January 18th, 2011                          LITERATURE REVIEW :Maintaining the mystery of the luxury brands whilst maximiz...
INTRODUCTIONThe first ideas that come to mind when evoking luxury products are often quality,exclusivity and prestige. A l...
THE LUXURY BRAND, MORE THAN JUST A BRANDCharacteristics of a luxury brand : attributes and benefitsA luxury brand presents...
-   the third one, in addition to beauty and magic, will insist on the timelessness of the        products (e.g Louis Vuit...
advert. In other words, in these « moments of truth » - moments of contact or interactionbetween the customer and the comp...
BE CREATIVE AND INNOVATIVE TO IMPULSE FURTHER PURCHASE FROM EXISTINGCUSTOMERSAs mentioned above, the consumer of luxury go...
make sense anymore with the idea of elegance, prestige and exclusivity of a luxury brand,and ultimately damage the brand i...
REACH NEW CUSTOMERS WITH A DIFFERENT POSITIONING : MARKET DEVELOPMENTLooking at Ansoff’s MatrixGrowth means market penetra...
increasing importance of emerging markets (China in first line), and in this persepectiveneeded to adapt to these new cons...
CONCLUSIONAs a conclusion, luxury brands are a combination of tangible and intangible elements thatconvey a codified, symb...
Atwal, G. and Williams, A. (2008) Luxury brand marketing – The experience is everything !Journal of Brand Management, Vol....
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Maintaining the mystery of the luxury brands whilst maximizing sales, an international strategy (literature review)

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Transcript of "Maintaining the mystery of the luxury brands whilst maximizing sales, an international strategy (literature review)"

  1. 1. January 18th, 2011 LITERATURE REVIEW :Maintaining the mystery of the luxury brands whilst maximizing sales, an international strategy. By Aurore PAK IMiM M2 - International Marketing Tutor : Ms. Katrina PANCHOUT
  2. 2. INTRODUCTIONThe first ideas that come to mind when evoking luxury products are often quality,exclusivity and prestige. A luxury brand is also associated with a universe, a world that ischaracteristic of a state of mind, a style or a lifestyle, or a strong personality. But there isalso a part of dream and magic in the luxury brand, a part of mystery that makes itssingularity.Obviously luxury brands also include a more down-to-earth aspect that is price. Thepremium positioning provided by a strong brand image, a promise of consistent high qualityof the products and services offereed, but also the feeling of uniqueness contributes andjustifies the premium pricing. Hence, the target segment primarily aimed by luxury brandsare the higher-end consumers, who look for expensive products that carry an image, aguarantee of premium quality and exclusivity.Here, the question of growth perspective is naturally raised. How can a luxury brand makemore sales with a customer targeting that is apprently highly selective, and so limits thesize and characteristics of the segment targeted ? On the other hand, if the luxury productis made more widely accessible, is it still luxury ? How not to alter the brand nor itsperception ?Although we are conscious that luxury brands not only refer to fashion haute couture andfine jewellery but also cover wines, cars and boats, hotel businesses etc., for a matter ofrelevance, this paper will mainly focus on the first two categories as they present similarcharacteristics from the marketing and branding point of view in terms of customerprofile, positioning and communication strategy.In this perspective, we will first try to define what makes the essence of a luxury brand.We first need to understand what is indivisible from the luxury brand before discussing thedifferent ways to maximize sales by innovating either to encourage more purchase fromthe existing customers, or expanding the target segments to new customers.
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  3. 3. THE LUXURY BRAND, MORE THAN JUST A BRANDCharacteristics of a luxury brand : attributes and benefitsA luxury brand presents all the characteristics of a brand that are : a name, a symbol, adesign, or a combination of all these elements to identify the good or service offered. Thebrand is a guarantee of quality as well as it reduces the risk of cognitive dissonance. Thecustomer will not, after purchase, go into considerations that will include the possibility ofan alternative purchase that might have been better.However, to these elements which allow the differentiation of a brand from another, theluxury brand adds a dimension of high respect for the brand, of prestige, exclusivity,sometimes sophistication and rarity that provide the luxury brand a « desirability thatextends beyond their functional use-value », as Uggla and Asberg would say.Uché Okonwo speaks about passion more than reason : luxury is about creativity andoriginality that is almost considered an art. Okonkwo goes even further by saying luxury« is an identity, a philosophy, and a culture ».All will concur to Keller’s view that luxury branding involves the creation of intangibleassociations and aspirational image. The associations such as quality and uniqueness thatare hard to access also contribute to a symbolic of status and success shown through thetangible product. The idea of a conspicuous consumption, combined with a feel-goodfactor that can be personal and/or emanates from the need to feel part of a social group,is obviously one of the main motivations for luxury purchase. So is the trust in the qualityand search for uniqueness in a luxury brand.In addition to these associations there is often a part of heritage in the luxury brand. It hasa sense for excellence, an idea of transmission of experience, a savoir-faire, and all theseadd value to the product.At this stage, as Uggla and Asberg pointed out, it is important to differentiate traditionalEuropean luxury brands from American luxury brands. Indeed, while European luxury, inwhich category we could mention Chanel, Dior and Yves Saint Laurent, have a real historybehind the brand – with the personality and background of the designer that is asimportant as the other aspects and symbolics carried by the brand-, American luxurybrands such as Ralph Lauren or Tiffanys « invented brand stories » and created a specificatmosphere peculiar to the stores of the brand. In this respect, the country of origin is aninteresting aspect that, when appearing as a complement to the brand’s name or simplywhen the brand is associated with a country reputable for its long-time expertise in therelevant domain, often supports and reinforces the brand as a luxury brand. An eveningblack dress made in Paris will be immediately associated with French chic, haute coutureand glamour when the evening dress made in China will resound cheap workforce and lowquality. These secondary association, as Keller would call it, links the brand to a positiveassociation with a personality, a place, a event, and so on and so forth.Another point that needs to be highlighted is the fact that luxury brands can be put intodifferent categories regarding the level of importance the consumer gives to particularassociations or features attributed to the brand. As reported by Uggla and Asberg, thereare four types of luxury brands: - the first, ranking ‘beauty of the object’, ‘excellency of the products’, ‘magic’ and ‘uniqueness’ as the most important components (eg. Cartier, Hermès) - the second giving more importance to ‘creativity’ and ‘products sensuality’ (eg. Gucci, Alexander Wang)
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  4. 4. - the third one, in addition to beauty and magic, will insist on the timelessness of the products (e.g Louis Vuitton, Burberry, Dunhill) - and finally the fourth, appreciating the exclusivity of an original brand that might not appeal the majority of (luxury) consumers (e.g Vivienne Westwood)A prestige pricing for a prestige consumerAs there are different types of luxury, there are different luxury customer profiles. Fromclassic to extravagent, the image the customer wants to express through his/her purchasemay be different from a person to another. This can be the expression of a personality, ofa status, of achivement. However, the luxury consumers generally gather around commonpsychographic and behavioural traits, which nonetheless need to be nuanced. Soon-hwaChoi distinguished three groups : the « Absolute consumer », the « Trigger consumer », andthe « Bandwagon consumer ».The « Absolute consumer » represents the top 0.5% of the population in terms ofdisposable income and often occupies leading positions at a world level. This consumer isnot sensitive to economic downturns and not price sensitive at all, and is even looking forthe most expensive items seeking extreme exclusivity. Choi defines it as « Discreteconsumption ».The « Trigger consumer » group is characterised by a high level of education and highdisposable income. It is a trend setter but at the same time sensitive to popular luxurybrands. In this group, it is necessary to differentiate the « Trigger consumer » of thetraditional luxury markets – the major markets –, who is brand-loyal, attributing a value tothe product, with a developing importance to social responsibility, against price, from the« New Elitism » of the emerging markets who buys a product in a conspicuous way, withthe intention to flaunt their wealth and power. We also notice that the consumer in theemerging markets is usually younger than the traditional Western luxury consumer, and has« money to burn » while the traditional luxury consumer buys an investment value product.As for the « Bandwagon consumer », it is an aspirationnal group that admires and wants toimitate the lifestyle of richer classes. This group gathers the upper-middle class whomainly buys entry products and adopts a « Self-Comforting Consumption » which works asan emotional purchase, a self-reward or a comforting purchase. This consumer would buy atotally different product, less expansive, rather than switching for a lower-brand version ofthe product.As a consequence, the price positioning of luxury brands is strategic and is widely definedin relation to the consumer they are targeting. Globally, the pricing of luxury is very high,and is accepted by the customers for all the aspects mentionned earlier, which areconsidered as reasons that justify the premium to pay. Price is also be a guarantee ofquality, as the luxury brand embodies this idea of quality, it ensures this quality at allstages of the process from creation to the consumer in situation of use of the product ;which means a high quality product, a service in the stores that is worthy of its reputationand meets or even exeeds the customer’s expectations. Plus, the warrantee and after-sales service of such high-end products is generally much more extended than those of thesame product category.Communicating a luxury brandBut luxury branding also implies the creation of a concept, a universe peculiar to the brandand that the consumer will recognise when in contact with the product whether it is in asituation of purchase or usage, during an event organised by the brand, or in front of an
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  5. 5. advert. In other words, in these « moments of truth » - moments of contact or interactionbetween the customer and the company that gives an opportunity to form or change animpression on the company - are crucial and every detail must evoke the world of thebrand in a positive way.Stimulating the senses, the emotions an the imagery of the consumer are at the heart ofthis process. Adverts for luxury brands are maybe the best example. Printed or on-screen,the product sold by the brand occupies a very little part of the advert. Sometimes theproduct does not even appear but the advert radiates an atmosphere : it is just aninvitation to dream, a feeling the brand wants to communicate. Stores and especiallyflagship stores illustrate this concept as well. There are colours, ambiance perfume,uniforms worn by the personnel that are specific to the brand and differentiate it fromanother brand.According to Atwal and Williams, « the experience is everything ». And indeed, experienceinvolves an interaction between the customer and the brand. This experience is dependanton « Intensity », or the strength of feeling towards the interaction, and «Involvement »,that is the level of interactivity between the customer and the brand. Basically, there arefour zones that Atwal and Williams call : - « Entertainment », where a cultural dimension of the shopping experience is added with restaurants for instance in the Gucci and Chanel flagship stores in Tokyo - « Educational », that implies a high level of involvement and a lower level of intensiveness and where the customer acquires new knowledge or skills - « Escapist », definitely inviting the customer to travel and dream of other places with a high level of both Intensity and Involvement - and « Aesthetic », which is placing the physical evidence (eg. interior design, architecture of the store…) as main element of the experience.Needless to say that the right communication is crucial for luxury brands and requiresmaximum control of the image of the brand.
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  6. 6. BE CREATIVE AND INNOVATIVE TO IMPULSE FURTHER PURCHASE FROM EXISTINGCUSTOMERSAs mentioned above, the consumer of luxury goods is brand-loyal, or at least loyal to thedesire of prestige product purchase. As for any other business, luxury companies need tomake sales, but how to make your existing customer base buy more when the product youare selling has nothing to do with a need but is all about magic, dream, prestige and aboveall exclusivity and uniqueness. What could a luxury brand do, or do differently to manage agrowth when there are apparently tradeoffs to growth ?The question actually is : what would make the consumer buy more from a luxury brand ?Especially in times of economic downturn, but generally as well, the need for luxurybrands is to maintain, or even increase profitability. According to Trigger and Bandwagonconsumers are more or less affected by the economic and financial environment, luxurybrands have two options : focus the effort on Absolute consumers and new rich consumersin emerging markets, who buy the more expensive products of the brand, and/or increasethe number of sales of entry price items.Focus on the high-end consumerThe first option, a quantitative growth strategy (Keller), is to focus both R&D and salesforce on the wealthiest segment, whose shopping habits does not change regardless theeconomic environment and who is ready to spend more if the luxury brand offers asuperior high quality product and service, an even more unique and prestigious productand service. The idea is to enhance brand loyalty and ensure profitability with anincreasing demand emanating from the emerging markets. Within this objective, the ideais to emphasize uniqueness and exclusivity through private shows, limited editions,extraordinary mise-en-scenes. A interesting illustration combining both the extraordinaryand the obvious appeal for China as a huge market for fashion luxury is Fendi’s fashionshow on the Great Wall in 2007.Likewise, the luxury brands’ customer likes to be able to appropriate his/her luxury item.Hence, customization has become more and more widespread. The intention is also toinvolve the customer in the process of creation and reinforces this idea of uniqueness. Inthis regard, the Internet is an essential tool. Beside the advantage of a purchase that canbe made regardless of time and place, it is also a medium of communication for the brandto vehicle an atmosphere and express the values and involvement of the brand in thesociety. Indeed, as mentioned previously, and more generally as the consumption andmentalities are evolving, the New Elitists are concerned by environmental and societalissues. And the corporate website is indeed one of the main places where to communicateon the companie’s actions and involvement (e.g Mont Blanc’s special edition dedicated tosupport the Unicef’s Education programme).Sell more with entry-price productsThe second option aims at increasing or developing entry-price products such asaccessories and cosmetics. Today, not many luxury brands did not develop a line ofaccessories, make-up or perfume. This horizontal extension enables the brand to developlower-priced products primarily intended to a segment that, much larger in terms of size,can afford and want to buy these entry-products to get closer to a group they aspire to beassociated with. This strategy actually places these entry-products, especially thecosmetics, in a category of « Fast Moving Luxury Goods », meaning easily repeatedpurchase. The only risk is to fall into a Pierre Cardin syndrom when the extensions do not
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  7. 7. make sense anymore with the idea of elegance, prestige and exclusivity of a luxury brand,and ultimately damage the brand image.Another remarkable phenomenon is that some luxury brands have developed a concentricdiversification to retain their customers with new experiences and on top of the list : well-being centers and spas (eg. La Bulle Kenzo), and virtual products such as Louis Vuitton’sSoundwalk…Likewise, luxury brands continue to expand the idea of a universe around the brandthrough product categories that touch to the everyday life of its consumer, and going outof the original core competence of the brand e.g branded household linen, furniture(Armani Casa), co-branding with electronics companies on house appliances and mobilephones (Prada for LG, Dolce&Gabbana for Motorola…), cuisine (designers working withprestigious restaurants for the composition of a dessert), cars (Chrysler PT Cruiser LouisVuitton Edition)…Co-branding is hence a quite developed practice, but it has to be used cautiously by luxurybrands since, if not resembling to targeting another customer segment, it is quite close.The luxury partner-brand associates with a brand, usually with lower-prestige brand, andextends its product market this way, which will facilitate the acceptance of a transfer ofthe luxury brand’s image to another product category. However, this collaboration must becoherent. As advocated by Uggla and Asberg, the two brands must either share the samecore value or be a way to « enhance and support optimal resource allocation ». It isobvious that for a random brand, teaming up with a luxury brand presents manyadvantages such as the extention of the brand promise, the support for a premium price,and the reach of new customer segments. But co-branding can be of high interest forluxury brands as well when they associate with a city. When Gucci and New York cityassociated, Gucci had a premium place to set up its new flagship store when New York mayhave attracted more tourists, basically Gucci customers, with high disposable income tospend when in the city.Of course, retaining the existing customer is central, and developping creative, innovativeproducts and concepts is necessary to renew the desire of customers towards a luxurybrand. However, we must be careful when it comes to increasing sales as we quickly face adilemma between growth and luxury image.
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  8. 8. REACH NEW CUSTOMERS WITH A DIFFERENT POSITIONING : MARKET DEVELOPMENTLooking at Ansoff’s MatrixGrowth means market penetration, product development, market development ordiversification, and each strategy implies a different approach. The dilemma comes upwhen the original customer target is extended and pushes the luxury brand to somechange.Keller observed three major tradeoffs : exclusivity vs. accessibility, classic vs.contemporary images of the brand, and acquisition vs. retention of customers. All thesenotions are questionned when the luxury brand is looking for new customers.The notion of exclusivity is probably the most challenged. Indeed, in the case of a marketpenetration, the process involves a change on the price –usually lowered- or on thepromotion –intensified or completely different from the competition-. For luxury brands,targeting segments with a lower income means a significant decrease in price, which couldendanger the brand’s prestige if applied on high-end products. Besides, a lower pricewould potentially be associated with a decrease in quality as well. So do discounts andmarkdowns need to be used with a lot of cautious, as Uggla and Asberg insisted. And it isthe same for the oultlets. And again, as the Internet became a « must have » as acommunication and e-commerce tool for luxury brands, the development of websites suchas Net-à-porter.com on the Net allows more accessibility to a wider customer base.A wider accessibility might be a negatively perceived « democratisation of luxury ». Andthe e-business is also at issue. The willingness to enable the customer to make purchase onthe Internet regardless of the time and place also means a customer that becomes hard toknow and maybe not the right « anonymous brand endorser » as Uggla and Asberg wouldsay. However, we can not ignore the growing phenomenon of democratisation of luxury, orat least a stronger presence of luxury brands in the common sphere. The choice of the useof a website, but also the choice of items to sell on it is crucial. Plus this medium givesalmost no room for push strategies : it is easier to say no to a computer than to asalesperson, not mentioning that it implies to re-consider the physical and senseexperience of luxury. But we must not ignore the fact that from the customization andtime poor luxury customer’s point of view, the use of the website for e-commerce isindispensable.Product development, as with line extensions mentioned in the previous part, allows theretention of luxury entry-price products such as cosmetics, but it also refers to verticalextensions. Armani, in this perspective, succeed quite well starting from high-end GiorgioArmani and Giorgio Armani Privé, to mid-range luxury Emporio Armani, and finally arrive toafforable Armani Jeans and Armani Exchange. A vertical extension can only be successfulwith a clear differentiation between the brands, avoiding both confusion of the customerand a risk of cannibalisation. The other factor of success of this line extension is that theparent brand has not been affected, and even more contributes to the idea of a consistenthigh quality for all the Armani brands.And we mentioned the concentric diversification earlier as contributing to the extension ofthe luxury brand universe to new spheres such as the house interiors and the work places.Adopt a GLOCAL strategyLasst, but not least, the strategy of market development which can be either based ongeographical or socio-demographic criteria. Luxury brands could not be insensitive to the
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  9. 9. increasing importance of emerging markets (China in first line), and in this persepectiveneeded to adapt to these new consumers.As for the Russian consumer, the customer from the emerging markets established a strongrelationship between luxury and status/wealth evidence. To reach these new customers,where luxury is consumed conspicuously, luxury brands had to adapt to make theirproducts even more desirable to these target segments. Hence, the brands designed lineswith bigger logos, more evident signs peculiar to the brand, in other words, less discreteand subtle signs that used to be inherent to the traditional conception of luxury.Besides, what has been noticed on the emerging markets is the educational dimension thatneeds to be very present. The Chinese consumer for instance needs to be told what thecurrent trends consist in, have clear directives to follow these trends, they need to be toldwhat to buy and the way to use the product. And as for the Bandwagon consumers, theyare aspirational groups, with this difference that they can afford buying extremelyexpensive luxury products. And this segment probably constitutes the future biggestmarket for luxury brands as we observe a shift of wealth from the West to the East.
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  10. 10. CONCLUSIONAs a conclusion, luxury brands are a combination of tangible and intangible elements thatconvey a codified, symbolic or meaningful benefit to their affluent customers. And when itcomes to growth, the luxury brands need to be particularly careful about their brandimage, developing strategies that would not harm the brand or devaluate it.With the appearance of a Masstige trend (combination of Mass and Prestige), many luxurybrands (Viktor&Rolf, Karl Lagerfel, Lanvin) have developed partnerships with mid- to low-range price brands, such as H&M or Coca-Cola, without affecting their luxury brand equity.How is the strategy built-up between the brands ? What are the critical success factors ?The perspectives for the luxury industry is also interesting to study further. How to evolveand compose with today’s environment, especially at a time when the possibilities of theInternet still has to be explored and when there is a considerable opportunity on newmarkets – the emerging markets – which would imply to develop new marketing strategies ?REFERENCES
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  11. 11. Atwal, G. and Williams, A. (2008) Luxury brand marketing – The experience is everything !Journal of Brand Management, Vol.16, 5/6, 338-346.Keller, K. L. (2008) Managing the growth tradeoff : Challenges and opportunities in luxurybranding. Journal of Brand Management, Vol.16, 5/6, 290-301.Choi, S.-H (2008) Global Luxury Brands’ Strategies to Fight Recession. SERI Quarterly,Vol.2, 4, 108-111.Okonkwo, U. (2009) Sustaining the luxury brand on the Internet. Journal of BrandManagement, Vol.16, 5/6, 302-310Uggla, H. and Asberg P. (2010) Leveraging the Luxury Partner-Brand : Strategic PortfolioMotives. IUP Journal of Brand Management, Vol.7, 4, 7-19.
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