Not in the lap of luxury... yet

By Marylou Andrew

According to The Economist, China’s share of the global luxury goods market will increase to 44% by the year 2020, putting it just behind the United States, which is currently the single largest luxury goods market in the world in terms of sales. China’s love of ostentation is to a large extent the result of greater wealth and higher disposable incomes, but also reflects a new mood in the country where after decades of strict socialism and frugal living, the urge to splurge is no longer frowned upon.

However, China is not the only market where luxury spending is fast becoming fashionable. A 2010 study by Bain International (a US-based research consultancy) shows that while Europe’s luxury markets still lead the way, the bulk of future growth – an estimated 10% in 2011 – will come from the BRIC countries (Brazil, Russia, India and China) with China at the forefront.

Along with the BRICs, the Next Eleven (a group of eleven countries identified by Goldman Sachs as having the potential to become the world’s next fast growing economies) which includes Pakistan, will also contribute significantly to luxury consumer spending in the coming years. Bain gives several reasons for this trend, the most important being a large, young population and an increasing level of affluence (particularly among young women).

Figures on Pakistan’s luxury market are next to non-existent, but Datamonitor’s research shows that even in a year of economic depression (2008), the clothing, accessories and luxury goods sector in Pakistan accounted for 10.9% of total retail value, showing a CAGR (compound annual growth rate) of over seven percent since 2003. It seems therefore that there is a future for luxury goods in Pakistan in spite of economic and political instability, the depreciating rupee and rising levels of inflation. Although 17.2% of the population lives under the poverty line (Source: UNDP), 10% of the wealthy account for 27.6% of spending (Source: Nations of the World Encyclopedia); the inequitable distribution of wealth notwithstanding, urban Pakistan is a high potential market for luxury items.

(Re)defining luxury

The definition of what constitutes a luxury brand is somewhat subjective in Pakistan. Hameed Kashan, Chief Marketing Officer, Upmarkit Luxury Marketing Consultancy says that context is critical for a Pakistani definition of luxury to emerge as all the current definitions come from “societies and economies vastly different from ours.”

In pure economic terms, a luxury is any item for which demand increases more than proportionally when income increases. This is in direct contrast to a ‘necessity’ for which demand will increase regardless of an increase or decrease in income. However, two worldwide trends are redefining luxury. The first is the ‘democratisation’ of luxury, a trend whereby high-end luxury brands are making their products accessible to a wider range of income groups to expand their market share. The other is the emergence of ‘mass premium’ (also known as ‘masstige’) brands which offer premium quality at low prices; this concept is particularly prevalent in the skincare category where traditional drug store brands such as Ponds, Olay and many others have launched premium quality specialised skincare products. According to an FMCG brand manager who moonlights as a luxury brands consultant, one of the reasons that a lot of companies are focusing on luxury brands is because “people who have money have the propensity to spend higher amounts, whereas the middle and lower classes are curtailing spending, making it more profitable for companies to deal in high-end products.”

Luxury brands in Pakistan

Keeping these trends in mind, and based on discussions with marketing experts, there are two tiers of luxury brands in Pakistan: premium and super premium.

According to one luxury expert, fashion brands such as Charles & Keith, Mango, Next and Vincci which are considered affordable fashion elsewhere in the world, fall into the premium category in Pakistan because of relatively high price points, making them accessible only to a small percentage of the population. In addition to these, are local premium brands, which include everything from designer lawn to high-end cosmetics and skincare products. International super premium brands (luxury brands in the truest sense) have made their mark in very few categories in Pakistan, the most notable being luxury cars, which include BMW, Jaguar, Mercedes and Porsche. Although the majority of the population cannot afford to buy these brands, they have entered the public consciousness by virtue of the fact that the parent company has made an investment in Pakistan, albeit through local distributors.

In contrast, luxury fashion brands such as Louis Vuitton (the biggest luxury brand in the world), Armani, Versace and others are imported by private entrepreneurs who have an affinity for luxury brands. This impacts the luxury market in a number ways. First these brands are not widely available or widely known; secondly, because they are privately imported, the selection of products and designs is usually limited, and third, the business is almost totally undocumented, making it impossible to estimate the real market of luxury goods in Pakistan. This lack of data says Kashan, is part of the reason why most international luxury brands are hesitant to set foot in Pakistan and make a proper investment.

“International luxury brands are reluctant to invest in Pakistan, partly because of our image problem and partly due to the lack of data to base predictions and returns on.”

The luxury brand challenge

The lack of data is one of the many challenges luxury brands face in Pakistan. Importing a luxury brand is a challenge from the get-go as import duties are extremely high. Import duties on cars are over 100% and in 2008-09, the government imposed a regulatory duty of between 15-35% on over 350 imported luxury items. Unfortunately, the entrepreneurs who deal in luxury goods were reluctant to talk about taxation so it is hard to ascertain how they cope with this. Beyond taxation, the three other challenges are location, quality of service and marketing.

- Location: Be it a premium or super premium brands, location can present a significant challenge. Most international luxury brands have space related guidelines which are difficult to implement in Pakistan, because malls and shopping areas are not built to allow for customisation. In addition, as Asim Buksh explains in the Aurora interview on page 24, most commercial plots in the so-called posh areas are between 100-200 yards, whereas international luxury stores are usually much larger.

- Quality of service: One of the key elements in the purchase of a really luxurious brand is the ‘experience’ which includes everything from the design and layout of the shop, the knowledge, attitude and demeanour of the sales staff, right down to the packaging and after sales service. Luxury brands and stores in Pakistan suffer greatly on all accounts and most particularly in terms of untrained salespeople, which means that many customers leave with a less than luxurious experience.

- Marketing: Considering the underdeveloped nature of the luxury business in Pakistan, the marketing of these brands is also very basic and restricted mainly to personal PR and billboards. Kashan says that in terms of marketing, “I have yet to meet a luxury brand [in Pakistan] that really impressed me. Luxury marketing is still all about billboards; measurement and effectiveness are concepts that will take time to seep in.”

There is another issue as well. International luxury brands are often marketed on the strength of famous spokespeople who embody the values of the brand, and part of the problem in Pakistan is the shortage of suitable brand ambassadors.

Giving luxury a chance

In spite of the many challenges faced by the luxury market, there are signs of hope. According to Kashan the expansion of the term luxury to the lower end of the price scale has made the concept more inclusive. This is most often witnessed in the perfume category where international luxury brands such as Armani and Gucci are sold for Rs 4,000 a pop and are therefore accessible to a larger number of people. However, this category needs to be expanded to include more FMCGs and even hospitality. Greater awareness about the availability of luxury goods would also greatly benefit this market as for most people, luxury has tremendous aspirational value; luxury marketers would do well to capitalise on this sentiment. And, as Kashan points out in his article on page 6, developing local luxury brands could also prove extremely beneficial.

In the final tally, Pakistan’s luxury goods market is unlikely to become as developed as China anytime in the near future but opportunities do exist for those who are willing to exploit them.

First published in the May-June 2011 issue of Aurora.

Legends of luxury

Olivier Auroy on the eternal lure of true luxury.

According to experts, the earthquake related crisis in Japan and the uprising in the Arab world had a negative impact on luxury tourism. People don’t plan to book a trip to Japan. And wealthy Japanese nationals prefer to stay home. Similarly, the richest Arabs in the region have shifted their priorities. Egypt, Tunisia and Morocco are no longer their favourite destinations. They now look at more peaceful cities such as Malta, Istanbul or Paris. Following the worrying rating over Portugal’s finances, most of its luxury hotels were booked up within days. Portugal is nice. Portugal will be cheap.

So, what do we learn here? Well, although a crisis has a negative impact on travelling, luxury tourists never cancel their trip; they just change destinations and look for the best, always.

We witnessed the same phenomenon in the Gulf, following the meltdown. The occupancy rate of the biggest hotels stayed pretty high. The wealthiest people were not affected by the downturn and the slightly less wealthy just found better deals in town. Luxury hospitality is cynical. But is it only about the money?

The answer is no. The magic of luxury hospitality transcends the times. It is all about the legend and the way it lives on.

Some of the best signatures in the world have built their fame and success on their most prestigious guests and services. At the Raffles in Singapore, the bartender can tell you hundreds of stories about the ‘sling’. If you stay at the Ritz in Paris, you will visit the Hemingway Bar where the celebrated writer ordered his first ‘bloody Mary’. Cocktail lovers keep debating the origin of the name. Some say that Hemingway asked for something strong after he had a big fight with his wife, Mary. Some say it comes from Mary Pickford others from Queen Mary of England. It does not matter. A myth is born and this is the kind of detail that makes the Ritz unique and priceless.

The Ritz is an old institution. What about the more recent hotels in the Gulf region? They are also building their own legends.

Rich people from the Gulf flow into the Burj Al Arab. The iconic six star Dubai-based hotel remains their favourite place to stay. It is surrounded by water, and mystery. Is there a concierge on each floor? Who was murdered there a few years ago, found in his room covered with blood and diamonds? Do regular customers come by helicopter? The legend lives on.

What about the stunning Chedi in Oman? Discreet, refined, authentic, it offers a unique feel of Arabian hospitality. No publicity though. Only word-of-mouth; until one day a few years ago, when the Chedi was voted ‘best hotel in the world’ by the readers of Condé Nast. No big talk, just delivering on its core promise: discretion and refinement.

Last but not least, is the One and Only Royal Mirage in Dubai. When the Palm Jumeirah was only a concept, the Royal Mirage offered an amazing view of the blue waters of the Arabian Sea. It was a haven of peace and luxury. The most prestigious personalities of the Emirate stayed there to rejuvenate. Many observers predicted the end of the Royal Mirage once the Palm was completed: too much sand, too much noise. It never happened. Why? Because it was not only about the view, it was about the high standards of service.

Everytime I meet the charismatic director of this hotel he tells me the same powerful story. Once upon a time, a rich Saudi family from Jeddah came to Dubai. They stayed at the One and Only. They had a wonderful time and praised the staff. After they left, one employee noticed that the youngest child had forgotten his teddy bear in the room. The director told me that the teddy bear reached the Saudi family’s house before they did. And apparently, they became their most loyal customers over time. What do these stories tell us? Luxury hotels need to be consistent and deliver on their promise. Small details can damage their reputation. The Jumeirah Group offers a good example of consistency. With their famous line ‘stay different’, Jumeirah always tries to show a different face of Arabian hospitality. The fragrance of rosewater, the cardamom coffee served at the entrance, all these details are carefully looked at and they make a ‘difference’.

Jonathan Tisch, the Chairman and CEO of Loews Hotels, called his book, Chocolates on the Pillow Aren’t Enough, for good reason. Offering sweets to your children will not make you forget your bad experiences since you checked in. Luxury hospitality is a subtle mix of delicacy and sophistication.

If the crisis had a negative effect on the luxury hospitality business, the best hotels in the world keep shining. Rich travellers are always ready to pay for the best. All these luxury hotels share the same philosophy; memorable moments are priceless for customers. If they are given a wonderful time, price will not be an issue.

This is quite relevant in troubled times when nobody knows what the future will hold. Carpe diem.

Olivier Auroy is Managing Director, Fitch Middle East. olivier.auroy@gsfitch.com

First published in the May-June 2011 issue of Aurora.

The lure of the de luxe

Amit Tiwari on India’s growing appetite for luxury brands.

Move over mass, the mall culture is the order of the day. From handbags to perfumes to cars, you name it and it has already, or is about to, hit our shores as more and more brands see India as a luxury market high on potential.

To understand the reasons behind this trend, we first need to define luxury. The meaning of luxury is different for different people but one word common to all definitions is aspiration. The aspiration to be different and exclusive, to exude affluence and most of all the aspiration to be noticed. And the person who aspires for luxury is the consumer who creates the demand for such a category.

How does one identify this consumer?

In recent years India has seen steady economic growth and an increasing GDP and this has led to a rise in purchasing power and, therefore, in standards of living. A person who could earlier afford to buy a pair of Levi’s jeans can now buy a pair of Calvin Klein and a Calvin Klein customer can now move to Burberry. Brands had already anticipated this trend, which in turn led to the surfacing of malls to make such brands available.

As a large part of India’s population is young, ambitious and working, they no longer hold back on spending on indulgences, be it high-end phones or exotic vacations. This segment of the population is largely urban, owns premium saloon or luxury cars, and women constitute a significant portion of the consumer pie. These consumers can be

further classified into the following three groups:

1. The Affluent

When it comes to luxury brands, this group has arrived. It has the money, the willingness and the penchant to indulge. They are the people, the Louis Vuittons of the world craft their goods for. They are also the ones that rule the roost in the consumer profile graph.

2. The Aspirers

This group forms the second largest consumer base for luxury brands. For them, buying luxury items is not an impulse buying decision but a logical one. For them projecting a lifestyle is more important than owning one and most of them are largely looking for acceptance from the affluent.

3. Those on their way

The smallest portion on the graph, this group is still climbing the ladder and comprises mostly of new entrepreneurs riding high on the ambition wave.

Now, let’s move on to decipher the modus operandi of the brands that want to seep into the wallets of these consumers.

After having analysed the super-rich for whom luxury is a necessity, brands look at converting them into loyalists. To do so they offer them what they want: exclusivity (aka. an ego massage). There can be no bigger ego boost than knowing that what you own is one of its kind. A case in point being the Vertu phones. They offer no special services, functions or applications compared to smartphones, iPhones or Androids, but they ride on the exclusivity factor; each phone is handcrafted and no two phones are alike. So a Vertu handset, replete with diamonds set in titanium (no matter how hideous) is exorbitantly priced and finds its place in the hands of the rich and the famous.

Such luxury brands promote themselves differently. You will not find them indulging in BTL, rather they take the ATL route and advertise in connoisseur and travel magazines, lifestyle TV channels or in coffee table catalogues. They know this is where they can catch the eye of customers who travel business class and live first class. In style, their promotions are simple yet elegant, expressive yet classy, minimalistic perhaps, but able to get the point across in a way that appeals to the customers they are aiming to please. They usually associate themselves with the elite (business tycoons or celebrities), who serve as their brand ambassadors and in a country obsessed with film stars this alignment is not only strategic but also lucrative.

These luxury brands also have to be innovative and keep introducing new products to their range so that the consumer is not bored and keeps coming back to the brand, slowly turning into a loyalist. To keep these customers hooked, the brand adapts its products and sensibilities according to their needs, making them feel even more valued and pampered. Minute details, such as offering memorabilia, goody bags and personalised gifts not only act as feel-good factors, they create an emotional connect with the brand. These loyalists who looks for luxury at all levels ranging from clothing, fragrances, home furnishings, electronics and automobiles are the reason why brands such as Armani, BMW, Fendi, Gucci, Harman Kardon, Rolex and the recently launched Bugatti Veyron (with a price tag of over INR 160 million) have opened their stores in India. They are aware that with India’s growing number of millionaires and billionaires, there is no dearth of customers willing to buy and flaunt. A recent survey revealed that top-end luxury cars had found takers even before they were launched.

Luxury brands face stiff competition not only from other brands, but also from celebrities. To counter other contenders, luxury brands form tie-ups either with their brand ambassadors or other celebrities and launch limited or special edition ranges to keep their consumer base intact and lure those who are not yet on their list.

In conclusion, with growing disposable incomes and a market that is growing at almost 25% a year, the luxury brand market in India is only going to get bigger and better. Brands that are innovative, exclusive and adaptable will be the ones to survive, as there are already a number of other brands more than willing to fill any gap and create a niche for themselves in their respective categories.

BOX –

Luxury by numbers

• Number of Indian millionaires: 126,000
• Size of India’s luxury market: $3 billion
• Most popular luxury category: Jewellery – accounting for 30% of all sales of luxury goods.
• Projection for 2025: India could become the world’s fifth largest luxury market.

Source: Le Monde, March 2011


Amit Tiwari is GM and Country Head Media, Philips Electronics India. Amit.tiwari@philips.com

Luxury... Pakistan style

To secure success, Pakistani companies involved in luxury products and services first need to develop an indigenous definition of the term, writes Hameed Kashan.

The business of luxury has always been a highly visible part of the marketing landscape and since the democratisation of luxury started to unfold in the 80s, it almost dominates the commercial landscape in western markets, where these brands have a strong historic presence. In the west, the democratisation of luxury was fuelled by lower costs gained by outsourcing to Asia, as well as by rising disposable incomes due to economic booms in the 80s and 90s and a maturing of marketing thinking predicated on the assumption that the growth for luxury brands would come with the ‘masses’ and not with the ‘classes’.

The trend is true for Pakistan as well, albeit it took longer to manifest itself. Drive through Pakistan’s major urban thoroughfares today and for every two billboards advertising mass media brands, there is at least one promoting a Pakistani or international luxury brand. Although some of those brands had been operating in Pakistan for decades, they only found the space to reach out to a wider audience in the boom years between 1999 and 2008, which brought with them the doubling of our GDP and per capita income and the halving of the unemployment rate. Sadly, even after this phenomenal surge in growth, Pakistan still has tremendous income distribution disparities and ranks close to the bottom in the international tables in terms of personal wealth. What does that mean for luxury businesses in Pakistan?

Firstly, the definition of luxury in Pakistan needs to be reassessed. The late Bernard Dubois (former professor in marketing at HEC, Paris) considered the higher-end version of any product category as a ‘luxury’, but by its overuse, the word luxury has become an oxymoron. Most people tend to think of brands such as Cartier, Rolex and Rolls Royce as the true representatives of luxury brands, and although these brands do signify the height of luxury, with no distribution or widespread presence they are almost irrelevant in Pakistan, where only a small fraction of the very affluent can afford to buy them.

For marketers, to understand what makes a product or service a luxury, Upmarkit uses an internal proprietary process which starts with identifying the substitutes available for a particular product or service, and how these measure up on a price and perceived quality matrix. Once a list of the top 10% of brands has been formulated, consumer profiles need to be created using factors such as income, social influence, etc. If a brand has more consumers from the top of the income pyramid, it is more likely to be a genuine luxury brand.

In Pakistan’s economic environment, this exercise is crucial because of the lack

of data.

For example, is going to the salon for a haircut or a facial, a luxury or a necessity? The easy answer would be to say it depends on who is going and on how much they earn or spend.

A more accurate answer would be to look at ‘where’ they are going. Then there is the question of perspective, whereby the definition of luxury depends on the demographic profile of the individual. A bottle of local mineral water might be a luxury for a manual worker who earns less than Rs 5,000 a month, while only a Rs 30,000 bottle of champagne would qualify as a luxury for a very affluent Pakistani. However, the moving bull’s eye that comes with this approach is not practical when it comes to developing marketing strategies and measuring their returns. Hence the perspective approach has been replaced by more reliable methodologies that attempt to arrive at a more definitive answer.

Defining whether a product is a luxury or not has a far reaching impact on communication strategies, customer profiling and targeting methodologies; in fact over the entire marketing strategy. For brands operating in the mass market segment, identifying where exactly on the luxury-necessity matrix they fall can have a highly rewarding impact on their marketing efforts. For example, an insight suggesting that most consumers in India consider carbonated beverages to be a luxury reserved for special occasions and guests, led to the acclaimed ‘Thanda Matlab Coca Cola’ campaign.

However, if you do happen to be an established luxury business then it is critical to understand how to maximise your potential through inspired product development derived from consumer perception. By defining the core business identity as luxury, Pakistani brands can draw upon the strategy and experience of similar and successful international brands.

Take the example of Jafferjees, a respected local leather goods brand that most readers of this magazine will probably not consider a luxury brand in the context of the brand equity enjoyed by leather goods manufacturers like Louis Vuitton and Gucci. Jafferjees has been in existence since 1885, first making saddles for the British Army and luggage for regional royalty; today it has stores in up-market shopping areas and a fairly affluent Pakistani consumer base. By any measure Jafferjees can be considered a modern Pakistani luxury brand, and it should therefore start acting like a luxury brand. By changing its communication and retail strategies, Jafferjees can also change the perception that it currently holds in the minds of its Pakistani consumer base that it is not a luxury brand.

What benefit will Jafferjees gain from doing so? Apart from attracting a whole new market (the aspirational consumer), the company will set itself apart from the competition and capture the attention of people who buy luxury products, but are not currently Jafferjees customers.

Retail spending on luxury brands by affluent consumers is fairly immune to short term economic fluctuations, although this is changing in developed economies as these brands widen their customer bases to cover various income groups and markets. Pakistani luxury brands, however, defied the trend altogether by zooming past the global financial crisis as if it never happened.

The social dimension of luxury consumption is another reason to identify and behave like a luxury brand. Consumers of luxury like to carry clout among their immediate and extended social circles. Their patronage of luxury brands inspires aspirational consumers, and in a society like Pakistan and especially for media vehicles like GT, targeting luxury consumers makes great business sense.

On a macro level, understanding and creating a workable definition of luxury in Pakistan will create a reference point for pricing strategies across the entire gamut of products and services; it also creates tactical advantages, such as more relevant product ranges and variants. The intellectual definition of our marketing management framework continues to pour down from myriad experts based in the west and the same is true for the definition of ‘luxury’. We should be thankful to these experts for enhancing the infrastructure of our profession but when it comes to relative, objective or industry-specific terminologies we need

to consider our own socio-economic environment before accepting what we read in a book, a blog or even a magazine article like this one.

Hameed Kashan is Chief Marketing Officer, Upmarkit Luxury Marketing Consultancy. hameedkashan@gmail.com

“Everything that I am doing and going to do will be attached to Pakistan”

Asim Buksh is CEO, Buksh Group, speaks to Aurora about the luxury retail business in Pakistan and his plans to take it to an altogether different level.

AURORA: How would you define luxury?

ASIM BUKSH: It’s a relative definition. What may be luxury to you may not be to me. It stands person-specific, and it stands,

I guess, pocket-specific. Somebody may buy a TV today and that may be luxury for them. Someone else may go out and buy a Bang & Olufsen which would probably cost 10 times the price of a normal TV and that would be luxury to them. It’s a very relative term. It applies pretty much to every sphere of one’s life.

A: What are your views about the trend towards the ‘democratisation’ of luxury? 

AB: A lot of people are saving up whatever disposable income they have and then investing in something that will give them a feel-good factor, a sense of having a luxurious lifestyle. There was a time when Gucci was worn by a handful of people; today Gucci is an example of a democratised luxury brand, where for $600-700 you can buy what they call a GG purse. Gucci has become more mass luxury. Then they have niche brands like Bottega Veneta, Chanel and Hermés which to me are actually very luxurious.

A: What made you go into luxury retail?

AB: I have always been very fond of the finer things in life and when I was young one had to wait to travel to buy what one wanted. While travelling, it struck me that these brands were available in Hong Kong, Malaysia, Singapore,Thailand, and obviously in the west, so why is it that Pakistan should be the only country on the planet where these brands should not be available or would not do well? Shopping is not only a necessity. Shopping can be a luxurious experience.

I enjoy the luxury business because I enjoy the finer things in life myself, in fact I am probably my biggest customer. This is why I understand what people’s needs and requirements are, and why we are the only company in Pakistan which is into this business and at the scale we are going to do it.

A: How difficult is it to run this kind of business in Pakistan, given the taxation and the duty issues?

AB: Doing business in any developing country is a challenge, but it has its opportunities as well. As far as I am concerned it is virgin territory.

A: You went into luxury retail in 1995. How has the growth trend been, especially in these last two years? 

AB: There hasn’t been too much growth in the last two years, but apart from those, we have been consistently growing, and in the next 12 months we are probably going to triple our revenue if not more. I am opening a lot of luxury retail space.

A: Luxury retail is not only about the products or services, it is also about the experience, from the environment to the quality of service customers receive. Can this sort of experience be replicated in Pakistan?

AB: There are two factors. One is that our cities are badly planned. If today I want to acquire a store the size of Harvey Nichols in Dubai, I would be looking at 130,000 square feet on four or five levels.

In Pakistan such spaces do not exist. Defence (Housing Authority) in Karachi has a huge community of people, yet all the commercial properties are 100 or 200 yards. How do you do business? How do you do commercial activity? So we have to create these spaces. Over the next 12 months I want to have 100,000 square feet of retail luxury space. 

A: In Lahore?

AB: Lahore, Karachi and Islamabad. And I am struggling because this kind of space does not exist. So space is the first issue. People can be trained. We get visual merchandising guidelines from the brands we represent and we have access to their sales training. We import Bang & Olufsen TVs and until and unless we can fix this product we can’t sell it, and we can fix it. We do Jaguar, Land Rover, and until and unless we can service those cars we can’t sell them, so if we are selling them it means we can service them. There is a lot of talent in the country, what they require is training. I have hired an Italian architect who specialises in retail design to design our stores. By September I want to open a new store in Lahore which will be about 20,000 square feet. I am looking for another 20,000-25,000 square feet of space in Islamabad; similarly in Karachi. We are going to create luxury stores that could be anywhere in the world.

A: What will you name these stores?

AB: Million dollar question.

I don’t know, would be the correct answer, but we are going to rebrand the Men’s Store. When you walk into our new stores you will experience the ‘shop in shop’ concept. The furniture and fixtures of a Gucci, Dolce & Gabbana or Armani store (for example) are exactly the same anywhere in the world, and we are going to import the same furniture and fixtures and create spaces within these stores for these brands. The experience is going to be very much like a European experience, with the added benefit that our customers will be able to come back for any kind of service. If a gentleman buys a suit, he can have it altered as many times as he desires. If he were travelling he would only have so much time, and not having the luxury of time means he is restricted and he may sometimes not find the best.

We provide made to measure services; the master tailor from Armani flies in from Milan to measure up people; the clothes are manufactured in Milan and sent back to Pakistan. For some people that is luxury. 

A: How much would a suit like that cost?

AB: They start at $2,000, which would be Rs 175,000.

A: An incredible amount of money for someone living in Pakistan!

AB: In every country in the world the Pareto Principle applies; the 80-20 rule. Eighty percent of the world’s wealth is in the hands of 20% of the individuals and it applies to Pakistan as well. Those people have to be serviced; otherwise they are going to spend their money abroad. They are not going to wear a Rs 500 or a

Rs 5,000 suit. They have worked hard to make their money and they have a right to spend it, and we want them to spend it in Pakistan. We want them to help us create jobs and economic activity. They can very conveniently get on a plane and go spend it abroad if we don’t provide that service here; that money is going to be spent anyway. We are a country of 170 million people. Karachi, Lahore, Islamabad and Faisalabad are very large cities and their populations want these goods.

In fact, if we just look at Karachi, the population there is like that of a small country and so is the population of Lahore. And if you talk about buying power, if you look at the population of Karachi, Lahore, Islamabad and Faisalabad, the per capita GDP is between $4,500-5,000, which makes for a very decent per capita income. Pakistan is very underserved. Our stores cover approximately 12,000-15,000 square feet of retail space, but in the next 12 months we are looking at 100,000 square feet, that is how underserved the luxury retail market is.

A: Do you believe you are taking a risk by expanding in this way?

AB: No.

A: How do you promote your stores?

AB: We don’t do a lot of advertising. We do some billboards, however we do a lot of direct communication, database marketing and we entertain a lot; less in Karachi and a lot more in Lahore, because I live there. Entertaining is pretty much the best way of interacting with our clients.

At the launch of our Lahore store in 2004-05, Ravin, the Buddha Bar DJ, flew in for the launch party. We are now going to do more of this as we establish a similar presence in other cities.

A: What was the purpose of setting up Buksh Energy?

AB: Our target is to ensure that over the next 10 years, five percent of Pakistan’s energy is produced from renewable sources. We have commissioned a feasibility study to set up a 30 megawatt solar thermal power project. It is a drop in the ocean as far as Pakistan’s energy needs go, but it is a step in the right direction. Our wind potential is low because we have very few wind corridors, but we are endowed with a lot of solar energy, yet there isn’t a single solar thermal plant in Pakistan. The idea behind setting up our energy company is to ensure that we move forward as a nation towards renewable sources of energy.

A: Why this major diversification away from luxury retail?

AB: Several factors. One is because energy and infrastructure projects are the requirement of the country.

As far as I am concerned everything that I am doing and going to do will be attached to Pakistan. It is also partly our responsibility to ensure that the country and our growth is sustainable. I could have looked at a coal power project, but that is not my mandate. Our mandate is to ensure that five percent of Pakistan’s energy needs are met from renewable sources over the next 10 years.

A: You also head the Buksh Foundation. Are you not spreading yourself a little too thinly? 

AB: We have a very solid team and we are constantly building on it. We source and hire pretty much the best young talent available. There are Indian conglomerates now that rival global multinationals, why are they so different?

A: Because India has a better infrastructure and a more business friendly climate?

AB: I disagree. I think Indians are better businessmen.

No government ensures that a private individual becomes the third richest or the fifth richest man in the world; it is the private sector.

India definitely has better PR. Also, over the last 50 years they made sure that there was a lot of technology transfer. But then Indian businessmen were of that mindset. Our big businessmen cannot get out of cotton. How many of our industrialists have set up technology companies; this is a huge sector. Bangalore alone almost exports as much as the whole of Pakistan.

A: Do you see a change in this mindset?

AB: Unfortunately not. People are still focused on textiles, and what is so great, in terms of value addition, about going into ready-made? What do we export? Seventy percent of it is cotton, leather, surgical goods and now food… mangoes. That’s it. Yet what Bangalore can do in terms of technology we can do as well.

A: Does Pakistan have the skills?

AB: India didn’t either when they started out. They developed the skill set. They created universities and schools within their organisations to train people and take them forward.

When Shaukat Aziz was prime minister he invited pretty much every top industrialist in Pakistan to a meeting. His point was why is it that we are only looking at existing industries and are not going into the kind of value addition whereby we can export our services. Nobody did anything about it; this was seven or eight years ago.

A: Are you optimistic about Pakistan’s economy?

AB: Yes 

A: Why? 

AB: The Government is neither here nor there. Yes, during the Musharraf period there was more stability and one could make decisions. When we started the automotive business, there was a five-year written policy whereby import duties were at 132%, and over the next five years they would decrease to 75%. Then one fine morning we woke up and found out that the duty had been increased from 132 to 220%. Now you can argue that how can one carry on a business in such an environment? But it is part of life; we did what we could. Had the policy stayed in place we would have created a lot more jobs. As a country, we underestimate the financial and economic potential of our people; we don’t understand it and because we don’t understand it, we underestimate it. The Buksh Foundation is involved in microfinance. The mandate there is to lend money to people a regular bank will not entertain. A man came to us for a Rs 35,000 loan. He had a rickshaw and he made about

Rs 250-300 a day. He wanted the loan to change over from LPG to CNG because he had calculated that his daily income would then go up to about Rs 600. We lent him the money and he is now a micro-entrepreneur. He repaid the loan and then asked for another loan. He wanted to buy a second rickshaw and he was going to hire someone to drive it and then make a couple of hundred rupees more a day.

A: So your rickshaw wala is more enterprising in mindset than your average businessman?

AB: No, it was the industrialists I was referring to. The average businessman is more open minded and very enterprising. The whole world went down the tube between 2008 and 2010, yet we grew, albeit by two or three percent, but we grew in spite of the global economic situation, the instability in our government and of our policies.

Asim Buksh was talking to Mariam Ali Baig. For feedback, email aurora@dawn.com

First published in the May-June 2011 issue of Aurora.

Overloaded

By Leon Menezes

Like every other green-blooded Pakistani, I was glued to the TV for the cricket World Cup, dutifully cheering on our men (or as Inzi would say ‘the boyses’). Not being used to watching so much TV in one go, I soon developed ‘advertisis paralysis’, a deadly condition that numbs the brain and makes all commercials blur into one great nebulous cloud of incomprehension. By the end of the fourth week I could not tell one mobile phone ad from another, nor figure out why a ‘safe and healthy chicken’ should make a family deliriously happy.

I know that banking is a tough sell but never imagined a rivalry that would involve a ‘Bean’ and a ‘Bag’. Truly, the Mr Bean campaign for HBL has been quite a hit with the viewing public, but I am not sure of the response by the target audience (prospective new accounts). On the other hand, UBL have people walking around with what appears to be a stuffed bag of sorts that seems to be able to solve any and all banking troubles. The problem for most of us, unfortunately, is that we don’t have enough money to put in a bank! (Speaking of the Mr Bean campaign, it was nice to learn that royalty has been paid for the use of Rowan Atkinson’s character and that he was suitably impressed by the likeness of the desi actor.)

We are used to the word ‘excellence’ being bandied about for product and service claims. Some years ago we had ‘excellence in a biscuit’, which has been revised to ‘experience of excellence’ and now we almost have ‘orgasm in a biscuit’. Seriously guys, do we really go into paroxysms of pleasure while biting on a biscuit with our eyes closed or possibly swoon over it? Perhaps a connoisseur smoking a fine Cohiba and sipping aged XO cognac might exhibit such behaviour but never, never over a biscuit.

Away from the TV and driving down Karachi’s roads, I felt as if I had died and gone to heaven. All billboards had been taken over by the lawn designers and exhibitors, and were draped with gorgeous models and actresses. If heaven is anything like this, I’m going there in a hurry.

I actually did not know that lawn was such a big thing in Pakistan; it must generate a huge amount of income for the manufacturers since getting top Bollywood actresses as models cannot be inexpensive. Last year one brand featured Kareena Kapoor and this year, apart from Deepika, Sushmita Sen was also on call. Everywhere I looked, the uber-sensuous and exceedingly hot Deepika was staring at me. Sigh.

I’m back to watching the cricket on TV and they are singing and dancing for each and every product – banks, biscuits, chicken, cooking oil, mobile phones and connections, skin-whiteners, soft drinks, tea-whiteners, washing powders – you name it and they have sung and danced around it. So far we have been spared hospitals and ambulance services but you never know; Pakistanis are creative and inventive and are willing to push the envelope.

I wait with trepidation not knowing what the next wave of advertising is going to bring. If it includes beautiful models, then I say “bring it on”. As for the singing and the dancing, let’s leave that for the music channels, okay?

Leon Menezes is an HR professional at an MNC.

First published in the May-June 2011 issue of Aurora.

Beauty and the business plan

By Leila M. Barry

The model of beauty: Oriflame’s success is based on its successful business model.

Among many other things, Sweden is known for its functional, affordable and high quality products – IKEA for instance; it is also famous for cutting-edge technology that is environmentally responsible. Sweden’s natural beauty is legendary and so are its naturally beautiful women: Ingrid Bergman, Greta Garbo and Bond Girl Britt Ekland to name a few (according to Travelers Digest, a US magazine, Sweden is supposed to have the most beautiful women in the world). A combination of high-quality, affordability, innovation and of course Swedish beauty is Oriflame Cosmetics, a direct sales beauty products company from Sweden.

Oriflame Cosmetics was founded in 1967 by two brothers, Jonas and Robert af Jochnick and their friend, Bengt Hellsten. These three young entrepreneurs had an idea to manufacture and sell good quality skincare products that were inspired by the natural and wholesome beauty that is associated with Sweden. Not wanting to invest in shops and staff, they decided to market their skincare from the homes of ‘sales consultants’ – directly.

In the last 40 years or so Oriflame’s product portfolio has expanded to include almost 1,000 products in the skincare, colour cosmetics, fragrances and personal and hair care categories. Oriflame is dedicated to research and development and today it is ranked third amongst the global direct sales beauty businesses. With a presence in 62 countries and more than 3.5 million sales consultants worldwide, this Swedish company is one of the fastest growing direct sales beauty companies in the world. 

The company sells much more than a range of high quality beauty products. Oriflame offers people the opportunity to join its team of sales consultants and representatives, to build upon a successful direct sales business plan and in the process make a decent amount of money.

In Pakistan since 2009, Oriflame is one of a handful of foreign cosmetics’ companies and the only direct sales beauty company operating here. As in other markets, here too the strategy is two-pronged and the company pushes its business model as much it does the actual beauty products, as the sales of one depends on the growth of the other.

According to Amna Niazi, Marketing Manager, Oriflame Pakistan, with a population of 170 million, Pakistan is the ideal market not only for Oriflame’s affordable beauty products and cosmetics but also for its simple and effective business model.

“We try to have a presence in markets with large populations; Pakistan is ideal because the population is both large and young, and the market is rapidly progressing toward a cultural change and more westernised lifestyles. The population size also suits our networking sales model.”

The success of Oriflame’s beauty products (in any market) is intertwined with the acceptance and success of its business model and the sales consultants who go out there and talk about the products. There are two ways to earn money through Oriflame direct sales: one is to join a sales consultant’s network, recommend products from the catalogue by word-of-mouth to family and friends and earn a 20% commission.

The other method is to become a sales consultant. This position requires some serious training in the business plan and an in-depth understanding of the product range. Sales consultants have the added responsibility of developing a down line network of representatives; the wider the network and the more they sell, the larger their profit, commissions and cash rewards.

“Growing your network is like growing a tree, and getting more people involved is where the real money lies,” Niazi says.

Pakistan – where geographical and cultural limitations often make access to proper markets and shops difficult – is ideal for direct sales. Niazi is pleased with the response Oriflame’s products and business plan have received thus far.

“We are very big in smaller cities. As far as the product portfolio is concerned, urban centres are important; but business model wise the smaller cities are doing well despite the fact that the products sold in these markets are different. In a town like Vehari, affordable soaps and shampoos sell, while in Karachi it is the Rs 4,000 anti-aging cream.”

Despite the encouraging response, Niazi feels that direct sales have a long way to go and plenty of market to capture. The challenge she says is to change the mindset of the market in terms of acceptance of buying directly from a salesperson rather than at a retail outlet, and one cannot blame consumers for being wary, given that the sum total of their direct sales experience has been confined to a handful of random, unauthenticated direct sales companies selling herbal waters and diet supplements of a dubious provenance.

Oriflame, a multinational company with annual sales of 1.5 billion Euros and five production units in Sweden, China, India, Poland and Russia is a member of the World Direct Sales Association and is working to change this perception in Pakistan.

Most of Oriflame’s advertising and communication follows the same formula as its sales – direct and on a personal level. The communication is dual-purpose. To advertise, and to educate and inform the consumer about the ease and authenticity of the direct sales system whether it is the products or the business plan.

“We make marketing investments that will help our consultants bring more people on-board. So we have to find platforms where they are able to talk to more people and explain to them how the process works,” says Niazi.

The advertising media of choice has been on-ground activities such as exhibitions where consultants can interact with and explain to consumers how to buy Oriflame’s products and share their success stories as sales consultants. Print advertising also serves to educate consumers about how to buy and become a part of Oriflame. However, Niazi adds that their print ads take a “two-pronged stance; we want visibility in good magazines to build reputation and we want to be in relevant media (mass appeal publications).”

Niazi admits that convincing Pakistani consumers about buying and selling through direct sales has been a challenge but is nevertheless confident that the market will accept this mode of business when they see the rewards they are able achieve. She is confident that with time the market will evolve and no doubt the first mover advantage will all be Oriflame’s.

First published in the May-June 2011 issue of Aurora.

A broad band of services

By Vanessa D’Souza

Pakistan’s broadband industry is growing rapidly in terms of subscribers and service providers. According to the Pakistan Telecommunication Authority (PTA), there were over 1.1 million broadband subscribers in December 2010. In terms of service providers, the big names are PTCL, Mobilink Infinity and Wateen Telecom; PTCL is the market leader with a 60% market share. 

In a broadband market dominated by telecom giants, two new players launched their services in 2009 and 2010 respectively; Wi-tribe and Qubee. Both have two common characteristics; they are backed by major international telecom companies. Wi-Tribe is a part of the Qatar Telecom (Q-Tel) Group of Companies and Qubee is backed by Augere Pakistan, part of Augere Holdings, UK; and both are dedicated to offering Wi-max technology. 

The entry of the two brands was well-timed, and according to Hashim Sheikh, CMO, Qubee, “the industry has grown by an average of 120% year-on-year in the last five years.” 

This is expected to continue. Khurram Ali Mehran, Director PR, PTA says that “keeping current growth trends in view, broadband subscribers are expected to reach 4.34 million by the end of FY 2013.” 

Thus as part of an industry that seems to be overflowing with potential, Qubee and Wi-tribe have adopted their own individual strategies to compete and create a space for themselves. 
To start with, both brands have to provide “consistency of service and value for money,” which, according to Sheikh are the most important attributes as far as customers are concerned. Wi-tribe’s strategy for consistent service is to provide an “always on” internet service, and according to Wahib Aslam, VP Sales & Marketing, Wi-tribe, “We offer a record 99.9% uptime”. 

This is endorsed by the fact that Wi-tribe has been rated as Pakistan’s number one broadband service provider for its service quality by the PTA. However, consistency of service depends on the network spread. To this end, Wi-tribe chose to expand early on and launched simultaneously in four cities – Karachi, Lahore, Islamabad and Rawalpindi; and recently in Faisalabad as well.

As far as Qubee is concerned, it is still too early to tell where it stands in terms of service; however its network expansion strategy has been very “focused”. It initially launched only in Karachi and then spread to other cities. 

Sheikh says this was due to the fact that “we didn’t want to make the same mistake as other broadband companies have done in the past, which was to promise more than they could deliver.
Qubee has now expanded its network to cover Lahore, Islamabad and Rawalpindi.

The other important element is value for money, and both Qubee and Wi-tribe agree that this is a big challenge, because according to Sheikh, “Consumers are very demanding”. 

Aslam agrees, adding that customers are very savvy at managing their expectations and deriving the best from the various offerings available. 

“This keeps service providers in a state of constant self-evaluation, ensuring that we stay ahead with the most innovative products and services.”

Qubee has recently been promoting its prepaid service, and based on the success of prepaid packages, Qubee’s move to provide prepaid broadband is likely to go down well with customers. Although Wi-tribe does not offer prepaid, it has several speed-based promotions that have been widely appreciated by customers.

Beyond service quality and value packages, Wi-tribe and Qubee have some serious competition to contend with. The competition (PTCL, Infinity and Wateen) has plenty of advantages: large telecom-based networks, huge customer bases and value-based package plans. To compete, both companies have chosen to establish themselves as ‘fun and simple’ brands. 

According to Owais Hamid, CEO, Ideas Workshop (Wi-tribe’s creative agency), Wi-tribe has been the most consistent. Its fun image is largely derived from the fact that visually the brand has always been communicated as such. However, there are also lots of ‘fun’ promotions, such as the foosball competition in which contestants are invited to play an online game of foosball; the best buddies competition and top fans competition, to name a few.
Qubee’s communication involves illustrated visuals and “simple and fun” lines. 

“We have kept things fun with all our promotions and packages as we believe customers are already overburdened with too many things. We want our messages and services to be simple for them.” 

This simplicity also factors in Qubee’s service strategy, which involves going to customers “instead of customers coming to us,” says Sheikh. 

However, by far the biggest challenge for a broadband company as Aslam points out “is to maintain a high quality of service and network availability at an affordable cost.” 

He explains that with the frequent power outages and rising cost of electricity and overheads, maintaining affordable price points is going to be more and more difficult. 

However the broadband industry has one huge advantage: its growth is being encouraged by the PTA and Aslam is quick to point out that this focus is “beginning to generate measurable results.” 

These favourable conditions have encouraged Wi-tribe to take an aggressive approach in its strategy. According to a broadband expert, “Wi-tribe has done very well for itself and will soon be competing head-to-head with Wateen Telecom, which is the current leader among Wi-max operators.” 

Regarding Qubee his verdict is that “it is still early to tell.”


First published in the May-June 2011 issue of Aurora.

“With the Middle East in crisis, Pakistan certainly lights up for Kraft”

Syed Amir Haleem, Regional Director, GCC, Levant, North Africa and Pakistan, Kraft at Ogilvy & Mather Pakistan talks to Marylou Andrew about managing 16 countries out of Pakistan, and Kraft’s plans for the local market.

MARYLOU ANDREW: As regional director for Kraft, what does your job involve?
SYED AMIR HALEEM: The way it works is that we have a Global Category Director for Kraft in Miami – her name is Nishi Suri. Nishi has a global vision and oversees the work of our hubs, i.e. Europe, the Far East, Latin America etc. and then our hub here which includes the GCC, Levant, North Africa and Pakistan. My role involves translating this global vision into campaigns that incorporate and adjust for regional sensitivities. This may also involve coordinating with the 16 countries in this hub in order to deal with business related issues. To give you an idea, I am currently dealing with problems arising from the unrest in Bahrain. We were supposed to launch new variants of Tang in the GCC which are now delayed because building stocks of existing brands pre-Ramadan is a priority. The entire communication plan now needs to be redrawn.


MLA: Why did Kraft decide to appoint a regional director based in Pakistan? Why not have one from the Middle East?
SAH: Kraft felt that it needed to explore the possibilities of acquiring a more strategically driven creative. It had a pitch which included Ogilvy from Dubai, India and Pakistan. We won on merit because we had the most insight driven creative.


MLA: How challenging is it for you to deal with the problems of 16 countries from Pakistan?
SAH: It is hugely challenging; I have been in the industry for 16-17 years and in terms of business, I have never cared about a revolution in another country, but now the issues in Bahrain are impacting everything I do. We have had to shift creative work from the Tang flavours campaign to another Ramadan-centric campaign. I have production houses on hold in Lebanon because we were five days away from a shoot that has been rescheduled. Then Lebanon also has a massive media spill-over from other GCC countries and a lot of the advertised SKUs are not available in the Lebanese market. These are some of the extremely complex strategic issues that I have to deal with. At Ogilvy we are not only advertising partners, we are business partners. Our remuneration is structured in such a way that we earn when the brand sells therefore it is in our interest to help resolve these issues.


MLA: How much say do you have in advertising that comes out of the GCC for example?
SAH: A great deal; we are very open to local sensitivities and nuances but there has to be some strategic synergy across the hub. Obviously, there are ground realities that need to be addressed. In Pakistan, Tang is a completely hybrid product which means it has little or no sugar, so as per internal ethical policies we can talk to children directly here. However, in Saudi Arabia and the UAE, the product is still sugar-based, so we have to talk to the mothers, and this impacts everything, from communications to product formats (SKUs). From a communications perspective there is a huge difference in what you say, depending on whether you talk to the mother or to the kid. To the mother you may want to talk about stocking the pantry and the primary format you may want to push is the larger SKUs. When you talk to the kid, you may talk more about single serves and flavour variants which excite them.


MLA: Is it possible to standardise communication within a particular hub?
SAH: We are trying to do a standardised campaign in the Middle East, but there are always issues. Egypt, for example, competes within the powdered beverages category and is very different from the rest of the GCC. In the GCC, our category of powdered drinks is completely saturated and in countries like Saudi Arabia and the UAE we have 80-90% of the market share. Growth there needs to come from outside the category. The communication needs to address local challenges.


MLA: How has the global takeover of Cadbury by Kraft impacted the company in Pakistan?
SAH: The most obvious impact is that Kraft is now officially in Pakistan. Before this, it was always represented through a proxy like the Clover Group and Continental Biscuits. These companies have the Tang and the LU biscuit franchises respectively.


MLA: But Kraft has not consolidated its presence in Pakistan yet.
SAH: No, it has not; there are ground realities to take into consideration. Cadbury has good distribution in Pakistan in terms of selling chocolates, however if you look at Tang, it is available in all the small khokas and dhabas in sachet form even in some of the remotest parts of the country. This in large part is due to Clover’s distribution network. Consolidating brands could be quite tricky and isn’t practical at the moment.


MLA: Tang is Kraft’s most popular brand in Pakistan. What is its market position?
SAH: It is doing well although we believe there is a lot more potential that needs to be tapped. Unlike the GCC we have nowhere near saturated the powdered beverage market as there are brands like Limopani, etc. Also, Tang’s problems in Pakistan are a bit different from the rest of the world. We have a great brand but as with all powdered beverages here people tend to over-dilute the end product. We are considering addressing this through our communication.


MLA: What about Cadbury’s market position? Many Pakistani consumers believe that the local product is not as good as the internationally manufactured chocolate.
SAH: I disagree with this completely. Cadbury Dairy Milk (CDM) in Pakistan is made from the same 200-year-old brand recipe using the highest quality ingredients. It is as good as any other bar of CDM from any other country. One reason for this consumer perception might be that people unfairly compare different SKUs when they weigh them against the Pakistani CDM bar. For example, if you compare any of the imported thicker bars with a five-rupee CDM bar then obviously there will be a difference. The amount of chocolate that melts into your mouth is different in each case and the higher grammage bars will always result in a richer experience.


MLA: How does Kraft deal with grey channel imports?
SAH: Grey channel imports are always an irritant. However, we are not worried about the brands that we are officially representing because we have the right SKUs and prices to compete with. As for other brands that come through the grey channels (the Kraft cheese range, for example) we are not worried either because they are helping us build and maintain a brand presence, paving the way for us to launch them officially in the foreseeable future.


MLA: What are Kraft’s plans for Pakistan?
SAH: Huge. The very fact that Kraft has used the Cadbury acquisition to officially step into Pakistan means that it believes that there is huge potential in this market. In terms of the brand portfolio, we are not even meeting 50% of our potential, and now with the Middle East in crisis, Pakistan certainly lights up for Kraft.


First published in the May-June 2011 issue of Aurora.