Introduction
'Before we start the interview about your new product, let me tell you a story someone recently recounted to me' said the journalist in the elegant London restaurant. 'I was told...' continued the journalist, '...that an extremely wealthy executive was seen playing enthusiastically with their Vertu mobile phone handset whilst waiting at the airport when suddenly a ringtone sounds. Reaching into his pocket, the wealthy executive removes a battered old iPhone and answers the call.'
Massimiliano Pogliani smiled politely as he dabbed the corners of his mouth with his napkin. As CEO of Vertu, the luxury mobile handset manufacturer, he was used to people challenging the value of his company's products. And, sitting in this exclusive restaurant in Mayfair, London, this was one of those moments. He was meeting a journalist to discuss his plans since taking over as CEO of the company, but had just had to listen to the story about the 'battered iPhone'. Whether true or apocryphal, the story had long been associated with Vertu; Pogliano had heard it many times over his years with the company, as Chief Marketing Officer, and now, as CEO.
The journalist smiled and asked Pogliani if the story summed up all that was both appealing and appalling about the brand; that it was the height of luxury, in a category driven by technology. Waiting for the main course to arrive, Pogliano neatly folded his napkin back onto his lap and looked directly at the journalist.
'If you're ready, shall I tell you about our plans for the company?'
Background
Against a backdrop of dizzying technological developments in the mobile handset market over the last 20 years - from Nokia's phenomenal success at the start, to Apple's and Samsung's dominance today - Vertu has quietly been building its presence within the sub-category it defined in the late 1990s: the 'luxury handset' category. The category refers to mobile handsets that cost thousands of euros to buy (see Fig.1.).
Originally a sub-brand of the Finnish handset maker, Nokia, Vertu was sold to the British private equity group EQT in 2012. From its sleek headquarters in Hampshire, UK, the company need not disclose figures, thanks to its private equity ownership status, but does state that the group has always been profitable, and in 2012 generated revenues of nearly €300m. In the last ten years, analysts estimate the company has sold 370,000 units. In comparison, Apple sells approximately this many units every day. However, Vertu - as a niche, luxury brand with a loyal customer base - has never attempted to chase high sales volumes figures. Instead, it has focused on targeting a niche user: high net worth, social status-seeking, with a demanding, international lifestyle. Increasingly, the company is focusing on this profile of consumers in fast-growing economies in Asia.
Product
The range of Vertu handsets is by no means extensive, but it is certainly expensive, with some models fetching prices in excess of €20,000. In 2013 the company launched their 'entry-level' phone - the Vertu Ti (see Fig. 2) - still at the high starting price of €4000 and more than five times more expensive than the highest-priced mass-market smartphone1. The company argues that what people are buying for this price, is superior craftsmanship, and the experience that goes with this - not dissimilar to the purchase of a luxury wristwatch, which combines design, status, and functionality.
References to watches are frequently made in the context of Vertu, with some analysts seeing the 'luxury handset' category as attacking the luxury watch category. To support this argument, one of the world's leading watch companies - TAG Heuer - recently updated its range of Meridiist smartphones, with starting prices at around €4000. Christophe Behling, TAG-Heuer's head of design certainly sees the luxury handset as a new luxury accessory; '...for decades, a beautiful watch was the most personal product on a person's body - in the 21st century, that became the phone'. 2
But others are less sure; Mimma Vigliezio, a leading luxury brand consultant muses; 'Does it really work as a luxury brand? The brand is beautiful, and the phones are beautiful but in my mind, it's still a phone. At the same time, however, Vigliezio acknowledges, '...everybody knows it's an outrageously expensive phone. I can see it compete with a car as a status symbol'. 3
The costs to produce the handsets are high. Each handset is handmade by a single worker, who then signs their name on each handset with a laser. This is a far cry from the production line approaches used to produce iPhone, Galaxy, and their mass-produced peers. As CEO Pogliani says; 'It's a big [part of the] value of the brand, to be handmade in Britain. You cannot do this on a production line.'4
Every handset comes with a sapphire screen and offers the most powerful encryption protection available outside military circles to safeguard against hacking, as well as panic buttons that transmit a distress signal should the user get into trouble.
The handsets also feature an inlaid ruby button that connects the user to services, such as VIP offers at restaurants. The more expensive models also come with a wider range of services, accessed via the handset. These are summed up by Pogliani: 'Alongside the strong physical attributes of Vertu, is the service proposition - a set of curated services and offers, in many cases unique to our customers fulfilling all of their needs, and beyond.'5
However, some analysts question the value of these services, arguing that many people who can afford the handsets also have large entourages who can get into any restaurant, onto any flight, and out of any difficult situation. In other words, they don't need the concierge and VIP features offered as part of the Vertu proposition.
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1 Luxury phones try to get smart. Financial Times, November 2013
2 ibid
3 ibid
4 Consumers desire sensory brand experience. Luxury Daily. June 17th. Accessed January 2014.
5 Financial Times, November 2013
Is beauty only skin deep?
Despite the use of only the best materials and high-end craftsmanship, the brand has suffered due to one legacy issue from its Nokia founder: a reliance on an outdated, Windows-based operating system. Analysts speculate that this reliance has cost the company sales over the last eighteen months, as new smartphone producers have moved ahead with more flexible and better supported operating systems, such as Apple's iOS and Google's Android. However, in 2013, the company moved across to using a version of the Android operating system in all of its handsets.67 At this moment in time, there is no plan to customize the operating system for Vertu users, meaning users have access to the same Google-approved apps as other Android handset users.
Increasing competition
Although Vertu created the sub-category in the late 1990s, there are now a number of competitors. As well as Meridiist from TAG-Heuer, there is also Swiss watchmaker, Ulysse Nardin, with the Chairman handset (retailing at $170,000), as well as Gresso, Mobiado, and goldfish. Each of these luxury brands offers a combination of features typical for this category: price, quality, functionality and variety (see Fig. 3). However, Vertu is confident the new handset, the adoption of the Android operating system, and the complete independence from Nokia8 puts them in a strong position to weather the increased competition and continue to enjoy increasing sales9. In addition, the extension of its 6-year high-profile partnership with Ferrari (with a limited edition of the new Ti handset in Ferrari Red - see Fig. 4)10, its commitment to promotional activities such as special VIP parties events and celebrity endorsements have assured management that the brand is in a strong position.
Vertu brand positioning
Vertu does not see itself as a phone brand. Instead, it considers itself a luxury brand that makes handsets. As Pogliani states; 'We don't want to compete with mass-produced smartphones; that is not our arena. My competitors are a night at the Four Seasons, a bottle of Bordeaux. It's an experiential luxury for people who don't want the same smartphone as everyone else like they don't have the same watch, or [take] the same vacation.'11
As such, Vertu's positioning is anchored around the twin qualities of the luxury experience and strong performance: 'the unique experience and a life beautifully arranged.' This positioning is encapsulated in the new €4000 Vertu Ti, as Pogliani argues; '[The] Vertu Ti is the first Vertu handset that can genuinely act as your sole device, meaning you can leave the house in the morning with only this. Our handsets are a sensory experience for our customers - the materials, the clarity of the screen and the quality of the audio'.
Extending the Vertu experience
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6 The handsets currently run Ice Cream sandwich, not KitKat, the latest Android version.
7 Performance with the new OS seems to be paying off: http://www.wired.co.uk/news/archive/2013-02/12/vertu-ti-launch
8 Nokia retains 10% stake in the company, but holds it purely as an investment, with no strategic input.
9 Interview with Chairman, CNET, 2013.
10 Vertu and Ferrari continue partnership with new limited-edition smartphone. Luxury Daily. August 2013. Accessed January 2014.
11 Financial Times, November 2013
Alongside the introduction of the new Ti handset, and in line with its focus on superlative experience, the company is also extending its physical retail presence, with the plan to open 49 new stores, from 2014. For Pogliani, the store experience is a key component of the overall brand experience:
'Since its inception, the Vertu boutique experience has been central to the company's overall proposition. When a customer walks into a Vertu boutique, we want their experience to reflect the premium and luxurious nature of a Vertu phone. The same attention to detail that you see in Vertu product design and craftsmanship is apparent in both our boutique design, as well as in our customer service before, during, and after purchase.'
Vertu boutiques are designed to look and feel like intimate art galleries, where the handsets themselves are works of art (see Fig. 5). Recent highly targeted mobile marketing campaigns have been run to increase foot traffic to the stores, with great success.
Finishing his third coffee (as an Italian, he still could not get used to the taste in the UK), Pogliani rose from the table in the Mayfair restaurant and shook the hand of the journalist to say goodbye. He was excited about the launch of the new Ti handset, about the move to the Android operating system, as well as the ambitious plans to dramatically increase the number of Vertu stores worldwide, and realized his meeting with the journalist has overrun by nearly an hour due to his enthusiasm. Removing his own Vertu Ti from his jacket pocket, he quickly checked his agenda to see how late he now was for his next appointment, to scan his emails and to see where his chauffeur was waiting. The process was interrupted by a ringtone. Without hesitating, Pogliani put the Vertu handset to his ear and answered the call.
Table 1. Vertu prices (from UK retailer, €, $ conversions 30.1.14).
|
Handset Model |
£ |
€ |
$ |
|
Constellation Mocca |
4,200 |
5125 |
6900 |
|
Ti Pure Black Diamond |
13,200 |
16100 |
21700 |
|
Signature Pure |
11,500 |
14000 |
18900 |
|
Ti Black Aligator |
8,900 |
10800 |
14600 |
|
Ti Pure Black |
7,900 |
9700 |
13000 |
|
Ti Ferrari |
10,600 |
13000 |
17400 |
|
Ti Gold Mixed Metals |
13,900 |
17000 |
22800 |
