Japan's declining luxury

Lately articles like this one could be seen in several publications. Japan's luxury decline causes shocks all around the globe due to the apparently unshakeable luxury spending of the 90s and early 2000s. If you consider the whole Japanese luxury spending phenomenon a luxury bubble, then the development seen now can be considered anything but a surprise. But I personally disagree with the grave tone of most of the articles that talk about a lasting trend and a reorientation of the Japanese towards frugality and thrift. The economy here will recover. It will take years maybe, but to throw everything over board and expect Japanese shoppers to align themselves with European or American shopping patterns is missing the point. Japanese consumers are insecure, overwhelmed by certain developments and unsure about their future. what is happening in the consumer market now is consolidation process, a juggling of values and a generation gap (of values) that leads to confusion. Social role models are missing and a country that is not used to dealing with subcultures in the open media has difficulties making sense of its own developments. Still, I have the feeling that the actual trend will not be a new equilibrium.

Prove me wrong.

3.1. The basic problem in luxury marketing

One general characteristic of the way consumers are building preferences and choices was named the “law of the few,” meaning the opinions of 10% of a consumer market is influencing the buying behavior of the other 90% (Lazarsfeld 1944). The marketing model (figure 3.1) in which a company employs the services of an advertising agency to create media that will influence the audience directly, is in truth a simplification.


The “two-step flow theory” states that instead of having a direct effect, advertising messages are channelled through opinion leaders with influence in social networks, and that it is through their output word of mouth that communication effects can occur (Katz and Lazarsfeld 1955). Opinion leaders process the information first, since they tend to be more frequently exposed to mass media (figure 3.2) (Richins and Root-Shaffer 1988).


The problem about changed consumer attitudes from a marketing perspective is the higher immunity of the discerning and highly sophisticated opinion leaders against traditional marketing channels and mass media. Especially HNWIs do not want to be targeted by direct push-approaches (figure 3.2) (Push marketing is the traditional direct type of marketing. It includes direct mail, advertising, cold calling, and other techniques that push your products and services). To get access to rich customers in general, and specifically their opinion leaders, different channels have to be employed. This is done with pull-approaches (Pull marketing brings customers to you by their own incentive. It is a more indirect approach that includes using proactive referral systems, speaking, writing, having a visible presence within communities and social networks, and providing additional information once the potential customers have given their permission to do so). Once a relationship based on trust is established, customers can be more receptive for direct push-approaches. A company's own customers can therefore be targeted more directly than new customers, leading to two different models of luxury marketing—customer acquisition and customer retention.

Customer acquisition
Acquiring customers for luxury brands must be differentiated by wealth level and the customer's marketing exclusivity, meaning the inclination of a consumer to be not receptive for mass marketing environments and mass media. The theory is that the higher the wealth level, the less receptive the customer is to normal marketing channels (Abraham-Holdings 2008A, Tsuchiya 2007: 76-77). Figure 3.3. shows marketing environments in a combination of the consumption level marketed in, and the media-channels used to transfer the message, the marketing exclusivity (It is important not to mistake consumption level with consumer level. The consumption level [figure 3.3] defines the relative price level of a product sold, advertised or otherwise marketed, while the consumer level [from figure 2.1 and table 3.1] defines the level of a consumer's social lifestyle and connections). Everything can be considered a marketing environment: the lobby of an expensive hotel, a private party, even a talk among friends can be the scene of a conversation about a product or service, or a setting for brand exposure and image building.
A change in marketing environment and consumer behavior has led to a gradual decline in the traditional mass market, with the so called “death in the middle” by companies who failed to differentiate themselves either by price (offering qualitative products in the discount market) or quality and emotional appeal (offering new luxury products and premium offerings, or changing the shopping environment). What has happened in the last decades is a gradual shift in marketing exclusivity from the left of figure 3.3 to the right. Consumers either demand more of their shopping experience or look out for the lowest price or convenience (Silverstein and Fiske 2005; Nunes et al. 2004; Danziger 2005; Anterior Insight 2008).


The higher the wealth level, the higher is the average marketing exclusivity of the marketing environment and the media necessary to gain access to the individual customer. Thorough customer segmentation can reveal at which media level the marketing has to be executed. As most brands have a product range which spans some or all of the consumption levels from figure 3.3, an holistic approach can be necessary. The problem in luxury marketing is how to reach the higher levels of marketing exclusivity, as these tend to vary depending on cultural context, are linked to specific networks, and are not directly accessible.

Customer Retention
The basic approach for customer retention is illustrated by Tsuchiya (2007), who makes three propositions: Proposition 1: 80% of the revenue is delivered by 20% of the customers of a luxury company. Proposition 2: Only about 10% of the customers are opinion leaders, while the other 90% tend to be heavily influenced by them in their buying decisions. Proposition 3: Customer acquisition is 10 times more costly than customer retention (Tsuchiya 2007: 40-41, 70-71).
Considering propositions 1 and 3, it makes sense to treat some customers better than others and to invest more energy into retaining their loyalty (Nunes et al. 2004: 57, Tsuchiya 2005, 40-41, 70-73). The challenge is now how to move the 10% opinion leaders of your 20% best customers up the loyalty ladder in order to become brand advocates, so that they can be effectively used for word of mouth marketing strategies, as can be seen in figure 3.4. To do this, special services are created for those 20% top customers in order to move them up the loyalty ladder, giving them status and incentives to talk about their positive experiences to others. This approach is already practiced in many industries: by airlines (mileage clubs), by credit card companies (fringe benefits and concierge services) and financial services providers (special treatment and privileges, private wealth management) (Nunes et al. 2004: 67).


As loyalty tends to increase only with extreme customer satisfaction, what is needed is outstanding performance and services (Hongoard 2002: 248). Relationship economies are strongest at the higher consumption levels, as market mechanisms are modified and eliminated at the top, where switching costs are caused by social factors like emotional attachment to products and conformity within social networks. In contrast, in the highly competitive middle-class environment the idea of extreme customer satisfaction is out of place due to low switching costs.

3.2. A three-level luxury marketing model

The following analysis will differentiate between [consumer level 1] people who buy products of a luxury company and therefore qualify as luxury consumers but do not have the assets or income to qualify them for a rich lifestyle (trading-up), [consumer level 2] people exhibiting a high salary that enables them luxury consumption in certain categories, but not all, and [consumer level 3] people encompassing both HNWIs and people with an extraordinary income, qualifying them for an active premium consumption lifestyle (table 3.1).
Most premium companies do not restrict their portfolio to one consumption level (figure 3.3) but offer products in all top three categories (premium, luxury, and ultra-luxury level). The key is to provide “luxury for the masses as well as the classes” (Danziger 2005), delivering luxury to the top while simultaneously to the population at large.


In table 3.1, the following descriptions are summarized. The marketing exclusivity of the consumers rises with their consumer level. The opinion leaders in all three levels are different.
Level 1 - Trading-up level. Many brands already have adapted to serve this “mass luxury consumer”. At this level, conformist consumption is predominant, with a strong influential presence of social leadership. Consumers are interested in being “in”, buying trend-conformist luxury products that help to transfer chains of associations to their surroundings. They are trading-up in order to spend on luxury brand items and to afford premium products with emotional importance to them. Reaching this kind of consumer still heavily depends on the use of mass marketing in combination with opinion leader marketing by reaching network hubs from the respective social milieu in level 1 (friends and classmates, colleagues), level 2 consumers that have idolizing character (the superiors of level 1 consumers, members of higher social classes), and by having the right level 3 consumer using more upscale products from the same brand. Individualized lifestyle consumption is still rare at this level. Individuals are checked and judged within their social environment by their conformity to group standards. In the fashion segment, the influence of style magazines and celebrities is strong. Even among level 1 consumers, there is the tendency to become more immune to normal mass marketing channels. So event marketing and pull approaches can be necessary in order to enter the lives of these customers. This is also important for the identification of the above mentioned opinion leaders (see section 3.4).
This level's main characteristic is being accessible in price and physical location, in sharp contrast to the personalized, away from the public strategy deployed to serve HNWIs (Chadha and Husband 2006: 50. It entails having a strategy of lower price points, making part of the range accessible to the consumer rich. This changed the segmentation policy of many premium brands leading to entry products that are well seen in the automotive segment [with entry models such as the A3, the Mercedes A-Class or the BMW 1 Series] and luxury fashion brands [with perfumes offering the cheapest entry into the image of famous brands]). The danger of selling at this consumer level is the potential devaluation of a brand, so it is important for luxury companies to maintain a distinct character and meaning for the products at each consumption level, as well as to clearly articulate the main brand characteristics all the products share (Silverstein and Fiske 2005: 12).
Level 2 - Premium level. Members of this consumer level freely combine conspicuous consumption and individualized lifestyle consumption. They are interested in products that exemplify their taste and personality, and buy luxury, premium, and mass market products. They either have a high income, but low assets (young professionals, corporate climbers in medium to high positions, young entrepreneurs of small companies), or high assets but low income (the retirement rich). Their opinion leaders are members of their respective social milieus (upper professional environment in the case of corporate climbers, colleagues in the case of professional doctors and lawyers, old colleagues and friends in the case of the retirement rich). Celebrity role models are still important but do not have the same impact as on level 1. More important are role models within the respective social environment, as those lifestyles are within immediate reach. Instead of aspiring to become their idol and consuming upper class luxury for the sake of conspicuous consumption, level 2 consumers are imitating social codes of the upper class in order to belong, to be accepted by the respective social milieu. Level 1 consumers are buying luxury goods as a form of imitating their favorite idol or the upper class, influenced by the "very impossibility of attaining what one wishes for" (Allison 2000: 124), the perceived lack finding expression in the fetish: the luxury product. "The fetish substitute for the thing that is desired [an upper class lifestyle] but is impossible to obtain." (Kelsky 2001: 26) At level 2, the luxury product is not the fetish that substitutes the real want of belonging to a different social class, because the upper class lifestyle is either within reach or already attained to some extent. So here the obtained luxury product or service itself, considered appropriate to one's own lifestyle or level of social success, gives the consumer pleasure by transferring that message to others. Level 2 consumers either purchase luxury in accordance to the social codes of their level within the corporate or professional hierarchy, or in case of the retirement rich, consume luxury as a way to reward themselves for a lifetime of work.
There is a lot of potential in this level by mass targeting specific consumer rich segments, such as the Japanese baby boomer generation, corporate climbers, and affluent women in their 40s. In order to distinguish these offers from normal products, it is essential to clearly mark them as being special, by creating luxury spaces within department stores in which the upscale consumer can feel more comfortable (Danziger 2005: 101). A change in product segmentation could include creating aspirational appeal while simultaneously making a brand more accessible and more competitive by boosting demand with entry-level products (“Accessible super premium” items are priced near the top of the category, but are still affordable to the middle-market, because they are relatively low-ticket items. “Old luxury brand extensions” are lower priced versions of products created by companies whose brands have traditionally been affordable only for the rich. See Nunes et al. 2004: 10). The marketing exclusivity to reach level 2 customers has to be higher than on level 1, by making the offers and approaches more personally relevant to the respective customer segments, and by appealing to their heightened sophistication that marks them as different from level 1 consumers. Level 2 consumers want to have their more informed consumption patterns recognized. Word of mouth strategies have to target opinion leaders within their different social environments. With their lifestyles, tastes, and mind sets varying tremendously, thorough segmentation and milieu analysis is needed.
Level 3 - Luxury level. Level 3 consumers refrain from discount and mass market stores, and either have a high income and high assets or extremely high income with low assets. In order to reach them, specialized magazines, limited-access internet sites, word-of-mouth, and event marketing strategies with high marketing exclusivity have to be implemented. Their distinguishing characteristics are their regular connections to exclusive marketing environments and extensive contacts to various networks of other rich people. This level clearly demarcates "another world", far away from the normal mass luxury consumer. Members of this group include very successful professional rich (doctors and lawyers), entrepreneurs after a successful IPO (Initial Public Offering. A company issues shares to the public for the first time in order to expand its capital), “super-salarymen” of foreign financial institutions, rich business owners, board members of big corporations, and the wives and girlfriends of the rich and powerful.
In contrast with level 2 consumers, the networks of level 3 consumers are connected by the fact that they all belong to the "upper class"—they have access to a different kind of social environment to which level 2 consumers do not, but aspire to and want to gain access. So when targeting opinion leaders, marketers should be aware of the fact that even though there are different networks within level 3, they are interconnected by social gatherings where level 3 people from different networks are invited. Simply put, level 2 consumers do not all go to the same party but stay, more or less, within their respective social environments. Level 3 consumers on the other hand—due to their connections, higher income level and often tremendous assets—can achieve another level of social interconnectedness where it is possible for them to meet people from distant networks more easily. They have the capability to set themselves apart from the normal social gatherings of middle-class people. They think of themselves as wealthy and want to be treated accordingly. Many customers in this group are often disappointed by the service level provided to them by luxury companies, and would be willing to spend more in many categories, could they find offerings that are more tailored to their individual needs (Nunes et al. 2004: 13). In interviews conducted with HNWI customers, one of the things mentioned most often was their feeling that their customer value is not recognized and not appreciated. To quote Paul Goldsmith, CEO Esprit Corporation in Tokyo: "Today a customer buying a $800 handbag is treated better than someone buying a $100,000 car." (Interview with Paul Goldsmith, 19.08.2008, Tokyo)
Therefore, the essential point is to create environments that are limited, where the higher customer value of level 3 consumers is recognized. This is done by using techniques such as club-marketing, where rich people are gathered by common interests, in combination with added value conferred by privileges, concierge services, and special experiences that are neither mundane nor easily accessible (See Takahashi 2005, pp. 17-19). In such an environment word of mouth strategies can be effectively executed by providing access to other level 3 consumers. This creates a setting for reaching distant networks of luxury consumers who are not yet customers of the luxury company (see section 3.4).
All three levels require a deep customer understanding and will serve a mixed group of customers, so companies will need to develop “a kind of drive-through approach to segmentation.” (Allen and Rigby 2005: 3) The amount of exclusivity needed for the marketing approach depends on the brand profile in question and the consumption style of the customers. On all three consumer levels, luxury products are consumed. Consumers can change their level, which is a dynamic social process, with the transition taking place predominantly between level 2 and 3. Rich marketing (for level 3) has a profound influence on the other levels of luxury marketing (level 2 and 1), in such a way that the selection of level 3 customers forms the image of a brand that is consumed by level 1 and 2, due to the media coverage of the luxury lifestyles of celebrities and other level 3 consumer (Currid 2007; Chadha and Husband 2006). The expanded luxury marketing model in figure 3.6 incorporates the three consumer levels.

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.

4_Concluding remarks

The commodification of luxury has left the upper class frustrated, realizing that their old status markers have lost part of their appeal. Therefore marketing to this social elite has to take into account their desire to feel special, to feel exclusive, and to be separated from the crowd of mass luxury consumers. This kind of “super-elitization” will make brands target the upper classes with exquisite handcrafted pieces and individualized versions made in limited numbers—“hand-made artisanal value” for the “genuinely affluent and genuinely educated” (Joanne Ooim, creative director of Shanghai Tang, printed in Chadha and Husband 2006: 284)—that again allow the social elite to distance themselves from the consumer rich who are buying the lower segment versions of their favorite brands and products. Also, a selection of sophisticated shoppers who are bored by the standardized offerings of mass luxury are now looking for the excitement of discovering something out of the ordinary. “A lot of people want to go to places where there are nicer little finds. Now it [existing retail] is so predictable ... it has lost the spark, it's anaesthetized” (Chadha and Husband 2006: 284).
Luxury companies have to bring back its “spark”, the aesthetic component of shopping. They need to realize that channels are different in the premium market, more exclusive, and sometimes even blocked from direct access. The higher the consumer level, the more sophisticated the approach has to be. The needed market intelligence can often only be provided by third-party companies who have made extensive connections within social networks and offer databases of HNWIs, as well as creative solutions to reach them indirectly. The services introduced in section 3.3 do not necessarily exclude each other. All of the solutions offered points to gaining access to HNWI customers, but by using different channels and reaching different customer segments.
Interviews conducted with each of the companies' CEOs revealed one common fact upon which all of them could agree: there is still a huge potential in the market for HNWIs in Japan, that can be tapped by both foreign and Japanese luxury companies (Interview were conducted with Andreas Dannenberg, CEO of AdComm [28.03.2008], Takaoka Soichiro, CEO of Abraham-Holdings [01.04.2008], Yamada Yu, CEO of Ypsilon Group [17.03.2008] and Tsuchiya from KT Marketing [25.03.2008]). The key lies in entering the social networks of HNWIs. By accessing opinion leaders specific to their own product category luxury companies can become more sensitive to future trends and faster than the competitors to react to social changes. Communication with the most important customers can prove to be an invaluable tool for customer segmentation, profiling, networking, and “influencing the patronage behavior of dozens, hundreds, even thousands of affluent prospects” (Stanley 1993: 1).
For luxury companies the advice should be: See the connection between your own customers and possible prospects and understand the complexity of word of mouth as it is spreading through networks. The 'satisfied customer' and the 'influential professional' who experienced an innovative event today, could turn into your brand advocates at the dinner party tomorrow, even if they are not your customers yet. Go where your customer target groups are, make your presence known, become part of their lives, and create "conversations" about your products. Accept the fact that brand equity builds up over time through the authenticity of your communication, which is constantly evaluated within social networks. And most importantly: communicate with luxury consumers. Try to listen to their conversations—about your brand, your competitors, and your product category.
Yamada Yu, CEO from the Ypsilon Group offers wealthy customers what they want: a better life, more time, amusement, and a social environment where they can demonstrate their sophistication and taste. Added value is the keyword, but it does not necessarily have to come from inside the company. Instead, it can be achieved by collaborations with service partners, and the association with people from other fields such as within arts and culture, within nightlife, and other social networks—in short: influential people who “produce” the cultural setting of today's complex scene of professional and private interactions. Studies about these “cultural creatives” or the “creative class” and the socioeconomics of metropolises are the subject of many recent studies, including Currid (2007), Scott (2008), and Chadha and Husband (2006), the latter describing how to create “the spin” (buzz) and “the cult” of a luxury brand. Marketers start to realize that culture is more than a mere by-product of economic activity, but is strongly inter-connected with market forces in the premium segment, and that understanding these dynamics can prove invaluable. This and the recent emergence of CSR and SRC (social responsible consumption) are not only current trends that will pass within a few years. They are a look into the future of marketing where “relevance, simplicity, and humanity—not technology” are the distinguishing elements of brands in the future (Bedbury 2002: 183). Stanley (1993: ix) gives a good summary: “[...] where do you and your offerings rank in the eyes of important patronage opinion leaders? Encourage these leaders to rank you high. Cultivate their endorsements. Become a vital part of their influence networks. Without their support, you may be assigned a small piece of the affluent market.”
Being a young market, there are no empirical studies available on the effectiveness of HNWI marketing strategies, probably due to the difficulty in acquiring exact data on HNWI customers. Research should continue in these areas to produce relevant and reliable knowledge for marketers involved in the field of HNWI research. Topics could include: How is the information transferred within HNWI networks, and who are the opinion leaders? It would also be interesting to find out which networks have the most influence in specific industries, how the flow of information is transferred, and what relation exists between event marketing and the spread of product information. Investing into research for creative solutions on how this flow of information can be influenced and controlled should become a central issue for luxury companies.

Basic marketing considerations

Rich marketing is basically about how do I get access to the customers with a higher media exclusivity, how do I influence opinion leaders (to start BUZZ) and how do I create a two-way communication system (a meaningful, long-term relationship) with my customers. Further to be considered are the influence of the HNWI market on the normal market and how to change the product segmentation and customer segmentation while at the same time staying true to the brand values.
Creating an effective strategy might include the use of different channels. In Japan, the business models of the companies who do cater to the needs of companies doing business with the rich, do not necessarily exclude each other. All of the presented solutions offer a way to gain access to HNWI customers or mass affluents, but do so using different channels and reaching different customers segments. Interviews conducted with each if the companies basically revealed one common feature upon which all of them could agree, there is still huge potential in the market for HNWIs in Japan which could be tapped by both foreign luxury companies as well as by Japanese corporations. Using the right channels might mean the difference between sucess and failure or missing the chance to tap new customer segments that were not targeted before.
In Japan there are further considerations to go with this, for a foreign company. How do I have to adjust my product considering packaging and promotion in Japan (higher standards, different values), also information about the core competitors strategies and their access to FYS databases has to be considered (which channels do they use, what events, buzz strategies, if at all, do they employ). The access to opinion leaders in Japan is an asset that builds up over time and therefore is something that you cant access without help. Over time, a meaningful relationship with your customers and a future oriented marketing method means to build up not only a functioning database of customers and would-be customers but also a network of opinion leaders, artists, creative people and instruments (environments) where you can interact with them (like the Art Gaia Club), a marketing environment or an environmental marketing tool. CSR plays an extensive role in this as people tend to freqeunt such club-marketing clubs more frequently when the reason to be there is personal and not connected to the purchasing of any products (clear pull-approach).
Its a battle about getting access and providing the best tools to gain it. HNWIs are not reached directly. Two things are important, getting access and executing this in a creative way. Communication instead of plain product marketing. For big players in the field the question is with which companies to form partnerships to get benefits and access to HNIWs, and also collaboration advantages. Smaller companies have to deal with issues like product placement and adjustment, bigger corporations with issues as how marketing is executed to transport the brand image and its values. Indirect ways are important, pull marketing strategies.
The potential is high and the money not yet spend. To become part of peoples lives, is not only meaningful but essential. Especially in an environment like Japan where social networking is of such a big relevance, contacts on the Japanese site are essential, so foreign companies need to establish a network of SNS, connections, feedback (permanent), and fresh imputs. Working together with educational institutions can be as important a trend sensor as the usual marketing instruments.
One important last thing to consider-the language barrier leads to interesting constellations. Do not think that information is something readily available in Japan. Especially in the premium sector, where there are many corporations in the field that have to execute communication back to their home bases, information is often secular and not transferred immediately or perfectly to other sources. On the other side, working with smaller corporations can be of an advantage considering the transfer of information, the permanent information flow within the big giants like Dentsu or Hakuhodo. Premium customers are competing against marketing and advertising budgets of about 5-10 times their size and are allocated ressources accordingly. Using innovative techniques can be a way out of this dilemma.
Sources are predominantly not translated into English and the other way around. The education system in Japan leads to this situation. (see McVeigh 2003/2005, Matthews 2004, McCreery 2000 and Sugitomo 2003). Companies need a good strategy and help to overcome these marketing difficulties.
Basically, the difficulties in the Japanese market are not so difficult to overcome. The trick is to overcome them by the right use of market intelligence and professional local help. To know which players are really performing the desired role in a professional way is also essential (the Japanese market is not more closed, only in the labor market. For a disadvantage to be of any meaning it has to be discriminatory to the foreigners and not be present in the European markets for the Japanese).
Finally, the change in the market and a change in which manner marketing is perceived and the relationship with the customer has changed in the information age, what has to be changed by companies universally, not only in the HNWI business, is a shift from a one-way relationship of a producer of goods and the consumer, towards a two-way communication, a meaningful relationship. Luxury producers and companies in the premium segment will find out that relationships with rich people and their best customers in Japan are by the most part one-way relationships with no communication, where products are consumed for the perceived brand value, the image and prestige they confer in a world where not only status symbols but also symbols that show the belonging to a certain social strata or group are consumed because of an image that is generated among the consumers themselves, without either party able to influence this perception on a direct communicative way. Creating communication channels, establishing blogs and using different channels for advertising and buzz-marketing is something that has to be done in nearly all segments, not only in the high premium segment. The difference is the measures required for accessing the customers with a higher income bracket or higher lifetime value. They demand more and are in many ways immune to normal marketing channels. So the changing environment in the information age as well as the changing consumer bahviour have created a double challenge for luxury companies and companies in the premium segment. First the adjustment towards communicative tools and channels and the the realization that these channels are different in the premium market, more exclusive and sometimes blocked for direct access.
In Japan then, the realization has to be, on top of that, that some of those access points are simply blocked from foreigners. This might be more true in some segments than in others but the general trend is that the higher the level in which to market operates, the more sophisticated the approach has to be and the more market intelligence is required. Market intelligence that can most of the time only be provided by companies long enough in the field to make the necessary connections and to be in acceptable social positions. Enlisting those companies help and kowing how to evaluate their services, by doing own research in social sciences in Japan, can mean the difference between successfully adapting to the changed paramenters or to loose market share to competitors that transformed this intelligence into appropriate measures.