2012 CMO Spotlight Forum: Retail and Consumer Goods & Services (New York)
April 5, 2012
President & CEO
Montblanc North America
Editor in Chief
[Tim Moran]: Hello, everybody. I’m Tim Moran, Editor in Chief of CMO.com, which is Adobe’s news and features content site for digital marketing for executives, like many of you. Some of you might know about us. I’m happy to be here with Jan-Patrick Schmitz, who is the CEO of Montblanc. We’re going to discuss a little bit about brand transformation and marketing in general and marketing in the luxury sector. You should have been backstage because that’s really what was kind of interesting. We already had a lot of this discussion.
Patrick, if you could just begin. Give us an idea of where Montblanc sits today as a luxury brand and how it might be changing. That might be a good place to start.[Jan-Patrick Schmitz]: Yes. Good afternoon, everybody. I guess everyone knows Montblanc for our writing instrument business. The company’s 106 years old by now; founded and based in Hamburg, Germany and is still only producing our writing instruments in Hamburg, Germany. Probably over the past 20 years we’ve dramatically changed and evolved, I should probably better say, our business model in terms of expanding our product categories. We have about 70% of the world market in fine writing instruments, which is our biggest strength, as well as our biggest curse, because when you have such a dominant position in the global marketplace, you end up really not having a whole lot of competitors who bring excitement to the product category and who help build awareness with the customer.
We have expanded over the last 20 years into other premium hard good categories, such as watches, jewelry and leather. We changed our business model from purely wholesaling to selling our products to retailers, by building a very strong retail network. We have about 360 stores around the world and have recently started e-commerce.
[Tim Moran]: I was just telling Patrick I was in Heathrow the other day and they have a beautiful store there where they have wonderful pens, but there are also watches, jewelry and leather goods. I personally was surprised of how many different things there were. One of the things he mentioned is that people in the over 50 category, like me, are more inclined to think of Montblanc as a pen company, where the younger generation things of it perhaps as a watch or jewelry company. Could you talk about that a little bit?[Jan-Patrick Schmitz]: Absolutely, yes. We started our watch business in 1997 and we belong to the Richemont Group, which is a group of 18 watch and jewelry brands. We’re structured in a way that we actually build up our own competency. We actually have about 10 watch movements. Over the last eight to ten years, we almost exclusively advertised our watch line as we have such a strong leadership in the writing instruments and obviously, the last couple of years where even the luxury industry became a little bit more open to the digital world. If you would have gone, say, six years ago into any board room of any European luxury brand and you would have dropped the word “Internet” or “e-commerce,” you should have immediately called the headhunters because you would have lost your job right at that moment. We believed at the time that the Internet is here for a short moment and we will survive that, as we have survived so many other things.
We learned differently, but we also learned that this is a wonderful medium to talk to the every consumer and have a platform where you can tell your stories.
[Tim Moran]: If you could follow up on that generational thing, the economy, as everybody’s been discussing a little bit, when it went bad, how do you see the new generation coming up into that luxury category and how do you plan to continue to get to that category to grow your brand?[Jan-Patrick Schmitz]: Well, just briefly to touch on the economy, it was very interesting, if you go back to 2008. The media wrote that luxury’s dead, this is the end of jewelry and watches and finer things in life. Honestly, we in the industry laughed about the press because we knew that when there’s an end to finer things in life, might it be jewelry, watches or art, that would be the end of mankind. We didn’t see that at the time.
We did nothing really to the brand. We protected the position, which we’ve done and sure thing, 15 months later, we reported record numbers, so 2010 was the best in the history of the 106 year brand and last year was as well.
Now, in terms of the consumer and the transitional change – because if you think about how many brands are out there, we have a longevity of over 100 years – that certainly is one of the challenges. As you grow older as a company, obviously your core customer base gets more mature and naturally loses interest one way or the other later on in life. Then how do you build the new consumers? Part of it is, obviously, product and innovation. A lot has to do with retailing, so what we do in our own stores. How do you change the experience in terms of servicing it?
Finally, communication; we’ve very deliberately – which will go, again, back a few years ago – done exclusively print media. That changed and evolved. Today we do probably 25% of our spend in the digital world. This is growing rapidly. I believe that not only for us, but for the industry; in a few years it will probably be somewhere in the area of 60% to 70% of the spend being in the digital world and only 20%, 30% or 40% in the print world. We work with publications, which target more to that audience, but again, digital is really what drives that.
[Tim Moran]: Even with your old customers? Do you see them beginning to get into social media and working online and whatnot?[Jan-Patrick Schmitz]: Absolutely. It’s very similar to many other industries. I mean, when you buy any of our products, entry price point is around $400 and then it literally goes up into the millions of dollars for an individual piece. Probably the gravity, if you look at watches, is about between $5,000 and $6,000. Limited editions are anywhere between $10,000 and $750,000. When you do that, it’s like buying a house or car; you do research. We know today that probably everybody who buys a more valuable item is going online irrespectively of age, gender and demographic.
[Tim Moran]: It’s interesting because I wouldn’t personally think that some of those customers might be as tech savvy as some of the younger customers.[Jan-Patrick Schmitz]: In particular, when you get up into the higher price points and you’re getting into more of an investment type situation, everybody has an interest to understand the sustainability of values if you look at a limited edition. A lot of research is done. How do they keep the value over time? Does it appreciate in terms of value or not?
Then obviously, the product itself – look at watches. These are, depending on which watch, rather complicated products. You have complicated movements, so you look for information. That’s where the digital world is fantastic. If you look at print, yes, you can tell a story, but it’s not very animated. The story you actually tell is very technical. If you think about the digital space, and that’s what we have actually developed, there’s material where you can sort of fly into the watch and you can take it apart. Even down to very simple questions, people are entertained while they learn about the brand.
[Tim Moran]: That’s interesting. You were mentioning before about the viral campaign you had, the one with the one second thing that you did.[Jan-Patrick Schmitz]: Yes.
[Tim Moran]: It seems to me that for a brand who you might not think would be that tech savvy, you’re doing some interesting things. Could you tell us a little bit about that campaign?[Jan-Patrick Schmitz]: First of all, I believe that if you look at the luxury industry, like I said, five years ago we thought the Internet was the devil’s work. I certainly believe that we will become, as an industry, one of the leading industries using it because again, if you look at luxury, everything’s about experience. Everything is about the intrinsic value to the brand. Besides talking purely about product, you actually want to engage the customer. You want the customer to build a relationship with the brand.
What we’ve done with the beauty of the One Second campaign, where we wanted to bring awareness to the fact that we are in the timepiece business, we actually set up a global micro site and obviously, this we shouldn’t forget, the digital space became a really expensive platform to operate in. That’s for sure as well.
Invited globally and drove traffic to the site. We invited people with their iPhone to take a second of their life and then they could upload it to a server. We asked a famous European/German movie director, to actually make a movie out of it. People had fun under the topic of the beauty of One Second, a second of your life.
It was a huge global success. Then, obviously, subconsciously there was time involved, time keeping watches, etc, but we didn’t make it a product-driven initiative. It was truly a viral social media-driven program.
Then when you look into the forums and if you look into what’s going on in the social networks in terms of people interacting and talking about it, it was quite fascinating.
[Tim Moran]: Yes, right. It’s an innovative way to use the Internet. It’s also content marketing and storytelling in a way. Is that something you plan to do more of on both ends for the new generation that you’re trying to bring into the fold, as well as the existing customers?[Jan-Patrick Schmitz]: Absolutely. I think storytelling is an essential part of the luxury industry. Every product which we create, every store which we open, there’s a story behind it. If you think about our first watch, it was inspired by Nicholas Rieussec, the first watch maker in 1821. He was the watch maker for the King of France. You can go on and on and tell a wonderful story, which people love, which you obviously can do well in your own stores because you’re face-to-face and you have people spending time with you, with the brand and with the product. In order to reach them broader, the digital space is obviously a wonderful platform which you don’t have in any other because it is a two-way communication. It’s not one-way communication as print, radio or TV is.
Yes, we certainly did more and more with that and became more creative because then again, if you go into that communication world, it’s huge and we are living today in an attention economy where you’re trying to grab the attention and keep the attention of your customer. The stories better be good.
[Tim Moran]: Yes. Well, it’s interesting. The idea of using storytelling, this would have been something you probably would have done years ago as a brochure and had in your stores. You would have given it out and people could have read it. Now, it becomes interactive. I think when something like that goes viral or gets at least a lot of attention on the Internet, what that can do for your brand and the transformation you can make is pretty compelling.[Jan-Patrick Schmitz]: That’s true. I think, actually, a lot of people make the mistake to believe this is sort of a predominant strategy for the luxury industry. I tend to disagree. A lot of things which we do and how we drive our business is a combination either of good old retailing or of trying to differentiate ourselves. If you look at, for instance, the apparel and fashion industry, they’re all complaining about increasing prices for cotton and so on and so forth, and a price and downward spiral margin business.
First of all it starts with malls. If you go through a mall and see the first four stores in any given mall and close your eyes, you could probably guess the next 15 because every single mall in North America looks the same, has the same retailers. Start there. There’s no excitement there. Second, if you look at a lot of the brands, I mean, they’ve basically downgraded their products. I’m talking the non-luxury brands. They’ve downgraded the products through commodities. You can go into five different jean stores and at the end of the day it’s all the same product.
If you’re trying to see what differentiates them, there’s one thing, which is look. Okay, how do I look in it? Good or bad? That is very subjective and that’s very difficult as a brand to drive because it is a single decision by a single consumer. Now, if you tell a story and it answers a question, “How do I feel with the product? How do I feel with the brand?” That, you can actually control across the entire population because you’re creating an image.
[Tim Moran]: Do you think that the non-luxury brands that you’re talking about have access to the same kinds of stories that you have to tell? You really have some interesting stories that you can tell with the kinds of products that you sell. Do you think that translates?[Jan-Patrick Schmitz]: Well, we created the brand, we created the product, and we created the stories. We are not the news. We’re not reporting facts, but we’re using creativity and innovation. If I go back to our first watch, we wanted to go into the watch business. Here’s a watch, here’s a movement, there’s a dial, make it black and put a strap on here. There’s a watch, right? You have a product; commodity.
Now, you could spend time and think about a story around it. Who invented the watch? What is the story of that person? You do a little fact checking. You just create something and then you tell it. I think as a consumer, at the end of the day, retailing is a big part of entertainment. Again, the question of look and feel is very important. I believe a lot of non-luxury brands could learn from the industry.
Another thing I talked about briefly is good old retailing. Let’s think about CRM. Many companies, “We do CRM. We do CRM,” so what do they have? They have a database and they mail standard letters every other day to everybody they know. Sometimes, maybe they slice it and dice it a little bit.
When we look at CRM, we’re using sophisticated systems, but the end product is actually highly tailored to the individual all the way to store manager’s hand signing a letter or hand writing the salutation line. It comes out of the big system. The information is very much tailored to the shopping experience of that customer. There is, by the way, human input into that process, which a lot of retailers automate everything. I believe that’s a big danger, when you control your operating expenses to a point where you’re trying to optimize every step in the experience of the brand and it becomes very generic. You’re losing that storytelling or that engagement. It’s not only storytelling; it’s engagement with a customer.
Many brands stop engaging with the customer. Then again, they become commodities. Then you’re price-driven and you get into that exact spiral which I talked about. We wonder why we are where we are.
[Tim Moran]: Even though it’s on the high end of the spectrum, the little story you were telling about the very high end users or customers that you have, that’s something that probably is unique. If you could just explain that a little bit.[Jan-Patrick Schmitz]: If you get into the truly upper end of the business, these are customers who spend several hundred thousands of dollars with us to several million dollars. We build an extensive profile on them. We’re actually trying to build in a way, a professional friendship with the customer to a point where we employ a massive IT system in terms of researching the individual. We search over 21 public databases. We try to find out everything – not only where you live, what you own, what car you drive, which clubs are you a member and which political party affiliation do you have, but who is in your circle of friends and which boards are you sitting.
When we then interact with these people it is truly to their experience level and to what they like. We create essential moments where we actually, in some cases, just entertain them. Get them on a plane, fly to Monaco and spend a weekend. Really crazy, yet essential moments in principal are experiences which money doesn’t buy. It’s something which even if you belong to the richest of the rich, you can’t buy that with all the money you have. That is sort of what we’re trying at that end. It’s very different to the rest; very specific. I don’t think there is any other industry that can or wants to.
Then you talk to a few hundred people. You don’t talk to a big audience. When you interact, it’s either individually or in very small groups. When we do some of the trips or some of the activities, there might be four or five couples; that’s it.
[Tim Moran]: Going from the sublime to the mundane, you have the rest of the world and the rest of your potential customers. Could you talk a little bit about how you’re dealing with the different channels of marketing, perhaps? You were talking about the stores. You went from quite a number of stores and cut the number of stores down, but you have your social media. Could you just talk about your range of channels?[Jan-Patrick Schmitz]: We principally deal with three distribution channels. Number one is retailers, and that is one which we dramatically decrease. I firmly believe in less partners, more partnership. We came from thousands of retailers to currently about 500, and that will soon be maybe 200. That’s one. There, again, it’s the best of the best; the best jewelers in the country. Even within the best department stores, only the best stores, so that’s one channel.
Here, activities mostly are driven by national media campaigns; obviously, a lot of in-store. For us, it’s critical. A lot of people say in marketing, you create awareness. That’s step one. What you actually create is desire. When you create that desire for a brand, when you then go to a point of sale, wherever it may be, that’s where you see the truth of the brand. When you look at these retailers, we spend an awful lot of effort and money on visibility, how the product’s presented, the space, the lighting, the furniture and so on and so forth.
The second distribution channel would be around stores, which I mentioned, and there, we just opened in Beijing an 18,000 square foot store. Then even architecturally, you create something special. It took us a few years work with the Swiss authorities. We actually cut a huge slate of stone out of the Montblanc Mountain, put that on an airplane, flew it into China, and put it up. Now, the Chinese consumers go crazy over it, that they have a piece of the Montblanc Mountain. Actually, this is in Shanghai. You create attractive places with not only products, but also a space which you can experience, where you could have arts exhibitions, where you could have things happening. Again, I believe it’s not only true for luxury. If it’s all about “Here’s a product – buy me” you lose connectivity with the consumer and you’re running into the danger of becoming a commodity.
The newest channel is the e-commerce world. That is the most direct link to our digital communication platform, which yes, first of all, is about bringing the message across, but it obviously drives a lot of traffic there as well. Today, we not only accept the fact, but we are quite happy about the power of e-commerce.
By the way, there is something which we believed, and we completely proved ourselves wrong, which is e-commerce is only driven by price. Now, probably I would ask you how many of you are going to look for the best price, and probably most of you would raise your hands. As we are a full price policy brand and retailer, we engage with the customer on many levels, but not on price. There was a notion of “Can you be successful?”
E-commerce, which we launched in September of last year, became, within a six month period, within the top ten stores which we operate. We were blown away by the success. Again, there is no price privilege over shopping in a brick and mortar store.
Part of it is availability, but also, we know from ourselves, it helps when you have strong market leadership like we have. Some of our products, if you think about the black pen that we designed and launched in 1924, never changed, if you think about how many products are out there which have 85 years of history and absolutely never changed in design, selling all day long, that’s what I call a perfect product. It’s just an absolute perfect product.
This doesn’t need a whole lot of explanation. I mean, there is a part which the Internet offers, which is convenience. You’re traveling, you’re sitting in a hotel room or you’re waiting in an airport lounge and you want to buy a gift. Well, I can go there and buy that easily and I don’t have to go through the hassle of going to a store.
E-commerce is, for us, very promising. We are having – which I can’t talk about yet – some work on some exciting technology to actually try to create very unique experiences, which you don’t have with other online stores. We’re trying to differentiate from everybody else because there are a million retailers on the Internet trying, as a luxury industry, to create something which, like our own brick and mortar stores, are certainly different from the rest of the distribution.
[Tim Moran]: Don’t you think, though, that that’s sort of a privilege that you have that people didn’t just say, “I’m going to buy a pen.”[Jan-Patrick Schmitz]: Right.
[Tim Moran]: They’re going to buy something special, and that sort of takes away the price issue right off the bat, doesn’t it? That’s not something that a lot of brands can say they have.[Jan-Patrick Schmitz]: No, not necessarily. Take Seven for All Mankind. Look at that brand, which went through the roof in a very short period of time. At the end of the day, they’re selling jeans. There are a million other designs as well.
Actually, it’s interesting. If you go on their Internet site and compare it to competitors, how do you tell the story of your brand? Every brand has a story. If you’re Samsung and you sell TV sets, you have a story. Look at Best Buy. What came out of it? There’s a store that has a million items on display. Yes, you may be getting some benefits and features, but nobody connects emotionally to the experience.
No, I don’t think it is a specialty to Montblanc. Probably the digital world, the electronics world is a good example. I mean, I don’t want to hone in on Apple because everybody uses Apple as an example, but at the end of the day here again, it’s the same thing. They connected the brand. If you think truly about what the success of Apple was, they positioned the brand as the product for the creative individual, and everybody wants to be creative. Whether you’re creative or not, it doesn’t matter. Then came lifestyle, then came the beauty of the design, and then came perfect product. I believe pride in creating products.
I think way too many brands because I think like, I have to meet a price point – it’s not luxury – so I’m cutting corners here and there. I believe you create a great positioning and if you create a great product experience – and again, yes Apple, everybody uses it, but it’s a great example of how in such a competitive world you can go polar opposite in terms of what you do in terms of distributing, marketing and designing the product, the audience you speak about, and it actually did not start with great technology. Sure, some of you have read that book from Steve Jobs. Actually, the product, for the longest time, had quite some issues, but they positioned it very well and they engaged with the consumer. That is what ultimately changed it. They started an amazing dialog with the consumer.
[Tim Moran]: The chance of me walking by the store in Heathrow and getting a Groupon alert on my smart phone is not going to happen.[Jan-Patrick Schmitz]: I wouldn’t say that. Again, if you think about technology, as I said, once we made peace with the fact that yes, we’re making watches with the technology from 1821, there’s also part of that which we thought for the longest time about is we’re selling tradition, craftsmanship and products where we’re proud of ‘this is how it was made in the 18th Century.’
When you’re in a market and you need a gift and you look for a gift, we’re looking at geo-targeting very extensively to actually drive you with whatever needs you might have to the stores.
No, I think nobody can afford to actually ignore the fact that technology is actually a great help in terms of driving a business and building your consumers.
[Tim Moran]: I think it’s interesting that you’re using advanced technology to sell something that’s 170 years old.[Jan-Patrick Schmitz]: Yes.
[Tim Moran]: People in this tech world today like to go back and for instance in the music business, getting two amplifiers. We’re going back to an old Les Paul that has the original windings from 1957. That plays right into what you want.[Jan-Patrick Schmitz]: Absolutely. This is part of our marketing message. We call that high tech, high touch, where you’re living in the high tech world. You need counterbalance, which is the high touch. Obviously, it’s also status-driven. Let’s face it: luxury is also status-driven. If you look at our writing culture, business people ask one of the standard questions, “How could you still grow every single year in a world where your product is probably one of the most obsolete products there is?” Actually, I like to say that everything we do is absolutely obsolete, and people love that.
They love the fact that we do things, and we’re very religious about it. We have people at our watch manufacturers who are not only building the watch by hand, they craft the parts which go into the watch by hand. They take the watch 25 times apart, put it together, adjust it a little bit, take it apart, put it together, selling it for anywhere between $75,000 to $150,000. The customer loves it. We love it. It’s a great business. It’s a good margin business. Again, that is I think part of the marketing story as well. We preserve a skill and a craftsmanship which otherwise doesn’t exist. I mean, put an ad out there for a pen maker and see how many will apply for that, right?[Tim Moran]: There’s one back there. [Jan-Patrick Schmitz]: We actually have the intent. We invest a lot of money in terms of education and schooling. We train our own watchmakers, our own pen makers because again, of what we do today. If you look at our leather products, they are hand stitched in Florence, Italy. You know, 995 of what you buy in any department store was made somewhere in China, India or wherever, running over nice machines. Here, you know, the idea of having somebody sitting in Florence, Italy, just has a wonderful glass of Prosecco and then they start doing your briefcase, yes, it cost $1,500 or $2,000.
[Tim Moran]: It’s a good buy, yes. We only have about five minutes left. One of the things I had taken down in notes when we previously talked was the idea that you have to craft a brand with global recognition while being locally relevant. You said you opened a store in Beijing. Could you talk about that kind of local/global? There are quite a few global companies here.[Jan-Patrick Schmitz]: Yes. I believe if you craft a global brand, it is so important that you have a global footprint in terms of what you do and what the experience is. Our stores feel and look the same. Our products, we don’t differentiate in terms of product portfolio. Our customers travel the world. They might be, like yourself, in Heathrow then tomorrow in Beijing, in Shanghai, in Paris or wherever, so when you interact with the brand, it is always the same experience. That is important.
[Tim Moran]: It’s a very Apple thing.[Jan-Patrick Schmitz]: Yes. I firmly believe – and again, not only for luxury – controlling your distribution and the experience, that’s absolutely key to success. You can invest hundreds of millions in marketing. If you get to the point of whatever the type of point of sale might be online or offline and that experience is not controlled and coherent, you really lose out big time.
I think you have to be not only a visionary, but very passionate about the product. I think as a brand the individual aspects which drive the business from product to marketing to production and the store, it’s critical to keep that coherent. Should the CEO also be the chief marketing officer? Not necessarily, but I believe today a CEO cannot be one-sided, left brain or right brain. I think there are times where you could have a very product-focused individual and try to supplement the rest out of the team. I think that became in particular, when you’re playing with a global audience, very difficult.
[Tim Moran]: Do you have marketing executives around the world in different places that report into you?[Jan-Patrick Schmitz]: Yes. We’re actually in the process of changing our structure, as our marketing mix changes; as digital becomes more important. Actually, you see a radical change and a skill set where first of all, the creative process is very different than what it was with print. We had, basically, photography and art directors and copy writers. I mean, that part changes. Obviously, the whole notion of a social media and CRM, which is a marketing-based function is a whole set of skills which, quite frankly, we didn’t have five years ago. We actually see a radical change in terms of the composition of our marketing teams globally and locally.
There certainly is a tidal wave in that area. We see that a lot of our market executives who have been with us for a while and have some experience under their belt, so to speak, are actually retraining themselves in order to cope with the new world.
[Tim Moran]: Not to presume what the question meant, but I think it’s interesting that you as the CEO have such a command of the marketing function and that’s not always usual. One of the issues that CMOs and marketing executives have is compiling all that information, so they can just shove it up to you. Then you can look at it and go, “You’re doing good here,” but you’re a little unique in that. I think that’s probably where the question came in.[Jan-Patrick Schmitz]: Well, marketing is core. Certainly, that might be a little bit specific for the luxury world. Marketing is core as a success story. That is critical for our mission.
[Tim Moran]: Patrick, thank you very much.[Jan-Patrick Schmitz]: My pleasure. Thanks