Luxury Brand Marketing Keynote - Brand Masterclass Week 3

Luxury Brand Marketing Global Senior Executives Forum Idris Mootee CEO Idea Couture Inc. Cologne 2005 © Idris Mootee 2004

What is luxury brand marketing? © Idris Mootee 2004

What’s ‘luxury’? © Idris Mootee 2004

Definitions…. If everyone owns a particular brand….it is by definition not luxury Luxury is about the quantity or a vast array of expensive goods Luxury is partly derived from technical superiority Luxury is partly derived from unique craftsmanship Luxury is to project certain social status or wealth Luxury is satisfy certain role-playing aspects Luxury is to satisfy an emotional desire with subjective intangible benefits © Idris Mootee 2004

Brand marketing in the luxury business is tricky—it means (sometimes) creating desire for things that no one really needs and charging a lot of money for them. © Idris Mootee 2004

Is economic terms, luxury products are those who can consistently command and justify a higher price than products with comparable functions and similar quality. In marketing terms, luxury products are those who can deliver emotional benefits which is hard to match by comparable products. © Idris Mootee 2004

One challenge is whether a niche player can move outside of their niche, or expand their niche without destroying their brand in the process Another challenge is once it can successfully move out of the niche, how far can it goes until it becomes mass. Is there something call “massclusitivity”? © Idris Mootee 2004

Is there a winning formula? © Idris Mootee 2004

LVMH CEO Bernard Arnault has a winning formula: Sharply define the brand identity—or quot;DNA,quot; as he puts it—by mining the brand's history and finding the right designer to express it; tightly control quality and distribution; and create a masterful marketing buzz. © Idris Mootee 2004

When H&M brought in Chanel designer Karl Lagerfeld to dream up a collection. Customers formed huge lines waiting for H&M stores to open, and many items sold out before lunch. They then did it again with Stella McCartney. © Idris Mootee 2004

Examples include Audi, BMW and Mercedes. These are the leaders of the luxury automobile world, playing mainly in the $40-$100k price range. The question is how serious is the issue of brand dilution ? © Idris Mootee 2004

Other examples in fashion include LV, Gucci, Coach and Prada etc.. These are the leaders of the fashion and leather goods world, playing mainly in the $1,500 plus price range. The question is how serious is the issue of brand dilution ? © Idris Mootee 2004

“The market dynamics have changed. It used to be clearly defined by how much you can afford. Before, if you belonged to a certain group, you shopped at Wal- Mart and bought the cheapest coffee and bought the cheapest sneakers. Now, people may buy the cheapest brand of consumer goods but still want Starbucks coffee and an iPod.” Idris Mootee © Idris Mootee 2004

Massification of Luxury Brands is happening across a broad set of categories. Almost every marketer needs to think whether they have a Luxury Market Strategy in place. The big question is - who can effectively capture this segment in your category? © Idris Mootee 2004

We have a surplus of similar companies, employing similar people, with similar educational backgrounds, working in similar jobs, coming up with similar ideas, producing similar things, with similar prices and similar quality. - Kjell Nordstrom and Jonas Ridderstrale Funky Business © Idris Mootee 2004

We also have a surplus of similar brands, with similar similar marketing brand attributes, messages, making similar brand claims, with similar quality, selling at similar prices. Welcome to the Surplus Economy! © Idris Mootee 2004

What’s causing the shift in consumer behavior towards luxury ? © Idris Mootee 2004

McDonaldization and Wal-Martization is everywhere. Individualism and diversity are replaced by efficiency and social control. The principles of the fast food restaurant are dominating our everyday lives. © Idris Mootee 2004

Rocketing is getting more common. More people are spending a disproportional amount of in a category of great meaning to them. In order to trade-up, they also downsize to maximize. © Idris Mootee 2004

TV news are increasingly depressing. People are taking a lot of stress these days. 24/7. Thanks to CNN and the information technology revolution, we’re bringing a lot of undesirables into our homes. © Idris Mootee 2004

For the first time drastic increased of liquidity in luxury goods. The distribution or redistribution of these products is greatly expanded……. the luxury long tail. © Idris Mootee 2004

Towards a relaxed and uncluttered lifestyle. Middle-aged yuppies once surrounded by too much stuff acquire over the years, so a strong desire to make life simply life. © Idris Mootee 2004

As wealthy consumers get richer, older and wiser, they are increasingly foregoing ownership of luxury assets, while still getting what they want slice-by-slice through membership programs. Many will prefer ‘pay-as-go- luxury' as the way ahead. © Idris Mootee 2004

Bag Borrow or Steal is an online co. that works like a Netflix for handbags: Customers pay a monthly fee for access to a collection of authentic designer handbags. Membership levels ranging from Trendsetter ($19.95) to Diva Deluxe ($174.95). Members may borrow the bag for as long as they like. Option to buy the bag at a discounted price is available. © Idris Mootee 2004

What is happening is the developed economies are going through a dematerializing process, one in which intangibles such as design, creativity, meanings and entertainment play more staring role than manufacturing. © Idris Mootee 2004

The massification-of-luxury players Luxury-by-Birth Luxury brands remain true to their heritage and stay expensive and exclusive State of the art Niche market players Luxury brands broaden technologies position position themselves as markets and develop as a form of luxury luxury brands multiple brand extensions Popular brand names Popular brand names develop/acquire up-market using ‘luxury’ as a form of brands differentiation Value–at-Heart © Idris Mootee 2004

The massification-of-luxury brands Super Luxury Luxury Ultra Premium Near Luxury Super Premium Affordable Luxury Premium Upmarket © Idris Mootee 2004

The value shift YESTERDAY TODAY Brand Brand Leadership Leadership Make More Money Make More Money Cost Leadership Cost Leadership © Idris Mootee 2004

In older cultures, the limited production capacity of the economy sharply reduced aspirations to material comfort. In this surplus economy, much greater material satisfaction lies within the reach of even those of modest means. Thus a PRODUCER culture becomes a CONSUMER culture. © Idris Mootee 2004

Now we all fit into brand communities, no longer divided by “wealth, birth, political eminence” but by consumption. For marketers, brands and products now need to be positioned to be bought, not made. © Idris Mootee 2004

Living is more of a question of what one spends than what one makes. - Marcel Duchamp © Idris Mootee 2004

For many, what you buy is now more important than what you make, luxury is not a goal anymore, for many it is simply a necessity. © Idris Mootee 2004

In 1996 the German journal ‘Parfumerie und Kosmetik’ (Perfumery and Cosmetics) published an article with heading “Fragrance, Prestige or Mass – The end of the beginning?”. The article dealt with the blurring of the boundaries between prestige and mass perfumes. Is that happening? How does that impact your industry? © Idris Mootee 2004

Prada is suffering from the same misfortune as Burberry: the 'curse of chav'. Top clubs in Manchester have banned people wearing Prada hi-top trainer-style shoes from entry because they have become associated with local street gangs. © Idris Mootee 2004

Marketing executive survey Do you think that this massification of luxury trend creates more opportunities than threats? Luxury goods 85% Automobile 79% Travel and hospitality 68% Personal Care 62% Sporting Goods 51% Watches and jewelries 45% Source: Survey conducted between March-April 2004 with 250 senior marketing executives conducted by Strategy Architects Inc/ INRA © Idris Mootee 2004

Marketing executive survey Do you agree that this massification of luxury is a major consumer behavioral shift and not a short term fad? % YES 87% Luxury goods 92% Automobile 74% Travel and hospitality Personal care 67% Sporting Goods 45% Watches and jewelries 67% Source: Survey conducted between March-April 2004 with 250 senior marketing executives conducted by Strategy Architects Inc/ INRA © Idris Mootee 2004

Marketing executive survey . . . Do you think that your organization are poised to take advantage of this shift? Luxury goods 53% Automobile 86% 54% Travel and hospitality 55% Personal care 42% Sporting Goods 43% Watches and jewelries Source: Survey conducted between March-April 2004 with 250 senior marketing executives conducted by Strategy Architects Inc/ INRA © Idris Mootee 2004

Marketing executive survey . . . What do you think are the key challenges to capture these opportunities? Brand dilution 76% Customer segmentation 74% Market definition 63% Senior mgmt support 43% 41% Product innovation 34% Market validity Source: Survey conducted between March-April 2004 with 250 senior marketing executives conducted by Strategy Architects Inc/ INRA © Idris Mootee 2004

The brand pyramid Massification of Pure Artist, Creator and Unique Creation. Not Scalable Business Luxury Brand The Luxury Brand Exclusive, Prestige Image, Highest Quality and Service. Professional Management The Leading Brand Mass Produced, Best Quality in Category. Enjoy Market The Quality Brand Share Leadership Mass Produced, Good Overall Price/Value Brand / The Better Brand Image Equation Luxurification of Constantly Under Cost Pressures, Just Another Brand Unable to Build Brand Equity, Usually Mass Markets Outside of the Top Three in Market Share Leadership © Idris Mootee 2004

Strategic response to the luxury markets (Traditional) high Price and Exclusivity Special Limited Editions Extended The Luxury Product Core Range Low low Purchase Frequency high © Idris Mootee 2004

Strategic response to the luxury markets The Distinctive high Luxury Price and Exclusivity Experience Extension The Essential Luxury The Affordable The Luxury Luxury Core Low low Purchase Frequency high © Idris Mootee 2004

Many companies, while delivering excellent products, create great advertising, sometimes does not have any influence over the customer experiences. But as product differentiation continues to blur, the smarter luxury goods and services providers will start taking of what Neiman Marcus, Ritz-Carlton, Maybach, Giorgio Armani and Apple already know - that the customer experience is the most critical aspect of the luxury business model. © Idris Mootee 2004

Today mainstream marketing is too obsessed with rigor, quantification and scientific rectitude that it has totally lost sight of the most important part of marketing…… imagination magic & mystery © Idris Mootee 2004

Marketing in the age of accelerated meaning The consumption of symbolic meaning through the use of marketing communications and consumer communities as a cultural commodity, provides the individual with the opportunity to construct, maintain and communicate identity and social meanings. © Idris Mootee 2004

Most of us feel an occasional growing emptiness somewhere in the space between the heart, mind and groin. Luxury items provide us with some short term relief to these emptiness….much like Tylenol does to our headaches and Viagra to ED. © Idris Mootee 2004

and therefore ……. Marketing becomes the ultimate social practice of postmodern consumer culture, it now plays an important role in giving meaning to life through consumption. © Idris Mootee 2004

Evolution of consumerism It all begins with a need and then feeling anxious about resolving it. Then the experience ends, if successful, with a feeling of relaxation or satisfaction. It does not really satisfy the need, the process is then repeated until it abates. We judge the act by the experience. We have gone from product to process, from problem resolution to emotion seeking, from object to experience. © Idris Mootee 2004

We are live in a world of intrusive technologies. And technology accelerates change. Technology also allow manipulation, giving us a false sense of reality and shortens product life-cycles. Even our self-identities become more fluid. Majority of us allow ourselves to be defined by an external world that is morphing at rapid speed. Technology will soon be able to allow us to enter a parallel world where we can manifest our self-identities. In 3 years, over 50% of this world population will have exist as an avatar of some form that resides in a digital space. Implications? © Idris Mootee 2004

Implications: We’ll be more and more focused on desires and gratification. Not so much objects, but of experiences that provide sensory gratification. The future society will be interested on sensory gratification (pleasure, sensation and comfort). Marketing will become more intrusive and manipulative. © Idris Mootee 2004

Concepts for explorations Real versus the Imaginary Material versus the Symbolic Social versus the Self Desire versus Satisfaction Rationality versus Irrationality Materialism versus Spiritualism © Idris Mootee 2004

How real is the unreal? Real vs. Imaginary Consumption sometimes operates at a level of the imaginary, but it can also have real effects in facilitating the construction of self-identity. © Idris Mootee 2004

Selling illusions ? Material vs. the Symbolic Just as a product fulfills its ability to satisfy a mere physical need we enter the realm of the symbolic, and it is symbolic meaning that is used in the search for the meaning of existence. We become consumers of “illusions”. © Idris Mootee 2004

Our Possible Selves? Social vs. Self The function of symbolic meanings of products operate in two directions, outward in constructing the social world – social-symbolism – and inward towards constructing our self-identity: self-symbolism. In other words, using products to help us become our “Possible Selves”. © Idris Mootee 2004

Selling the Unobtainable? Desire vs. Satisfaction Advertising often provides gratification and recodes a commodity as a desirable psycho-ideological sign. In fact, it feeds the desire to sometimes the unobtainable. Visuals are powerful because they never satisfy. Meaning is created through continuous search for links between identity (social) and the self. © Idris Mootee 2004

Solution for the Empty-Self? Rationality vs. Irrationality The expansion of “wants” reduces our choice to “want not” and sometimes makes the very idea of rational choice become meaningless. We’re in the era of the “empty-self” in which alienation can be solved by the “lifestyle” solution in which we construct a “self” by purchasing even of limited rationality. © Idris Mootee 2004

The world of plenty Materialism vs. Spiritualism We use all kinds of tools everyday. We are tool users and tools are not the end but he means. So materialism does not crowd out spiritualism; spiritualism is more likely a substitute when objects are scarce. When we have fewer things, we make the next world luxurious. When we have plenty, we enchant those objects around us. © Idris Mootee 2004

Massification of luxury goods - Impact on industries Sneakers Highly Polarized Sports Gear Market and Diminishing DVDs Mid-Market Toys TVs Chocolate Handbags Watches Coffee Ice-Cream We have no choice but to pay more for Tea premium brands Automobile Power Tools Take Home Cosmetics Meals Personal Care Digital Bakeries Camera We have no reason Kitchen Mineral to pay premium Appliances Water Cooking Airline prices as there are Growing Mid-Market Utensils plenty of choices Demand for Near- Home Luxury Goods Furnishing Low High Speed and Intensity of massification © Idris Mootee 2004

Value drivers of the fashion and luxury goods industry today Portfolio management – strategic focus Emerging markets – land grabs Channel optimization – retail transformation Dealing with counterfeit – technological solution Push advanced functionality – technological innovation Technology-enabled creativity – design innovation © Idris Mootee 2004

LVMH Brands EBIT (2004) Euro (m) Sales EBIT EBIT margin LV 3056 1301 45% Fendi 211 -30 -14% Donna Karan 265 0 0% Other 830 -32 -4% Portfolio Management Portfolio management – strategic focus vs. diversification Star performers usually contribute average 42% of total profits It is rare for any holding company to have more than one star Gucci Group (PPR) 8 out of the 10 brands were losing money in 2004 © Idris Mootee 2004

Emerging Markets A study by Merrill Lynch has shown that China and Japan will dominate more than half of the luxury fashion market in 10 years' time. Thereby the two Far East superpowers will surpass Europe and the US. Merrill Lynch revealed that China currently has an 11% stake in the EUR82 billion luxury fashion market. By the time 2014 rolls around this market will have grown to EUR133 billion, and China will have a 30% stake in it. This will leave Japan in second place with 21%, with Europe and the US following in third and fourth place with 20% and 17%. © Idris Mootee 2004

Sales per SQM 2003/2004 60000 50000 40000 30000 20000 10000 Euro LV Hermes Dior Gucci Others Channel Optimization Channel optimization – retail transformation Transform a franchise to retail makes economic sense since it allows capturing additional gross profit Technology allows the creation of virtual customer experience and new channel © Idris Mootee 2004

Idris Mootee Danke Gracias Merci Thank you Grazie Arigatou-Gozaimasita Idris.Mootee@Blastradius.com or imootee@highintensitymarketing.com © Idris Mootee 2004

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Luxury Brand Marketing Keynote - Brand Masterclass Week 3

by Idris Mootee

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Luxury Brand Marketing Keynote - Brand Masterclass Week 3 Presentation Transcript