2001), and purchase intentions (Charlett and Garland 1995). Further, it is a naturally occurring behavior of consumers that can be monitored, influenced, and accelerated. In HNWI circles, word of mouth plays an especially strong role due to the following reasons:

1) Risk of transaction. Consumers tend to seek out and listen to word of mouth more when the transaction is perceived as risky, in “high involvement” segments, meaning the product or service is higher priced, more complex, or more personally relevant (Nyilasy 2006: 175; Hugstad et al. 1987; Rogers 1995). Among HNWIs and individuals with a high income, this leads to a heavier reliance on information from sources they know—colleagues, business partners, friends and family—when it comes to purchase decisions. Higher levels of perceived risk are also one of the main characteristics of services as opposed to products. Among HNWIs the usage of services is disproportionally higher (The “services marketing theory” states that rules for marketing theory concerning the service sector are fundamentally different from the product sector, see Murray 1991).
2) Normative influence. The conformity to opinion leaders and group norms is a strong factor in the luxury segment. The more you go to the exclusive edge of the product portfolio, the more the economy is taste-driven, not performance-driven, with people relying more on word of mouth to form opinions prior to purchase. Consumers decide to buy products they like best for personal reasons, a judgement that is always subjective and influenced by their social setting (Chadha and Husband 2006: 254; Nyilasy 2006: 170; Klosterman 2006). Especially in the fashion and apparel business, word of mouth is not only a marketing tool but the main channel where the brand is discussed and evaluated. Advertising creates awareness and defines the brand's image, but in the end the consumer pays a lot of attention to the media and opinions from friends or persons they are socially interacting with (Chadha and Husband 2006: 34).
3) Social filter function. The higher the consumption level, the more you need the social network filter function. It is an efficient way of evaluating risky transactions in an economy of insecurities. As the vividness of information gathered in close interaction is more accessible than impersonal messages, receivers are more likely to use it for product judgements (Paul et al. 1991), perceiving it as being filtered by the social milieu in which the transaction is taking place. Every node in the network ultimately performs his or her own quality-control test, and, based on the results, decides whether to pass the word further. In order to get access to HNWI customers, you have to become part of their networks. The goal is to reach the most exclusive of marketing environments: personal, uncoerced communication.

These three factors do not suggest shying away from traditional forms of marketing. Keeping advertising is important, as it induces word of mouth. It provides the background for buzz-creating activity, builds awareness and a predefined image. But finally it is the buzz that consumers trust more and act on (Chadha and Husband 2006: 254). Managing it should be a part of and not a replacement for traditional marketing methods, by integrating it into a wider campaign that includes the profiling and recruitment of influential consumers (Nyilasy 2006: 175).
This “screening” of word of mouth is especially important considering the recent explosion in the use of blogs, social networking services (SNS) and other consumer generated media in line with the popularization of the internet (Nomura Research Institute 2006: Ministry of Internal Affairs and Communications data indicates that as of March 31, 2006, around 8.68 million Japanese had used a blog and 7.16 million a SNS). Further, due to the new media channels, it is now possible to screen it. As Hakuhodo puts it: “Now that word of mouth and other consumer-initiated information appearing on the Internet can have an impact on corporate brand reputation as well as product sales, advertisers are keen to acquire up-to-the-minute pictures of the CGM [consumer generated media] buzz surrounding their products and services, and to use this information in advertising promotions and product plan marketing.” (Hakuhodo 2007: 1. Tokyo—August 31, 2007—Hakuhodo has launched Topic Finder, an analysis service that traces and reports changes in corporate and brand buzz and reputation in postings on blogs and other consumer generated media [CGM], incorporating sophisticated Japanese language analysis functions). As the brand value of companies is now under the scrutiny of online communities and therefore connected to a long-term investment in authenticity, brand principles like consistency, continuity, and visibility will become much more important in the future (Rosen 2003: 93; Clegg 2005; Kotler and Pfoertsch 2006: 147, 165; Bedbury 2002: 183).

Network Hubs and opinion leaders
The identification of opinion leaders is a key element in the management of word of mouth. Affluents tend to be better connected than normal customers. But also within those better connected networks, influencers and opinion leaders are to be found, a task that is easier if you are part of the respective social environment (Rosen 2003: 138; Nyilasy 2006: 172). Rosen (2003) defines “network hubs” as active opinion leaders who are more connected and cosmopolitan, more information hungry, and more exposed to the media than other people. Identifying them can be tricky due to different priorities of social hierarchies who are dependent on the respective culture and social setting (this is especially important in Japan). To find them, an environment that enhances two-way communication and personal contact is needed, without giving potential customers the feeling that they are being marketed. In Japan, the problem is that networks are difficult to access without inside connections, and are many times not open to foreigners (See Hall 1998). The language barrier and missing social ties create the need for support by local partner companies, like the ones described in the previous section, who can provide guidance and expertise in the HNWI segment (Usui 2005; Tsuchiya 2007; Takaoka 2008).

Accelerating word of mouth
In order to accelerate buzz, approaching network-hubs that are more central in social networks can be necessary, so-called “leapfrogging.” This is possible by providing conditions that make these kind of shortcuts more likely to happen. Creating environments where customers can meet other people from remote networks helps buzz to leap from cluster to cluster. These “new combinations” (Jacobs 1929) often happen by chance, with a higher probability in dense areas of networks—trade shows, industry events, social parties—with a critical mass of influential and connected people (Rosen 2003: 127. Sometimes creating a critical mass can mean inviting less people, as in the case of the Roots Galleries of Roots and Partners. As Tatsuya Masubuchi explains, ultra-HNWIs enjoy the selected company of few individuals. It gives them a feeling of security and ease. They feel uneasy to talk about important business matters at big social gatherings. In that case, the careful selection and the relevance of the selection to their personal and business matters is important. Interview with Tatsuya Masubuchi, Tokyo, 26.08.2008). If successfully implemented, people who benefit from this constellation will associate the network with brands participating in the environment (Granovetter 1973: he found evidence that the ties farther away, not closer, were most influential. Those “weak ties” play intricately influential roles in success and business). Network-hubs often serve as a bridge between cliques and clusters in the local community, bypassing the selective filter-effect of clusters, and countering the “busy network paradox” of only being flooded by messages from existing networks (Rosen 2003: 69-70, 79, 48-51). The art in rich marketing is about reaching these opinion leaders and creating these shortcuts.

In figure 3.8 the marketing model from figure 3.7 is limited to level 3 consumers. In the model, level 2 and level 1 customers are not included in the cycle of networking. This can be disadvantageous, as the CRV (customer referral value) of a normal customer might be high enough to qualify him or her for an inclusion in the network cycle. Companies should keep a close eye on the “real” value of customers, meaning their CRV. Exactly this is why event marketing and keeping “in touch” with customers is so important. Participating in networks is a feedback instrument for companies that allows them to judge individuals on a more personal level, and is often the only way to get information on HNWIs or network-hubs.

HNWI Event Marketing
Advertising is good for maintaining and reinforcing the image, but PR should replace it “as the major communications vehicle for launching or repositioning a brand.” (Callahan and Ries 2002; see also Goddkind 2006; Rosen 2003: 145) Event marketing can create buzz topics, cause coverage in public media, and deliver a brand message that network hubs will tailor to the language of their social networks, offering a more indirect way of delivering the information. Telling stories about experiences has greater social value than telling stories about acquired possessions (Danziger 2005: 36).
Making customers feel that they are part of an insider club about something that is personally important to them, taking people behind the scenes and letting them feel engaged—all this motivates them to share their knowledge and excitement with others. The important factor is to limit the availability of the information, and releasing it gradually over time, like giving sneak previews to mega-hubs and combining it with event marketing) (Rosen 2003: 172), or nurturing close relationships with the best of customers and giving them access to limited versions, information, privileges, and concierge services (Chadha and Husband 2006: 265) as offered by the Ypsilon Group.

Such events are a place of social interaction, with an “unspoken understanding” that business is being conducted without formally constructing events with the ostensible goal of doing business (Currid 2007: 99). They have to be professionally managed experiences with individuals on the luxury company's payroll who are able to connect with the elite on a one-on-one basis, their key qualification being the extent of their social network and the ability to move in the same circles as the social elite (Chadha and Husband 2006: 256).
The art events provided by Ypsilon Group offer a good example for creating an event with social value that is considered sophisticated and attracts the right kind of HNWIs. People want to share the information that they are taking part in such a setting. During the event, brand names of client companies appear and are being consumed as part of the whole experience, helping to associate the brand with the event and the recent trend in participating in art and culture. New connections with other social networks are created, setting a scene for interaction that operates on two distinct levels: in a formal transfusion of information (the artwork, the movie premiere, the fashion show), and as a place of economic exchange for the individuals that come to the formalized event.