A recent article in Incentive Magazine features Tom Taraci discussing the luxury incentive market. Find the article, with his comments bolded, below!
The New Luxury Incentive
In the four years since the economic collapse of 2008, our definitions of luxury incentives have changed. There was AIG in 2008. There was GSA in 2012. In that time, luxury incentives have seen their share of scrutiny.
“We had another name for AIG,” says Cindy Hoddeson, director of meeting and incentive sales for the Monaco Government Tourist Office. “We said it stood for ‘another incentive gone.’”
Regardless, the luxury market, at least for consumers, seems more resilient than ever. In its 2012 “Luxury Goods Worldwide Market Study,” Bain & Company predicts that the global luxury goods market will grow 6 to 7 percent worldwide and that, despite the economic turmoil that persists in the U.S., luxury goods in the U.S. currently “remain strong.”
Luxury travel, similarly, is doing well. According to Smith Travel Research (STR), 2010 was a ban- ner year for global luxury hotels and, since then, nearly every global region has seen significant growth in luxury hotels. For 2012, STR predicts that luxury hotel occupancy in the U.S. will grow by 1.3 percent. Four Seasons Hotels and Resorts, a brand synonymous with luxury, is estimating its global revenues for 2012 to increase by 9.2 percent.
Stephen J. O’Malley, vice president of Maritz Travel, says that many of his corporate clients have welcomed luxury back. “Our clients are embracing luxury as an option to help drive the returns they seek from investing in incentive travel programs.”
Yet, when Incentive contacted planners at five companies that used luxury incentives, none would discuss it, even off the record. Which begs the question: is luxury still considered taboo?
A Different Kind of Luxury
Most incentive industry experts we spoke to said that luxury incen- tives, although not considered off limits, are still perceived of differ- ently than they were before 2008.
“In the ’90s, it was always about trying to do bigger and better and being opulent,” says Tina Weede, president of USMotivation. “When you take the opulence away, luxury is not a bad word.”
Weede believes that luxury incentives are back but there’s still some residual resistance being felt from AIG. “We did have clients in the last few years who came back to us and said, ‘We can’t use a luxury brand,’ but I rarely see that anymore,” she says. “Are luxury incentives coming back? Yes, but there’s still a fear factor about the return of the recession. I think people are still a little resistant.”
In response to the AIG Effect, luxury brands were also forced to adjust their definitions of the ser- vice and quality that they provide. “Immediately following AIG, I think that all luxury brands had to think about how we defined what it was that we were providing,” explains Don Jones, vice president of sales for the Americas at Four Seasons Hotels and Resorts.
Other experts take a slightly dif- ferent view. “I wouldn’t say luxury is taboo,” says Kurt Paben, senior vice president, business loyalty at Aimia. “The fear of using luxury that you saw has gone away for the most part. You have to use luxury for the right reasons.”
Demonstrating a return on investment (ROI) from luxury incentives has become de rigueur, says Paben. “Clients today are much more prepared to justify the ways that they build
their programs to achieve the business results that they want and in many situations, it’s appropriate to use luxury to achieve that result.”
Today’s definition of a successful luxury incentive trip or product, however, is as much determined by corporate requirements for ROI as it is by individual employees. “Not everyone has the same definition of luxury, and the same aspirations for achieving it,” says Richard A. Blabolil, president of Marketing Innovators. “You have to offer different choices.”
The new luxury is, in effect, a balancing act. It’s about giving employees the luxury products and experiences that they want, and giving management the numbers and data that they need to meet their bottom lines, and avoid the scourge of any scandals.
The perception of what is considered luxury, both in the eyes of individual employees and the media, has never weighed more heavily. The differences in perception hinge on a variety of factors, from demographics to the power of luxury branding in the consumer market.
Brand Power
When it comes to luxury merchandise brands, the traditional players — Gucci, Dior, Louis Vuitton, and Prada among them — are still in high demand, says Tom Taraci, CEO of Taraci Motivation. The desire that these brands cultivate among consumers directly influences luxury incentive programs.
“We take consumer behavior and map it to employee programs,” Blabolil explains. “Before, the consumer world and the incentive space used to be more separate but, today, the consumer world enormously influences the incentive space.”
Adrienne Forrest, vice president of special markets for Bulova, agrees. “What’s popular in retail follows through,” she says.
To that end, she says that Bulova is careful to make sure that the demand for its watches takes root in the general retail market first.
Forrest and Taraci agree that luxury brands hold power. “I still think people respond to luxury brands on a very visceral level,” says Taraci. Adds Forrest: “If you carry a brand that is aspirational, it’s a universally accepted badge of achievement.”
A high-low mix of goods, both expensive and not, is essential for any program.
“The more choices that you can provide, the better rewards you will provide to each and every participant,” says Weede. “Luxury still plays a big part in creating a motivating experience. It’s the ‘wow’ factor. It’s what everybody wants. Our budgets may not be as big as they were before, but being able to provide that brand that has a great deal of recognition and satisfaction just works.”
Luxury as Instant Gratification
How people earn their rewards is just as important to creating a sense of achievement. “In the old days, you could say there was a lag [between the retail market and incentive programs],” says Forrest. “Nowadays, it’s about what I want right now and switching out products with just the click of a mouse.”
Employees also need to be able to easily redeem their incentive merchandise at all times. Taraci recently debuted the Taraci Motivation mobile app, which allows clients to instantly track their incentive status and redeem luxury goods from their smartphones.
Generational Gaps
A sense of instant gratification in fulfilling incentive rewards, Taraci says, is very emblematic of younger workers. “Millennials are very interested in luxury goods and experiences, and they feel that they should have them right now and not wait to acquire them,” he says. “It’s not unlikely for them to spend a two-week salary, for example, on clothes or shoes or a handbag or give up other things to have just the right item.”
The workforce in many organizations today now consists of up to four different generations: Millennials, Generations X and Y, and Baby Boomers, each with their own unique luxury definitions and aspirations, as well as work ethics.
“The workforce just doesn’t look the same as before,” says Blabolil. “You have to be sensitive to what luxury means to various groups at various stages in their lives.”
The different work ethics of each generational group also translate to different aspirations in terms of incentive merchandise and travel.
Traveling Under the Radar
Keeping employees motivated by having luxury incentive travel programs has, in many ways, become a challenging task with constrained budgets and, for some companies, looming media scrutiny. Incentive travel has remained stable, say experts, but it is still what Marty Doyle, director of travel for Dittman Incentive Marketing, describes as “fragile.”
Doyle says that incentive trips have gotten shorter, usually lasting only three to four nights, to save on budgets and to minimize time spent out of the office. His clients, many of whom are in the financial services industry, are also more likely to book destinations closer to home.
“There are ways that you can create experiences and position opportunities in such a way that there’s not a sense that it’s over the top,” says Debbie Parsons, vice president of sales for The Performance Group. “It’s a balancing act of how you communicate, and how you treat the functions.”
When it comes to crafting luxury travel programs, many planners prefer to book at a non-luxury branded property. “You can very well use and run a super successful incentive program and make it into a luxury experience by using a good Marriott or Westin or Fairmont because the luxury really comes from the program components: the level of service from beginning to end,” says Doyle.
This preference for non-luxury hotel brands is a byproduct of the media backlash that AIG and the GSA incurred, says Harith Wickrema, CEO at Harith Productions Ltd. “It’s all because of the way those luxury hotel brands, and even certain destinations, are perceived,” he says. “Sometimes, people pull out of Vegas because it’s perceived as a party town. Sometimes, The Ritz-Carlton could actually be less expensive than the Marriott.”
These widespread perceptions have likewise affected the way in which luxury destinations market themselves. Monaco, says Hoddeson, was very much impacted by the AIG Effect. “Even though we were maybe a little more low key during the downturn, we didn’t want to reinvent ourselves because, when things change, where are you? We never stopped presenting ourselves as a luxury destination.”
Parsons recently hosted two sales incentive programs back-to-back in Monaco for two large tech firms, each with groups of 500 attendees. By leveraging the firms’ combined buying power, her team created incentives that included Grand Prix driving lessons, Mediterranean sailing, and high-end shopping.
Most of the incentive experts we interviewed said that their clients also ask to remain as inconspicuous as possible during incentive trips. Golf and spa are still popular but more attendees, especially younger ones, are seeking experiential activities that put them in the heart of the action: cooking lessons, walking tours, meeting locals, and having more free time. Corporate social responsibility programs and green measures, say Jones and Hoddeson, are also popular with groups.
“Going through this recession,” says Jones, “I think we all developed this sense of social and financial responsibility.”
What really sets a luxury trip apart, however, is the level of service. “It’s not just about the hardware,” says Marian Carroll, director of public relations and communications for AYANA Resort and Spa Bali, which has seen a stable incentive business this year. “For incentives, we go out of our way to provide whatever they request, even if it’s not something that we normally do. We don’t know the words ‘cannot,’ unless it involves breaking a law!”
That kind of unwavering service is what Doyle seeks for his clients. “Experiencing customer service that’s second to none has far more weight than receiving a crystal piece in my room when I go back after dinner,” Doyle explains. “You forget about those kinds of things more quickly than the way you were treated.”
The Value of Luxury
Today, luxury travel and merchandise are, in some ways, held to even higher standards than before. “Nowadays, with the Groupons of the world that came out with their models of half-off luxury brands, you see a tension in terms of value and price,” explains Blabolil.
In other words, says Blabolil, consumers, and incentive planners, want to have luxury at a price that they deem is worth the price. “People have come out of this recession and they still appreciate the brand experience, but they want to understand the actual value,” says Jones.
“More clients have been open to luxury inclusions because of the relative value that they represent today versus a few years ago,” O’Malley adds.
Luxury For One, For All
The customization of incentives — the huge variety of upscale, midscale, and inexpensive gift choices, and the highly personalized experiences — is what defines the new luxury most in terms of merchandise and travel.
“When we look at different levels of sophistication with buyers and participants, we want to be able to provide new luxury to all of our clients and participants,” says Weede.
“The tough times following AIG and the GSA have also strengthened the overall incentive industry,” says Doyle. “I’m excited to be coming out of the doldrums of 2009 and 2010. I’m glad we survived, and I think we’re a better company for it.”
Weede argues that the new luxury incentive is a more powerful motivator than the luxury incentive programs of yore.
“It’s more meaningful,” she says. “In the past, when it was so opulent, it was more about things — what things we can add to this and to that. The new luxury is driving behavior and performance and it means something to participants. That’s really where things have shifted.”