LUXURYAdAgeSPECIALREPORT9.13.04

INSIDE Jag for every driverAverage Joe picks hisspots, and expands theluxury market

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Binn’s bling-blingJason Binn holds swaywith the party-circuitcrowd via magazines

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Dressed to go-goTravel and jewelrysparkle as key upscalead categories

PagesS-6, S-8

Media blitzEvents, other mediacompete with mags forbuyer ‘passion points’

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Adding it all upAd Age’sguide to luxury marketing, aSpecial Reports poster

After Page 22

BOOMTIMEFOR THE

GOODLIFEMarketers appeal to anexpanding range of high-endtastes by teaming up withlike-minded sellers, celebs,media and party circuits

PHOTO PROVIDED BY FRANCK MULLER USA

ONLINE: Download the .pdf version. Go to AdAge.com

and useQwikFIND aap93p

AdAgeSPECIALREPORTLUXURYSeptember 13, 2004 | Advertising Age |S-2

urveyors of luxury productsincreasingly have their sights set onJoe Average as well as Joe Millionaire,and that’s changing the definition of

“luxury.” The democratization of luxury—variously

labeled as the “massification of luxury,”“class to mass,” “new luxury,” “masstige”and even “luxflation”—is taking two mainroutes: Traditional luxury marketers areexpanding their brands to more affordablemerchandise, while at the same time themiddle class is increasingly willing to, at leastoccasionally, buy expensive luxury goods.

The latter trend is at the center of therecent book “Trading Up: The New AmericanLuxury,” co-authored by Boston ConsultingGroup Senior VP Michael J. Silverstein andNeil Fiske, CEO of Bath & Body Works.

“New luxury is not about aristocrats,” Mr.Silverstein tells Advertising Age. “It’s aboutaverage Joes on the street who want to buypremium-price products that have realtechnical, functional and emotional benefits.”

TRADING UPIn the “Trading Up”phenomenon, consumersshop at low-cost mass-merchandisers for someproducts to free up funds for luxury purchasesin other categories. It expands the luxuryplaying field to include 47 million householdsearning $50,000 or more, not to mention thosein lower income brackets who also trade up,albeit more selectively. This trend is also borneout in a Bear, Stearns & Co. report titled “TheUltra-Affluent Consumer,” which notes thatconsumers would rather buy two suits costing$2,000 each than four suits at $1,000 each.

Luxury has evolved into a $400 billionmarket that’s expected to reach $1 trillion bythe end of the decade, according to BostonConsulting Group.

But this dynamic market, whereincreasingly people can more than aspire toluxury goods, sparks concerns as well asopportunities for marketers. WhenAgencySacks, New York, surveyed 16 luxurymarketers for this Special Report (see charts atright), 94% said the movement to extendluxury brands to a wide array of products isdiluting the value of the word “luxury.”

Others believe they can sell at a variety ofprice points while preserving a brand’s luxurycachet. Anne Valentzas, management directorfor the Diamond Trading Co. account at WPPGroup’s J. Walter ThompsonUSA, New York, says that in awoman’s lifetime, whether she’saffluent or otherwise, she’ll havethe taste for “snacks,” such as an$800 design of the popular“right-hand ring,” and for“meals,” such as the $2,500version of the same ring.

“The total U.S. market indiamond jewelry retail value is$29.1 billion,” says RichardLennox, director in charge of theDiamond Trading Co. account atJWT. “Those purchases are coming from bothhigh-income and low-income households.”

A product that serves as both a bite-sizesnack or a meat-and-potatoes meal,depending on the occasion, not only reaches awider array of consumers, but gives people ofall income levels the opportunity to“constantly touch the brand,” says Mr.Lennox.

“We’re looking for the lifetime value ofour consumer,” he says. “It’s much harder toget a new customer than to continue adialogue with a customer we already have.”

To that end, the Diamond Trading Co. andJWT nurture what the agency calls“zealotry”—a kind of intensified version of

connoisseurship—through a steady stream ofproduct and concept innovations, maintaininga consistent level of quality at all price points.

“If a consumer can buy a product onlyevery five or six years,” says Mr. Lennox,“that creates a very different relationship. Weprovide access to our product at a variety oflevels without diluting its equity.”

A JAG FOR EVERY LIFE STAGELuxury carmakers for years have made lower-price versions available to a wide market. SteveLing, global marketing strategy manager forpremium brands at Ford Motor Co., says thegoal in expanding the Jaguar lineup withmodels like the S-Type or X-Type “is toprovide our customers with new choices of

vehicles that allow them toremain Jaguar customers as theymove through different lifestages.” He notes this also brings“in new, oftentimes youngercustomers who always wanted aJaguar … but needed somethingsmaller or more accessible.”

All the models are “trueJaguars,” Mr. Ling contends. If avehicle is engineered to reach alower price point, it “always hasto be done in a way that’s true tothe brand. The Jaguar X-Type

must drive and feel like a Jaguar. You’lldegrade the value otherwise.”

In the modern world of luxury marketing,however, the intangibles of experience andpersonal preference can trump the materialproduct itself as selling points.

“ ‘Old luxury’ was defined by the babyboomers’ parents, who experienced thedeprivation of the Great Depression orWorld War II,” says Pam Danziger,president of Unity Marketing and author of“Why People Buy Things They Don’tNeed.” “As a result, old luxury was aboutthe material thing.”

Their boomer children never went

Marketers learn luxury isn’tsimply for the very wealthy Market to hit $1 trillion byend of the decade asmiddle class trades up

P

TIP TO THE THIRTIESBABY BOOMERS DOMINATEthe luxury market, butGeneration X is also an important part of the equation,with habits that can help marketers spot what’s next.

A good place to start is Fairchild Publications’ Details,half of whose readers are 25 to 34 years old. “They aremore urban than suburban,” says Chris Mitchell (in photoat left), VP-publisher. “They spend a disproportionateamount of income on dining and clothing, and they’re oldenough to have made money, but not so old to have theresponsibilities of men in their 40s and 50s.”

These twenty- and thirtysomethings “are a logicalreplenishment strategy for brands whose consumers havetraditionally been in their 40s and 50s,” says Mr. Mitchell. “A luxury watchmarketer can expand its target without dipping down to men in their early

20s, who are going to be much further off from buying that watch.”To seize the opportunity, marketers such as Calvin Klein and

Perry Ellis have entered into partnerships with Details, tailoringmessages specifically to the magazine’s demographic. With Miramaxand Details, Calvin Klein produced a September insert featuring re-enactments of iconic scenes from Quentin Tarantino’s films.

“I would argue that luxury plays itself out generationally,” saysMr. Mitchell. “Gen X is the anti-Donald Trump generation. Theyeschew the gold-plated faucet for items that have a story, heritageor authenticity—all hallmarks of what this generation stands for.

“I think the experiential factor applies here, too. These arepeople with wanderlust. Look at the rise of boutique hotels and

adventure travel. This is the group of people who made Prague a hot spot.[They want] experiences that are authentic, unique.” —TIFFANY MEYERS

By TIFFANY MEYERS

See TRADING UPon Page S-10

WHAT LUX MARKETERS SAY

AgencySacks, New York, surveyed seniormarketing executives at 16 luxury-orientedcompanies, ranging from hotel chains tomarketers of jewelry and men’s apparel. If“massification of luxury” is reshaping themarket, these respondents aren’t enthusiasticconverts to the movement—94% said the extension of luxury brand names into every-thing from coffee to bedsheets is diluting thevalue of the word “luxury.” Also …

Source: AgencySacks Luxury Survey; to see this survey in its entirety, go to

agencysacks.com.

WHEN IT COMES TO POSITIONING, THESE MARKETERS:

VERY: Perry Ellis

HOW RESPONDENTS RANK THE SELLING POINTS FOR MARKETING THEIR BRANDS ON A SCALE OF 1 (IRRELEVANT) TO 5 (CRUCIAL):

DANZIGER: Boomer buyers

6%

56%19%

19%

AdAgeSPECIALREPORTLUXURYSeptember 13, 2004 | Advertising Age |S-6

arketing travel to the affluent setmeans knowing how the other half—or 1/20th , actually—lives.

Rich but not flashy, adventurousbut safety- and security-conscious, today’saffluent aren’t like those of just a few yearsago. And they can best be reached throughvery targeted media pushes that promote anexclusive experience rather than the statussuch travel brings.

“We don’t do shotgun advertising.There’s far too much waste, and it’s just notcost effective,” says Deborah Natansohn,president of Seabourn Cruise Line, theMiami-based “ultraluxury” operator whosethree ships sport a combined 624 beds—eachgoing for $15,000 for a 14-day trip.

Of course, nothing beats finely enunciatedword-of-mouth. Seabourn relies on deliveringfive-star service and amenities that lead toreferrals by past guests. Upwards of 60% offuture bookings are from repeat guests.

Seabourn’s marketing speaks to theaffluent mind-set as it partners with charitiesin tony Palm Beach and Bel Air. The cruiseline also runs ads via Tinsley Advertising inaffluent-targeted magazines like AmericanExpress Publishing’s Travel & Leisure andDepartures. An aggressive direct mail effortpitches the line to prospects and agents withsuch luxury travel consortia as Virtuoso Ltd.and American Express Co.

Luxury travel, from trips to five-star resortsto cruise vacations, remains strong, and has evenstrengthened over the past 12 months, saysPeter Yesawich, chairman-CEO with Yesawich,Pepperdine, Brown & Russell, Orlando.

ATTITUDE CHANGEThe affluent also are undergoing a change,according to the agency’s “Portrait of AffluentTravelers,” a spring 2004 survey that studiedbusiness and leisure travel patterns andpreferences of 600 individuals who are in thetop 5% of U.S. households by income.

This group still wants exotic destinations,Mr. Yesawich says, but isn’t necessarily eagerto flaunt their plans. Just because the affluenthave it to spend doesn’t mean marketing tothe wallet will motivate them, he says. Thisisn’t the late 1990s, when obvious indulgenceand conspicuous consumption were the norm.

Tech-savvy and likely to researchdestinations and deals on the Web, theaffluent traveler is a “smart shopper not veryinclined to overpay,” he says. Purchases aremore a reflection of their demand for life’sfiner things, not a means of displaying status.

Marketing to the affluent meansprojecting a promise of luxury, top-notchservice, and attention to security and privacy,he says, adding, “People are not buyingluxury brands because of what the brand says

about themselves. They’re interested in thebrand from a standpoint of quality.”

Properties like Canyon Ranch HealthResorts, Starwood Hotels & Resorts’ WHotels and Morgans Hotel Group (formerlyIan Schrager Hotels) serve the affluent andthose who at least are willing to spend likethey’re affluent. Even Club Med, the all-inclusive resort operator, is positioning itsofferings with an upscale touch.

By no means inexpensive, Club Med’sresorts draw a clientele that tops $100,000 inannual household income, and its marketingefforts hit the affluent as well as some massmarket. Club Med has linked with CondeNast Publications’ Bon Appetit for an awards

program; serves Hennessey, Skyy andBeefeater in its open bar; offers L’Occitane enProvence bath products in its guest rooms;and has aligned with Crunch Fitness as part ofits “significant efforts” to target upmarketvacationers, says Mark Wiser, VP-marketingwith Club Med Americas in Coral Gables, Fla.

The company uses direct mail to high-income ZIP codes, as well as print ads in TimeInc.’s Real Simple, Hearst Magazines’ O, theOprah Magazine, Conde Nast Traveler andTravel & Leisure. Direct response TV runs onScripps Networks’ Fine Living and DiscoveryNetworks’ Travel Channel.

Club Med’s agencies include ZimmermanAgency, Tallahassee; Aegis Group’s Carat,

Atlanta, for media buying; and WPP Group’sWunderman, New York, for direct response TV.

“People are seeking out premiumexperiences,” Mr. Wiser says. “Where the Ritzis a classic luxury hotel, people are looking for agood base product with great experiences.”

Quality can be reflected in numerousways—some more affluent and upscale thanothers. With personal safety a concern forsome, the ultra-affluent are taking to privatejet charters in increasing numbers, says DougGollan, founder and editor in chief of EliteTraveler, positioned as the “in-flightmagazine for the private jet set.”

Mr. Gollan says his readers, whose medianhousehold incomes top $900,000, are looking forthe best spas, therapists, resorts and providerslike fractional-ownership jet company NetJets,the Irish Tourist Board and the Breakers Hotel.He adds they’re not tightfisted about a summervacation that includes one-week rents of$250,000 for a yacht, $80,000 for a vacationhome or $40,000 for spa services.

“I don’t know how you get enough hoursto spend $40,000 in a summer’s spatreatments,” Mr. Gollan jokes.

While the number of first-class seatsplummets on commercial air carriers, privatejets are expected to triple in the next 10 years,their $5,000-an-hour price tag notwithstanding,he says.

SKIPPING THE AIRPORT LINES“Among C-level executives, money is noobject,” Mr. Gollan says. “If you’re super-richand time is money, going two hours early tothe airport to have a security guard pickthrough your belongings—these people don’twant to tolerate that.”

If ad pages are any indication, luxury travelis indeed growing. AmEx Publishing, whoselibrary includes Departures and Travel &Leisure, is up over the past several years, saysEllen Asmodeo, VP-publisher at Travel &Leisure. Publishers Information Bureau bearsout that trend, with Departures’ ad pages up19.9% through July, vs. a year ago, andTravel & Leisure up 4.2%. These increasesstack up against a 0.8% uptick in ad pages forthe magazine industry overall.

While domestic travel nose-dived post-9/11, affluent travel never really abated, Ms.Asmodeo contends. This is especially true withinternational excursions, which have grown astravelers reveal “an insatiable appetite to gofarther and experience more exotic places.”

Cases in point: In Travel & Leisure’s recent“2004 World’s Best Awards,” the SingitaPrivate Game Reserve in Sabi Sands, SouthAfrica, was named the top hotel, even at$1,000 a night. Bali, where terrorists struck in2002, was the best island.

While luxury travel costs more, Ms.Asmodeo agrees that value and authenticityremain important among affluent travelers.They want a customized itinerary or uniqueexcursion.

“Our readers may travel in jeans and T-shirts and Birkenstocks, not Prada and Gucciall the time,” she says. “It’s not about anaspirational approach because you havemoney. They just want something special.”�

Tony travelers seek out qualityTop-tier destinations find ‘premium experience’valued over indulgence

MBy JEFFERY D. ZBAR

SWIMMING ALONG: Seabourn underDeborah Natansohn (top) sails itsultraluxury pitch. Ellen Asmodeo seesinsatiable appetite for upscale travel.

WHAT FLOATS THEIR BOAT

Yesawich, Pepperdine, Brown & Russell asked affluent travelers whether they agreed withvarious statements including:

Source: “2004 Portrait of Affluent Travelers”; for more on this survey, go to the Publications section of ypbr.com.

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iffany & co., cartier and Bulgari maybe the top names in luxury jewels, buta new generation of high-enddiamond and jewelry brands is

seeking the spotlight.A major force for change is the world’s

leading diamond seller, Diamond Trading Co.(formerly De Beers), which in recent yearshas been urging dealers to promote their owndiamond brands instead of treating the gemsas commodities.

Upscale women are responding to thegreater array of branded choices and arestarting to purchase luxury jewelry more asfashion accessories than as rare, special-occasion purchases.

“Women who have greater financialmeans are responding to the wider array ofchoices in luxury jewelry, and they’re startingto buy their own jewelry to expressthemselves,” says Jennifer Behre, associatepublisher of Fairchild Publications’ W and WJewelry, a controlled-circulation quarterly.

After a slight downturn in 2001, jewelrysales have increased steadily to reach anestimated $45 billion today. Sales of mass-marketed jewelry are booming; Wal-MartStores is the nation’s largest seller ofdiamonds and gold.

But sales at the high end—where the

typical jewelry store purchase averages$2,500—are growing, propelled by newinfluences including the increased emphasison brands.

“The movement of diamond marketersand jewelry designers creating their owndistinct, national brands is still in its infancy,”says Dan Kisch, publisher of Instore, amonthly trade magazine launched in 2001targeting high-end jewelry brand marketersand retailers. “We believe this sector of thejewelry industry is poised for major growthover the next decade.”

TOP CATEGORYJewelry represents the fastest-growing adcategory for many luxury magazinesincluding Conde Nast Publications’ Vogueand Hearst Magazines’ Town & Country.

At Town & Country, jewelry nowaccounts for 38% of all advertising, says VP-Publisher Jim Taylor. “Diamond marketersare working to educate consumers, settingtheir stones apart from others by the look, thecut, the color and the designs,” he says.

Many industry observers say one of thebiggest influences in the new high-endjewelry branding movement is DavidYurman, a designer that in five years hasbecome one of the most significant luxuryjewelry advertisers in the U.S.

“For many years, the focus in jewelryadvertising was on the piece itself,” says TomFlorio, VP-publisher of Vogue. “Then DavidYurman came along, and he had huge successputting jewelry advertising within the contextof fashion in a very dramatic and distinct way.Now, others want to follow him.”

The David Yurman look is “an attitude of

authenticity and relaxed luxury … the ideathat any woman can make [the designer’s]look her own,” says David Lipman, chairmanof the Manhattan agency that bears his name,which has handled the 25-year-old Yurmanbrand since it began its big ad push in 1999.

Sold through retailers nationwide, as well asthrough its own stores, David Yurman is aheavy print advertiser in newspapers andfashion magazines, supported by outdoor,direct mail and retailer co-op print ads.

In the last two years, many diamondbrands that never advertised directly toconsumers have dramatically increased theirad spending, industry observers say.

Kwiat, a 100-year-old diamond marketer,launched its first-ever consumer-targetedcampaign five years ago, and now spends anestimated $8 million annually in national andlocal print and radio advertising. This fall,Kwiat kicks off its first-ever “Red Carpet Tour”of 20 cities, showing off diamonds worn bycelebrities on the red carpet in Hollywood.

“Maintaining exclusive distributionthrough certain retailers, and promoting ourbrand through local outlets including radio,our sales have increased by double digits,” saysBill Gould, Kwiat’s VP-marketing. Toth BrandImaging, Concord, Mass., created Kwiat’scampaign, themed “Simply brilliant.” KerwinCommunications, Caldwell, N.J., handlesmedia buying.

Diamond brands that have alwaysmaintained moderate ad programs are feelingthe pressure of heightened diamondadvertising, say industry insiders, and areincreasing their advertising in response.

Lazare Kaplan International, a well-

Jewelry ads sparkle incontext of fashion stapleFastest-gaining segment at key magazines—withplenty of room to grow

TBy KATE FITZGERALD

TOP DRAWER:David Yurmanhas helpedset the newdirection ofjewelryadvertising.

Source: ZPFM Luxury Study

0 20 40 60%See JEWELRYon Page S-14

BEST IN BAUBLES

Jewelry brands that affluent consumers saybest define luxury today.

AdAgeSPECIALREPORTLUXURY

AD AGE MAIN 09-13-04 B 8 AADB 9/8/04 4:38 PM Page 1

o hear publishers tell it, the benefits ofmagazine advertising for luxurymarketers haven’t shifted much inrecent years. Magazines are both

tangible and portable. The lush, glossy pagesplay out a tapestry for marketers; thesurrounding editorial and abutting ads nicelycomplement the marketer’s message andbrand image.

But magazines are by no means the onlykid on the lux media block anymore.Sponsored events are staking a spot, and othermedia are trying harder to get attention.

There’s no evidence of a full-force luxexodus from magazines: According toPublishers Information Bureau data for the firstseven months of 2004, nearly every publicationcatering to upscale readers comfortablyexceeded the industry’s overall 0.8% increase inad pages. Two exceptions were ArchitecturalDigest (down 1.2% against the year-agoperiod) and Conde Nast Publications siblingBon Appetit (down 7.8%).

Still, even marketers and agencyexecutives who continue to steer dollarstoward magazines sense a slight shift inperceptions.

MAGAZINE ADS, AND MORE“Upscale marketers are looking to distinguishthemselves in bigger, bolder campaigns,” saysGeorge Fertitta, founding partner andpresident of MDC Partners’ Margeotes/Fertitta & Partners, New York. “This canmean magazines, or this can mean anynumber of other things.”

The most commonly heard complaintabout publications catering to affluent readersis, simply, that there are way too many ofthem. In the upscale travel segment alone,advertisers have five or six options from whichto choose. “It is out of control,” says AndrewSacks, president of AgencySacks, whoseclients include Leading Hotels of the World.

There’s also a belief that the general imageadvertising commonly found in upscalepublications isn’t driving sales to the extent ofmore immediate newspaper and specificallytargeted e-mail offers.

And for all the rhapsodizing aboutmagazines being a “trusted friend” to theirreaders, marketers wonder if this notion hasbeen exaggerated. Cole McWilliams, VP-men’s fashion director at Neiman Marcus,expresses concern that “lots of thepublications out there don’t have very loyalreaders. Loyalty is what we’re after.”

Magazines still boast more than their share

of selling points. Many marketers love thatsurrounding stories often report on theproducts and categories being advertised.“You don’t get that in direct mail or anywhereelse,” notes Michael Clinton, exec VP-chiefmarketing officer and publishing director ofHearst Magazines, whose titles include Town& Country and Harper’s Bazaar.

SHARPENED TARGETEven as many luxury experts perceive themarket to be expanding to more incomegroups, publishers continue to tout how wellthey can target consumers.

Luxury magazines “don’t pretend to bemass and they don’t pretend to be low [costper thousand]. But if you need to gosomewhere to capture this segment, theydeliver it,” contends James Dimonekas, VP-publisher of Robb Report.

And very importantly in this era of ROIfixation, magazine ads remain relativelyinexpensive. In terms of production costsalone, a company might hire a top-flightphotographer for a print ad at a total cost ofaround $100,000. By comparison, the lowest-end TV spot a luxury marketer might

September 13, 2004 | Advertising Age |S-9

C U S T O M E R S S T A R T

BBUUYYIINNGG in BBUULLKKHHOOAARRDDIINNGG

Q U I C K L Y E N S U E S .

..

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C U S T O M E R S S T A R T

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WHAT LUX MARKETERS SAY

Luxury marketers in the AgencySacks survey rated the importance of variousbrand marketing vehicles on a scale of 1 (not at all effective) to 5 (indispensable):

Source: AgencySacks Luxury Survey

INSIGHT: Clockwise from l., AndrewSacks, George Fertitta, DiannaBalabon, James Dimonekas.

See MEDIAon Page S-11

Magazines fighting for fair shareSponsored events, other media home in on hittingbuyers’ ‘passion points’By LARRY DOBROW

AD AGE MAIN 09-13-04 B 9 AADB 9/9/04 11:55 AM Page 1

without, and today represent themost stable component of the luxurysegment. Having stockpiled ahousehold or two full of goods, theyrealize another Rolex won’t createpersonal fulfillment. “Instead,” saysMs. Danziger, “there’s a high-levelyearning for once-in-a-lifetimeexperiences that enhance who I am.”

At the root of Ms. Danziger’sconcept is a shift from a “product-centric” to “consumer-centric”point of view. Today, luxury is inthe eye of the beholder, andconsumers no longer depend onbadge value, category or price aloneto determine their perceptions.

WHAT CONSUMER SAYS GOES“You can equip a productintrinsically with all the values youthink are going to make it

luxurious,” says Ms. Danziger, “butthe question becomes ‘Is it luxury tome?’ If I don’t care about jewelry,even if I have a $5,000 ring, then it’snot luxury.” Modern luxury, inother words, is whatever theconsumer says it is.

But that’s not to say materialismis dead.

“I’m not concerned that ourreaders are more interested inexperiences than products,” saysKathi Doolan, VP-publisher of

American Express Publishing’sDepartures, which is publishedexclusively for AmEx platinum andCenturion cardmembers. “Whenpeople travel, they buy. Yes, it isabout the experience, but it’s alsoabout the things they buy duringthe experience.”

The challenge marketers face isfinding a way to link their productwith experience seamlessly. Thesedays, quips Ms. Danziger, luxury isa verb, not a noun.�

AdAgeSPECIALREPORTLUXURYSeptember 13, 2004 | Advertising Age |S-10

� Wilton, CT � San Francisco, CA � Beaconsfield, Bucks, UK

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Trading upFrom Page S-2

FEEDING THE IMPULSE

What’s the motivation behindluxury market purchases. A ZPFMLuxury Study delves into the whys:

I BUY LUXURY BECAUSE …

Source: ZPFM Luxury Study. Ziccardi Partners Frierson Mee, New

York, for this Special Report surveyed 750 consumers. Of that total,

80% had annual household incomes topping $150,000, and for 32%

of respondents, incomes exceeded $250,000. To see this survey in

its entirety, go to zpfm.com.

TOP WAYS AFFLUENT INDIVIDUALS LIKE TO SPEND THEIR MONEY:

AD AGE MAIN 09-13-04 B 10 AADB 9/9/04 11:59 AM Page 1

September 13, 2004 | Advertising Age |S-11

consider runs in the neighborhood of$300,000-$500,000.

Beyond magazines, sponsored events seemto be gaining the most traction as a mediumfor luxury marketers. The general idea: Giveaffluent individuals an experience they can’treplicate on their own and one that placesthem in the exalted company of like-mindedpeers. Most events are capped at 100attendees, with many including far fewer.

Kathi Doolan,VP-publisher at AmericanExpress Publishing’s Departures, recalls anintimate 10-person dinner in which herpublication united Patek Philippe principalswith C-level executives.“You’re getting more situationswhere somebody says, ‘Wewant 10 people, but the right10,’ ” she says.

TASTINGS EFFECTIVEThe best argument for in-person tastings, testings andtouchings is that a printed pageor TV screen does little toconvey the full effect of aluxury item.

Luxury brands are alsoteaming up with each othermore than they have in the past.A posh hotel chain, for example,might partner with a jewelrymarketer and offer a handful ofits top customers a $1,500bauble the next time they stayin one of its properties. On thesurface, this seems quite priceyand its reach negligible. If thehotelier gets the item at cost—say $750 each—and extends theoffer to only 50 top customers,the tab comes to $37,500.

“It’s a big investment, butyou’re starting a real relationshipwith those people, who willideally each tell a few friendsabout it. It can pay for itselfpretty fast,” Mr. Sacks says.

Back in the print world,newspapers are receiving increasingly highmarks from marketers of luxury goods. In thepast, many big-ticket purchases were madearound a particular event such as end-of-yearholidays. Now, consumers snap up costlyitems whenever the best deal presents itself.

As a result, companies are shifting dollarsaway from long-lead media and into others,like newspapers, where they can realizeimmediate returns. The high-end retail andtravel/lodging sectors in particular have takenadvantage of this.

Additionally, national newspapers likely toappeal to luxury marketers—The Wall StreetJournal and The New York Times—areconsidered essential daily reading for affluentconsumers. “We are must-read, as opposed tonice-to-flip-through-every-once-in-a-while.We are not the kind of publication that sits ona shelf,” says Scott Schulman, senior VP-salesand marketing at The Wall Street Journal. Hecites a recent push by the Journal to includemore high-end retail advertisers.

At jewelry marketer Links of London,North American President-CEOSharon Buntain agrees, sayingher company has a “franchiseposition” in The New York Times.“Some people don’t have time tolinger around magazines,” shesays. “Everybody has time for the paper.”

The downside? Even thoughboosters tout more advancedcolor capability, newspaperreproductions of luxuryproducts still more closelyresemble smudges of ink thanthe sharply hued ads seen inmagazines.

Additionally, there are only ahandful of luxury marketersthat would buy anything lessprestigious and demographicallydesirable than the Journal,Times, Chicago Tribune or LosAngeles Times.

As for broadcast options,luxury marketers generallyagree that print is considerablymore targeted than TV can be.Similarly, study after study hasnoted that the high earnerslikely to dip into their pockets fora seven-figure second homewatch less TV than just aboutevery other demographic group.

Jeffrey Stier, president and co-founder of the Luxury Television

Network, believes those perceptions can bechalked up to a lack of options that would makeTV palatable for luxury marketers. He hopes tosolve that with the planned debut of his cablechannel in late 2005.

“[Luxury] brands are used to controlling

their message and, to a large extent, who seesit, and they want adjacency to other luxurymarketers and content consistent with theirbrands,” Mr. Stier says. “So far, thatenvironment hasn’t existed in TV.”

He concedes, however, that simply gettingon the air will prove a major challenge: “Wehave commitments from advertisers who seethe opportunity and want to get in on thisearly, but there’s a difference between gettingan enthusiastic response and getting thecontracts done.”

CATERING TO BUSINESSThough “luxury” might not instantly beequated with work, Bloomberg Senior VP-Media Sales Michael Rosen sees anopportunity for luxury marketers in anymedium, especially TV, that caters to well-offbusiness aficionados.

Business is as much a lifestyle as travel ordining or anything else, Mr. Rosen contends,adding, “It is a passion point. These people aregetting huge bonuses, and they want to go outand spend it on something nice, whether it’s aMaserati or a Rolex.”

Many luxury marketers scoff at the notionthat they’d be able to create enoughimpressions via TV to justify the costs. Eventhose intrigued by the idea of niche-focusedTV advertising don’t have a ton of confidencein the medium.

“A luxury-only network? Frankly, we’dprobably just go to our PR company and makesure they get us highlighted from an editorialperspective,” says Dianna Balabon, VP-marketing, the Americas and Europe, forPeninsula Hotels.

The Internet has also failed to mesmerizemany luxury marketers. While they laudWeb sites as a second-tier branding tool and asource for the in-depth information that can’tbe crammed into a single ad, few luxmarketers are buying what Internetpublishers have to sell. Agency executives andmarketers alike dismiss the possibility thattop-tier brands will ever invest in banner ads.

“I’m sure Rolls-Royce has a lovely sitethat allows you to see features of new modelsand directs you to the nearest dealer, but youaren’t going to get romance and magic fromit,” Mr. Fertitta says.

If there is indeed less demand for luxury-focused publications or advertising withinthem, major media companies haven’t beenspooked by it. Robb Report parent CurtCoMedia, for example, added to its luxuryarsenal by snapping up ShowBoatsInternational in August. American ExpressPublishing, parent to Departures and Travel& Leisure, plans to introduce a limited-editionpublication for Centurion cardholders laterthis year; the unnamed title has already soldout its four sponsor slots.�

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WHAT LUX CONSUMERS SAY

Respondents were asked to list the top three influencers when making luxury purchases.

Source: ZPFM Luxury Study

MediaFrom Page S-9

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September 13, 2004 | Advertising Age |S-13

fter consulting the periodic table ofthe elements, credit card marketers haveyet to attempt to trade high-spendingcustomers up to Uranium cards.

But there’s definitely an atomic weightbeyond gold and platinum in the credit cardbusiness, and major issuers are competing toattract the highest-spending consumers withrewards and services.

There’s a lustrous new tier at the top:Centurion, World and Signature. These arethe brands that American Express,MasterCard and Visa, respectively, haveassigned to card offerings for their highest-spending consumers. No precious metals insight, and perhaps for good reason.

“Hasn’t ‘platinum’ gotten fairlybastardized?” asks MosheOrenbuch, credit card industryanalyst with Credit Suisse FirstBoston, New York.

Could be. The offers thattumble from mailboxes almostdaily promise “gold” or“platinum” Visas orMasterCards from dozens ofissuing banks with a surfeit ofoptions and privileges. But howexclusive can a gold card be whenyour neighbor in the double-wide carries two on his weeklytrip to Family Dollar?

Despite this commoditization, the majorcard marketers recognize that the luxurypsyche has evolved a great deal in the 20 yearssince American Express Co. unveiled itspioneering platinum card. “We were the firstto introduce platinum,” says Sylvia Bass, VP-Platinum and Centurion product

management. “We saw the imitation thatfollowed as flattery. But we also saw a need todifferentiate further as well as an opportunityto up the ante at the high end.”

Unity Marketing, a Stevens, Pa.,consultancy hired by AmEx to conduct its“Platinum Luxury Survey,” reports that aclear majority (59%) of affluent consumerswho earn an average of $175,000 per yearreceived the greatest satisfaction fromluxury experiences. The most commonindulgence was fine dining, enjoyed by79% of respondents during the preceding12 months.

FOCUS ON WHAT CARDS DOConsumer insights such as these are leadingthe Big 3 card marketers to focus more onwhat their cards do for high-spendingcardholders and less on what cards mean tothem. Luxury consumers’ minimumexpectations include privileges such as 24-hour concierge services and free airline clubmemberships. Special blocks of tickets tosporting or cultural events, and even reservedtables at trendy restaurants, add to the feeling

of entitlement.“I think that’s exactly

right,” says Susanne Lyons,exec VP-brand marketing atVisa USA. “Fifteen or 20 yearsago, it was much more aboutprestige, the color of the card.Business customers wanted tolook good in front of clients.”

Now, Visa is targeting whatit calls the “new affluents,”generally dual-incomeprofessionals who were raisedwith middle-class values, Ms.Lyons says.

“They have money but do not think ofthemselves as rich,” she says. “They believeyou get what you pay for. They see credit cardsas much less about prestige, much more abouttangible benefits that enrich their daily lives.”

Consumer research by Edgar, Dunn & Co.,a San Francisco consultancy, may explain

further how affluent cardholders arechanging. “The advent of frequent flier andco-branded cards redefined what the high-endoffer is really all about,” says F. AlanSchultheis, director, about his company’s“PaymentDynamics 2004” survey. “For a lotof very big spenders, it may be that theirairline co-brand card has really become a focalpoint of their spending behavior.”

JOINING FORCESThe superpremium cards are also joiningforces with other high-end marketers. Each ofthe three card programs includes multiple tie-ins. World MasterCard, for example, offersthree nights for two at Relais & Chateauxresorts, and complimentary upgrades at HyattWorldwide properties on its list of goodies.Visa Signature promises “upgrades, perks and

discounts“ at partners like the Ritz-Carlton,men’s fashion designer Ermenegildo Zegnaand watchmaker Audemars Piguet. Issuingbanks choose the exact set of programs.

Centurion cardholders receive the full setof AmEx platinum card extras, including acompanion airline ticket, free membership innumerous airline clubs, and specialamenities and free nights at some 500 luxuryhotels worldwide. The program includesadded Membership Rewards and InCircleRewards points from upscale retailerNeiman Marcus. Heavy spenders alsoreceive a free gift card from Saks, worthseveral hundred dollars or more.

The card industry seems to know what it’sdoing. Industry publication Credit CardManagement reported in its May issue that

A bevy of perks holdssway as power usershave high expectations

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2003 was the most profitable year for creditcards since the magazine began tracking theindustry in 1992.

AmEx’s Centurion, introduced in 1999,zeros in on a new luxury customer whomMs. Bass says is less focused on acquiringmaterial things and more interested inluxurious experiences.

Centurion holders charge at least$150,000 annually. For them, time—notstatus—is the precious commodity; theopportunities to spend leisure time engagedin travel, dining and entertainment arehighly prized.

ANNUAL FEE OF $2,500The value of such privileges easily exceedsthe $2,500 annual fee AmEx charges for aCenturion card, says spokeswoman DesireeFish. Only holders of the AmEx platinumcard, whose fee is $395, are invited to havethe black Centurion card, and it has gotten nomass-media ad support.

“We’ve closed invitations at various timesover the last five years,” Ms. Fish says. AmExisn’t saying how many people brandish aCenturion card.

Since most American Express chargecards don’t permit customers to revolvetheir balances, it’s easy to see why thehighest-spending AmEx cardholders aremost profitable, says Mr. Orenbuch of CSFirst Boston. “Their top customers are fourtimes as profitable as lower-spending ones,”he says. “For bank cards, that is notnecessarily true, because they make moneyboth from spending and the amount ofbalances carried.”

MasterCard International launched itsWorld MasterCard program in 1997. It nowreaches 15.3 million households in the U.S.with annual incomes greater than $100,000,what it calls the “mass affluent.” Primaryfeatures include a dollar-for-dollar rewardsprogram and no preset spending limit.

World MasterCard (known as WorldSignia in Europe) generates eight times moretransactions per card annually thanMasterCard platinum cards, and eachtransaction averages 15% more.

“The ’90s were about conspicuousconsumption and ‘badge value.’ Today, it’sless about material items, but rather aboutspending time with loved ones or sharingunique experiences such as travel,” says

Nicole Risafi, VP-product management anddevelopment at MasterCard.

World MasterCard gets no individualadvertising, though several issuing banksprovide some marketing support.

Visa is backing its Signature card with a TVcampaign that broke during the AthensOlympics on NBC. The push, from OmnicomGroup’s BBDO Worldwide, New York,features vintage images and the music of FrankSinatra. Ads are also running in upscalemagazines, and Signature has taken asponsorship position on National Public Radio.

Signature, introduced in 1997, has about7 million users, and accounts for 3% of Visaconsumer credit cards but 18% of Visa sales.

UNDERCOVER AFFLUENCEFor every customer who salivates at theprospect of flashing a black card at a businessdinner, there are others who prefer to keepthe noise level down, a kind of anti-prestige.Visa calls them the “undercover affluent.”

“We have seen new affluents target muchmore emphasis on tangible value,” said AlBanisch, senior VP-consumer credit productsand the executive responsible for VisaSignature. “Time is precious to them. So isthe ability to get a last-minute dinnerreservation.”

The rest of us can count on mercury cards,named for the speed with which the moneyruns through our fingers.�

Beach was beginning to take off.Ocean Drive established the formula Mr.

Binn would later apply at Niche Media—acity magazine that was more upscale, frothyand boldface-name-obssessed than its peersfollowing the Clay Felker model.

Mr. Binn remains a minority investor inOcean Drive, but his empire is based in theBig Apple. Niche Media employs more than80 staffers, most of them in New York. Mr.Binn says he’s running out of U.S. cities andhas no plans for another growth spurt. Nor ishe interested in selling his company.

As far as ad revenue, he says Niche Mediaand SoBe News, publisher of Ocean Drive,combined will top $40 million this year. “I’vegiven these magazines 18 hours a day, sevendays a week for 14 years,” he says. “I don’tknow if anyone can say they give theirmagazines more. I love the art of publishing,but I haven’t overextended myself.”

Advertisers appreciate this kind of workethic and vision.

“Jason is a magnet,” says JeanZimmerman, exec VP-marketing and salesfor Chanel’s beauty business. Ms.Zimmerman has joined Mr. Binn and herhusband at a banquette in the Grill Room ofthe Four Seasons for drinks the night after hisCNN meeting. “Gotham and Hamptons aresmall enough to be intimate with theaudience and intriguing to them. It’s the rightcrowd—hip, trendy people.”

She turned to Mr. Binn when the timecame for Chanel to launch its twenty-something-targeted fragrance Chance in 2002.“He’s built a pathway to them,” she says.

After drinks, Mr. Binn bolts uptown toBergdorf Goodman, where Hamptons issponsoring the launch of Flirt, a cosmetics linedeveloped by Estee Lauder’s BeautyBankdivision destined to be a store brand for the big-box retailer Kohl’s. He’s been informed thatthree Lauders will be in attendance—patriarchLeonard and daughters Aerin and Jane.

NEEDS OWN REALITY SHOWMr. Binn is joined at the entrance ofBergdorf’s by a pack of his sales team,including Nick Warnock, Donald Trump’spassed-over “Apprentice.” Mr. Warnock isclearly in awe of Mr. Binn. “He’s a genius,”Mr. Warnock says slowly, wide-eyed. “Heshould have his own reality show.”

Upstairs in an impromptu Flirt mini-boutique, the party is jammed with the usualflock of socialites and actresses who will likelynever set foot in a Kohl’s, but who will, it ishoped, imbue the brand with some “heat.”Mr. Binn wades right in, offeringcongratulations to Lauder execs, acceptingcompliments in turn for such a great party,and arranging tableaux for the photographershovering behind him.

Leonard Lauder has already left,BeautyBank General Manager Jane Hudistells Mr. Binn, but he had a good time.

“Did you hear that?” Mr. Binn says,grinning. “The old man liked it. And that’swhat’s important.”�

established diamond marketer, this yearstepped up its education programs for jewelrystore personnel and boosted print advertising,says Marcee Feinberg, VP-marketing. Thebrand’s long-running theme, “My Lazarediamond,” is handled by AgencySacks, NewYork.

PEARLS MAKE COMEBACKPearls, which are making a comeback this year,are also driving a fresh wave of branding efforts.

Tiffany next month opens the first outletof a new retail division, called Iridesse,devoted exclusively to pearls. Plans call for atotal of 20 outlets within the next five years.David Yurman is also offering a new line of

pearl jewelry this year.Mikimoto & Co., the longtime leader in

luxury pearls, this year has responded to thecompetition by reviving a previous print adtheme line, “The originator of cultured pearlssince 1893,” says Robert Artelt, senior VP-marketing and retail for the Tokyo-basedcompany.

AgencySacks handles Mikimoto. KerwinCommunications handles media buying forMikimoto as well as Kwiat.

Suddenly, jewelry designers, who toiledin relative obscurity, are turning up infashion magazine columns, and are beingtouted as minor celebrities in jewelers’promotional material, ads and Web sites.

“For the longest time, jewelry wasn’trepresented on our covers,” says Vogue’s Mr.Florio, “but starting this year, it has been avery important element.”�

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THE PRICE OF LOYALTY

Respondents were asked why they wouldnot give up their credit cards.

Note: Percentages are a weighted average, based on respondents being asked to rank

the four reasons for loyalty.

Source: Edgar, Dunn & Co.’s “PaymentDynamics 2004”

13%

50%

19%

18%

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