2010 CMO Spotlight Forum: Retail and Consumer Goods & Services
Editor of CMO Strategy and Talentworks
[Jennifer Rooney]: Okay, can you hear me? Okay, thanks Patrick very much for being here with us today. I guess basically to start I wanted to have you share with us a little bit about the history of the company Montblanc. It’s been around for over 100 years. Is that correct?[Jan-Patrick Schmitz]: That’s correct, yeah. Jenny, thank you for being with me today to speak about that. Montblanc was established in 1906 in Hamburg, Germany. They’re still there; was established as a fountain pen manufacturer which is still our stronghold today but obviously over the least 104 years have, have grown rather substantially since then.
[Jennifer Rooney]: So you’ve been there yourself since, what, early ’90s?[Jan-Patrick Schmitz]: 1994, yeah, about 15 years.
[Jennifer Rooney]: So you’ve seen a lot of changes clearly in terms of consumer trends as well as economic changes and whatnot and the impact those have had on the luxury market. Can you share with us a little bit about how you sort of worked to maintain the relevancy of the brand in and out all of those changes?[Jan-Patrick Schmitz]: Yeah, well, if you go back to the late 1980s and early 1990s until then writing instruments were a necessity like keyboards and computers are today. So we had a functional business where we were growing to become one of the largest at that time, not the largest player in that industry and the products were selling anywhere between $39, $40 and $200. Actually, we even had what we called a school fountain pen where people learned writing.
Now what happened in the ’80s and early ’90s of course is the arrival of the computer, the arrival of the first steps of the digital age. There were things like you know the telex machine came up. Some of us remember, and I remember our first fax machine which was a huge deal. And we had to look about you know where’s the future of our business? We became obsolete as a function and if you look at what happened since then, a couple of interesting things happened. Number one, there’s back then there was a big industry with a lot of players. Today there is a smaller industry with a few players, in fact Montblanc has today 70 percent of the world market in fine writing instruments. So what we’ve actually done is, again back then the probably high-end price point were about $200, today we start at $375 and we level off at about a $1.2 million for fountain pens. So it shifted gradually I would like to say upstream. And what that really did or what the strategy was going away from functional writing to message and emotion and that really was a big step which we have done and we have followed through the years.
[Jennifer Rooney]: So what kind of and this is something obviously we talk about a lot these days in this era of data gathering or what not, what sorts of consumer insights and research sort of informed your efforts other than just taking a look at the changes in the market and realizing we’ve got to do something to avoid obsolescence?[Jan-Patrick Schmitz]: Well, first of all the purpose of the key strategy was you know one which our grandparents always taught us and you know that was lemon, you can make lemonade. So we looked at the pen and said should we could do two things and we looked at the consumer and saying, wow. They are not willing or they don’t need the tool anymore so we could produce it in China, make it cheap and then really become just an item for a couple of cents and I brought one here today. One of these which basically if you use it, you know it writes and bought it actually at Penn Station today for $.75. So you could do that and if some have done that and they went really nowhere. The other thing is which we looked at the consumers and we felt, and we hoped at the time that with the hi-tech world has to come an emotional balance of hi-touch, hi-tech, hi-touch. So when people send messages electronically, you know would you write to your mom or to you or loved one you know, ‘Happy Holiday’ or ‘I miss you’ with a little e-mail? Today maybe some do but still it is not so much of an emotional communication. Number two, is the power of the signature and the expression of ‘I’m successful and powerful’ is important. So we started this thing. So if somebody’s using that pen and you write basic message which I give to the rumors, I can read and write because I’m using a pen. If you’re using Montblanc pen and that was the communication which we’ve done, the advertisement behind it we knew that the consumer is looking for added value and positioning. So when I write, you know people think, ‘Wow, he’s educated. He’s successful; potentially intelligent.’ And so we went from twenty bucks to $575 and did that rather successfully over the years. And as I like to say, complain on a reasonably high level.
[Jennifer Rooney]: Has your target consumer changed at all?[Jan-Patrick Schmitz]: Yes, again with the departure of function, when we were function, we spoke to the world. Everybody who needed a pen was a customer. Discrimination is a very dangerous world but yes, if you look at luxury you do discriminate not only over price because you move the price up but you actually position the product and with that you speak to a certain audience which is not necessarily gender driven or age driven. It is a much deeper positioning and what we’ve done by going into the luxury world, we try to stay away from the pure glitz and glamor of luxury, just gorgeous pieces which we obviously do but giving it deeper meaning and giving it definition.
Luxury today as I like to call it in the democratic society where we all live and you know we all are given take equal, people nevertheless long for points of differentiation and this again is done through communication, through PR which is positioning a product. And so by using whatever product you use, you position yourself relative to the market or relative to your peers. And having done that, we obviously went into the world of academics as successful business people, socially active individuals who live a socially and culturally active life. And again, that narrows it broadly, vastly down for everybody who writes.
[Jennifer Rooney]: As far as product diversification, why did you choose to stay in hard goods essentially?[Jan-Patrick Schmitz]: Now about, the second problem which we face, so when we went upstream in terms of the luxury positioning and the competition went nowhere, yes, we gained 70 percent of the market share but the problem was that you have this great kid and you have this wonderful sandbox but there are no more kids on the street who want to play with you. If you think about you know advertisement today, how many pen brands advertise? How many pen brands do you see and where do you see them distribution died? So we knew that if we wanted to grow we had to diversify and we developed the strategy that we called strategy of concentric circles. So we knew ultimately we wanted to stay in the hard goods world for one simple reason. One of the core competencies of the brand is, is longevity. You can trust; you can hand it down from father to son, from mother to daughter. That is true for a couple of product categories. The timepiece is something which is normally you do that with or your dad’s fountain pen which of one day; friends of my father gave me his fountain pen when I graduated and got my master’s degree. So it’s a significant moment in one’s life.
So we looked at products close to writing and we gradually concentric circles went from writing instruments to desk accessories, small leather items, and wallets and then a big jump was in 1997 into timepieces. And they are very simple in that those are anti-lock instruments, both are bought or received at significant moments in one’s life, handed down to the next generation. So that was one of the biggest steps which we have done.
[Jennifer Rooney]: But again you did all that feeling as though those moves were clearly in keeping with your brand image. You wanted to protect.[Jan-Patrick Schmitz]: Yes, and the star became the bridging item became the white star. So what we’ve done from a marketing communication point of view, we don’t talk about a logo. We have symbol. So we have 98 percent of recognition for the white star which is huge. And this is by the way, we’re operating in 70 countries around the world. It makes no difference whether you pull out a Montblanc pen or you wear a Montblanc watch in Hong Kong or in London or in New York. So that was bridging it and we always made sure as well from a design point of view which is another key strategy for the brand is when you use a product, again, people buy product to give definition amongst their peers, people recognize it. So that there is some common DNA that people say, ‘Wow, is that watch looks like a Montblanc watch’ or ‘that bag looks like a Montblanc bag.’
[Jennifer Rooney]: So product consistent, consistency.[Jan-Patrick Schmitz]: … Consistency is the absolute key in being not opportunistic about where you go with your product or your designs and that longevity, it’s not the biggest fear but the biggest thing we are conscious about which we don’t do it doing anything in fashion. It would be deadly if you buy a Montblanc piece today and in two years, you know the peer you know the colleague on the terrace, ‘Oh my god, isn’t that so much spring 2010?’ You know that just doesn’t work for the, for the brand equity of Montblanc.
[Jennifer Rooney]: How did the recession affect your brand and your marketing strategy?[Jan-Patrick Schmitz]: It effect, first of all, that was a set, and you know I talked about the lonely kid in the sandbox. When you are on such a big recession, being a lonely kid in the sandbox is a really good thing because when you’re the absolute market leader in times of uncertainty, consumers look back on who was the strongest, who has been around and will be around. So our writing instruments business was fairly well. Of course, under the diversification areas, everybody else you know consumers were deeply disturbed and concerned about spending money and that is by the way, way true for all levels. If you go back to and I like to call it a disruption rather than a recession; if you go back to earlier disruptions, the, the upper echelon, you know customers who spend $35,000 for a timepiece, were not a factor. The continued shopped and it was different this year.
First of all, we were very lucky that we prepared for that and we had the necessary cash flow to live through that time period. I understand not a lot of brands didn’t and were forced to do things they probably regret by now. So we basically tightened up the ship and kept the strategy as is. A lot of brands dropped prices which we didn’t do, which is one of the keys in the luxury world. It’s deadly if you play the price game because luxury is not about pricing. It’s about experience. It’s about longevity. It’s about trust in the brand. So we dramatically reduced marketing expenses. The holiday season is a big season for us of course. In 2007, where it all started, we kept on advertising heavily into 2008 but we realized the consumer came to a point when advertising to create any reaction. So we basically, as I said tightened up the ship, dramatically reduced it and because of these strategies came along October 2009, the business came back strong double digit every single month since then. And I guess it shows that the strategy was right.
[Jennifer Rooney]: But you dialed back annual marketing expenses from $7 million in ’08 to $2.5 million in ’09.[Jan-Patrick Schmitz]: Yes.
[Jennifer Rooney]: Moving forward now, where are you going to go from here? I mean basically the rest of 2010 into 2011?[Jan-Patrick Schmitz]: We have started an aggressive campaign. We will actually outspend the year 2007 and 2008 this year. The disruption a lot of discussion was about New World Order and you know will luxury be dead? And you know how does our world change? Now we’re not all become frugal now and you know we just live in small means. People always enjoyed since the beginning luxury and precious items so the world hasn’t changed. Once it’s changed I think the disruption was only a catalyst but not the creator of it and that’s the media landscape so we’ll looking aggressively at spending a rather significant share in new media and way beyond you know search optimization and you know the old banner ads which are so much spring 2006 and look at of course as well as exciting news like, like the iPad, what that will do to the advertising world.
[Jennifer Rooney]: Yeah, and I want to get into that definitely. But just to finish, so basically you do think that you’re going to increase spending again but you might reallocate it more towards online?[Jan-Patrick Schmitz]: Yes, we’ve seen as I’ve said, since October the business coming back very strong so the confidence of the consumers is there which is one a wonderful experience I can tell you that. You know looking at these numbers every day is a true joy. And with that we’re going back into advertising building the brand but very different. So print will still be part. We don’t do any television. We don’t do any radio but we are aggressively looking at online.
[Jennifer Rooney]: Because traditionally you’ve done magazines obviously and selected national newspapers from time to time.[Jan-Patrick Schmitz]: Yes, yes.
[Jennifer Rooney]: So it’s a pretty dramatic shift then for you to be sort of away from that and moving into more of these interactive…[Jan-Patrick Schmitz]: Yes, it is but the opportunities are phenomenal. I mean newspapers will be there for the time being. They are very strong tactically and work extremely well. If you look at the magazines, we traditionally went into all the high glossy the magazines of the well known publications but it’s always a two dimensional experience. You know you see a beautiful product. You have so much copy you know. You can’t grasp the attention of the reader more than a few lines. That’s already a lot. And luxury is linked to the emotional experience and it’s not about function. The function is there it’s not really about it. It’s about how you relative to it feel. When we’ve looked at some of the work which is not yet publically out there with some of the publishers, well known print publisher will now go on the digital platform by being able to actually have interactive advertisement targeted at the reader as the opportunities are much higher, and much stronger than we ever had in print. So we’re actually are quite excited about it.
[Jennifer Rooney]: Yeah, when we were talking about the iPad, I mean…[Jan-Patrick Schmitz]: We talk about the iPad, yes.
[Jennifer Rooney]: Yeah, so I mean obviously that’s an exciting opportunity for a luxury brand that is looking to not only show beautiful pictures of the product but allow consumers in the right context to sort of engage with it. Talk a little bit more about that. You know kind of where you see the opportunities and how much you want to invest in that.[Jan-Patrick Schmitz]: Where in fashion everything is about look, when you’re in hard goods and when you’re in more technical products like let’s say timepieces like that as an example, you take a wonderful you know mechanical watch with an amazing in-house movement – now you could look at the dial of the face on a printed ad and you say, that’s a beautiful watch. But that’s not the reason why a lot of people buy that. So there is a tremendous technical aspect to it. You could try to explain that in print unless you’re a collector it’s really boring reading. We’re working as an example on an interactive advertisement where you can actually take a virtual trip into the watch and you can see actually you know how does a chronograph work. How is its mechanics into it and you visually and emotionally dive into that? You combine it with sound and all of a sudden you engage somebody who will get fascinated. So you read a technical description of many movements, unless you’re a true connoisseur, you know it’s not so exciting. It’s quite technical as well.
So is the ability to excite people to engage them to explain and to go out of it saying, ‘Wow, this is a tremendously beautiful piece and now I understand why it’s $35,000′ or it’s $10,000 or whatever the piece might be. So you engage as well if you think the second thing is besides the, the explanation and the emotional connection is you capture a customer for say, 30 seconds, 40 seconds you might actually trigger that person to go deeper and you link it either into your, your corporate website or first information going deeper from there. On a magazine, even you’ve a really great ad, I mean you spend three seconds on it or maybe five. But then you already did a phenomenal job and you are at best getting one message across let alone capturing that person and having him or her really spend time. So tremendously fascinating and highly targeted because we do speak as I said to a very small part of the population. So we don’t look at the mass communication.
[Jennifer Rooney]: Right and I guess you know how are you able to layer on your target consumer over the user of that technology and know that they’re one and the same? I mean how are you essentially making sure that your target customer is…?[Jan-Patrick Schmitz]: Well it will go back again…
[Jennifer Rooney]:…The content on the onset essentially?[Jan-Patrick Schmitz]: Well, I mean first of all, a lot of the print media which has a readership which fits our profile will be online. That’s done by somebody reading a GQ magazine on an iPad, you already know our profile to a large extent. That’s another interesting thing with the iPad has more news outlets and more searches done on it, you know very content sensitive. You know if I take out what Nicolas Rieussec watch inspired by the first chronograph in the world 1821 horse races. So somebody who loves horses is on the iPad you know searching and reading about their passion. You know I can target him or her by you know same context sensitive linking and all of a sudden there comes my beautiful Rieussec watch inspired by the King of France. And oh my god, I’ve got to see this one and then you dial and all of a sudden you see that movement and you’ve got that whole story and you get the Breeder’s Cup and you get all of that stuff. And again, you capture the person from whatever their passion is in terms of reading, studying material into your brand very naturally and that’s beautiful, very natural.
[Jennifer Rooney]: All the things you’re talking about require a certain talent and skill set on staff to really make things happen. Can you talk a little bit about your staffing strategy; just sort of bring you up to speed that you’ve accomplished some of these things?[Jan-Patrick Schmitz]: There’s definitely a revolution in the marketing department in that you know we work, we have all our global headquarters in Germany where we have most of the creative design done in the past which was copyrightable you know photographers, art directors and all of that stuff. Now with the arrival of the digital world and now with our active engagement there, you do need very different skills and while there is a vast and fast evolution there, it still is a big challenge to find somebody who has the technical skills and has the marketing communication skills, advertisement skills, consumer relationship-building skills because if you go back and we actually have a team of marketing, IT marketing, digital media people now for about three years and it was very difficult at the time, it gets better but it still is people who bridge that because you used to have very technical people who don’t have the creativity and the marketing side or you have amazing marketing individuals who don’t conceptualize or have the skills and knowledge of what’s actually possible. So I personally believe and I see that in the industry there’s a lot of change and, and smart marketing people I guess are honing their skills to what that direction particularly communication experts.
[Jennifer Rooney]: So are you looking primarily in the U.S. or are you globally for those …?[Jan-Patrick Schmitz]: We do look globally but we do find right now that is as well as shift as we had all of our creative all of them done in Europe. In the past we see that right now there is the biggest pool of talent is here in the U.S. For instance, we’re developing an iPhone application and we do develop that in the U.S. rather than in Europe which we would have done probably a few years ago when we did you know mostly print.
[Jennifer Rooney]: Just in terms of luxury brands in general, you know globally what trends are you finding to be challenges for you and which ones have presented themselves as opportunities and how are you capitalizing on them and that what sort of advice would you give to other luxury brands who are sort of grappling with the same thing?[Jan-Patrick Schmitz]: Well the opportunities are in, and if you look at the last couple of years, I think we went from a luxury consumption from what I like to call, from an unconscious to a conscious consumption, unconscious. 2007 before everything was possible, brands popped up left, right and center. They’ve written another name Paris or Milan and then the price point was like quadruple of anything which was reasonable and that exploded and went away rather fast. Then we of course went to that cautious where everybody didn’t know where to spend and we’re back to conscious. I think which one thing we’ve learned is that consistency pays off and maintaining a consistent strategy both in terms of the experience, because building up we have a big retail network by now of 360 stores around the world, 34 in America…
[Jennifer Rooney]: They’re branded?[Jan-Patrick Schmitz]: Branded, owned stores, we have branded owned Montblanc stores which actually numerically is one of the biggest boutique networks of any luxury brand in the world. So we maintain that and we maintain the service levels in there. So I think the biggest learning for many is the damage you can do is that if you can afford it, the biggest damage you can do is cut the corners during that time which you will pay dearly in multiple and times after.
I think in terms of product development and communication, I think it, it looking forward for marketers and for brands is at, you know opportunistic behavior is wonderfully short term but has its dangers and we personally believe and I personally believe that business is a marathon, not a sprint and therefore we continuously, you know craft our strategy, our distribution, our pricing as well as our communication and we only react to where we see sustainable need such as a communication today, such as digital media and with that by the way very interesting customer relationship management because the future in luxury retail, and retail probably at large is, is what I like to call sharp shooting is where you actually build a trusted relationship with your consumer because it’s not about selling that one pen today, it’s about the next 20 pieces which you will buy over the next 15 years.
[Jennifer Rooney]: So your retail, I’m sure you retail has sort of, your new retail strategy has sort of formed in new ways your marketing strategy. Any highlights you want to talk about?[Jan-Patrick Schmitz]: Yes, we’ve done two things basically. We built our own network and we’ve dramatically reduced our retailer network. We believe in a strategy of less partners, more partnership. In terms of our own network, that’s wonderful, it’s a two-prong strategy. First of all, of course it’s a world of Montblanc, a full experience, all the products so it’s, it’s a business but it’s also communication platform because you go in and you have a way of connecting a customer with a brand and communicating that emotional side about you know the beauty of hand-stitched piece of leather. You know the beauty of a limited edition time piece or writing instrument so as much as it is a business, it is as well a communication platform; in particular in major markets around the world where we have flagship stores and where you talk to both local consumers but also travelers from around the world.
[Jennifer Rooney]: Sure, that’s great. I think – are we done? Or just a bit of Q&A from the floor if anyone has some questions for Patrick?[Jan-Patrick Schmitz]: Wow, we did a good job I guess. Well maybe it’s coffee time, one of the two.
[Jennifer Rooney]: Well, it sounds like you are very cognizant of the risk, you know the area of risks to be careful about. I mean pricing, product diversification, distribution, etc. And yet at the same time, you’re launching into these new, exciting new platforms for marketing and advertising so it seems to be you’re striking quite a interesting balance for a company as old as you are, as …[Jan-Patrick Schmitz]: Well I can tell you…
[Jennifer Rooney]: All the lessons you’ve learned over the many years.[Jan-Patrick Schmitz]: We have about 18 luxury brands from Cartier, Montblanc; you know a lot of the watch and jewelry brands, etc. And there’s been a time when we were pondering, this is going back four or five years, like you know will the Internet be around and I mean is it just a little phase which we will all sit through because some of our brands are 250 years old, you know and there’s a belief you know we have seen a lot of things come and go. And I think we now understand that it came at a most likely not go. That’s number one. But what is more important and that’s really interesting is what started off as a, a movement amongst you know young people, creative people, next generation-type of demographics where we also said our customer, you know 45 years and above, you know again, well situated you know they read the New York Times. You know they wouldn’t go on that and that has changed dramatically in particular as the truly, you know the VVR, the very, rich which we all target, they actually spend an awful – we did a lot of research and awful lot of time on the Internet because they have no time and number one. Number two is you know it’s, it is convenient in terms of shopping if you exactly know if you have a relationship with the brand, you know exactly what you want, so most of the higher priced transactions are either initiated the search on the Internet in terms of information about it or at least throughout the process of, I want to buy a car. I mean I’m sure, I’m afraid I forgot the numbers, it was staggering to see how many purchases of an automobile during that process actually is a consumers spending time on the Internet and comparing and all of, you know what to buy. And this goes all the way to jewelry and watches and comparing brands and learning about the brands activities, PR activities which are going on, what do brands stand for.
Last year we for instance had run a major campaign to support UNICEF so we figured you know we’re in a year where everybody cuts back, you know charity was all of a sudden — nobody had money anymore and you know we all were devastated and we saw it, wow, it’s there’re umbrellas when the suns but you know when the rain comes, all of a sudden the umbrellas go away. So from a human point of view, but quite frankly also from a strategy point of view we felt, well that is a time when we actually really wanted to do charity work because when everybody cuts back, that’s when you’re really making an impact. So we’ve launched a multi-million dollar campaign. So actually some of the funds which we might have spent on a classical print advertisement we actually went into public relations and charity activities which created an enormous amount of, of buzz and message. But for the consumers you know talking, going back to the, the affluence of the consumer who spends time on the Internet studying the brand, it reinforced their opinion about the brands, so the world’s not going under. There’s my brand Montblanc which I trust for 30 years, seeing they’re still standing up, they’re still doing great stuff, loves them. They come into the store – I’ll never forget 2008, every other customer came into any of our stores, came in and a second question is what is the deal, because they looked at prices and our answer, our deal is 103 years of services and a guarantee that prices will go up. So, and I swear to god, there has been a time when that was $89; this is now $545. So that’s a guarantee and…
[Jennifer Rooney]: Can I borrow your pen?[Jan-Patrick Schmitz]: And, yes.
[Jennifer Rooney]: I need that on the screen.[Jan-Patrick Schmitz]: On the screen? Try this. And so yeah, we’ve extensively used the online world and the digital media world as well to communicating brand values and not only product value, the brand message and we found, again that our core audience actually spends an amazing amount of time searching. And this goes up to the more senior adults. So it’s there to stay.
[Jennifer Rooney]: Last good quick question. Can we do a couple of questions out here?
[Question]: [Inaudible] relationships a lot and the whole [inaudible] of the relationships, I don’t mean pass down and all that, how much communication do you have [inaudible].[Jan-Patrick Schmitz]: First of all having our own network of stores of course we have the massive database and we’re trying very hard to actually have that relationship with the customer. They come back to us rather frequently. We have a lot of repeat purchases and then we do a targeted communication along these lines. For instance if you now go to any of our stores, you will see, I believe it’s actually a father with his son and you see a graduation ahead and you see you know a congratulation from father to son, a significant milestone in one’s life. And we know it’s worked quite frankly from personal experience so many people which I’ve met in 15 years, it’s ‘Oh my god’ you know ‘I have a Montblanc. My wife gave it to me.’ I mean it’s amazing the accuracies that they remember. Fourteen years ago when I did this or when we were in Italy on our 10 year anniversary or whatever the history might be. So the emotional connection has always been there and it has to do with the category, writing instrument as well as watches have these two are having a very strong emotional connection to the person and therefore there’s always a desire to hand them down to the next. And that’s again why we maintain everything which we do in terms of communication, product design along these lines of being worthwhile to hand down to the next generation.
[Jennifer Rooney]: Think about it, we’re living in like an era of impermanence, like nothing – there are very few things that…[Jan-Patrick Schmitz]: High-touch, high-tech, you’re exactly right. I mean people ask me sometimes what is luxury? Is it you know everything above $1,000 or is it something that is rare? My personal definition of luxury is, and think about that is it’s something which is to be, which is worthwhile to repair. Luxury is something which is worthwhile to repair because we all live – so therefore, it’s not necessarily something which is thousands or tens or hundreds of thousands of dollars worth but it’s something that has a value to me in today’s world which I want to keep and which I want to maintain and potentially hand down. And that’s by the way another strategy which we use is, everything which has a white star, our symbol which is everything which we do, we will repair no matter what. So we will not have you come into our store and say, ‘I have my grand, grandfather’s fountain pen from 1932. I need it fixed.’ Now it could be quite expensive to get it repaired because we don’t have the spare parts so we would handcraft in our manufacturer the parts to do it but we would never tell you ‘Forget your grandfather. Dump that. Here’s another one.’ You know that’s cooler, that’s nicer, that’s whatever it is. So that also creates in that relationship to the brand of saying like, ‘Wow, I mean this is just not hot today. I mean this is something which I actually have a relationship’ and in terms of stores and people, I always say to my people as we have arrived when a person is not saying, ‘I’m going to the Montblanc store on Fifty Seven and Madison’ but when they say, ‘I’m going to John’ or Jane or whoever the store manager as a person because they started having trust to the people running that which then goes into recruiting and training which is another whole session to speak about.
All right, any other question or coffee? I guess and thank you very much. Jenny, thank you for your time.