luxury brands in recession.doc

7/30/2019 Luxury brands in recession.doc

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Luxury brands in recession: Developing a better value

proposition and luxury brand strategy

Commenting on my last post on 'luxury value propositions', Mostafa Huga and Thangaraj asked a very

pertinent question, 'how should managers' build a better value proposition and a marketing strategy forluxury brands in recession?' Brand management is extremely crucial for luxury industry in customer

retention and keeping consumers loyal. Focusing on value propositions can help managers not only in

building a better corporate branding strategy but also a good customer relationship management

campaign.

As I stated in my earlier blogs (Managing luxury brands in recession) and (Gucci's response) that

managers need to continuously focus on and understand customer psychology and customer engagement

process to develop a better luxury marketing strategy.

With regard to consumer engagement researchers have identified that consumers focus on several

important criteria when engaging with luxury brands. This criteria include:

- Status derived from the luxury brand

- Conspicuosness associated with the luxury brand

- Hedonic (pleasure seeking) orientation of the luxury brand

- Materialistic attitude of the individual

- Uniqueness of the luxury product/brand/organization

- Quality association of the luxury brand

- Functional advantages derived from the luxury brand

- Financial associations with the luxury brand (as consumers become very value conscious when economic

environment is tough)

It is very important for luxury brand managers to understand how consumers areengaging with their

luxury brand on each of the above mentioned dimensions. Only that understanding can help managers

develop a customer oriented luxury brand strategy. For example, consumer may engage with a luxury

brand as it may be associated with it a symbol of success and achievement. However, there could be

some brands with which consumers associate ostentation and show-off.

Furthermore, managers should also try and profile their consumers on the basis of their personal

orientation such as are these consumers predominantly hedonistic or materialists. It is important to

understand the difference in this personal orientation.

Similarly many luxury brands are marketed and bought for uniqueness as well as high-quality associated

with them. Consuming such goods may provide a social advantage. Moreover, in recessionary times
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consumers may become price conscious and that may have an increasing effect on the overall

consumption decision and value proposition.

Each of these value dimensions would have a distinctly different effect on consumer engagement and

resultant consumer behaviour. Managers need to understand the motives of luxury consumption. For

example, an Armani suit bought by a consumer may be bought because s/he is attending an important

event of importance and therefore it has more of social (status and conspicuous) aspects associated with

it. On the other hand, the person may put-on a high-end luxury fregrence which may reflect more of a

hedonistic attitude.

Presently we are conducting a study which focuses on the impact various consumer value perceptions

(such as social, personal, functional and financial) on the overall luxury consumption. I shall surely share

the results... Till then, watch this space!!!

Although weve seen heavy adoption of social in the tech and consumer goods space, theimpacts are far reaching. One industry thats often overlooked but could have the mostimpact is the luxury industry.

Their biggest challenge isnt the usual like convincing management, measuring ROI, orcoordinating your company but perhaps something more disruptive. Consumers ofluxury products want to associate with a dream, a celebrity, or other aspiration and mostof the time, thats not common people who buy those products and who will talk aboutthem.

[Luxury products are for the elite, yet social technologies are foreveryone. Luxury brands face a unique conundrum of

marrying these two worlds]

By definition, luxury items are more difficult to achieve, represent the elite, or render ahigher performance. Although we expect social technologies to democratize the world,we got to be honest about todays world, many consumers associate true luxury productswith the upper echelons. With that said there are methods luxury brands can stillparticipate, heres a few:

Five Ways Luxury Brands Can Overcome the Conundrum of Social Marketing:

1. Monitor and Listen to understand customer needs. First, hire a brandmonitoring company that can understand the needs of your customers in the realtime social web. Radian 6, Altierian, Scout Labs, Visible Technologiesfrequently come up in conversation, and theres a larger group of incumbents suchas Dow Jones Factiva, Nielsen Buzzmetrics, and TNS Cymfony. For those thatwant to create an online focus group contact vendors like Passenger andCommunispace who focus on what Ive dubbed insight communities


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2. Start with by using sharing tools. These enable customers to share corporatecreated content such as videos, blog posts, images, and contests. Vendors such asShare This, Add This or other similar technologies can easily get a brand up andrunning. Why is this a good first start? It simple extends the corporate approvedand created content to the social realm.

3. Create On-Brand Contests. Develop programs that maintain the sanctity ofthe premium experience by developing a program that encourages members toshare the preferred experience with others. Example: Develop a Facebook appthat asks a quiz which one of your friends is most likely to buy our beautyproduct and then encourage them to share it.

4. Highlight consumer created content from preferred segment. If celebritiesare using your products and talk about them, echo it back and highlight from yourown efforts. Example: highlight users of your products in your blog, from Twitter,or other social technology See how Ashton sports our latest suits, allow users toshare and spread it to their own websites using simple tools like sharethis.

5. Develop or sponsor lifestyle communities. Branded communities, social

networks, or bloggers can all be reached using traditional media relations tactics.Not unlike traditional sponsorship and spokesperson product trial programs, youcan develop brand affinity in the social space through formal programs. The trickhowever is to become a platform to uplift their voice not just insert your own.

The five above tactics are just toe-dipping ways to get involved in the luxury space, in thelong run, these premiere brands will have to figure out how to acknowledge, interact, andeven embrace all customers.

This difficult topic cant be solved through a single blog post, so I look forward tohearing from you how luxury brands can embrace social. You can also read more on this

topic from Mashable, Duo, and results from a recent study. Its going to take some timefor brands and societyto tackle this topic. If youre an agency or vendor (or even abrand) please leave some suggestions and case examples below.

Luxury brand marketing: Making consumers feel special

by Brendan CoffeyMay 2008

Luxury consumers want insider status, and marketers havefound new ways to brand products that promise to get

them there.

Urban legend in the 1980s held that the Hollywood elite and high-rolling Wall Streeters
http://mashable.com/2009/07/02/luxury-brands/http://blog.duoconsulting.com/2008/10/10/why-luxury-brands-enter-the-social-media-scene/http://4realz.net/2009/01/impact-of-social-media-in-the-luxury-market/http://4realz.net/2009/01/impact-of-social-media-in-the-luxury-market/http://mashable.com/2009/07/02/luxury-brands/http://blog.duoconsulting.com/2008/10/10/why-luxury-brands-enter-the-social-media-scene/http://4realz.net/2009/01/impact-of-social-media-in-the-luxury-market/


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had a special black card that granted them admission to secretive, luxurious clubs and theability to charge anything they wanted, even a private jet. No matter that the card didntexist. In 1999, American Express introduced one, the Black card, formally named theCenturion card. Even if you wouldnt bat an eye at the $2,500 annual price tag, Accessto the Centurion Club is for a chosen few and is by invitation only, says American

Express. The ability to acquire a black card is apparently so cryptic that Web sites havesprung up speculating on all aspects of the card.

Its that aura of supreme exclusiveness that makes people want it more, says PamDanziger, president of Unity Marketing, a consumer research firm. Lots of people havemoney. What separates you from other people makes you special, she says.

Danziger adds that creating a feeling of insiderness is essential in convincingconsumers to choose one product over another. Any luxury-goods marketer needs tostart with the knowledge that no one needs your stuff, anyway. You have to transformyour good into an experience to make a difference to a consumer.

Economist Thorstein Veblen coined the phrase conspicuous consumption more than acentury ago to describe the desire and use of what is pricey and unique. After all, a $60Casio digital will keep time more accurately than a $70,600 Patek Philippe watch, butthere is little question as to why someone would choose to wear a watch equal to theincome of the average American. Just how much sway the insider factor holds over oureveryday behavior is now coming into full focus, as the efforts marketers undertake toinfluence our choices grow more clever.

If you have to ask, you cant afford it

Price has long been the easiest differentiator. Every business,from handbag makers to universities to investment funds,tweaks prices upward to represent a product offering as onpar withor superior tothe competition. But this tactic isquickly becoming less influential, says Claudia Strauss,managing partner of Kirshenbaum Bond + Partners, a NewYork marketing house representing companies like NetJetsand Bulleit bourbon. It used to be the most expensiveblank was enough. People are too smart for that now. Wereally need to go through a strategic process when we thinkabout what is relevant to the brand and to the consumer, sheexplains.

Exclusivity is evolving from price-driven to scarcity-driven.For some, this leads to bidding up wines like ScreamingEagle, a young Napa winery that makes just a few hundredbottles a year. For others, the desire for scarcity translates

into events. Starwood Hotels, for instance, offers frequent guests opportunities for free


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stays at some of the worlds poshest locales, yet it also pushes beyond its properties tosatisfy the yearnings of its most valued guests. Recently, one member was afforded thechance to hobnob at the Manhattan premier of the movie Hairspray with John Travoltaand the rest of the cast. Virgin Atlantic frequent fliers already have access to anyplace onthe globe, so the airline established a waiting list for a two-million frequent-flier point

reward of space travel, even though no launches are imminent. Its about socialcurrency. People like to say they have the thing other people cant get, says Strauss.

Even so, plenty of high-priced offerings are still on offer, from the worlds mostexpensive cocktail (a $1,400 mai tai at Belfasts Merchant Hotel) to the one of thepriciest hotel stays (the $25,000-per-night Bridge Suite at the Bahamas Atlantis resort).Those may never be purchased, but serve as a gimmicky way to draw attention. This kindof halo effect also serves as the core strategy of Parisian couture ateliers, the money-losing houses of high fashion. People rarely purchase the outlandishly high-priced itemsshown on runways, but theyre more likely to take notice of the designers off-the-rack(though still expensive) cocktail dress.

American retailers have tried to tap into this model, with varying degrees of success.Tiffany & Co. embarked on a strategy in the early 2000s of expanding into suburbanshopping malls and offering a selection of sub-$100 items as an enticement for upwardlymobile middle-class shoppers. The strategy worked for a while, until Tiffany executivesrealized that the cheapest offerings were accounting for the bulk of sales, and thecompanys core wealthy shoppers had started to avoid the rabble-packed counters ofTiffany shops. Now the company is again representing itself as an ultra-luxe purveyor,shunning the masses it once courted. Burberry, Cadillac and even Vlasic pickles havealso experienced the downside of expanding what is perceived as a premium brand in thequest for more sales.

The vodka paradigm

The fact that exclusive brands seem to lose and regaintheir cachet over time may not be the fault of marketersor executives. It may just be human nature. JoshuaBerger, a professor of marketing at the University ofPennsylvaniasWharton School of Business, has studiedthe nature of consumerism extensively. He determinedthat the desire to be an insider is perhaps far morewidespread an influence than was previously believed.The things we buy, the attitudes we hold and the placeswe go for vacation communicate things about us and oursocial groups, Berger explains. People buy things tolook like other people, but also to avoid looking likeother social groups. In one experiment, Berger sold wristbands to students who lived ina cool college dormitory. After a few weeks, he switched to selling the wristbands to aneighboring dorm housing academically elite students. Once this group perceived as


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geeks started wearing the wristbands, the original group of students stopped. Similarstudies of various groups repeatedly show this result. People will express preferences forthingsyet later, when they find out people they dont want to look like prefer it, too,they abandon them, says Berger.

Yet this pattern doesnt seem to apply to all products. Preferences for more mundaneitems, like a certain brand of hand soap, tend to remain steady despite the knowledge ofanother groups shared preference. There are also indications that the more wealthsomeone enjoys, the more kinds of items become subject to the vagaries of perception. Amiddle-class person may aspire to simply own a sailboat, for instance, but billionaireshave a rivalry over how long their yachts are.

And nowhere do psychology and disposable income express themselves more clearlythan with vodka. By definition, vodka is a clear, tasteless, odorless liquidmeaning thata basic level of quality distilling yields a vodka on par with any other. Yet through cleverads and higher pricing, Absolut vodka became the premium vodka over Smirnoff in the

1980s. Then, in the 1990s, Sidney Frank consciously decided to introduce Grey Goosevodka, which costs 50 percent more than Absolut, with reasoning that people would paymore for a brand they saw as more exclusive, just as they did with Absolut over Smirnoff.Frank later sold the Grey Goose brand for $2 billion.

The problem [for brands like Absolut] is running in place, says Dan Hill, the author ofEmotionomics: Winning Hearts and Minds, the founder of Sensory Logic, and aconsumer researcher. There is an innate human drive, whether you look at the military,academia or the Indian caste system, to be better than others.

With consumers who are more attuned to marketing techniques, ads alone cant win thebattle to make a brand appear exclusive, notes marketing executive Strauss. When Lexuswanted to appeal to younger affluent drivers, Strauss and her team commissioned anexhibition where hip contemporary artists incorporated the Lexus brand into their work.The idea was to tap into the desire of the target group to be associated with somethingtrendy and creative, rather than old-fashioned and tony.

Luxury markets are also trying to bring in brand ambassadorssuch as celebrities,journalists and others who hold influence in desired consumer circleswho are engagedto become publicly enthusiastic about a brand. People like to hear things from a crediblesource. People who are influential in their communities hold great value for brands, saysStrauss. To gain brand ambassadors, marketers will give actors free goodies, hire modelsto order certain drinks at hot-spot bars, and pay bloggers to hype a brand in their entries.

As this trend continues, expect ever more sophisticated product placement intended toconvince consumers that a brand is exclusive enough to make them insidersmembersof an elite group.

You have to create associations that are unique, memorable and desirable, saysconsumer researcher Hill. When it is all said and done, branding is all emotional. Thereis nothing concrete about a brand. Except how you perceive it.


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The marketing of luxury brands

A. V. Vedpuriswar

"Luxury brands are brands whose ratio of functional utility to price is low while

that of intangible utility to price is high."

THE market for luxury brands in our country has expanded in recent times. Withincome levels going up, customers prepared to buy such brands are growing innumbers. According to an NCAER Household Income Survey, in 2001-02, therewere 20,000 families in India with annual incomes of more than Rs 1 crore. By2005, that number is expected to increase to 53,000. By 2010, India will havesome 1,40,000 crorepatis. Retail management company KSA Technopakestimates the market for luxury and high-end clothing in India at Rs 1,000 crore

and for accessories at another Rs 1,000 crore.

In the past, brands like Liz Claiborne and Pierre Cardin tested Indian waters butmade a hasty retreat following poor customer response. This led to a generalperception that India is still not ready for luxury brands. But now that impressionis changing. Many leading global luxury brand marketers have started taking ourmarket seriously.

Luxury, derived from the Latin word luxus, means indulgence of the senses,regardless of cost. Luxury brands are brands whose ratio of functional utility toprice is low while that of intangible utility to price is high. Such brands sharecharacteristics like consistent premium quality, a heritage of craftsmanship, a

recognisable style or design, a limited production run of any item to ensureexclusivity, an element of uniqueness and an ability to keep coming up with newdesigns when the category is fashion-intensive.

Luxury goods' marketing is a different ball game as the type of customersinvolved fall in a different class altogether. These customers are influenced moreby glamour and style and want to stand out in a crowd. They do not bat aneyelid whey they buy a Vuitton bag costing Rs 50,000 or a Mont Blanc diamond-encrusted pen for Rs 50 lakh, Ermenegildo Zegna's top-of the-line, custom-


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tailored suit costing Rs 6 lakh or a mid-range Louis Vuitton briefcase priced Rs1.27 lakh.

As these figures suggest, luxury brands are prestige products characterised byhigh-involvement decision-making that is strongly related to the person's self-concept. Sensory gratification and social approval are the primary factors inselecting a prestige product. Cutting prices or giving discounts can bedetrimental in case of luxury brands. A higher price implies a higher level ofquality and also suggests a certain degree of prestige. Similarly, distributionshould be restricted. Status-sensitive consumers may reject a particular productif the feeling of exclusivity goes away.

Managing luxury brands is as much an art as a science. The challenge is tocreate a demand for something which is not really needed. After all, it lookscrazy to spend Rs 50,000 on a handbag or Rs1,27,000 on a briefcase. Creativity

plays a key role in creating such a premium image. Many luxury brands achievelegitimacy and fashion authority as a result of the creative talent of their designteams who respect the brand heritage and yet continuously reinvent it.

Brand-building is a different ball game in case of luxury goods. Fashion shows,special events, and other public relations efforts must be carefully coordinated toconvey the desired image. The magazines selected for advertising are oftenunconventional and trend-setting. It is the kind of people who read them, not thenumbers, which matter. The movies in which the brand appears and thecelebrities and pop icons who endorse the brand must also be selected carefully.

The product line decisions in case of luxury brands are somewhat tricky. First, towhat extent should companies include in their lines lower-priced accessory itemsto target a broader market? A second and related issue is whether there shouldbe line extensions beyond the core category. Such a strategy may makeoperations more complex and drive up costs. Moreover, transferring the brand'sfashion authority from the core to another category may not be as simple as itsounds. Despite these concerns, most successful designerwear luxury brandscombine a risky and perishable ready-to-wear offering with sales of less fashion-intensive items, such as leather accessories. A Gucci store might display its


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latest fashion accessories prominently but generate most of its sales from blackand brown handbags and conservative silk ties. Many luxury brands realise lessthan 25 per cent of their sales from ready-to-wear products. The balance comesfrom fragrances, leather accessories, and home furnishings.

Channel management issues are again different for luxury brands. Here thefocus is not on expanding reach. Indeed, marginal and unfocused retailers mustbe dropped from time to time to improve the strength of the brand franchise forthose remaining. Investment in flagship monobrand stores augments the brand'sprestige and presents it as a lifestyle concept.

In the past, customer service for luxury brands meant making to order.Craftsmanship and customisation went hand-in-hand. Today exclusivity isprovided not by customisation but by restricted supply. But selective distributionand limited assortments cause inconvenience to consumers. So many luxurybrands are looking at new ways of improving customer service.

Traditionally, luxury brand retailers have not paid much attention tocomputerising records of transactions with clients. Now they are realising theimportance of customer relationship management for various reasons.Customers who buy an accessory today may purchase higher-value itemstomorrow. The tourist who buys a single item from one store may buy items ofthe same brand in other stores around the world. Databases enable retailers toknow how important their customers are, no matter which store they may shopin, around the world. Customer databases enable owners to contact theirconsumers with invitations to collection previews, end-of-season sales and otherevents. Customer databases also ensure that even when salespeople leave, theirknowledge is not lost.

Many of the points discussed so far are exemplified by the French luxury goodsconglomerate LVMH which owns several famous brands in various productcategories: wines and spirits (Dom Prignon, Mot & Chandon, Veuve Clicquotand Hennessy), perfumes (Christian Dior, Guerlain and Givenchy), cosmetics(Bliss, Fresh and BeneFit), fashion and leather goods (Christian Lacroix, DonnaKaran, Givenchy, Kenzo and Louis Vuitton), watches and jewellery (TAG Heuer,Ebel, Chaumet and Fred).


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At the heart of LVMH's business model is a well-thought-out process for creatingand growing star brands. According to Bernard Arnault, the CEO, star brandsmust be timeless, modern, fast growing and highly profitable.

A star brand has to be built for eternity. It must have been around for a longtime. It should have become an institution. For example, Dom Perignon was

created 250 years ago, but LVMH is confident it will be relevant and desired foranother 100 years and beyond.

Timelessness takes years, even decades to develop. Such a brand must havecome to stand for something in the eyes of the world. A star brand has to remaincurrent and fashionable. It needs sex appeal and has to be modern. It has to beso new that people would want to buy it. A star brand has to keep growing.Growth is a clear signal that the brand has consumer appeal. Last but not theleast, a star brand has to be profitable. Profitability depends on both the priceand the costs incurred. So even in case of star brands, operational excellence isimportant. That means sourcing of raw materials, manufacturing and distributionmust be efficient.

LVMH realises that in the case of luxury brands, the innovation supporting thecreative process and the advertising are very expensive. High profitability canonly come with discipline in the manufacturing process. This discipline includes atremendous emphasis on quality and productivity. For example, Vuitton'smanufacturing is labour-intensive, with a team of 24 workers producing about120 handbags a day. The manufacturing process is carefully planned andexecuted with modern technology. LVMH analyses how to make each part of theproduct, and from where to buy each part. It finds the best leather at the bestprice and gives it the treatment it needs. A single purse can have up to 1,000manufacturing tasks. LVMH plans each of these steps carefully.

The Boulogne Multicolor, a shoulder bag that went on sale in 2004 in Vuittonstores worldwide for about $1,500, illustrates how LVMH coordinates itsoperations. With the success of the Murakami line in 2003, Vuitton's marketingexecutives quickly began looking for a way to capitalise on it. They learnt fromstore managers that there was latent customer demand for a shoulder bag. In aworkshop attached to the marketing department, technicians took a classic bag,the Boulogne, reworked it in multicolored toile, added metal studs and othertouches, and named it the Boulogne Multicolor. The prototype went directly fromthe marketing department to top executives, who approved the bag without anyinvolvement by the design team. In June, the prototype reached Vuitton'sfactory in Ducey.

When LVMH opened its first store in Delhi last year, it found strong demand forits premium, aspirational products. According to LVMH sources, the major reasonfor the success was the simultaneous launch of products and services in flagshipstores in Paris and India. This earned LVMH the trust of discerning Indianconsumers.

LVMH's experience is clear evidence that the super rich of the world, irrespectiveof which country they belong to, have similar lifestyles, tastes and aspirations.


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They want the best and the latest in fashion. At many big social functions todayin the country, it is not uncommon to see women carrying Vuitton's Theda orMonogram Ambre handbags.

LVMH planned its entry carefully after spending sufficient time trying tounderstand the Indian market. The company closely monitored Indians who were

buying abroad. This gave the company a good feel for how the market worked.Now LVMH has plans to launch other brands like Fendi, Dior and Celine for Indiancustomers. The company has also started introducing products from the spiritsdivision ranging from Mot & Chandon champagne to Hennessy cognac and therecently launched luxury vodka Belvedere that retails for Rs 2,000 a bottle.

Developing luxury brands involves heavy investment of time, effort and money.That needs a different kind of mindset which is generally lacking in many Indiancompanies who look for quick returns. That is why there are few Indian luxurybrands. But for those who are willing to take the plunge and wait patiently forthe results to come, there is a pot of gold waiting at the end of the rainbow.

luxury brands in recession.doc

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