Speech by {{Dr.Philippe Villemus}},
_ {Former International President at Helena Rubinstein}
{{{Value, innovation and conquest}}}
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_ There are three important concepts: value, innovation and conquest. These three concepts can be associated with three key themes for companies: demotivation, relocation and differentiation. The problem with value is in the main linked with differentiation. There are no miracle solutions for the problems of conquering customers, conquering markets or increasing value. We now need to look at a number of questions: How can we help companies maximise their growth potential? How de we conquer customers? Can we believe in innovation and in differentiation? How do we restore customers’ confidence in products, services and brands?
_ There are no absolute answers. In the history of mankind, there have been, in total, five Jewish prophets. The first, Moses, said: “God is everything”. The second, Jesus Christ, said: “Love is everything”. The third, Karl Marx, said: “Money is everything”. The fourth, Freud, said: “Sex is everything”. As for the fifth and last, Einstein, he said: “Everything is relative”. The issues of conquering value, innovation and new customers are thus extremely relative ideas. Relative to companies or to brands, to projects or to the strategy and the culture of a company, as well as to all the management techniques and modes applied within a company, from the highest level summit to the ordinary storekeeper. But this idea is above all relative to the willingness and the ability to change things…
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– {{The Rugby World Cup, selling emotion}}
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_ The 2007 Rugby World Cup gave rise to an exceptional media and popular awareness. In many European countries in which rugby has a place of some importance (France, England, … New Zealand…) as well as in some countries in which rugby is no way near being the most popular sport, audience records were easily broken. The success of this sport, still incomprehensible for many, raises a number of questions. Why were the stadiums full? Why did the television channels beat all their audience records? Half of the spectators and viewers were women. This despite the fact that, according to the various surveys conducted, many women do not understand the game.
_ So what was the fascination? People today do not want to spend large amounts on tickets. Spectators do not want to see scrums, tackles, or even penalties; going to see a match is going to experience the emotion. Not everyone understands all the rules, but they do share a moment of high emotion, in front of their TV or at the stadium. And in capitalising on these emotions, ever since the 1998 Football World Cup, the organisers of major sporting events have understood what they need to sell: This is not simply a ticket for a football or rugby match, but a true moment of emotion. And when we can sell a moment of emotion and not just a product, it become possible to sell this at a much higher price, for example, by over-segmenting, as the organisers of large gatherings do.
_ There are currently thirty-six types of tickets that can be sold, with prices ranging from the most basic to the most cosseted, combined with various services (parking, restaurant, box, hostess, gifts, etc).
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{{{A changing economic, cultural, social and political environment}}}
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_ The pressure for change in society and with regard to the company has never before in the history of mankind been so strong, and there are seven reasons for this.
– {{Increasing complexity}}
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_ Today, regardless of the domain (car making, computers, fashion, etc.), doing business is becoming increasingly complex. The planning horizon, that is the ability of companies to predict the future, is getting shorter and shorter. Companies have never before had to forecast so far ahead (forecasts can reach between five and twenty years). The paradox however lies in the fact that we do not know anything about how one’s own market is going to develop. In the 1960’s, in the computer sector, an innovation gave the company 5 to 7 years of stability, in the 1970’s it would give it 3 years, and in the 1980’s, 1 to 1½ years.
Now however, computers and digital cameras evolve every three months and are ever more powerful and cheaper. The level of interaction between the economic, social, political and technological worlds is much greater. On top of this, the changes are almost inexplicable. A few years ago, companies were sometimes asked to provide an explanation for their successful or failed product launches. It was at that time possible to find an explanation. Today, it has become almost impossible to really explain a success or a failure. And this is the case for many companies.
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– {{Increasing pressure}}
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_ This pressure is on the workforce, on companies and on managers. In the last ten years, with globalisation, the world has seen the emergence of a new empire: China. China is currently totally transfiguring the economic framework for many companies. There is now a huge amount of pressure on companies generated by the financial markets (and not just on listed companies but on all companies, including SMEs).
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– {{Increasing pressure on costs and prices}}
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_ In Europe, leaving aside the various energy sources (oil in particular) and property (currently on the up), all other categories of products and services are under immense downwards pressure to reduce costs and prices. Some companies are also having to relocate in order to keep up with this movement. The level of pressure on costs and prices has never been so great. Some practitioners and authors are now asking: Are customers going to become simple bargain and promotion hunters?
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– {{Shift in society from the tangible to the intangible}}
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_ From an “industrial” society we have become a wholly service-based society. This change means that companies are not just sellers of products or services but sellers of aspirations.
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– {{Changing demand}}
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_ The aging of the European population is beginning to put serious pressure on companies, in terms of brands and marketing policies. This is because an aging population is a more experienced, more educated, population which is beginning to understand the basic principles of marketing, with a better understanding of the superficiality of false added value, which is aware of the true quality/price ratio and which has an idea of the true value of things.
_ The second change in demand: Increasing incomes. In some European countries there is increasing economic insecurity and layers of the population remain in poverty. However, over a period of twenty to thirty years, purchasing power and life styles have improved. And this increase is going to continue into the future.
_ The third change in demand: The significant rise in home ownership in Europe. This increase has changed behaviour in terms of household consumption, travel and mobility.
_ The fourth shift in demand: The changed role for women. In Europe increasing numbers of women work, they marry later, have fewer children and, often, live in single-parent families. Women are thus less and less available for household tasks or for doing the shopping, which will have a serious influence in terms of consumption in Europe.
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– {{The four “key-trends”}}
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_ These trends first emerged in the United States and Japan. Previously it took about three or four years before trends developed over the Atlantic reached us, but the time scale is now a year. These key-trends are going to have significant ramifications in Europe. The first of these trends can be called “Taking Care Of Myself”, the desire to consume in order to take care of oneself and one’s body, explaining the boom in consumption in health, “healthy” and “whole” foods, health clubs, beauty creams, glasses, shampoo, etc. products…
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_ The second key-trend is called “Questing” and refers to the “quest” of the consumer for new experiences. We have seen in Europe a major expansion in complementary education, universities for retired people and new learning. Consumers are looking for new experiences and it is quite impressive to think that in some European countries, in the space of a decade, generations previously completely closed to new information technologies (such as computing) have quickly become proficient in using computers. Society is on the lookout for new tastes and new learning experiences.
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_ The third key-trend: Connectivity. Seven or eight years ago, consumers were still not convinced about developments in new information technologies (for instance the Internet). But the desire to keep in touch, via mobile phones or the Internet, is likely to become a fundamental motivation for consumers and customers over coming years.
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_ Fourth and final key-trend, not necessarily a positive one: The striving for an “individual style”, or the growth of individualism. Although this may not be seen as being good news, it is the reality. People focus on themselves first and foremost and are becoming increasingly individualistic. Some would go so far as to describe them as egotists.
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– {{The rise of emotions}}
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_ People are looking for emotions, explaining the universal appeal of major theme parks or large-scale media and sporting events. One of France’s great writers, André Malraux, once said: “The 21st century will be religious or it will not be”.
The 21st century will probably not be religious, but above all emotional. Consumers are going to attend major events because they want emotion. Because within a society in which it is no longer possible to externalize one’s emotions, major events and major spectacles are the only places left where the individual can shout, sing and sometimes even cast insults in more or less complete freedom.
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{{{What is Value? Price? Quality?}}}
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_ Given these key changes in the economic environment, we need to try and provide a definition for certain concepts.
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– {{What is the value of a product, a trademark, a brand or a company?}}
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_ It is a sum. It is a sum of tangible values and intangible characteristics (service, brand image, brand awareness, etc.). The power of a brand is created through a coherent synthesis of these two concepts. Some luxury brands are exceptionally coherent because they produce extremely high quality tangible products combined with an outstanding image. These companies therefore make large profits. Other brands selling products of a mediocre quality with a popular brand image are also very coherent and extremely efficient. They also make a great deal of money. Coherence is an important concept for the value of a brand or a company. There is an overall coherence between the price, the tangible and intrinsic quality of the product and the intangible values (image, accessibility, what is known as selectivity).
In the end, the value of a brand or a product is determined by what the consumer is prepared to pay.
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– {{What is quality? How can we understand the quality/price ratio?}}
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_ The Japanese taught us something fundamental concerning the quality of a product. For many decades European and American companies believed that quality for a product took the form of conformity with a number of established standards, whether industrial or even based on the customs and practices of their personnel. This opinion has now been completely overturned and the Japanese proved to us that the quality of a company, a brand or a product, is in actual fact the overall ability of the company to satisfy the needs of the consumer. This means that it is necessary to constantly improve the quality of the product. Quality here does not have any relationship with a norm or standard. Of course there must be standards. These however are of no concern to the consumer. This need to satisfy the consumer can be explicit (opinion polls, marketing surveys, etc.) or implicit, which is much more challenging. Implicitly, these needs are those that consumer is unable to formulate him/herself. It is what the company offers that brings out the customer’s nameless need.
Why is it that people capable of gauging the quality of a product are prepared to spend almost 200 euros for a Hermès tie? You can buy a tie for €10 in any Carrefour supermarket. This applies equally for lipsticks, handbags, suits, etc. Why buy such expensive products? Drawing on the analyses carried out concerning the luxury sector, there are three answers to this question: It is all about quality, image and price.
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_ The first notion: Luxury equals better quality. Some companies (or brands) sell products of exceptional quality but are not considered as being luxury brands! There are also some brands that are very expensive, describing themselves as being luxury brands, but which are not of a very high quality… The word quality here is thus very confusing.
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_ Second notion: Image. Some brands spend a great deal on advertising, on increasing brand awareness or reputation and have created such a strong quality image that they are able to sell their products for high prices… However Coca-Cola has an incomparable image but it is not a luxury product and thus image is not enough in itself.
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_ Final notion: Price. Price in itself does not provide an answer to the question. For instance, despite the fact that a Clio car costs €11,000, it is not automatically a luxury product, whereas a Chanel lipstick at €16 is in fact a luxury product.
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– {{Definition of luxury}}
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_ A luxury brand is characterised by five fundamentals that make the consumer want to buy a product for a higher price although it is in reality not very different from the others.
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_ {{Expertise}}
_ It is better to talk of expertise rather than quality. We do not know whether an “Armani” brand suit is a quality suit. We do however know that Giorgio Armani is an expert. He is a professional designer and creator of many suits. “Hermès” handbags are relatively expensive, but what we can be sure of is that this brand is an expert in the field of leather and silk.
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_ {{Proximity}}
_ This is an extremely important criteria. Through time, experience and investment luxury brands have managed to create a concept of proximity among their customers. Customers in luxury brand shops are treated differently. They are sometimes offered additional gifts, they are made to feel welcome in the shop. Proximity is built over time.
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_ {{Selectivity (or control) over retail distribution}}
_ The “Hermès” brand has some 200 shops around the world. The “Chanel” brand has just under 10,000 sales outlets in Europe. This company is also under intense pressure to expand its sales network. It should be remembered that it is the brand that is responsible for the selectivity of the outlet, and not the contrary.
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_ {{A perspective on the world}}
_ Luxury brands and the top performing companies have achieved a real perspective on their field, as well as on the world. In order to be considered as a “luxury brand”, a brand must have an original and distinctive perspective on the world, a vision that it imposes and develops over time, but to which it remains faithful.
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_ {{Luxury brands sell emotion}}
_ Luxury brands “sell dreams”… In a factory outlet, they sell cosmetics. In a perfume shop, they sell aspirations. These brands and companies have managed to convert their role from that of a manufacturer into that of a seller of emotion.
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{{{How do we increase our market share, number of customers and added value?}}}
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_ Economic competition is not actually war, but we need to take note of what we can be learnt from politicians and military men from major wars. There are four ways of fighting wars: The first takes place in the same place and with the same weapons as the enemy. The second takes place in the same place, but the weapons are different. The third takes place in a different location but with the same weapons as the enemy. As for the fourth, this takes place in different locations, with different weapons.
_ {{The first way}} to wage war would refer to the battle of Verdun. This battle cost 700,000 lives. The danger for civilisation was maximum and the danger for the commander minimum.
_ {{The second way}} concerns guerrilla warfare. To quote from “The Little Red Book” of Mao Zedong: “When the enemy advances, we withdraw; when the enemy stops, we harass them; when the enemy withdraws, we chase them”.
_ {{The third way}} : In another location with the same weapons as the enemy would relate to “D-Day”, the day of the landings. Rather than land one’s forces where the enemy is expecting, one opts for the most difficult cliffs.
_ Finally, {{the forth way}} to wage war is exemplified by Aqaba. This was a port on the Red Sea, securing the Arabian Peninsula and defended with artillery, and taken by Lawrence of Arabia. The danger for civilisation is least, whilst the danger for the leaders is greatest.
This means one has to use the economic “Aqaba” approach. A frontal assault, in the same location with the same weapons represents price war. If a company values its products at the same price as the competition, the winner will clearly be the one to lower its prices first. The added value represents war in the same place but with different weapons. This added value gives rise to additional functionalities in an additional product or additional services. As for the third method, in a different place with similar weapons, this is the approach developed by the luxury product sector, creating their own markets in different places.
However doing an “Aqaba” in economic terms means having an enduring competitive advantage, and the use of meaningful techniques of differentiation in locations where they are not expected. To succeed, this is the technique that must be applied.
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– {{« Being SMAC »}}
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_ There is a concept known as “Being SMAC”. “S” for “Specific”, this is the need to be different from other companies. “M” for “Measurable”, because innovation is only successful if it can be measured by the consumer. “A” for “Accessible”, in particular in terms of prices. Innovating whilst remaining within the competitive price ranges is a complicated task. “C” for “Coherent”, because there is an essential coherence between the product sold by the company, its price and the intangible qualities relating to the sale made.
But how does one increase added value? The answer to this consists of seven points. Firstly, it is necessary to have an original perspective on one’s sector and on the world. Secondly: One must act quickly. World economic growth is accelerating and the companies that can succeed in the context of this expansion are those able to very quickly adapt and change their commercial strategies and tactics. Thirdly: Open-mindedness. It has never been more important to understand the market and understand consumer needs. Fourthly: Market stimulation. Markets in decline need to be revitalized, for instance like that of the cinema. Cinema attendance in Europe has now been on the rise for three years, despite the fact that ten years ago it looked as though there would be no future for the cinema market, essentially because of the development of the DVD and the Internet. Fifthly: break the mould. The mould needs to be broken in order to generate the sixth point acknowledged for increasing added value: Surprise. Customers must be surprised by original actions and promotions. The seventh and final point: One needs to become a seller of emotions, regardless of the business area.
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– {{Conclusion}}
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_ The focus must be on understanding the market, understanding the explicit and implicit needs of consumers, and above all on differentiation from competitors and rivals. It is also necessary to create, within work teams, a “mission for the department”. This mission is extremely important and must apply to the entire management chain. If one gives people an official function, they become officials. If one makes use of bonuses for these same people, they become bonus hunters. But if one gives them a mission, they become missionaries. And it was the missionaries who conquered the world. Everyone right through the company needs to be trained.
Economic competition is demanding and fierce. In a liberal capitalist economy such as we live in today, a President or a CEO will always have greater impact on the turnover of his/her company and its added value than will have a shop floor worker or a secretary. This is the reality of today’s world. However, the CEO, the shop floor worker, the secretary and the customer all have the same right to respect. We must respect companies, workers, and above all customers. Because, if we cannot respect others, we cannot respect ourselves.
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{{{Questions}}}
{{Olivier DAUVERS}},
_ {Editor in chief « La Tribune Grande Conso »}
_ In your conclusion, you spoke about respect for customers. I am thinking about Steve Jobs, CEO of “Apple”, whose latest innovation (iPhone) has already dropped $200, which is a loss of around 33% after just three months on the market. I am therefore wondering whether Steve Jobs, specifically in this, is in the wrong?
{{Philippe VILLEMUS}}
_ I don’t know the details involved here and I am always sceptical of information one reads in the press. However, if he really has behaved in this way, it does in fact show a lack of respect for the customer. But beyond the issue of disrespect, I would describe this way of behaving as placing more importance on the very short term against managing for the very long term. At the moment, the debate between the short term and the long term is one of extreme relevance.
When I talk about the need to consider the company in the very long term, I am reminded that deadlines are set for the following quarter. It is obvious that there can be no long term vision if we don’t make money in the short term. However some companies earn a great deal of money in the short term and, because they lack long term vision, do not invest effectively. This therefore applies in both senses: We need to earn money in the short term, provided that we have a long term vision.
{{Olivier DAUVERS}}
_ You described the price as being one of the attributes of luxury brands. If you were in charge of “Hermès”, do you think it would be better to distribute your products through a factory outlet or to burn them?
{{Philippe VILLEMUS}}
_ That is a difficult question. But I think that I would not destock, at least initially.
{{Olivier DAUVERS}}
_ So, in general, is destocking a dangerous marketing strategy for brands?
{{Philippe VILLEMUS}}
_ Not always. Destocking takes place other than through factory outlets. Some luxury brands destock their products when the new ones come in. Some 25% of turnover is generated through the introduction of new products, which means that after 5 years, in some companies, the entire catalogue needs to be disposed of.
{{Olivier DAUVERS}}
_ You also talked about breaking the mould. If you had not had proven corporate experience, I would have labelled this as academic or utopian. But is not the striving to achieve this breaking of the mould still hugely utopian?
{{Philippe VILLEMUS}}
_ Breaking the mould is essential, I have no doubt. In macro-economic terms our continent is facing the increasing power of China and other emerging economies. European companies wanting to survive in today’s world have only two strategies available to them: They must break the mould with different and original products, or relocate to China. Otherwise they will not be able to withstand the falling prices resulting from Chinese production. Let’s take a concrete example: In about a year China will be ready to sell a car costing €1,500, compared with the average price for a car in Europe of €10,000.
{{Olivier DAUVERS}}
_ The issue of emotions is a major area of debate for the operators of brand villages. Is it right to attract customers into these brand villages for anything other that pure and simple shopping?
{{Philippe VILLEMUS}}
_ An emotion must be popular and accessible, whether positive or negative. This covers fear, hate and violence but also friendship, courage, team spirit, etc. As during sporting events. Thus emotion is not necessarily an investment in luxury. If one goes shopping at “LIDL”, for instance, this can generate a feeling of buying cheaply, of being rational, of understanding what being cost conscious is about… It is also, to say the least, odd that hard-discount emerged in Germany, Europe’s wealthiest country. However for some people, shopping in a “hard-discount” store is a way of standing up against the high cost of living.
{{{Exchanges with the floor}}}
{{From the floor}}
_ Do you think that eventually the Chinese economy will experience problems of management with the increases in the hourly-rate?
{{Philippe VILLEMUS}}
_ Not in the next thirty years. I am going to seem provocative to some, but I have to be because China is not a country like any other. If it was, you would be right.
Unfortunately for us, China is a very different country to our own, and for two reasons. First of all, one sixth of humankind lives in China. Secondly, China has a virtually unlimited reservoir of low cost population and labour. There are however in reality three Chinas.
_ Firstly : Oriental China. This is the one we visit on business trips, extending from the west of North Korea to Taiwan. It includes many cities like Shanghai, Beijing and Canton. This is a coastal China that is becoming very wealthy. It has a population of 200 million, but the average standard of living is lower than that in Europe.
_ Secondly : The rest of the industrial China created by Mao Zedong, from where the workforce needed for the factories in coastal China is recruited. There are almost 800 million people here, earning less than $2 a day.
_ And finally: Third world China. This is an often Islamic China, where westerners never go, that could be a source of civil unrest as well as a huge reservoir of labour. China is not a democratic country and it has only been a few months since Chinese people have had the right to extend their visas when they want to travel.
_ People in China do not in reality have any right of free movement between provinces. Large companies operating in partnership with China sometimes go to various villages, insisting that the people get on a bus to be taken to a factory located in the coastal region, where they work for a period of up to six months. The workers must sleep at their place of work. They are occasionally taken back to their villages and, if this is not the case, as these people do not have visas, they become homeless.
{{{Conclusion}}}
{{Olivier DAUVERS}}
_ To conclude, I would like to offer a quote from Edouard Leclerc, who said, in 1958: “Low prices are needed by the poor and loved by the rich”.
