Luxury Brands: A conversation with Paul Walsh

Paul Walsh CEO of Diageo from 2000 to 2013

A lot has been said about luxury brands, but there is still so much more to say. To save you and us time, we asked Paul Walsh - who was CEO of the world’s largest spirits group, Diageo, from 2000 to 2013 - for his thoughts.

Mr. Walsh has the rare ability to explain his subject in plain but very meaningful words - he knows exactly what he is talking about. We met him on a rainy day in a large conference room in London’s Blackfriars. He started with his own definition of luxury:

For me, luxury means expensive, deserving and self-rewarding. Luxury is a relative statement. Luxurious time-pieces have a different price point than gentlemen’s cosmetics but nevertheless they have a price premium, and in the mind of the consumer that price premium has to be justified either through brand or functionality of products.

“Usually, without being too general, the luxury brand in the beverage and alcohol sector comes with a degree of provenance. If you think about Johnnie Walker Blue Label, and you sample the product, and you are a whisky connoisseur, you can see the complexity of the offer: gorgeous packaging, every bottle numbered. It is offering first of all quality, and also self-indulgence. It is my bottle, and you are saying something about yourself, not in an egotistic way. You are saying that you are a connoisseur.”

We understand that product quality is very important and as we discovered in our report exclusivity is also a key factor.

“With Johnny Walker Blue we were very keen on restricting the amount of bottles we produced. I don’t want it in your average bar, there has to be a rarity to it. (If I can just go online and buy a luxury product … that diminishes the experience and therefore the price that you can achieve with that offer)”.

In light of this we asked the “$64,000 question”: what if you want to maintain exclusivity but reach a wide audience?

“The point is where you strike the balance between having enough of the audience but also having the aura of exclusivity. If you pursue exclusivity at the ultimate level, there is only one brand! Clearly that is not going to be economic and it won’t be an enduring relationship with your consumers. Equally, if everybody can access the product, because the distribution is so easily accessible, you will erode the degree of luxury attached to a product.

“If we move to more accessible luxury, for instance craft beers in the US, they are clearly at a premium price in the beer category; whether you attach the luxury tag is a different matter. But at what point does the scale of the brand argue against it being craft? There is a point in the eye of the consumer whereby ’hang on I can get it anywhere…’  and the brand becomes mainstream. And when it does, your pricing power and your margins will contract.”

Building on this it felt natural to stir the conversation with an analysis of the use of celebrities that certain luxury brands use to publicise their product to a wider audience.

“Celebrities come with a lot of a baggage. If you take Audrey Hepburn and Tiffany, there is so much power in that affiliation. In my marketing days I relied on celebrities, but you have to be careful. If you use someone to promote a very expensive product and that someone is photographed falling out of a nightclub inebriated at 3am, it kills all the equity that I put into that particular brand. So, I’m exposing my brand to a level of influence that is way beyond my control. And I think that brand marketers make that move with great circumspection. I’m not saying don’t do it, but do it with caution.”

So, how do luxury brands build trust?

“A cornerstone has to be through quality, if you walk into a Hermes store you can see the reinforcement of that proposition in the furniture. Look at the offering, they are beautiful products… it exudes quality. That’s part of how you build trust. I have not seen Hermes use a relationship with a famous person directly. I’ve seen celebrities with Birkin bags and the brand has been able to ride the fame of celebrities without been attached to them.”

What could be another cornerstone after quality?

“Relevance… Hermes in its day did incredible high-quality saddles and leather items. But you’ve got to evolve and now we have incredibly high-quality belts. They moved very subtly, they are a Galliano - at the cutting edge of fashion. They move at very controlled pace with a level of subtleties that appeals to consumers like me. So, relevance, paced innovation subtlety, but underlying quality and customer service.”

Lastly, we asked about the future of luxury brands…

“Luxury brands will continue to do very well as long as those brand owners keep a level of exclusivity around them. I think once you start to go very mainstream in your distribution this will begin to erode the credential of the brand. This doesn’t happen overnight, it could take many years. Maybe the first five years are fine, but all of a sudden there is a tipping point where it starts to go and in my experience it’s a lot harder to pull it back at that point.”

These valuable insights would be more than enough, but we have more to share. In the next post, we will talk about luxury counterfeits and the motivations behind buying fake luxury products, including more of Paul Walsh’s fascinating insights.

If you enjoyed this article and want to learn more about loyalty in the luxury market, you can download our full report Luxury, Loyalty & Experience.