Selling Luxury in a Recession

(MoneyWatch) 

These are the worst of times to be marketing a luxury brand. Your customers have lost jobs, defaulted on mortgages, watched their nest eggs shrink, or simply heard too much about all of the above. They're downsizing and simplifying their lives. The bar is now higher for every premium brand they consider buying.

So how do you keep your customers paying top-shelf prices when they're thinking through each purchase more carefully than ever before? Part of the answer is to understand that luxury buying hasn't gone away, even now. "It's quite trendy to close your wallet," says Michael Silverstein, a marketing expert and senior partner with The Boston Consulting Group. But it's not entirely closed. "Customers who traded up in 10 categories of goods in the past are trading up in three right now."

Starbucks, the Morgans Hotel Group (formerly Ian Schrager Hotels), and Mercedes all believe they have what it takes to be one of those three. They are rewarding their most loyal customers with free products, continuing to advertise when their competitors are cutting budgets, and avoiding the worst temptation of all: discounts. In this economic atmosphere, they're finding, appealing to people's logic rather than their emotions seems to work best. You have to help your customers work through their fears and find clear intellectual reasons to spend more for your product than for anyone else's. That reason always exists; the art of downturn marketing is getting consumers to see it.

• Starbucks: Give Your Customers Free Stuff (For a Price)
• Morgans Hotel Group: Be the Symbol of Recession Defiance
• Mercedes-Benz: Don't Discount. Don't Disappear
• How to Market in a Downturn