Category: profitability

The organization is the brand

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Japan Airlines was established as the national flag carrier of Japan in 1953. The government was the largest shareholder and for over 30 years, JAL was the only Japanese domestic airline with the rights to fly international routes. In other words, as a government entity it had a monopoly on those prized international sectors.

Rather than employing professionals in the industry, the government tried to run the airline, creating bureaucratic inefficiencies that had little inclination to deliver the value customers are looking for.

Hope came in the late 1980s when the government sold it’s stock in the company and the airline was privatized. In 2002 Japan Airlines System was incorporated to manage JAL and by 2006 the airline’s daily operations had reached 192 international routes and 387 daily flights.

A new brand identity and aircraft livery themed around ‘the arc of the sun’ was created and it was hoped that ‘the identity would help JAL build a stronger global brand and position a JAL flight as a means to acclimatizing to Japanese culture, attempting to attract more international business people flying to Japan to choose JAL over other international carriers’.

In 2010, JAL is fighting off claims of imminent bankruptcy by multiple media organizations. According to etravelblackboardasia.com, JAL has experienced financial difficulties for quite some time and currently owes more than US$5.8 billion.

JAL shares plunged to a record low in Tokyo trading last week, however the airline is still positive that it will experience a turnaround with the support of the Japanese government. The site also quotes a JAL spokesperson as saying that reports that JAL was planning to cut all of its international routes to cut costs are 100% false.

Well, only time will tell but it is crystal clear that the airline is in big trouble and is surviving on bail outs from the ETIC (Enterprise Turnaround Initiative Corporation of Japan).

What lessons can other legacy carriers learn from this?

Using creativity to build a brand.
When Japan Airlines and Japan Air Systems merged, the idea was to provide the foundations for a more efficient organisation to compete both domestically and internationally. Nothing wrong so far.

Next came the development of the brand image. This was to clearly communicate the fact that the merger had created a new and improved organization. According to Landor, the JAL agency, “the JAL brandmark needed to express a new business philosophy and strategy and at the same time be flexible enough to apply at every touchpoint where travelers, airline employees, and travel advisors have exposure to the brand.”

Landor also says on it’s website, “The JAL mark reaches dynamically to the sky. It is derived from the motif of a rising sun, one of the best-known icons of Japan. The mark is drawn in a modern way and is reflected in the red sun on the tail of the aircraft. In 2002, the integrated holding company was established and the JAL mark was introduced. It is now visible in advertising, ticketing, airport environments, and the combined fleet of aircraft. Implementation of the design will be gradually executed through prioritized applications.”

Sounds good, but the problem is that consumers aren’t buying that stuff anymore. Positioning products belongs in a mass economy that no longers exists. There are too many airlines essentially positioning themselves in the same way. This is because positioning and the 4 ‘Ps’ are imprinted on the DNA of an entire generation of marketers. But the market conditions have changed and it is time to bury the concept otherwise we’ll see more companies in the same position as JAL.

JAL should have focussed it’s brand building efforts, not on reaching for the sky with a motive derived directly from the sun but on providing value to customers based on bespoke relationships with existing customers, access, relevant content to relevant segments, userbility, technology and more. Sure a slick identity is important but it will not build the brand on its own.

Strategic relationships
JAL was late joining an airline alliance which meant it couldn’t offer the interconnectivity of competitors. This has had a profound impact on the airline. ANA, JAL’s competitor joined Star Alliance in 1999, eight years before JAL joined ONEWORLD.

Operations
Although once the airline was privatised, it did reduce costs by cutting staff levels and employing cheaper foreign staff, it still operated at high unit costs which had a negative impact on operating effectiveness.

The right technology
It is critical to invest in technology that is user friendly. JAL’s flight planning software is awkward and confusing.

Flexibility
Like many airlines, JAL focussed on attracting customers to the high yield spots at the front of the plane. There is a general theory (I don’t know how true it is) that if you fill business class on a 747, the flight is paid for and the rest is gravy. This is a common strategy but in the recent economic meltdown it’s not a very effective one.

Despite no longer being a government company, JAL was slow to adapt to the economic situation and suffered as a result. It is imperative therefore that airlines become more nimble and whilst a strategic plan is important, it has to be versatile enough to adapt quickly to challenging market situations. At the same time, it has to be adaptable to take advantage of opportunities.

I doubt very much that the Japanese government will let JAL fail. But what about other Asian legacy carrier established by governments to fly the flag globally? Many of them are already sucking funds out of already empty coffers. Will they be alowed to fail?

Organisational excellence required to build global Asian brands

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Not too long ago, the Michigan (U.S.) State Business School reported that every US$1 (RM3.36) invested in marketing earned US$5 (RM16.80). By contrast, for every US$1 (RM3.36) invested in operational excellence, returned revenue was US$60 (RM201.75).

Despite such data, the majority of Asian firms have been slow to grasp the importance of everyday operational excellence that requires a continuing commitment to quality service, as well as processes that are effective from the customer’s point of view and advanced supply chain skills.

Many Asian firms prefer to spend fortunes on tactics to acquire customers yet very little on the operational and other strategic requirements needed to keep them. Sales and marketing growth based on increased awareness are fine and important but they are activities to be embarked on only after the operational foundations are in place. This is because an acquisition only approach is generally unsustainable.

Therefore, once a customer is acquired, it is critical to develop relationships to retain them. Firms cannot simply ‘hope’ they will come back time and time again because, with so much competition, so many alternatives, if you are not communicating with them – and selling to them, someone else will.

Customers build brands
And because customers have the power to make or break our brands, Asian companies must learn to do business on their terms. At the same time, they must become focused on creating PROFITABLE customers (on average, 15% of customers are unprofitable), ensuring those customers become our brand ambassadors, and consistently increasing their share of wallet.

Coca-Cola, Marlboro, Pan-Am, Ford and so on, represent mass-economy brands. These Western brands were successful because they shrewdly used the tools of the mass economy. They positioned themselves by repeatedly advertising in the mass media of one, two or three TV stations, one or two newspapers and knew where consumers were most of the time as there were few leisure time activities to take them away from the home.

Global markets
They also used mass production to achieve economies of scale, and they used distribution to penetrate mass markets. Global markets were opening up, disposable income was increasing, competition was limited. Customer retention didn’t really matter. Markets were growing so fast, and the mass-economy tools were so powerful, that it is was fairly easy to acquire a new customer for everyone that was lost. They also had a large, essentially one segment, ready made affluent domestic market.

But today, the mass economy is dead. The mass economy was killed by the fragmentation of the media, new leisure time activities, the Internet, greater competition, globalization, immigration, increasing number of and power of retailers, marketing segmentation and other forces.

In its place, we now have the “Customer Economy.” Companies no longer have the exclusivity to make the rules and control information by “positioning” products or promoting “brand equity” through advertising and PR like they did in the mass economy. Moreover, where in the past, prospects were segmented by demographics and geography, now they are part of communities. In these circumstances, can advertising and PR be effective to build brands? As part of a comprehensive brand strategy, yes. On their own, no.

For example, in the 10 year period to 2006, the computer manufacturer Acer spent US$10 billion (RM33.6 billion) trying to build a global brand via advertising. The effort failed. Acer withdrew from the retail market and has only recently reentered it with a new strategy focusing on individual segments.

Sony mass market failure
In 2000 and 2001, Sony spent an incredible US$2.5 billion (RM8.4 billion) on advertising worldwide. The result? The first three months of 2003 saw stunning losses, a 25% slide in the company’s share price in just two days and layoffs of more than 20,000 workers worldwide.

Unperturbed, Sony again tried mass economy tactics in 2008, spending an astonishing US$4.9 billion (RM16.5 billion) to position its diverse range of products including televisions, Blu-Ray players, music players, Laptops, PlayStation games, movies from Sony Pictures and new music from Sony Music. The approach failed and Sony is now exploring a more specific product focused niche approach.

Asian companies
Asian companies obsess with using traditional marketing tools such as advertising and PR to acquire new customers. But what good does it do to acquire customers if you have no idea how long they are going to stay and how profitable they will be? Also required are investments in operational excellence and accountability.

There is also a belief by many firms that they just have to ‘participate’ in an activity to get business. One local firm we’re familiar with collected 200 qualified leads from a trade show, yet months later those leads were still collecting dust! They were waiting for the prospects to contact them!

Another Asian company invested over US$50,000 (RM175,000) on a trade show, instructed 3 ‘top’ sales people to represent the company at the trade show and then failed to train the staff on how to behave and sell at the trade show. Moreover, there was zero investment in a lead management programme for leads generated. This meant the company was unable to measure the effectiveness of the trade show.

Finally, within 3 weeks of the trade show ending, two of the sales people manning the booth left the company, taking all the leads generated with them.

As we work to move up the value chain, the goal of every Asian company that wants to build a brand must be profitability, backed by measurement and accountability. Reaching solely for sales or market growth is no longer enough.

Repeat business
Not so long ago, in the US, to reach its sales goals, Ford offered $3,000 in rebates and other special deals off the cost of the Taurus car. Ford maintained its market share – but at the cost of losing money on each vehicle sold. Interestingly, Ford learned from its mistakes. Its next TV ad campaign in the US was based on the following line: “The highest proportion of repeat buyers of any car in its class.” What better testimonial is there? Little wonder then that in a report released by LeaseTrader.com in August 2009, Ford had the highest brand loyalty of any American automotive brand.

Despite the obvious need to invest heavily in retention strategies, ask a typical advertising agency about the branding issues faced by Acer, Sony, Ford and other companies, and what do you think the most common response will be?

Exactly. Recommendations for more ads, in more media across more platforms! They’ll promise a better creative team to provide greater creativity, but what’s really required is accountability for results! The usual agency attitude of “spraying and praying!” may have been the best strategy during the mass economy when there were a limited number of media conduits. But in the customer economy, the proliferation of media outlets and competitive advertisers now makes it practically impossible to build a brand solely based on ‘spraying and praying’.

Strategic approach required
What Asian companies need more than anything else is a strategic approach to branding that is aligned with the new imperatives of the customer driven global economy. Branding in the customer economy requires a fresh look at how the organisation engages with customers, as well as market and profitability requirements.

Rather than a simplistic reliance on logos and creative driven, one-size-fits-all, repetitive advertising, branding today demands research, data, measurement, supply chain effectiveness, customer intelligence, service AND accountability to both customer requirements and resources spent. Only once the company has identified who it should talk to and how, can it start to talk to those prospects.

Because acquisition is so expensive, and existing customers make the best brand ambassadors, branding also requires an emphasis on the identification and retention of PROFITABLE customers. This is especially true as the balance of power shifts from sellers to buyers.

The payoffs from such customer-economy branding can be substantial. British Airways calculates that customer retention efforts return $2 for every dollar invested. The clothing label Zara has thrived against powerhouses like Gap by moving from four collections a year to releasing new styles every two weeks.

So, as Asian firms attempt to move up the value chain, it is imperative companies monitor their retention rates (which fewer than 20% of companies do), because it is the best indicator of future profitability and brand strength.

Track RFM (Recency, Frequency, Monetary Value) because it shows which customers may be prone to defection and which are candidates for up – or cross – selling. Since it is likely 20% of customers are generating 80% of profits, segment customers according to profitability, and develop unique value propositions for the top 1%, 4% and 15%.

Calculate the lifetime value of clients. For instance, Ford calculates that a customer who buys his first car at the age of eighteen, upgrades it every three years and services it at a Ford dealership is worth a six figure sum to Ford over a lifetime. Cadillac estimates the lifetime value to be $300,000.

Revisit dormant customers. And optimize spending by developing marketing ROI based on actual customer profitability.

Other areas of organisational excellence that are key to building global Asian brands include recruitment and training. The retail sector is only realizing a fraction of its potential. This is partly due to the lack of training of staff and subsequent indifference of frontline staff when interacting with customers. If there is no attempt to build rapport with a prospect, why should the prospect return?

This is also true of manufacturing. One company in Malaysia we contacted recently listed 2 markets it wanted to develop as the UK and France. Yet when we called the office, no one spoke English.

Building Asian brands will take much more than basic advertising and PR. Core requirements include research, accountability, operational excellence, data management and customer equity (lifetime value of customers).

In Malaysia, according to research carried out by PriceWaterhouse Coopers, 86% of Malaysian CEOs and their Board of Directors say that they believe in the economic potential of effective brand building. However, almost the same number of CEO respondents admitted that they do not have a brand unit to integrate brand practices within their organisation. Sentiments are similar in Thailand, Indonesia and Vietnam

Until those C level executives take the plunge and invest in their brands by building operational excellence into their brand strategy, the concept of building global Malaysian or other Asian brands will remain just that, a concept.

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Retention is key. Low cost carriers must learn from the mistakes of legacy carriers

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The legendary Peter Drucker said it best: “The purpose of business is not to make a sale but to make and keep a customer”. This is what branding is about. It’s not about aquisition, it’s about retention. And the airline industry, and in particular, Low Cost Carriers (LCCs) need to realise this soon otherwise they will find it tough to build brands that can compete, long term with the mighty legacy carriers with their frequent flyer programmes, multiple classes, business lounges, inflight entertainment and gourmet food (well some of them).

Most of the LCCs have a price based offering. Being small, they are nimble and more efficient than their lumbering competitors. These young, brash and determined airlines, often helmed by charismatic individuals with little industry experience have ripped up the industry manuals and replaced them with revolutionary business models that charge consumers for peanuts, coffee, noodles, seats, luggage and most recently in the case of Air Asia, a ‘convenience fee’.

According to an official response from the airline to an indignant passenger, this ‘convenience fee’ is “meant to recover costs in implementing, upgrading and maintaining our online payment systems. It is also to enhance security features for credit card payments to give guests a comfortable and safe booking environment.”

You’d be forgiven for thinking that this response, available here in full on malaysiakini.com came from one of those stuffy legacy carriers mentioned earlier. You’d be forgiven too for scoffing at the line, “give guests a comfortable booking environment”. How does charging me more make me more comfortable? You’d also be forgiven for thinking that perhaps the online payment system wasn’t good in the first place and wondering what the implications of that might be.

In the past most airlines, including Air Asia, would have absorbed these costs. I quote again, “However, now that AirAsia is experiencing a rapidly growing number of online transactions, these costs have significantly increased.”

The official response to the complaint goes on to say, “This convenience fee is charged on a per way per guest basis because the costs of these systems are driven by the value of the transaction rather than by the number of transactions. As costs vary per country, the convenience fee also varies.”

The whole process has been dealt with in a manner more suited to one of the aging behemoths than such a young, aggressive and savvy carrier. To me it says that because you, the customer have helped us grow so fast, we’d like to reward you by charging you to use our online booking service. Even though it is automated and therefore doesn’t require the ongoing investment in real estate and talent that a booking office requires, we’re going to make you, the customer pay for it.

The danger here is that Air Asia is making a common legacy carrier, or perhaps I can call it legacy branding, mistake. It is treating passengers as if they are insignificant seat fillers and it is assuming that all passengers are the same, don’t have options and will put up with being treated badly. Irrespective of whether it is the first or fifty first time the passenger is using the airline.

Surely, if a passenger is a long time user of the airline, there will be significant personal data available (and Air Asia offers customers the opportunity to submit a lot of personal, travel and other information) and multiple transactions with that customer mean that the liklihood of fraud is low, should that passenger be treated, and charged, the same as a new customer? And anyway, the burden of fraud is with the Credit Card company and not the carrier, which is why it is the Credit Card company that sometimes calls after you use the card to make a booking.

Unfortunately, because the prevaling attitude in most agencies (and companies) is that acquisition is key, the typical response is yes. And it would seem, based on this episode, that Air Asia agrees with this attitude.

However, FusionBrand has long argued that retention is key to brand building. Although LCC’s have thrown some traditional branding theories out the window with their price driven strategies, you cannot build a long term profitable brand, on acquisition alone. Indeed, a low price strategy that aims to ‘buy’ loyalty can often encourage only disloyalty. That’s because a price driven customer is always looking for a cheaper alternative. And, in the LCC space, will often find it.

This is substantiated in a survey carried out by Sabre Airline Solutions, which found that 86% of airlines believe that customer loyalty and retention will have the most positive impact on their business in 2010.

So my advice to Air Asia and other LCCs is that if you want to become a brand, you must start treating customers with more respect, understand that a low price alone will not build relationships, think carefully about how you communicate with your passengers and remember that the purpose of business is not to make a sale but to make and keep a customer.

Developing a sales culture is key to brand building – part 1

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In any economy, for most companies, one core effort of building a profitable brand is to develop an effective sales culture within the organization. And at the heart of this culture is a well trained sales force and clearly defined sales systems.

These systems help generate higher close rates. They also help the well trained sales force develop stronger customer relationships that lead to better returns on marketing investments through repeat purchases and the development of brand ambassadors.

Developing a sales culture requires investments in recruitment and training, lead management systems, sales processes and improved compensation for sales people. As Malaysian firms, GLC’s and other institutions struggle to find talent, systems and strategies that will allow them to compete and stay profitable, integrating a sales system into daily business practice is becoming mission critical. But few firms seem to grasp the importance of creating a great sales organization, and few Malaysian firms have become effective at sales.

Recently, we carried out a sales skills and sales process analysis for a public listed company in the property sector. We noted that the sales manager began his career at the company as a sales executive 16 years previously and was promoted simply because he outlasted everyone else in the sales department.

He didn’t know how to manage sales people. He didn’t know anything about territory or lead management and was inept when it came to motivating disillusioned sales people. He didn’t even know how to sell because all he had ever done was take orders. Yet he was responsible for recruitment and developing the training program for new recruits as well as ongoing sales training!

Another issue we identified at the same company but this also applies to many other corporations from many sectors, not just the property sector is what we call the ‘warm body syndrome’.

Because the property sector works around projects, if a project finishes and people leave, then quite often they are not replaced. The idea is of course to save money. But if the next project comes on stream when all the quality sales staff have already been employed elsewhere, the organisation can only recruit from the bottom of the barrel. The company then ends up with low quality sales people who are quite often ‘trained’ by the sales manager who is a sales manager in name only.

So the company ends up recruiting the wrong people who are then trained the wrong way. Companies got away with it in the past because as Malaysia evolved, there was limited competition and demand outstripped supply.

But the Malaysian economy is moving into unknown waters. Competition, from both local and international organizations is at an all time high.

What is required to succeed in these unchartered waters, is a great sales organization with the people, systems, processes, training and incentives to build sales and develop long term relationships with customers.

The results will be a profitable brand, able to compete locally and on the global playing field.

Part 2 of this story will follow next week.

Principles of Nation Branding

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Here are my eight key principles for a strategic Nation branding initiative.

Having said that, I also believe these principles should be applied to government ministries, departments, agencies and the private sector as well. What do you think?

1) Research and data are fundamental: Qualitative and quantitative research is essential to data-driven branding (see below) and data-driven branding is essential to building a brand in the customer economy of today and the demand economy of tomorrow. Without research and data, branding decisions are no more than guesswork and the nation brand strategy is too important to base strategic decisions (or, any decisions) on guesswork.

Research is vital for uncovering perceptions, attitudes and requirements for emotional, experiential and economic value, the three key elements of a successful brand. Research also provides benchmarks for measurement and accountability.

Qualitative research gives you valuable data on the requirements of target segments in the future. It allows you to tailor communications to resonate with target segments and also identifies key influencers, thereby saving valuable funds that are wasted on a mass market, one-size-fits-all approach.

2) It is impossible to build a brand on creativity alone. Too much is at stake – both in terms of a country’s brand and resources invested – to depend on a creative-driven branding campaign (and that’s all it is because it is impossible to sustain) to form the foundations of a nation brand. Let’s face it, if you sit back and think for five minutes, how many country related advertising campaigns can you remember? More relevant, how many made you act?

Furthermore, a creative campaign is best suited for mass markets and mass media whereas data-driven branding enables segmentation and targeting of communications that ensures content resonates with target markets. For instance, divers don’t think, “Let’s go to Malaysia and see if we can dive.” They think, “Let’s go diving.” And then determine the destination.

Likewise, are potential investors going to be impressed by white sandy beaches or communications that resonate with them because they offer specific value?

Other benefits of data-driven creative driven branding include a focus on acquisition and relationships that ensure ongoing business, while creative driven branding focuses primarily on acquisition. Crucially, a data-driven approach to branding places strategy in the hands of executive management whereas a creative driven approach puts the strategy in the hands of an advertising agency.

3) Segmentation enables differentiation: “One-size-fits-all” branding doesn’t work. Despite the power and sweep of globalization, which has Malaysians wearing the same fashions as Italians and Aston Martins in hot demand from Brazil to China, each country has its own requirements and world-views.

Once research has revealed the differing characteristics of various audiences, branding must be devoted to tailoring messages, media, channels and activities to the specific values and requirements of target markets. Such segmentation not only ensures more receptive targets but also easily ensures differentiation from competitive countries trying to be all things to all people.

4) No buy-in, no success: Nation branding is difficult, requiring planning, support and coordination from a wide array of public and private entities. But even the best plan in the world will not succeed without buy-in from brand stakeholders. The most important step to ensuring buy-in is involvement in the research and planning process. As much as possible, brand stakeholders that are involved in implementation must have the opportunity to add their input to the plan.

Such buy-in has two advantages. First, it allows valuable perspectives and experiences to be incorporated into the plan, making the plan stronger and more effective. Next, it facilitates better execution. If all the parties involved have a complete understanding of the entire plan and their role in it and what its success means to them, then redundant efforts can be avoided and resources maximized.

5) A brand blueprint must be developed: A strong, visible Nation brand must have a blueprint based on the research findings to enhance the country’s reputation and image while enhancing economic, education and social growth and increasing its ‘share of voice’ in the world community. Specifically, the Nation Brand Blueprint must communicate a positive and dynamic personality with economic, experiential and emotional values that reflect target audience requirements.

The blueprint must be holistic and comprehensive to enhance export promotion, economic development, tourism, foreign direct investment and other key national initiatives. It must also communicate the intended message to the target constituents and stakeholders in multiple countries and at the same time, it must lay guidelines to strengthen the strategic, communications and visual impact of the Nation Brand.

The blueprint must also systemically connect the Nation Brand to the country’s core industries, corporate brands and Small and Medium Enterprise (SME) sector brands. This must be established via a systematic, holistic process that accommodates the requirements of both national and international stakeholders. This process must not only be effective to optimize the Nation Brand, but also maximize limited national resources.

6) Nation branding is a marathon, not a sprint: There are no silver bullets or quick fixes in any branding and this applies especially to Nation branding. Even in these technology driven times, establishing a Nation brand may take as long as a generation to develop. For example, the current view of Japan as a nation famed for its precision and electronics is not based on its efforts during the past decade. Rather, the seeds of Japan’s current nation brand were planted more than thirty years ago, when it began exporting transistor radios and two-stroke engines overseas. Just as Malaysia launched its Vision 2020 program in 1991 to become a developed nation by 2020, the country must adopt a similar long-term view for Nation branding. Malaysia and other countries must look at establishing a Nation brand not for us – but for our children.

7) Private sector must carry its weight: As an example, with responsible policies, funding and resource allocation, the Government of Malaysia can and has tried to do a lot for the Nation brand – but it cannot do it alone. Private-sector involvement and initiative are crucial. Private sector initiatives can range from promoting country of origin on foods and industrial goods, as Australia has done, to helping to fund trade missions to even good business ethics. The bulk of activities outlined in the Nation Brand Blueprint must be carried out by private and non-profit organizations

8) Measurement and evaluation: Why should money or resources ever be spent without knowing the return? Wherever possible, perceptions, activities and processes must be measured, ideally with quantitative benchmarks. Such measurement and evaluation must be used to establish accountability and to ensure continuous improvement.

These key priniciples form the foundations of any nation branding initiative but there are other equally important elements.

One example of these other elements is a crisis plan which should be incorporated into the brand blueprint.

Recent events in Malaysia and Angola show little signs of a planned response with either silence or multiple and often conflicting responses coming from various sources and little or no reactions to debates on social media.

This failure to engage consumers, citizens and potential investors will undo much of the good work carried out to date.

Luxury branding in Malaysia & Asia

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Despite the global economic meltdown, the development of the retail sector in Malaysia continues at a phenomenal pace with over 1,000,000 square foot of additional mall space becoming ready this year. Passing almost unnoticed however is the proliferation of international luxury brands in many of those malls. Familiar international names such as Asprey, Giorgio Armani, Prada, TOD’s, Van Cleef and Arpels and so on, have all entered the local market in recent years, encouraged by the success of exclusive names such as Bulgari, Cartier, Hermes, Louis Vuitton, Rolex and other famous names already familiar to KL shoppers.

Unusually in Malaysia, The Pavilion has clustered its luxury boutiques into a high profile area facing Bukit Bintang. Globally, this clustering of stores is nothing new. For centuries stores have organized themselves into districts based on what they sell – think Saville Row in London (tailors), Faubourg Saint-Honore in Paris (designer boutiques), Deira in Dubai (jewelry), and so on. The cluster approach allows the rich and famous to be dropped off in front of the store, rush in and make a purchase that would make a small African country drool and then rush out into the safety of the limousine without having to rub shoulders with the rakyat.

With its double story street facing façade the luxury section or ‘couture precinct’ of the Pavilion is an exciting development in the evolution of the retail sector in Malaysia. But there is one thing missing from this development. That is a luxury Malaysian brand.

And as Malaysia moves from an Original equipment manufacturer (OEM) economy to an Original brand manufacturer (OBM) economy, and the government rams home the need to move up the value chain, the retail sector, where so many Malaysian OEM cut their teeth, should be at the forefront of this step up the value chain. Especially as according to the MasterCard Worldwide Insight report, the value of the market for luxury products and services in the Asia-Pacific region will jump from US$83.3 billion in 2007 to US$258.7 billion in 2016. Not a bad segment.

What’s more, there’s already a ready made market because the largest number of tourist arrivals to Malaysia is from ASEAN countries, followed by Japan and China with India and the Middle East not far behind. And the burgeoning middle classes from these countries are notoriously brand conscious.

This interest almost obsession with brands is likely to continue according to Radha Chadha, author of “The cult of the luxury brand”. She believes that the Asian interest in luxury products is because of the massive changes – social, cultural, economic and political that have been affected by the traditional attitudes to who you are and where you are in the societal food chain.

She believes that over the past 50 or so years, many of the traditional cultural indicators of social standing in Asia – profession, family, clan, caste have been eroded by the onset of globalization, migration and education. Free of rigid social hierarchies, mass migration and the development of urban areas, more people are making money and making it faster. The way to differentiate oneself is by purchasing a luxury product that shouted, “I’ve got money, respect me.”

Displaying one’s status through outward appearances of rank and wealth is nothing new but Asians seem to have taken to it like the proverbial duck to water. And those LV bags, Chanel suits, Jimmy Choo shoes aren’t simple female indulgences, they are part of a new world order that identifies the wearers position in society. Indeed, these luxury brands are a modern set of symbols that Asian consumers are using to redefine their identity and social position.

The Japanese have been devouring brands for years. 94% of Japanese women in their twenties own a Louis Vuitton bag. In fact, the Japanese as a whole are the most brand conscious and a staggering 92 per cent of Japanese women own a Gucci bag, 57 per cent own a Prada one, and 51 per cent own a Chanel bag.

In fact, Japanese passion for luxury brands is so huge that they account for over 40 per cent of worldwide sales for most major luxury brands. Meanwhile, Asia accounts for a third of Louis Vuitton sales worldwide whilst Cartier depends on the region for half of its worldwide sales.

And what of China? According to the China Brand Strategy Association, 175 million Chinese people can now afford to buy luxury products. By 2010 their number is projected to reach 250 million. Already, Chinese consumers are responsible for about US$10 billion of global luxury sales. Following the announcement of the US$586 billion stimulus that is expected to encourage increased spending, 70% of consumers confirmed that they will spend more in the next 6 months than they did in the previous 6 months.

Rolls Royce, the iconic British luxury brand owned by BMW, expects to double annual sales volume from 1,000 to 2,000 when the new, smaller ‘Ghost’ is launched in 2010, many of the early enquiries for the yet to be launched model are from Asia. Not bad considering each car will cost over US$200,000.

So, with all this new found wealth in Asia, the time is ripe for the development of Malaysian luxury brands. And the good news is, Malaysian firms know how to manufacture quality products. They’ve been doing it for years for iconic brands such as Apple, GAP, Guess, Ralph Lauren and other well known global brands.

But developing a luxury brand is also like raising a family – it requires a long-term commitment and investment, attributes that don’t sit well with corporate Malaysia. It also requires limited production, value over volume, even with a successful line. It also requires quality, not only in production but also in marketing and service, especially service. Training of staff is key. Walk into the Cartier store in Kuala Lumpur and the staff will assess you based on a number of pre-determined factors. Pass the test and they’ll offer you a bottle of champagne to anesthetize the pain of the purchase!

Ongoing research is also critical to the long-term success of the luxury brand. Back in 1837, when Hermes was building its brand, the founders lent new products to customers to get feedback on how the products could be improved. Zara applies the same tactics today. If a new line doesn’t sell, it is pulled off the shelves immediately and replaced with a new range based on customer feedback on styles.

One mistake many brands make is that they ignore existing customers, preferring to always acquire new customers. The successful luxury brands have an ongoing relationship with their best customers who become brand ambassadors and grow the family.

And for those cynics who don’t think Malaysians can build luxury brands or that there is any money in luxury brands, think of Jimmy Choo, the closest Malaysia has come to a luxury brand. Six years after Jimmy Choo sold his 51% stake in his own company for US$25 million, TowerBrook Capital Partners recently paid more than US370 million for ownership of the iconic brand named after the charming cobbler born in Penang in 1961. And with annual sales that have grown since 2001 at a compounded rate of over 45% to more than US130 million today, the purchase looks like good value.

Another British based private equity group, Permira, paid US$3.5 billion a couple of years ago for the Valentino Fashion Group. This was one of the most talked about acquisitions of the year because although Valentino is a well respected brand in Europe, it does not have the penetration in Asia of say Giorgio Armani. This is reflected in the global sales of US$340 million for Valentino compared with US$3.1 billion for Giorgio Armani.

There is also a strong argument to suggest that luxury brands are recession proof. At the end of last year, when the American economy was in free fall, Saks Fifth Avenue had a massive sale, offering huge 70% discounts on iconic brands such as Manolo Blahnik and even Prada. However, at the Louis Vuitton shop inside the luxury department store, nothing was reduced. Recently, Moët Hennessy Louis Vuitton announced that sales in its fashion and leather goods division, which includes Louis Vuitton, increased by 11% to $2.1 billion in the first quarter of 2009.

So, as the average tourist spends only 22% of his budget on shopping in Malaysia compared with 50% in Hong Kong and Singapore, the time is ripe for Malaysian firms to start building brands that can take pride of place alongside Canali, Ermenegildo Zegna, Jean-Paul Gaultier and Versace in places like the Pavilion, Star Hill and other prominent malls in KL.

Is this the dumbest question ever asked by a marketing publication?

Published on by brandconsultantasiaLeave a comment

Media Magazine is asking this question:

“Should clients be spending more on tracking effectiveness?” “This year effectiveness is at the top of the agenda. But are clients investing the money they need to to track the performance of campaigns properly?”

I had to read it twice to make sure I understood the question. My initial response is that effectiveness should be at the top of the agenda this year, last year, next year and every other year! If it isn’t, what is? And where is effectiveness on the agenda? Is it on the agenda? It certainly is in FusionBrand discussions. In fact, if it isn’t at the top of the agenda, we tear up the agenda and put it at the top of the new agenda. And we believe every other agency or consultant should do the same. If they don’t, you need to find a new agency.

In fact, we go as far as to say that if it can’t be tracked and measured, there has to be a very good reason why it is being recommended. If the justification is flawed, it doesn’t fly.