The Concept of Luxury Brands - Presentation

The Concept of Luxury BrandsPresentation Vol. 2.0by Klaus Heine, 28 December 2011Klaus Heine, TU Berlin, Lehrstuhl Marketing, Steinplatz 2, 10623 Berlin, Germany, Tel: +49.(0)30.314-29.922,, Klaus.Heine@conceptofluxurybrands.com, www.marketing-trommsdorff.de Department of Marketing, Steinplatz 2, 10623 Berlin, Germany, Tel: +49.(0)30.314-29.922,, Klaus.Heine@conceptofluxurybrands.com, www.marketing.tu-berlin.de Technische Universität Berlin Department of Marketing Professor Dr. V. Trommsdorff

Definition of Luxury Products and BrandsThe Concept of Luxury BrandsKlaus HeineTechnische Universität BerlinChair of MarketingSteinplatz 210623 Berlin, Room ST 1.05Tel: +49.30.314-29.922Fax: +49.30.314-22.664Mobile: +49.176.294.230.62www.marketing.tu-berlin.deKlaus.Heine@conceptofluxurybrands.com Please feel free to contact me for any feedback or questions you may have! Technische Universität Berlin Department of Marketing Professor Dr. V. TrommsdorffKlaus Heine – The Concept of Luxury Brands 2

Definition of Luxury Products and BrandsThe Concept of Luxury Brands What are luxury brands not? What are luxury brands? www.conceptofluxury.brands.com Technische Universität Berlin Department of Marketing Professor Dr. V. TrommsdorffKlaus Heine – The Concept of Luxury Brands 3

Definition of Luxury Products and BrandsObjective of this Presentation Definition of Luxury Products and Brands in order to differentiate between luxury and non-luxury products and brands and to distinguish luxury products and brands from similar concepts such as premium and masstige products and brands Technische Universität Berlin Department of Marketing Professor Dr. V. TrommsdorffKlaus Heine – The Concept of Luxury Brands 4

Definition of Luxury Products and BrandsIntensional vs. Extensional Definition► Intensional Definition Extensional Definitionby typical characteristics by identifyingsuch as high price all luxury brandsand superior quality in a directoryHeine, K., The Concept of Luxury Brands. In: Luxury Brand Management, No. 1, ISSN: 2193-1208, Technische Universität Berlin, www.conceptofluxurybrands.com. Technische Universität Berlin Department of Marketing Professor Dr. V. TrommsdorffKlaus Heine – The Concept of Luxury Brands 5

Definition of Luxury Products and BrandsOverview about the Approach to Definition Identification of a basic definition of luxury Color TV Differentiation by type of relativity Clean air… Step 1: Conceptual Framework Luxuries Differentiation by area of research Luxury goods… Semantic Analysis Luxury services Differentiation by market segment Luxury arts… Result: Broad definition of luxury products and brands Selection of types of dimensions / approach to definition Step 2: Dimensional Analysis of existing definitions Analysis Result: Set of requirements for luxury product characteristics Step 3: Operationalisation Identification of dimensions by literature analysis and empirical study Step 4: Result: Definition of Luxury Products and Brands Definition Step 5: Constantly updating the categorization ReviewHeine, K., The Concept of Luxury Brands. In: Luxury Brand Management, No. 1, ISSN: 2193-1208, Technische Universität Berlin, www.conceptofluxurybrands.com. Technische Universität Berlin Department of Marketing Professor Dr. V. TrommsdorffKlaus Heine – The Concept of Luxury Brands 6

Agenda • Basic Definition of Luxury • Major Understandings of Luxury by Area of Research & Broad Definition of Luxury Products • Limiting the Scope of Luxury Products • Operationalization of Luxury Products • Definition of Luxury Products and Brands • Major Types of Luxury Products and Brands • Distinguishing Luxury Products and Brands from similar Concepts • World Luxury Brand DirectoryHeine, K., The Concept of Luxury Brands. In: Luxury Brand Management, No. 1, ISSN: 2193-1208, Technische Universität Berlin, www.conceptofluxurybrands.com. Technische Universität Berlin Department of Marketing Professor Dr. V. TrommsdorffKlaus Heine – The Concept of Luxury Brands 7

Basic Definition of LuxuryWhat means Luxury? – Luxury is a relative Term that could refer to almostAnything or Nothing depending on whom you ask. “The only luxury good I own is my car. It’s a Volkswagen Polo. This is also “Luxury means to me something not everyone can afford.” (Constantin) to have the freedom to set off against the mass – in every way – to maintain a lifestyle that fits me and that is not geared to the mainstream and to social norms. The real luxury for me is to have time and fun with my friends.” (Jasper) “Luxury stands for exclusivity, excellent quality, rarity, differentiation. I am fascinated by luxury watches, since they are a symbol for the love for the detail. Preferably I also would like to say: "I don’t look for the time, I look for my watch." Typical for a woman, I have already an eye on the shoes of Manolo Blahnik. There are women in New York who take the risk of a surgery in order to fit into these shoes. I wouldnt go that far, because I already have perfect feet.” (Chun-Lan) Luxury Product Marketing Class, Winter Semester 2006/2007Source: Statements of the participants of the seminar “Luxury Product Marketing” at the department of Marketing at TU Berlin, winter semester 2006/2007. Technische Universität Berlin Department of Marketing Professor Dr. V. TrommsdorffKlaus Heine – The Concept of Luxury Brands 8

Basic Definition of LuxuryBasic Definition of Luxury „Bad“ (vs. “Good”) Desirable Necessity Luxury Necessity Ordinary Luxury Luxury is anything that is desirable and more than necessary and ordinary.Heine, K., The Concept of Luxury Brands. In: Luxury Brand Management, No. 1, ISSN: 2193-1208, Technische Universität Berlin, www.conceptofluxurybrands.com. Technische Universität Berlin Department of Marketing Professor Dr. V. TrommsdorffKlaus Heine – The Concept of Luxury Brands 9

Basic Definition of LuxuryFrom 1900 to Today to Future – How Definitions of Luxuries change1900 1910 1920 1930 1940 1950• Model T cars • Fur hats • Fur coats • Baseball tickets • Televisions • Color televisions• Pianos • Electric clocks • Movie “talkies” • Canned foods • Air travel • Credit cards• Radios • Fountain pens • Gin • Indoor plumbing • College degrees • Visits to• Hand-cranked • Cadillacs • Vacuum • Refrigerators Disneyland Victorians • Kodak cameras cleaners • Convertibles • Transatlantic • Washing travel machines1960 1970 1980 1990 2000 2050• Stereo sound • Designer jeans • Vacation homes • Internet stocks • Flat-screen • Space tourism? systems • VCRs • BMWs • Palm Pilots monitors • Transatlantic• 35-millimeter • Solar homes • Microwave • Cell phones • Maybach travel? cameras exemplars ovens • Yachts • Eternal youth? • SUVs• Warhol • Junk-bond lithographs portfolios • PC’s • ChampagneSource: According to Sacharidou, The Evolution of Luxury Market, LVMH 2006, p.4. Technische Universität Berlin Department of Marketing Professor Dr. V. TrommsdorffKlaus Heine – The Concept of Luxury Brands 10

Basic Definition of LuxuryThe Types of Relativity: The Relativity of Luxury splits into a Regional, Temporal,Economic, Cultural and Situational Relativity. Situational Regional Relativity Relativity Hierarchic Cultural Relativity Temporal Relativity Relativity Economic RelativityHeine, K., The Concept of Luxury Brands. In: Luxury Brand Management, No. 1, ISSN: 2193-1208, Technische Universität Berlin, www.conceptofluxurybrands.com. Technische Universität Berlin Department of Marketing Professor Dr. V. TrommsdorffKlaus Heine – The Concept of Luxury Brands 11

Basic Definition of LuxuryThese Types of Relativity can be used to determine a General Perspective from whichLuxury should be defined within the Field of Luxury Brand Management. perspective: perspective: normal conditions global Situational Regional Relativity Relativity Hierarchic Cultural Relativity Temporal perspective: Relativity Relativity perspective: upper class present time Economic Relativity perspective: representative for the entire society in developed regionsHeine, K., The Concept of Luxury Brands. In: Luxury Brand Management, No. 1, ISSN: 2193-1208, Technische Universität Berlin, www.conceptofluxurybrands.com. Technische Universität Berlin Department of Marketing Professor Dr. V. TrommsdorffKlaus Heine – The Concept of Luxury Brands 12

Basic Definition of LuxuryAccordingly, the Basic Definition of Luxury may be complemented as follows: Luxury is anything that is desirable and which exceeds necessity and ordinariness. As a general rule, this is defined from a global perspective, for the present and for normal conditions. While the exclusivity of resources is evaluated by the entire society, the desirability of resources and the appearance of luxury are determined by the upper class.Heine, K., The Concept of Luxury Brands. In: Luxury Brand Management, No. 1, ISSN: 2193-1208, Technische Universität Berlin, www.conceptofluxurybrands.com. Technische Universität Berlin Department of Marketing Professor Dr. V. TrommsdorffKlaus Heine – The Concept of Luxury Brands 13

Basic Definition of LuxuryBased on the Extended Basic Definition, there are many Resources that canbe differentiated from Luxury: Example of Non-Luxury Type of Relativity Explanation A luxury in Jakarta, but not from the Clean air Regional relativity perspective of most people A luxury in the 1950’s, but not from Color TV Temporal relativity today’s perspective A luxury for a student, but not from VW Polo Economic relativity a gross-societal perspective A luxury in the hip-hop scene, but Gold teeth grill Cultural relativity not from the perspective of the upper class Might be a luxury after a strict diet, McDonald’s Hamburger Situational relativity but not under normal circumstances Accordingly, the extended basic definition limits the scope of luxury from almost anything to a more reasonable level and therefore already helps to dissolve a large part of the controversies about the definition of luxury.Heine, K., The Concept of Luxury Brands. In: Luxury Brand Management, No. 1, ISSN: 2193-1208, Technische Universität Berlin, www.conceptofluxurybrands.com. Technische Universität Berlin Department of Marketing Professor Dr. V. TrommsdorffKlaus Heine – The Concept of Luxury Brands 14

Major Understandings of Luxury by Area of Research“Luxuries” correspond to the Philosophical-Sociological Understanding andthe broadest Scope of Luxury. Everything we can think of – “Luxuries comprise all resources which are desirable and exceed what is necessary and ordinary.” Luxuries are not necessarily marketable, which means that we can’t necessarily buy/sell them.Heine, K., The Concept of Luxury Brands. In: Luxury Brand Management, No. 1, ISSN: 2193-1208, Technische Universität Berlin, www.conceptofluxurybrands.com. Technische Universität Berlin Department of Marketing Professor Dr. V. TrommsdorffKlaus Heine – The Concept of Luxury Brands 16

Major Understandings of Luxury by Area of ResearchMicroeconomic Understanding: In Microeconomics the Term “Luxury Goods”is established and mainly refers to entire Product Categories.Luxury goods are distinguished from necessary or ordinary goods by consequence-related measures; thusthe luxuriousness of any good is not determined by its characteristics, but by peoples’ reaction (changes indemand) to exogenous stimuli: 1 = High price elasticity (> =1) The demand of (dispensable) luxury goods decreases relatively strongly when prices are rising. = High income elasticity (> 1) 2 The demand of (dispensable) luxury goods (also superior goods) increases relatively stronger than the income. Luxury goods correspond to the micro-economic understanding and the middle scope of luxury, comprising all goods which exceed what is necessary and ordinary, and are suitable for exchange on the market.Heine, K., The Concept of Luxury Brands. In: Luxury Brand Management, No. 1, ISSN: 2193-1208, Technische Universität Berlin, www.conceptofluxurybrands.com. Technische Universität Berlin Department of Marketing Professor Dr. V. TrommsdorffKlaus Heine – The Concept of Luxury Brands 17

Major Understandings of Luxury by Area of ResearchThe Managerial Understanding of Luxury usually refers only to the bestProducts of a Category: “Luxury Products”. Luxury level Examples of Non-Luxury Products Criteria No Luxury Products, but. . . Philosophical-sociological Musical talent, time and true love Luxury resources understanding Micro-economic Air conditioning and golf equipment Luxury goods understanding The broad definitions of luxury products and brands can be summarized as follows: Luxury products correspond to the managerial understanding and the smallest scope of luxury, comprising all products which exceed what is necessary and ordinary compared to the other products of their category. Luxury brands are associated with products which exceed what is necessary and ordinary compared to the other products of their category.Heine, K., The Concept of Luxury Brands. In: Luxury Brand Management, No. 1, ISSN: 2193-1208, Technische Universität Berlin, www.conceptofluxurybrands.com. Technische Universität Berlin Department of Marketing Professor Dr. V. TrommsdorffKlaus Heine – The Concept of Luxury Brands 18

Major Understandings of Luxury by Area of ResearchLouis Vuitton, Rolls-Royce …Ariel Motor?! …Are Ariel Race Cars Luxury Products?Ariel offers Functional Luxury : • The Ariel is a race car for the streets; the driving experience may be “utterly, utterly addictive“. • The Ariel Atom V8 can cost £150,000. However, it’s not a (classical) luxury product – because it’s made for maximum functioning. • Same would be true for superior alpine climbing equipment.Heine, K., The Concept of Luxury Brands. In: Luxury Brand Management, No. 1, ISSN: 2193-1208, Technische Universität Berlin, www.conceptofluxurybrands.com. Technische Universität Berlin Department of Marketing Professor Dr. V. TrommsdorffKlaus Heine – The Concept of Luxury Brands 19

Major Understandings of Luxury by Area of ResearchThe Understanding of Luxury by Area of Research: Luxury products constitute aSubset of Luxury Goods, which, in turn, form a Subset of Luxuries. Philosophic-sociological Understanding: Luxuries Resources that are desirable and more than necessary and ordinary, e.g. musical talent, time, and true love Microeconomic Understanding: Luxury Goods Goods (product categories) that are more than necessary and ordinary and suitable for the exchange on the market, e.g. air conditioning systems and golf equipment Managerial Understanding: Luxury Products Products that are more than necessary and ordinary compared to the other products of their category, e.g. Louis Vuitton bags and Rolls-Royce automobilesHeine, K., The Concept of Luxury Brands. In: Luxury Brand Management, No. 1, ISSN: 2193-1208, Technische Universität Berlin, www.conceptofluxurybrands.com. Technische Universität Berlin Department of Marketing Professor Dr. V. TrommsdorffKlaus Heine – The Concept of Luxury Brands 20

Limiting the Scope of Luxury ProductsLimiting the Scope of Luxury Products Despite its small scope in comparison to luxuries, the definition of luxury products still covers a wide variety of different products. Therefore, and according to the basic idea of definition by reduction sentences, the scope of luxury products is further limited by differentiating the major luxury market segments. Luxury Products Luxury Services Luxury Real Estate Private Luxury Products Public Luxury Products Branded Luxury Products Unbranded Luxury Products B2C Luxury Products B2B Luxury Products Founder-independent Luxury Products Founder-dependent Luxury Products Uni-regional Luxury Products Multi-regional Luxury Products Contemporary Luxury Products Luxury AntiquitiesHeine, K., The Concept of Luxury Brands. In: Luxury Brand Management, No. 1, ISSN: 2193-1208, Technische Universität Berlin, www.conceptofluxurybrands.com. Technische Universität Berlin Department of Marketing Professor Dr. V. TrommsdorffKlaus Heine – The Concept of Luxury Brands 22

Limiting the Scope of Luxury ProductsLuxury Products, Services and Real Estate Luxury Products Luxury Services Luxury Real Estate No… • The managerial luxury understanding usually refers to movable assets (products in the classical sense), as the luxury industry was and is characterized by craftsmanship and engineering (Belz 1994, p. 648; Berthon et al. 2009, p. 50). • Beyond that, especially luxury real estate forms a distinct luxury segment. “World’s most Marketing knowledge about products expensive covers a basis for other luxury segments, apartments at but still needs to be adapted to their One Hyde Park specific characteristics. set to make £1 billion profit.”Heine, K., The Concept of Luxury Brands. In: Luxury Brand Management, No. 1, ISSN: 2193-1208, Technische Universität Berlin, www.conceptofluxurybrands.com. Technische Universität Berlin Department of Marketing Professor Dr. V. TrommsdorffKlaus Heine – The Concept of Luxury Brands 23

Limiting the Scope of Luxury ProductsPrivate vs. Public Luxury Products Private Luxury Products Public Luxury Products No… • Instead of public luxuries such as altar pieces or national monuments, the term luxury products usually refers to private luxury, which is owned by a person or a private organization (Sombart 1922, p. 86; see also McKinsey 1990, p. 13).Heine, K., The Concept of Luxury Brands. In: Luxury Brand Management, No. 1, ISSN: 2193-1208, Technische Universität Berlin, www.conceptofluxurybrands.com. Technische Universität Berlin Department of Marketing Professor Dr. V. TrommsdorffKlaus Heine – The Concept of Luxury Brands 24

Limiting the Scope of Luxury ProductsBranded vs. Unbranded Luxury Products Branded Luxury Products Unbranded Luxury Products No… • Unbranded luxury products are usually made on commission by craftsmen. • Because of the high relevance of brands in the luxury segment, only branded luxury products are considered (see Kisabaka 2001, p. 104; Vigneron and Johnson 2004, p. 486).Heine, K., The Concept of Luxury Brands. In: Luxury Brand Management, No. 1, ISSN: 2193-1208, Technische Universität Berlin, www.conceptofluxurybrands.com. Technische Universität Berlin Department of Marketing Professor Dr. V. TrommsdorffKlaus Heine – The Concept of Luxury Brands 25

Limiting the Scope of Luxury ProductsPrivate vs. Public Luxury Products B2C Luxury Products B2B Luxury Products No… “Peter Bock AG has been • B2C luxury products, also referred to as crafting the finest pen nibs personal luxury products, are marketed since 1939.” to end consumers and can be used by a person to enhance his or her personal life (Sombart 1922, p. 86; Reith and Meyer 2003, p. 10; Valtin 2004, p. 186). • In contrast to that, there is a distinct B2B luxury segment, which includes luxury- specialized suppliers to luxury brands. One such supplier is Peter Bock, a manufacturer of nibs for luxury fountain pens.Heine, K., The Concept of Luxury Brands. In: Luxury Brand Management, No. 1, ISSN: 2193-1208, Technische Universität Berlin, www.conceptofluxurybrands.com. Technische Universität Berlin Department of Marketing Professor Dr. V. TrommsdorffKlaus Heine – The Concept of Luxury Brands 26

Limiting the Scope of Luxury ProductsFounder-independent vs. Founder-dependent Luxury Products Founder-independent Luxury Products Founder-dependent Luxury Products No… Founder-dependent luxury by Alexander Vethers • Only founder-independent luxury products are considered, which means that the existence of brands and the manufacturing of products should not depend on the life of their creators. The manufacturers of luxury products should possess a distinct brand personality and at least the capacity for infinite business operation. • Although an artist could become a brand, these requirements are not fulfilled as he or she may only create founder-dependent products. Compared to other products, the luxury art market follows very specific rules and therefore forms a distinct luxury segment. • The same is true for other industry segments such as (star) architect offices and the relatively complex and fast- changing market of (fashion) designer products.Source: www.alexandervethers.com, http://www.margarethe-illustration.com, Heine, K., The Concept of Luxury Brands, TU Berlin, www.conceptofluxurybrands.com. Technische Universität Berlin Department of Marketing Professor Dr. V. TrommsdorffKlaus Heine – The Concept of Luxury Brands 27

Limiting the Scope of Luxury ProductsTypical Founder-dependent Luxury: The vast Amount of Luxury FashionDesigners, who set up their Business within the last Years. Founder-dependent Luxury ProductsHeine, K., The Concept of Luxury Brands. In: Luxury Brand Management, No. 1, ISSN: 2193-1208, Technische Universität Berlin, www.conceptofluxurybrands.com. Technische Universität Berlin Department of Marketing Professor Dr. V. TrommsdorffKlaus Heine – The Concept of Luxury Brands 28

Limiting the Scope of Luxury ProductsUni-regional vs. Multi-regional Luxury Products Multi-regional Luxury Products Uni-regional Luxury Products No… • Uni-regional luxury products are only available in specic regions. • For instance, shopping in the KaDeWe is only possible in Berlin and spending the night in Le Meurice is only possible in Paris. • However, many uni-regional luxury brands have the potential to become global. For instance, the luxury group Hilton developed the New York-based Waldorf Astoria into a global luxury hotel chain.Heine, K., The Concept of Luxury Brands. In: Luxury Brand Management, No. 1, ISSN: 2193-1208, Technische Universität Berlin, www.conceptofluxurybrands.com. Technische Universität Berlin Department of Marketing Professor Dr. V. TrommsdorffKlaus Heine – The Concept of Luxury Brands 29

Limiting the Scope of Luxury ProductsContemporary Luxury Products vs. Luxury Antiquities Contemporary Luxury Products Luxury Antiquities No… • With reference to temporal relativity, only new products are considered. • Luxury antiquities (including antique cars) form a distinct luxury segment.Heine, K., The Concept of Luxury Brands. In: Luxury Brand Management, No. 1, ISSN: 2193-1208, Technische Universität Berlin, www.conceptofluxurybrands.com. Technische Universität Berlin Department of Marketing Professor Dr. V. TrommsdorffKlaus Heine – The Concept of Luxury Brands 30

Limiting the Scope of Luxury ProductsComplementing the Broad Definition of Luxury Products Based on these limitations, the broad definition of luxury products can be complemented as follows: Luxury products correspond to the managerial understanding and the smallest scope of luxury not comprising services or real estate, but products which exceed what is necessary and ordinary compared to the other products of their category. These products are branded, founder-independent, multi-regional, contemporary and possessed or used by a person to enhance his or her personal life.Heine, K., The Concept of Luxury Brands. In: Luxury Brand Management, No. 1, ISSN: 2193-1208, Technische Universität Berlin, www.conceptofluxurybrands.com. Technische Universität Berlin Department of Marketing Professor Dr. V. TrommsdorffKlaus Heine – The Concept of Luxury Brands 31

Limiting the Scope of Luxury ProductsExamples of Non-Luxury Products Examples of Non-Luxury Products Criteria No Luxury Products, but. . .Penthouse at the “One Hyde Park” in Movable assets Luxury real estateLondonLuxurious built-in cupboards made by Unbranded luxury products / Branded productsa carpenter for his client commission workCologne Cathedral Private luxury products Public luxury productsPeter Bock quills for luxury fountain B2C luxury products B2B luxury productspens“Garçon a la pipe” by Pablo Picasso Founder-independent products Luxury artBadminton Cabinet from 1732 and Contemporary products Luxury antiquitiesBugatti Royale Type 41 from 1931Staying at Le Meurice in Paris Multi-regional luxury products Uni-regional luxury productsHeine, K., The Concept of Luxury Brands. In: Luxury Brand Management, No. 1, ISSN: 2193-1208, Technische Universität Berlin, www.conceptofluxurybrands.com. Technische Universität Berlin Department of Marketing Professor Dr. V. TrommsdorffKlaus Heine – The Concept of Luxury Brands 32

Operationalization of Luxury ProductsThe Analysis of 31 in-depth Interviews led to a Consumer-orientedDefinition of Luxury Products Symbolism Symbolism as major benefit Extraordinariness Price ESP instead of USP Price as a benefit Characteristics of Luxury Products Rarity Limitation and Quality Quality as Individualization perception Aesthetics Stimulation as a main benefitHeine, K., The Concept of Luxury Brands. In: Luxury Brand Management, No. 1, ISSN: 2193-1208, Technische Universität Berlin, www.conceptofluxurybrands.com. Technische Universität Berlin Department of Marketing Professor Dr. V. TrommsdorffKlaus Heine – The Concept of Luxury Brands 34

Operationalization of Luxury ProductsEccentric Selling Proposition (ESP): Case Study Silk Production• “Earlier the main exports of silk cloth, at first restricted to the nobility, had been from Bologna, Lucca and other Italian towns. They had developed the mechanical reeling of silk using water power, apparently developing a Chinese model, while the French industry at Lyon operated at a less sophisticated level.• But the French court started to invite silk manufacturers from Lyon every six months to discuss future designs. By the time that their patterns had been produced and the Italian manufacturers had set up their looms to copy them, the French court was about to place its next order for a new pattern. So the Italian manufacturers were never able to catch up, leading to the collapse of the weaving industry, and eventually of the production of yarn, in Bologna and elsewhere.• It was not the appearance of change, of new fashion, that was remarkable but the way that change was regularly established and the effects this had on industrialized production which were remarkable. It rivalled, and set the pattern for, today’s annual fashion shows in Paris, Milan, New York, London and other capitals, shows that are marketplaces for the costumes of the rich but which also set the terms for production for the masses, who with socio-economic developments have now been drawn in to the frequent dictates of fashion” …. “After that time, fashion and ‘taste’ took over the role of distinguishing the elite, with the whole process becoming more complex when this occurred.”Source: Goody, J. (2006) From Misery to Luxury. In: Social Science Information, Vol. 45, Issue 3, p. 344 et seq.; Heine, K., The Concept of Luxury Brands., TU Berlin, www.conceptofluxurybrands.com. Technische Universität Berlin Department of Marketing Professor Dr. V. TrommsdorffKlaus Heine – The Concept of Luxury Brands 35

Operationalization of Luxury ProductsThe Analysis of 31 in-depth Interviews led to a Consumer-orientedDefinition of Luxury Products Symbolism Symbolism as major benefit Extraordinariness Price ESP instead of USP Price as a benefit Characteristics of Luxury Products Rarity Limitation and Quality Quality as Individualization perception Aesthetics Stimulation as a main benefitHeine, K., The Concept of Luxury Brands. In: Luxury Brand Management, No. 1, ISSN: 2193-1208, Technische Universität Berlin, www.conceptofluxurybrands.com. Technische Universität Berlin Department of Marketing Professor Dr. V. TrommsdorffKlaus Heine – The Concept of Luxury Brands 36

Operationalization of Luxury ProductsSymbolic Meaning of Luxury Products & Emotional Branding:Product Recommendations without ProductsSource: Spiegel Neon/Modeheft (2009), April, p. 22. Technische Universität Berlin Department of Marketing Professor Dr. V. TrommsdorffKlaus Heine – The Concept of Luxury Brands 37

Operationalization of Luxury ProductsSymbolic Meaning of Luxury Products & Emotional Branding:Product Recommendations without ProductsSource: Spiegel Neon/Modeheft (2009), April, p. 16 & 18. Technische Universität Berlin Department of Marketing Professor Dr. V. TrommsdorffKlaus Heine – The Concept of Luxury Brands 38

Operationalization of Luxury ProductsThe Most Important Ingredients of a Luxury Brand: Emotions & Image Margin Communication, Know-how, Image Production costs DiorSource: Lebas/Israel-Russo/De Gouyon (1990) Stratégies de luxe. Jouy-en-Josas: Groupe HEC, p. 48; Heine, K., The Concept of Luxury Brands., TU Berlin, www.conceptofluxurybrands.com. Technische Universität Berlin Department of Marketing Professor Dr. V. TrommsdorffKlaus Heine – The Concept of Luxury Brands 39

Operationalization of Luxury ProductsSymbolic Meaning of Luxury Products & Emotional Branding:Aldi vs. Monoprix Aldi Monoprix If products at Aldi say anything at all, they may say “I’m cheap and cheerful” or the butter may say “I’m a butter” and the cookies may say “We are cookies” – while luxury products seem to be real chatterboxes.Heine, K., The Concept of Luxury Brands. In: Luxury Brand Management, No. 1, ISSN: 2193-1208, Technische Universität Berlin, www.conceptofluxurybrands.com. Technische Universität Berlin Department of Marketing Professor Dr. V. TrommsdorffKlaus Heine – The Concept of Luxury Brands 40

Operationalization of Luxury ProductsA typical Exemplar of a Luxury Product:The “Kiss Kiss Or & Diamants“ by Guerlain Symbolism Design and Extra- brand image Price ordinariness 45,000€ Reminds on 3 dices Constitutive Characteristics of Luxury Products Rarity Quality Only 100 pieces; Made of diamantes personal lip stick color and gravure Aesthetics and precious Classic, time-less design; metals by a helps to conceal signs of aging, French to be free of duties and goldsmith limitations of space and time; its design helps to forget its purposeSource: Trommsdorff/Heine (2008) Das Marketing von Luxusprodukten. In: WISU, Issue12., pp. 1669-1674; Heine, K., The Concept of Luxury Brands., TU Berlin, www.conceptofluxurybrands.com. Technische Universität Berlin Department of Marketing Professor Dr. V. TrommsdorffKlaus Heine – The Concept of Luxury Brands 41

Operationalization of Luxury ProductsWhat do we have to do with that Chair to create a Luxury Product?Heine, K., Phan, M., Trading-Up Mass-Market Goods to Luxury Products. Australasian Marketing Journal, Vol. 19, 2/2011, pp. 108-114. Technische Universität Berlin Department of Marketing Professor Dr. V. TrommsdorffKlaus Heine – The Concept of Luxury Brands 42

Operationalization of Luxury ProductsThe Constitutive Characteristics of Luxury Products Major Manufacturing Concrete Abstract Characteristics Characteristics Product Characteristics Product Characteristics Price Price Expertise of Quality Material & Components Durability & Value manufacturer Manufacturing Construction & Comfortability & Usability complexity Function principle Functionality & Workmanship Performance Features Safety Product size Service Aesthetics Aesthetics Rarity Rarity Extraordinariness Extraordinariness Symbolism SymbolismHeine, K., The Concept of Luxury Brands. In: Luxury Brand Management, No. 1, ISSN: 2193-1208, Technische Universität Berlin, www.conceptofluxurybrands.com. Technische Universität Berlin Department of Marketing Professor Dr. V. TrommsdorffKlaus Heine – The Concept of Luxury Brands 43

Operationalization of Luxury ProductsThe Variety of possible ResultsHeine, K., Phan, M., Trading-Up Mass-Market Goods to Luxury Products. Australasian Marketing Journal, Vol. 19, 2/2011, pp. 108-114. Technische Universität Berlin Department of Marketing Professor Dr. V. TrommsdorffKlaus Heine – The Concept of Luxury Brands 44

Operationalization of Luxury ProductsInfluencing the Associations about the Luxury Brand Characteristics bySegment-specific Marketing-Mix Strategies Extra- Symbolism Price Quality Rarity Aesthetics ordinariness (brand personality) Product Price Distribution Communication policy policy policy policy Communication of the luxury Quality leadership Superlative pricing strategy Selective distribution brand personality Iconic products Regular price increases Flagship stores Catwalk shows Memberships in Super-superlative Waiting lists Celebrity endorsement recognized associations priced productsHeine, K., The Concept of Luxury Brands. In: Luxury Brand Management, No. 1, ISSN: 2193-1208, Technische Universität Berlin, www.conceptofluxurybrands.com. Technische Universität Berlin Department of Marketing Professor Dr. V. TrommsdorffKlaus Heine – The Concept of Luxury Brands 45

Definition of Luxury Products and BrandsThe Definition of Luxury Products• The operationalization relies on a literature analysis and an empirical study (as outlined in the paper). The results suggest that consumers perceive that luxury products have six major characteristics including price, quality, aesthetics, rarity, extraordinariness and symbolism (as explained above). In that way, the operationalization helps to decide for most products if they are part of what is meant by the term "luxury product" (see also Kromrey 2009, p. 110).• The definition of luxury products can be summarized as follows: Luxury products have more than necessary and ordinary characteristics compared to other products of their category, which include their relatively high level of price, quality, aesthetics, rarity, extraordinariness, and symbolic meaning.Heine, K., The Concept of Luxury Brands. In: Luxury Brand Management, No. 1, ISSN: 2193-1208, Technische Universität Berlin, www.conceptofluxurybrands.com. Technische Universität Berlin Department of Marketing Professor Dr. V. TrommsdorffKlaus Heine – The Concept of Luxury Brands 47

Definition of Luxury Products and BrandsThe Definition of Luxury Brands• Luxury brands are highly associated with their core products.• This is reflected by the existing definitions of luxury brands, which define luxury brands by specific associations about product characteristics (e.g. Meffert and Lasslop 2003, p. 6; Büttner et al. 2006, p. 12; Valtin 2004, p. 30).• The essential characteristics of luxury products therefore correspond largely with those of luxury brands and lead to the following definition: Luxury brands are regarded as images in the minds of consumers that comprise associations about a high level of price, quality, aesthetics, rarity and specialty.Heine, K., The Concept of Luxury Brands. In: Luxury Brand Management, No. 1, ISSN: 2193-1208, Technische Universität Berlin, www.conceptofluxurybrands.com. Technische Universität Berlin Department of Marketing Professor Dr. V. TrommsdorffKlaus Heine – The Concept of Luxury Brands 48

Major Types of Luxury Products and BrandsThe Relationships between Luxury Products and Brands Luxury Brands Luxury-branded Products Non-Luxury Luxury Products Products Luxury Products Non-Luxury Products Non-Luxury- branded Products Non-Luxury Brands, but (at least) Luxury Product BrandsHeine, K., The Concept of Luxury Brands. In: Luxury Brand Management, No. 1, ISSN: 2193-1208, Technische Universität Berlin, www.conceptofluxurybrands.com. Technische Universität Berlin Department of Marketing Professor Dr. V. TrommsdorffKlaus Heine – The Concept of Luxury Brands 50

Major Types of Luxury Products and BrandsThe Relationships between Luxury Products and Brands Luxury Product BrandsHeine, K., The Concept of Luxury Brands. In: Luxury Brand Management, No. 1, ISSN: 2193-1208, Technische Universität Berlin, www.conceptofluxurybrands.com. Technische Universität Berlin Department of Marketing Professor Dr. V. TrommsdorffKlaus Heine – The Concept of Luxury Brands 51

Major Types of Luxury Products and BrandsTypes of Luxury Brands by Level of Luxury, Business Volume andAwareness By Level of Luxury By Awareness By Business Volume + - - Con- Elite- noisseur Micro level brands Top-level Small-scale Luxury brand brands Star brands Medium-level Medium-scale brands + Luxury brand Large-scale brands Entry-level BIG player luxury brand - GIANT player +Heine, K., The Concept of Luxury Brands. In: Luxury Brand Management, No. 1, ISSN: 2193-1208, Technische Universität Berlin, www.conceptofluxurybrands.com. Technische Universität Berlin Department of Marketing Professor Dr. V. TrommsdorffKlaus Heine – The Concept of Luxury Brands 52

Distinguishing Luxury Brands from similar ConceptsCategories of Luxury Brands Price Setting Luxury Inter- and Intra-categorical Manufacturer‘s Brand Premium Manufacturer‘s Brand Generic Manufacturer‘s Brand Premium Trade Brand Trade Brand Risk reduction and information efficiency Dominating Brand Benefit Ideational BenefitSource: According to Meffert/Backhaus/Becker (2003) Luxusmarkenstrategie, p. 6; Heine, K., The Concept of Luxury Brands., TU Berlin, www.conceptofluxurybrands.com. Technische Universität Berlin Department of Marketing Professor Dr. V. Trommsdorff 54Klaus Heine – The Concept of Luxury Brands 54

Distinguishing Luxury Brands from similar ConceptsDifferentiation to Masstige („New Luxury“) Price setting Examples Inter- and Inaccessible Intra-categorial Luxury Manufactur- er‘s Brand Intermediary MasstigeFor the broader population: Premium Accessible Manufacturer‘s Brand Risk reduction and information efficiency Dominating Brand Benefit Ideational BenefitSource: According to Meffert/Backhaus/Becker (2003) Luxusmarkenstrategie, p. 6; Heine, K., The Concept of Luxury Brands., TU Berlin, www.conceptofluxurybrands.com. Technische Universität Berlin Department of Marketing Professor Dr. V. Trommsdorff 55Klaus Heine – The Concept of Luxury Brands 55

Distinguishing Luxury Brands from similar ConceptsLuxury Brands vs. Masstige Brands vs. Premium Brands Product / Brand Characteristics Prestige topLuxurybrandsMasstigebrandsPremiumbrandsMedium-levelbrands low Prada Price Quality Rarity Extra- Aesthetics Symbolism ordinarinessHeine, K., The Concept of Luxury Brands. In: Luxury Brand Management, No. 1, ISSN: 2193-1208, Technische Universität Berlin, www.conceptofluxurybrands.com. Technische Universität Berlin Department of Marketing Professor Dr. V. TrommsdorffKlaus Heine – The Concept of Luxury Brands 56

Distinguishing Luxury Brands from similar ConceptsLuxury vs. Premium Products and Brands – Mercedes vs. Lexus There is also an essential difference between these types of brands: while premium brands focus especially on functional characteristics, luxury brands put much more effort into creating symbolic meaning. For instance, Lexus entered the US market with the objective of growing by taking customers away from Mercedes, which was identified as its major competitor. Therefore, they took the Mercedes E Class as the model to overtake and developed a car with a similar design and even superior technical features that was only sold for about half of the price. Lexus generated high growth rates in the U.S. However, they still focused very much on functionality and even emphasized their car`s value-for-money, and also had no vision or story to tell – which clearly positions Lexus as a non-luxury brand (Kapferer and Bastien 2009b, p. 316).Heine, K., The Concept of Luxury Brands. In: Luxury Brand Management, No. 1, ISSN: 2193-1208, Technische Universität Berlin, www.conceptofluxurybrands.com. Technische Universität Berlin Department of Marketing Professor Dr. V. TrommsdorffKlaus Heine – The Concept of Luxury Brands 57

The World Luxury Brand DirectoryIntensional vs. Extensional DefinitionIntensional Definition ► Extensional Definitionby typical characteristics by identifyingsuch as high price all luxury brandsand superior quality in a directoryHeine, K. (2011) The World Luxury Brand Directory, ISSN: 2193-5440, Technische Universität Berlin, www.worldluxurybranddirectory.com. Technische Universität Berlin Department of Marketing Professor Dr. V. TrommsdorffKlaus Heine – The Concept of Luxury Brands 59

The World Luxury Brand DirectoryDirectory of Luxury Brands: www.WorldLuxuryBrandDirectory.com The collection of luxury brands in a directory helps testing and enhancing the definitions of luxury products and brands.Heine, K. (2011) The World Luxury Brand Directory, ISSN: 2193-5440, Technische Universität Berlin, www.worldluxurybranddirectory.com. Technische Universität Berlin Department of Marketing Professor Dr. V. TrommsdorffKlaus Heine – The Concept of Luxury Brands 60

Thank you! Questions? Klaus.Heine@conceptofluxurybrands.comKlaus Heine, TU Berlin, Lehrstuhl Marketing, Steinplatz 2, 10623 Berlin, Germany, Tel: +49.(0)30.314-29.922,, Klaus.Heine@conceptofluxurybrands.com, www.marketing-trommsdorff.de Department of Marketing, Steinplatz 2, 10623 Berlin, Germany, Tel: +49.(0)30.314-29.922,, Klaus.Heine@conceptofluxurybrands.com, www.marketing.tu-berlin.de Technische Universität Berlin Department of Marketing Professor Dr. V. Trommsdorff

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