The document compares the luxury goods sector and consumer goods sector. It defines luxury goods as products with a high price premium, rare materials, and craftsmanship. The luxury goods market is characterized by globalization, consolidation, and diversification. Consumer goods are end products for average consumers like food and clothing. The consumer goods industry depends on advertising, retail outlets, and brand differentiation. Both sectors face challenges like changing consumer preferences, economic conditions, and supply chain issues. Opportunities exist in tapping new markets, digital channels, and meeting needs of various demographic groups.

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Midhun P. Abraham
ISBR
MBA 2015-17 B Section
Topic:
A comparison study of luxury goods sector
and consumer goods sector.
Luxury goods
Definition of luxury products by Dubois, Laurent and Czellar (2001):
Source:
The concept of luxury brands - Klaus Heine

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A luxury good may become a normal good or even an inferior good at
different income levels, e.g. a wealthy person stops buying increasing numbers
of luxury cars for his automobile collection to start collecting airplanes (at such an
income level, the luxury car would become an inferior good). (Philip Kotler)
The three dominant trends in the global luxury goods market
are globalization, consolidation, and diversification.
 Globalization is a result of the increased availability of these goods,
additional luxury brands, and an increase in tourism.
 Consolidation involves the growth of big companies and ownership of
brands across many segments of luxury products. Examples
include LVMH, Richemont, and Kering, which dominate the market
in areas ranging from luxury drinks to fashion and cosmetics.
 Companies explore diversification to get a valuable comparison
between their strategy and expansion. Leading global consumer
companies, such as Procter & Gamble, are also attracted to the luxury
industry, due to the difficulty of making a profit in the mass consumer
goods market.
(Global Powers of Luxury Goods report by Deloitte)

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Consumer goods
Consumer goods are products that are purchased for consumption by the
average consumer. Alternatively called final goods, consumer goods are the end
result of production and manufacturing and are what a consumer will see on the
store shelf. Clothing, food and jewelry are all examples of consumer goods. Basic
materials such as copper are not considered consumer goods because they must be
transformed into usable products.
The consumer goods industry is closely connected with other industries such
as manufacturing and technology. For its survival and progress, it depends a great
deal on advertising through various media and on retail outlets, such as shops,
malls, franchise stores, discount stores, and online platforms. Consumer goods
companies find themselves jostling with one another for market share, and they
take brand-building and product differentiation seriously. Many of the top players
are big conglomerates with wide portfolios of products. The largest market for the
consumer goods industry is the US, followed by China. India, Indonesia, Brazil,
Mexico, and other developing countries are expected to be the new growth engines
for the sector. (Trends that will shape the consumer goods industry 2010- McKinsey and company)

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The market
Luxury range of products:
The Luxury brand companies at present cover a spectrum of luxury positioning
from traditional ultra-luxury, through super premium and aspirational luxury, down
to affordable/mass luxury—a relatively new luxury category of products at prices
more affordable for middle class consumers but available at the higher end of
retail.
Factors affecting companies’ position on the luxury spectrum include:
• price premium
• quality/rarity of raw materials
• quality of craftsmanship
• product exclusivity
• service and personalisation
• quality and exclusivity of points of sale
(Klaus Heine)
Consumer goods:
Consumer goods companies have expanded rapidly beyond their traditional
Western bases. They have invested heavily in building global scale along every
part of the value chain, including R&D, marketing and sales, procurement,
manufacturing, and distribution.

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The upheavals in global consumer, retail, and supply markets over the
coming decade threaten to wreak havoc on established business models and
marketing approaches—and promise huge rewards for those best able to anticipate
new opportunities.
The challenges
Luxury range of products:
 The main challenge facing most luxury brands is establishing the right pricing
model.
 Luxury brands also face tough issues in rethinking the size of their store
footprint and the role of brick-and-mortar shops in a world of growing
digitization, as well as figuring out how to delight local customers even as
masses of tourists flock to establishments in mature markets.
 Economic growth in three of the four BRIC economies has either stalled or
decelerated, the exception being India. Moreover, currency market volatility has
thrown a wrench into the best laid plans of many companies.
 Possibility of a rise in energy prices, a drop in asset prices, and potential
geopolitical shocks in such places as the Middle East and the South China Sea.
Consumer goods:
 A billion new middle-class consumers in emerging markets
 Consumers going ‘green’
 The impact of demographic shifts

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 Rise of digital consumers
 Health and wellness concerns
 Modernization and concentration of trade
 The shift to value
 Rising trade protectionism
 Changing tax regimes
 Increasingly volatile input costs, driven by natural-resource
shortages and the emergence of fewer, bigger suppliers
 Labor shortages in emerging Markets
(Trends that will shape the consumer goods industry 2010- McKinsey and company)
More opportunities in the sectors
Luxury range of products:
 Following the digital revolution, there will be new investment in
luxury smart home devices. Just as leading luxury brands have followed Apple into
smartwatches, so they will want to cash in on smart home trends too.
 There will be growth in brands offering luxury reward programmes,
like many brands in the retail industry, luxury retailers are necessarily adapting to
the digitalisation of consumer lifestyles.
 There will be a blurring of physical platforms as big-name brands and
companies look to bring the functionality of the internet into their stores. For
example, so-called ‘magic mirrors’ with high-definition cameras that transport

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shoppers to catwalks, or advise them on the apparel, accessories and beauty
products they should buy.
 Stronger global demand for luxury experiences such as fine dining,
lavish holidays and beauty pampering, often as alternatives to luxury brands per se,
will entice leading fashion houses to build bigger footprints in areas such as luxury
travel, luxury foodservice and luxury health and wellness.
 Ageing populations are a common thread among the world’s biggest
luxury goods markets. Finding new ways to tap into this market will be integral to
brand strategies in coming years.
 India will be the ‘star of asia’ and the only major market in the world
to register double-digit year-on-year growth in us dollar terms. Luxury goods in
India will grow by around 15% this year, fuelled by a slowdown in the black
market and a commensurate uptick in the formal market.
Consumer goods:
 The global middle class will expand dramatically; by 2020 there are
expected to be more than 1 billion new consumers spending between $10
and $100 per day.
 To capture fair share of rapidly growing online channels, consumer goods
companies must raise their game with online retailers. They must work in
close partnership with retailers to manage their online shelf space,run joint
targeted campaigns, and in general expand the category online.
 Involvement in social media helps to explore new capabilities, including
rigorous performance tracking, extensive digital-marketing analytics, and
flexible vendor management. Winning consumer goods companies will be
those that invest in these capabilities to keep pace with the digital
consumer.

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 Consumers are looking ways to save money. Consumer goods players are
employing a variety of strategies to address this trend. Some companies are
trying to minimize retailers’ need to launch their own private label brands.
Some companies are rationalizing their price lists to help retailers control
SKU proliferation. Stock Keeping Unit (SKU) is used to measure the
number of distinct items that a company produces and markets.
 Consumer goods companies will need to find innovative ways to meet the
needs of aging consumers. Moreover, despite the global aging trend,
pockets of younger consumers are growing in key markets. These micro-
demographic shifts create additional opportunities for companies to capture
growth.
 From the supply side, volatile input costs are increasing, driven by the
emergence of bigger, fewer suppliers and natural-resource shortages.
Consumer goods companies face some tough strategic decisions to manage
increased volatility—including the price they are willing to pay to secure
long-term supply stability, how to reduce commodity and natural-resource
inputs across the product line, and how to build flexibility into their supply
chains. Navigating exposure to this volatility requires a new paradigm in
risk management.

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BIBLIOGRAPHY
Websites:
https://en.wikipedia.org
http://www.investopedia.com/
http://blog.euromonitor.com/
http://www.chron.com/
Journals:
 The concept of luxury brands, The Taxonomy of Luxury, Handbook for the Creation of
Luxury Products and Brands - Klaus Heine.
 Global Powers of Luxury Goods report - Deloitte Touche Tohmatsu Limited
 The decade ahead: Trends that will shape the consumer goods industry 2010 - McKinsey and
company
Books:
 Principles of Marketing 15th
edition – Philip Kotler & Gary Armstrong
 Supply chain management: Strategy, Planning and Operations 4th
Edition – Sunil Chopra,
Peter Meindl and D.V. Karla