luxury strategy in action

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CONTENTS

List of Figures and Charts x

List of Tables xi

Notes on Contributors xii

INTRODUCTION 1Jonas Hoffmann and Ivan Coste-Manière

1 THE EVOLUTION OF THE LUXURY MARKET:STAIRWAY TO HEAVEN? 5Ivan Coste-Manière, Katrina Panchout, and Jacques

Molas

1.1 INTRODUCTION 51.2 THE LUXURY INDUSTRY 1990–2000: STARTING THE CHANGE 5

1.2.1 THE CREATION OF LARGE GROUPS 61.2.2 THE SHIFT FROM A HOME-MADE LOGIC TO AN

INDUSTRIAL LOGIC 81.2.3 THE IMPORTANCE OF MARKETING AND THE CONCEPT

OF DIVERSIFICATION 91.2.4 NEW MARKETS, NEW OPPORTUNITIES: THE

INTERNATIONALIZATION OF THE LUXURY INDUSTRY 101.3 THE LUXURY INDUSTRY 2000–2010: GLOBAL LUXURY

ACTIVITIES 111.3.1 LUXURY ACCORDING TO INCOMES, AGES OR

GENDERS 131.4 THE 2010s: EMERGING COUNTRIES TAKE THE LEAD 15

1.4.1 BRAZIL 151.4.2 RUSSIA 161.4.3 CHINA 171.4.4 INDIA 17

1.5 FROM HERE TO ETERNITY 20ACKNOWLEDGMENTS 21

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2 LUXURY BUSINESS: MULTINATIONALORGANIZATIONS AND GLOBAL SPECIALIZATIONS 22Francesco Giliberti Birindelli

2.1 INTRODUCTION TO THE ORGANIZATIONAL COMPLEXITY OF THELUXURY BUSINESS 22

2.2 A BUSINESS MADE UP EXCLUSIVELY OF HUMAN EXPERTISE 232.3 BOOSTING SPECIALIZED NICHES 252.4 HOW TO SPOT THE COMPLEXITY 292.5 THE ULTIMATE STAGE OF COMPLEXITY – E-SELLING, E-SHOPPING

AND LUXURY 2.0 30APPENDIX: THE WASHINGTON CONVENTION – CITES 35

3 FINANCE SURVIVAL GUIDE: VALUE CREATION ANDPIÑA COLADAS 37Giulio Pizzini

3.1 INTRODUCTION (OR WHY BUSINESSES EXIST) 373.2 THE BASICS OF FINANCIAL STATEMENTS (OR HOW JACK GOT INTO

BUSINESS) 383.3 HOW TO THINK LIKE AN ECONOMIST (OR ONLY WHAT IS

MARGINAL REALLY MATTERS) 463.4 DISCOUNTED CASH FLOWS (OR IT IS ALL ABOUT MANAGING

RISK) 50

4 THE PIER FRAMEWORK OF LUXURY INNOVATION 57Jonas Hoffmann and Betina Hoffmann

4.1 INTRODUCTION 574.2 FRAMEWORK OF LUXURY INNOVATION: PATH 584.3 FRAMEWORK OF LUXURY INNOVATION: INSIGHT 614.4 FRAMEWORK OF LUXURY INNOVATION: EXECUTION

EXCELLENCE 664.5 FRAMEWORK OF LUXURY INNOVATION: RARENESS

OF EXPERIENCE 684.6 WHAT IS NEXT IN LUXURY INNOVATION? 704.7 CONCLUSION 73ACKNOWLEDGMENTS 73

5 RETAILING IN THE LUXURY INDUSTRY 74Alessandro Quintavalle

5.1 INTRODUCTION 745.2 GLOBALIZATION, DEMOCRATIZATION AND

INTERNET: CHALLENGES AND OPPORTUNITIES INTODAY’S RETAILING 75

5.3 LUXURY RETAIL DESIGN 775.3.1 OFFLINE BOUTIQUE DESIGN 78

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CASE STUDY 5.3A 815.3.2 ONLINE BOUTIQUE DESIGN 83

CASE ANALYSIS 5.3B: THE WATCH AVENUE 855.4 DISTRIBUTION FORMATS 88

5.4.1 OFFLINE DISTRIBUTION FORMATS 88CASE STUDY 5.4A: PISA OROLOGERIA 91

5.4.2 ONLINE DISTRIBUTION FORMATS 92CASE STUDY 5.4B: FABERGÉ 95

5.4.3 COMMERCIAL POLICIES IN LUXURY RETAILING 975.5 THE IMPORTANCE OF THE HUMAN FACTOR IN LUXURY

RETAILING 985.5.1 ASSISTING THE CLIENT THROUGHOUT THE PURCHASE

ACT 995.5.2 THE BOUTIQUE MANAGER 1025.5.3 THE IMPORTANCE OF THE HUMAN FACTOR IN LUXURY

E-RETAILING 103CASE STUDY 5.5A: ADAPTING TO TIMES; NEW LUXE

AND NEW CLIENTS ACCORDING TO THE FOUNDATION DE LAHAUTE HORLOGERIE (INTERVIEW) 104

CASE STUDY 5.5B: THE WATCH@TABLET R© 106

6 INTERNET, SOCIAL MEDIA AND LUXURY STRATEGY 108Fleur Gastaldi

6.1 INTRODUCTION 1086.2 DEFINING A WEB STRATEGY IS GOOD; ENVISIONING AN

INTEGRATED STRATEGY IS BETTER 1096.2.1 DEVELOPING THE RIGHT WEB MARKETING APPROACH 109

CASE STUDY 1: THE ORIENT-EXPRESS GROUP 1136.2.2 THE E-MARKETING MIX: PLACE, PRODUCT, PRICE,

PROMOTION 1146.3 TAKING WEB STRATEGY TO NEW CHALLENGES 117

6.3.1 OPTIMIZING EXISTING ASSETS AND DEVELOPING NEWONES 117

CASE STUDY 2: BOUCHERON 1206.3.2 DEALING WITH INCREASING INTERACTION FROM WEB

AUDIENCE 1206.4 CONCLUSIONS 123

7 BRANDING PRINCIPLES IN THE LUXURY INDUSTRY 125Tinne Van Gorp

7.1 INTRODUCTION 1257.2 APPROACHES TO LUXURY BRAND BUILDING 1267.3 THE LUXURY FASHION BRAND-BUILDING PROCESS 128

7.3.1 BRAND CONCEPT 1287.3.2 BRAND IDENTITY 129

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7.3.3 BRAND AWARENESS 1307.3.4 BRAND POSITIONING 1317.3.5 BRAND LOYALTY, BRAND EQUITY AND BRAND

VALUE 1327.4 THE KEY CHARACTERISTICS OF A LUXURY BRAND 133

7.4.1 CLEAR BRAND IDENTITY 1357.4.2 MARKETING COMMUNICATIONS 1367.4.3 PRODUCT INTEGRITY 1377.4.4 BRAND SIGNATURE 1387.4.5 PREMIUM PRICES 1397.4.6 EXCLUSIVITY 1407.4.7 HERITAGE 1407.4.8 ENVIRONMENT AND SERVICE 1417.4.9 CULTURE 142

7.5 CONCLUSION 143

8 BRAND EXTENSIONS IN THE LUXURY INDUSTRY 144Rasa Stankeviciute

8.1 INTRODUCTION 1448.2 WHAT DOES BRAND EXTENSION STAND FOR? 1458.3 LUXURY BRAND EXTENSIONS 146

8.3.1 DOWNWARD BRAND EXTENSION ENHANCINGTHE PARENT LUXURY BRAND – THE CASE OFROLLS-ROYCE 147

8.3.2 FROM LUXURY TO PREMIUM – THE CASE OFMERCEDES-BENZ 150

8.3.3 DIVERSIFICATION OF THE BRAND – THE CASE OF GIORGIOARMANI 151

8.3.4 LUXURY BRAND EXTENSIONS WITHIN COLLABORATIONWITH A NON-LUXURY BRAND – THE CASE OF JIMMYCHOO 155

8.3.5 LUXURY BRAND EXTENSIONS INTO CHILDREN’S WEARMARKET 157

8.4 CONCLUSION 159

9 SUSTAINABLE DEVELOPMENT IN THE LUXURYINDUSTRY: BEYOND THE APPARENT OXYMORON 160Christophe Sempels

9.1 INTRODUCTION 1609.2 SUSTAINABLE DEVELOPMENT: JUST A MATTER OF COMMON

SENSE 1619.3 THE SUSTAINABLE LUXURY CONSUMER 1619.4 WELCOME TO THE WORLD OF RARE RESOURCES 1649.5 SUSTAINABLE DEVELOPMENT, A MUST IN TERMS OF REPUTATION

MANAGEMENT 165

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9.6 CREATING VALUE THROUGH SUSTAINABLE DEVELOPMENT 1689.6.1 REVISITING THE STRATEGY IN THE LIGHT OF SUSTAINABLE

DEVELOPMENT 1689.6.2 REVISITING PRODUCTS, SERVICES AND PROCESSES FOR

MORE ECO-EFFICIENCY 1709.6.3 LIFE CYCLE ANALYSIS AND ECO-DESIGN 1719.6.4 IMITATE THE NATURE: A NEW MINDSET TO INNOVATE 173

9.7 SUSTAINABLE SERVICE SYSTEMS TO DECOUPLE WEALTHGENERATION FROM RESOURCES ANDENERGY USE 176

9.8 DELIVER SOCIAL ADDED VALUE 1789.9 CONCLUSION 180

Notes 182

Index 202

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1THE EVOLUTION OF THE LUXURY MARKET:

STAIRWAY TO HEAVEN?

Ivan Coste-Manière, Katrina Panchout, and Jacques Molas

1.1 INTRODUCTION∗

Luxury is the art of fools, said Henri Duvernois.

In the space of 20 years, the luxury market has changed, almostbeyond recognition. The narrow range of customer-targeted andthe exclusive-distribution channels have been replaced by a stretch-ing of the brand to appeal to and be affordable by a wider range ofconsumers.

This chapter presents the evolution of the luxury industry fromthe 1990s through the 2000s and provides a perspective for the2010s with the rise of luxury consumption in markets such as Brazil,Russia, China and India or the United Arab Emirates. It concludesby giving advice on how to manage in the years to come.

1.2 THE LUXURY INDUSTRY 1990–2000: STARTINGTHE CHANGE

Over one century, the French fashion sector changed graduallyfrom a home-made world with a large knowledge to an activity ofmass production addressing a wider market. But it is in the begin-ning of the 1990s that the luxury industry has been redefined andreoriented. Designers and fashion designers became art directors.According to Jollant-Kneebone and Bernstein,1

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T H E E V O L U T I O N O F T H E L U X U R Y M A R K E T

at the end of the 80s, luxury was a world where we were betweenourselves, a house, not a company. These houses had regular cus-tomers. The world of luxury was a closed and very elitist universe,but one which changed with the arrival of large luxury groupssuch as PPR, Prada or LVMH. Then since the 90s, the luxuryindustry underwent a revolution with the arrival of marketing.Luxury differs and has to adapt itself to the evolution of themarket and of the society to affect everybody.

The French Economic and Social Council2 reminded us in 2008 thatat the beginning of the 1970s most luxury companies were in fact‘shops’ making a turnover of some million francs. By the middleof the 1990s, the situation was quite different. How, in the spaceof ten years, did the luxury sector change into a real industry, withlarge groups and an industrial logic based on diversification andinternationalization? The answer is the stock exchange.

1.2.1 The creation of large groups

The Economic and Social Council examined the new economic log-ics that dominated the luxury sector: 1) the passage of a home-madelogic into an industrial logic – companies managed to launch thislogic by developing production while preserving the quality of thework and the product; 2) the managerial mimicry, financial logicthat showed itself as an essential element of the new strategies; and3) the creation of international luxury groups, allowing the promo-tion of an increasing number of brands on the markets, was one ofthe distinctive facts of the 1990s.

The context was not very good in the 1990s, but many peoplebelieved that luxury was synonymous with continuous growth withrecord dividends. From Alain Chevalier to Louis Racamier, manyentrepreneurs invested in this sector to create new groups, but wereforced to give up as they were unable to assume the developmentcosts. However, while failure is not a surprise, the fall of AlainChevalier, who had hoisted Moët-Hennessy to the highest level ofthe wines and spirit houses in the 1970s, was unexpected. Oustedfrom the Louis Vuitton-Moët-Hennessy group in 1989 (after suc-cessfully overseeing the fusion in 1987), Chevalier tried to create

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I V A N C O S T E - M A N I È R E E T A L .

a new luxury company by taking back (at a very high price –500 million francs) the Balmain Company. Less than one year later,he gave up fashion design. The profitability was not there.

Louis Racamier, who put Louis Vuitton at the top of the travelgoods table, experienced a similar story. Racamier was also at theorigin of the fusion of the family group Racamier with Moët-Hennessy, creating the first world luxury group. He also initiatedthe entrance of Bernard Arnault into the company only to be oustedby him later. As a form of revenge, Louis Racamier established a newgroup, Orcofi. Supported by his whole family – the Vuitton heirs –as well as by L’Oreal, he bought the respectable house of Lanvin (for500 million francs), at the beginning of the 1990s, with the objec-tive of restoring its lost prestige, and the luxury caterer Hédiard. Healso financed the creation of a subsidiary with the name of Inès dela Fressange, a former Chanel model. However, the luxury crisis of1993, a consequence of the first Gulf War, a risky management andhuge expenses reduced all his projects, and in 1994 he had to giveup Lanvin to L’Oreal and sell its other shares to Axa in 1996, withthe exception of the leather worker Andrelux, which was placed inreceivership in 1997.

Bernard Arnault, on the other hand, having successfully createdthe big group, LVMH in 1989, is still present in numerous luxurysectors, fashion and perfume, from Château d’Yquem to Moët &Chandon. At the end of the 1990s, François Pinault tried a simi-lar operation and became the main French competitor of LVMH,with a turnover of 1.5 billion francs. Hermes, well managed by Jean-Louis Dumas, also managed to constitute a group and to diversifyits productions. Creating a new brand image, Hermes was relativelysuccessful in table art with the purchase of the crystal glass man-ufacturer of Saint Louis and the silversmith Puiforcat. Abroad, thegroup Vendôme, the property of the Richemont family, is the maincompetitor of the French brands, holding an impressive portfolio ofbrands such as Cartier or Baume & Mercier, or Van Cleef & Arpels.

The perfume sector also underwent a period of transformationduring the 1990s. LVMH with the support of Dior, L’Oreal, Procter &Gamble, Unilever and Wella controls all the industry. The world ofthe perfume tended to become a manufacturer of cosmetics, muchcloser to the chemical industry than to the luxury sector. In fact, inthe 1990s, Elf was one of the first companies of the perfume market

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through its subsidiary Sanofi that owned in particular Saint Laurentperfume before giving up these brands to Gucci.

Thus, the 1990s were characterized by the creation of large groupsand a shift from a home-made logic to an industrial logic.

1.2.2 The shift from a home-made logic to an industrial logic

As in all heavy industries, the luxury industry tried to define strate-gies of integration. Thus, the group LVMH had three big poles.The ‘wines and spirit’ activity was organized around the brandsof Champagne (Moët & Chandon, Haberdasher, De Venoge, VeuveClicquot, and so on), Cognacs and Spirits, and also around the pro-duction of the foreign, American and Chilean domains. A secondpole constituted luggage and leather with the brands of Berluti,Céline, Loewe and Vuitton. The third was fashion and perfumeswith Givenchy, Kenzo, Lacroix (sold in 2006), Dior or Guerlain.This activity was prolonged by the control of retail chains – Sephoraacquired in 1997 and Marie-Jeanne Godard in 1999 – and duty-freeshops (DFS) for duty-free sales.

These industrialists no longer adopted an approach directlylinked to luxury, but followed instead a commercial and industriallogic. Marketing became the dominant notion with the conceptof large-scale production. The example of perfumes in the LVMHgroup confirms this new orientation. LVMH, the giant of the per-fume industry, produced all the various ranges of fragrances, fromthe prestigious brands of Dior or Kenzo to low-priced perfumes,in the same laboratories and the same factories. Thus, during the1990s, the luxury industry underwent a process of industrial stan-dardization, and the luxury product became a product like anyother. If we take the example of perfume, nowadays, the non-specialized perfumes have to seduce everybody, the Americans aswell as the Japanese. The high quality standards are being lost andperfume has become a convenience good. The explosion in thenumber of perfumes launched in the market and the shorteningof the life cycle of each of them correspond to the same logic asother products of other industries.

This evolution has also affected Haute Couture. HauteCouture has progressively disappeared, replaced with a form of

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ready-to-wear clothing, renamed ‘top of the range’ to justify itshigh prices. In practically ten years, the number of Parisian fash-ion houses has been halved: 24 in 1987, down to 12 in 1997.This figure fell to ten at the end of 2005. Balmain, Chanel, Dior,Gaultier, Givenchy, Hanae Mori, Lacroix, Scherrer, Torrente Ungaro,all closed their workshops from 2003 to 2005.

The arts of fashion and perfume henceforth entered the industryof mass consumption.

1.2.3 The importance of marketing and the conceptof diversification

During the 1990s we witnessed, along with the new profit-seekingfinancial logic, a diversification of the brand and the lending ofthe label to any type of product, sometimes without much dis-cernment. It became important, as the marketing discourse ofthe moment stated, to make customers a global offer compris-ing many products. These product variations could be positioned‘horizontally’ (as seen in extensions of Gucci’s ready-to-wear andwatches, Louis Vuitton dresses, Boucheron in perfumes, and soon) or ‘vertically’ (more complex to manage), with additional posi-tions (variations of brands and sub-brands Max Mara, or, to a lesserdegree, of Escada and Armani with new segments: Semi Deluxeevening, sports, young, strong women). These variations need to becreated under the control of marketing and depend for their successon the control of distribution.

For example, during this period all the product managers andcommunication directors dreamed of producing pens and watches.Thus, jewelers, perfumers and fashion designers began to offerwatch collections for men and women. The only commercial suc-cess, however, came from Chanel. At the same time, all brandswanted to sell their own perfume. Again, not always successfully –Bucheron being a notable exception – as development costs wereso high that the company often had to sacrifice its independence(Lalique, for example). Today, more than 200 top brand perfumesare launched every year.

This trend of diversification has brought with it a new prac-tice in the luxury industry, that of outsourcing. When a brand

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branches out into a new product range, it obviously does nothave the necessary skills and equipment in-house. Neither Rochenor Hermes has the equipment to make table products, nor canChristofle produce clothes or crystal. At the beginning, coopera-tion is established between the different brands. In 1990, porcelain,sold under the name Christofle, was produced by large companiesin Limoges. The Hermes jewelry was made by Christofle. Gradually,however, the brand started looking to reduce its costs. Porcelaincould be sourced more cheaply not in Limoges, but in Portugal orTunisia. The jewelry is manufactured in Thailand and the crystalsin Arques (Pas-de-Calais).

This period also saw the creation of a brand that is attached to aparticular product. One example might be the creation of the brandand its perfume Paloma Picasso. Here, the origins of the brand areforgotten and new associations are created. The silverware brandChristofle, which is diversifying into jewelry and watches, is a goodexample. In haute couture, however, the result may be disastrous,as was the case with the concepts of Porno Chic, Look Trash andGlam-Trash with Dior and its creator, John Galliano.

1.2.4 New markets, new opportunities: The internationalizationof the luxury industry

After industrialization and diversification, the final major transfor-mation in the luxury industry during the 1990s was international-ization. On one hand, there was a huge potential of growth in theemerging countries. The big brands had enough weight to supporta country risk and take advantage of this growth, but, on the otherhand, it was necessary to pay off, on a wide base, the investments ofthe collection and the development of the concepts (products anddistribution). Brands that limited themselves to the national marketwere thus confronted with problems not only of growth but also ofprofitability. Nowadays, the necessary investments to develop andmanage concepts that can create some value in the luxury are nolonger enough to compete only in one country.

Over these ten years, the place of the luxury industry in interna-tional trade has become increasingly important, showing the recog-nition of the quality of the sold products. In 1993, the companies

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of the Colbert committee made a turnover from exports in excess of20 billion francs (3.2 billion euros). Of the total turnover, 73 percentwas made in the international trade. Another professional source,including the French confederacy of the art professions, gave aturnover of 39 billion francs for export (6 billion euros) – 44 per-cent of the total figure of business. Most of the French exportswere directed toward three destinations: Western Europe, NorthAmerica, and Japan. Even if China did not appear in the statistics,it already seemed to have a strong outlet potential and to be a bigcompetitor for the future. This growth was largely related to thearrival of a new kind of customer and the density of tourists, espe-cially Asian customers. Due to the high price of luxury goods inAsia (about 30 percent higher than in Western countries because oftariffs, barriers or Supply Chain Management), especially in Japan,Asian consumers became important customers of luxury off-Asia.

The emergence of a new customer with high purchasing power isalso a determining factor of the growth of this sector in the interna-tional trade. It helps boost sales. Thus, the 1990s and the arrival ofnew markets gave the luxury industry incredible new opportunitiesof development and success.

1.3 THE LUXURY INDUSTRY 2000–2010: GLOBAL LUXURYACTIVITIES

The success of the luxury market during the twentieth centurywas due in part to the creation of a new social class, the bour-geoisie. Well-known designers, such as Coco Chanel, Christian Dioror Jeanne Lanvin, made their name at this time when the conceptof luxury was clearly defined in the minds of the consumer.

Today, the definition of luxury has lost some of this clarity.How can we define something that is present at so many levelsand in such a diverse range of products? Pure luxury no longerexists. The whole concept of luxury is changing, both anticipat-ing and following the constant shift of consumers’ dreams, needsand desires. However, it is important for luxury to stay at theforefront of this evolution – a highly protected ‘avant garde’: consis-tent, superior, innovative, design quality and services are conceptswhich have been repeated so many times, they do not mean

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anything more within the ‘mass market’ word but for particularopportunities.

Being aware of customer needs and being more competitivemeans that companies must change while maintaining their corevalues, extending their ranges, refreshing, stretching and offeringmore affordable products for the so-called upper market. Luxurybrands have expanded with new names and with new horizons.Different categories of brands have been introduced such as ‘pre-mium brands’, ‘niche brands’, ‘creators brands’, ‘top of the rangebrands’, ‘luxury sewing’. The brands have to face a problem of iden-tity and positioning. The new technologies and communicationthat have been developed over these last years have contributedto the democratization of luxury.

Are you an elitist or a democrat? For the former, luxury is reservedfor a small educated minority. For the latter, access to luxury shouldbe as broad as possible. Historically elitist, the luxury goods sec-tor has tended, over the past 15 years, to embrace democracy.An increasing number of occasional customers, as opposed to thetraditional customer-exclusive, come to shop, claiming a ‘right ofluxury’. These customers are greater in number, but they buy less.Of course, luxury is luxury and there is no question that it losesits image quality or rarity. By this, we mean that an increasingnumber of people can afford a couple of designer pieces withoutbecoming regular customers, often because they can simply notafford.

There are no real barriers anymore in the consumption of lux-ury items, and we see new trends appearing which associate clothesfrom Zara or H&M with others from Prada, Dior or Gucci. Theclientele of the luxury today is very heterogeneous.

This democratization is classified by Silverstein and Fiske (2003)on the basis of three types of goods3:

� Accessible superpremium: Products which are the most expen-sive ones in their category but affordable by middle marketconsumers; these are ‘low ticket items’.

� Old-luxury brand extensions: These are brands that are ‘lower-priced version of goods that have traditionally been affordableonly by the rich’. This means that brands extended their rangeto attract more people.

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� Mass prestige or ‘Masstige’: It is ‘far from being the highest-pricedproduct in a category’. This is a mix between mass and class; lessexpensive than superpremium goods. This allows everybody tohave access to luxury goods and all brands, to reach a maximumnumber of consumers who are generally nicknamed the ‘luxurytourists’.

In fact, the new concept of luxury is a recent phenomenon – onlysome ten years old, as depicted by the LV and Burberry cases4 – andone that is more accessible, in contrast with the old luxury whichused to be a heritage brand, and affirms that ‘heritage and pres-tige are the hallmarks of many luxury brands, some of which arehundreds of years old. The enduring quality of a particular luxurygood can be part of its appeal, yet consumers – particularly young,fashion-conscious consumers – want a product that looks fresh andunexpected.’

The fact that luxury brands have moved into emerging countrieshas also contributed to the diversification of the luxury customerprofile. The customer has become more casual and particularlymore diverse in terms of culture.

Do luxury brands prefer to sell to elites or to diversify/expandtheir customer base? It really depends on the market vision adoptedby each luxury business manager. Some prefer to stick to a coregroup of preferred customers and regulars. They tend not to adopttheir trade policies according to the target or country. Others, whohave followed the evolution of the luxury market, have decided tomake their offer more accessible by offering cheaper products for,in particular, a younger audience.

1.3.1 Luxury according to incomes, ages or genders

Surveys on luxury consumers such as the Unity Marketing Lux-ury Tracking Report, or by Merrill Lynch, have shown a fairly evenand obviously Gaussian distribution for all income levels. There aremore and more consumers attracted by the now famous ‘hyper lux-ury’ (business jets with Dassault and Grumman as world leaders andEmbraer on the edge, space shuttles with more and more competi-tors among others). These new categories and consumer segments

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follow an entropic growth which is much better analyzed by thefamous power’s law, with a longer and longer tail. Unity Market-ing’s exclusive Luxury Consumption Index, among many others,can be used as a wonderful barometer to check out the market’sevolution.

The baby boomer generation represents a great potential, but thenow famous GenXers seem to be as money conscious as the GenYerswho might be considered as a great opportunity for marketers. It isdifficult to give a concise definition of these two conceptual seg-ments as they used to be age based and they are now much moreled by behavioral analysis. This is also to be applied to the borderbetween fashion and luxury, if we could admit luxury to becomefashion, and tailor-made offers to become mimetic.

Linked to the evolution which has been noticed from 1995, theempowered women, konagus in Japan, have been establishing anaverage 65/35 percent (female- vs male-driven consumption) ratio.The U point was reached in 2005. It seems as if a female-driven mar-ket such as the one once emphasized by the series Sex and the City,and which has long ago been studied for the diamond industry, hasbeen reducing the males’ purchases.

To sum up, the luxury perception of consumers is no longer whatit used to be. People’s needs and expectations have changed. Todaythey buy luxury products and services for different reasons, such as,to impress others, self-direct pleasure, self-gift giving, and of coursefor quality.

This drives companies to adapt their marketing communica-tion strategies, by using an Integrated Marketing Communication(IMC). In fact, luxury brands use tools such as advertising, pub-lic relations and sponsorship. In addition, companies are widen-ing their range, in order to reach more consumers, by creatingnew market segments and are adapting their advertising to eachtarget.

The abrupt change in terms of consumer behavior modificationsis making companies adapt their marketing strategies, influencingdriving and being driven by the market, improving and increas-ing the scope of the most sophisticated, integrated communicationstrategies.

What do the 2010s hold? A shift to luxury in emerging countriesis the most certain answer.

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1.4 THE 2010s: EMERGING COUNTRIES TAKE THE LEAD

As expected by many analyses, in 2007 the worldwide wealthincreased by 9.4 percent reaching 41 trillion dollars. Even thoughthe USA was still ranked first, the top list of the richest countries hasdefinitely changed. The evolution of GDP in developing countriescould even be increasing during this period with astonishing factsand figures. There are numerous countries, depicting young andnumerous populations, within which the wealth coud be increas-ing at a rate of 20 percent. India, in 2007, showed one of the bestgrowth rates – an incredible 22.7 percent, China 20.3 percent andBrazil 19.1 percent. During these years, at LVMH and others, thecommon strategic analysis was to consider a third of the luxuryproducts as being sold to Brazil, India, and China, followed byRussia within the next ten years, making these citizens the largestluxury consumers by 2015.

In the next decade, the joint revenues of these markets will sur-pass those of most of the traditional established markets in Europe,North America, and Japan. They will drive the continuous evolu-tion of luxury. Chanel has understood this evolution with someChinese collections, the occidental luxury culture imposition grad-ually giving way to the oriental luxury consumption style, and tothe mall culture, an approach that is much more devoted to thesenew consumers and to this multi-ethno-driven potential market.A wonderful and strategic ten-year-long bet. The global distributionchain is changing from flagships to retailing point of sales. As UchéOkonkwo explained,

brands such as Burberry currently have more Russian clients inseveral UK locations than residents, and these new clients willcontinue to perceive luxury through different sets of referencesand parameters. These market dynamics are changing the luxurylandscape, and therefore luxury management practices requirerevisiting and refining to accommodate these paradoxes.5

1.4.1 Brazil

Brazil, where there were more than 140,000 US$ millionaires in2007, increased the consumption of global luxury products by

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17 percent that year. Brazil lacks a real luxury culture, and Brazil’sluxury consumers are among the most discerning. It is a resilient,dynamic, energetic and impulsive country, with a high future-oriented culture of appearance and image. Brazilians, like manyyoung populations around the globe, are crazy about pleasure andentertainment; it is the hedonic market of today. When dealingwith products, Brazilians expect exclusive limited edition products,the old Spanish way around 2000. This high selectivity impacts ondistribution so that this highly selective distribution could be ‘felt’in very exclusive locations.

Mexico, with Carlo Corinto, used the same battle plan around2000. Refined communications media, changing the intrinsicessence of the message, with direct and effective reaches andtargeted brand with private sales must therefore be used. Thisexclusivity perception makes counterfeits accepted when bought bytourists but not by locals.

As expected by analysts such as AT Kearney’s team, Brazil stillneeds some retail network expansion, and, above all, consumerknowledge and ‘central’ consumer groups need to be improved.

1.4.2 Russia

The Russian luxury market today reaches 7 percent of the world-wide market. It is expected to grow about 30 percent on average.The fall of the iron curtain led Russian millionaires and nouveauxriches to spend even without thinking. There too, Russian wealthypeople have been starting to seek knowledge and experiences.Russia, a rich, strong, passionate and spirited, driven and daringcountry, is fond of glamour, very past, present and future oriented,improving its knowledge-conscious orientation – thus making ita very challenging market. Russian luxury consumers and retaildistribution channels exist for today. As frequent buyers, Russiancitizens expect products to show a balance between heritage, tradi-tion, modesty and wealth. The bling-bling orientation is definitelynot the one and only trend. Distribution should focus on limitedaccess, private, exclusive shopping, with a much wider range ofproducts than anywhere else except maybe in the Emirates. Beingvery respectful when talking about the roots and territories of theirbest-loved brands, the Russian fans expect a huge brand heritage

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and have very vast product knowledge. Counterfeits are muchmore tracked than before. As most of the return on investment inthis country seems to be almost achieved for many companies, achange in the consumer attitudes and behaviors is expected, withan increase in the luxury services to consumer related to the growthof wealth in Russia.

1.4.3 China

China is today considered as a miracle in a country where theluxury consumer market was almost nonexistent some 20 yearsago. Nowadays, this market is predicted to be almost unstoppable.The growth of the Chinese GDP has led almost all luxury groupsto invest heavily in China. This blitzkrieg which started in thisregion from Hong Kong, between 2005 and 2010, targeted theChinese tourists first, as they could still be considered as elite; thenumber of passengers grew at a yearly rate of 10 percent. Chinais heavily dynamic, present and long-term oriented, very muchsocial-status conscious, progressive, promising. Despite economicprogress, China remains volatile. The Chinese luxury consumeris already there today while Chinese luxury retail might be fortomorrow, except for malls. Chinese expect an outwardly visibleluxury, status-driven products, going shopping with friends. Storesand prices are to be designed so that they are more accessible, awider portfolio of products being vital. The brand awareness is tobe designed locally for cross-channel purchases. A huge problem inChina is that this country is currently listed as one of the major con-tributors to the counterfeit luxury industry, increasing drasticallyunexpected cannibalization. China is mature enough, whatever therisks are, for future tremendous market growth with more and moreeducated sophisticated clients and much more customization andpersonalization as the individualism level will increase, thanks togrown-up ‘little emperors’.

1.4.4 India

India is the biggest democracy in the world with almost 50 percentof its population under 20 years old. Predicted to be the fifth

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luxury market by 2025, the trend is more than optimistic as theconsumption is estimated to increase by four. Many have forgottenthat luxury companies were able to survive around 1929, thanks tomaharajahs. This country has the best knowledge, and most of thebest goodwill and know-how. More than 125,000 US$ millionairescurrently exist. But, most Indians being money conscious have aslightly lower appetite for luxury. India is currently seeking howto spend its wealth, the reflective and/or the mentalizing way. TheIndian luxury consumer is for tomorrow, the Indian luxury is fortoday. From reflective brands such as TAG Heuer with the livingGod SRK, to the most mentalizing heritage hotels (Neemrana Hotelsof our friends Aman Nath and Francis Wacziarg ‘no hotel hotels’); itis easy to feel how energetic, knowledgeable, young, and dynamicIndia is. The culture of style, of haute couture with designers such asMalini Ramni, or HiDesign created in 1978 by Dilip Kapur, balancespresent and future orientations in the meantime.

Like China, success is the definitive hunt. Being the kings ofhospitality and service, stylish Indian customers expect beautifulproducts and luxury complimentary additional services. The atmo-sphere of the points of sales is crucial in luxury boutiques whichare, for most part, located in luxury malls (such as DLF Emporioin Delhi, Gold Souk in Cochin), with a browsing experience. Veryrespectful, the Indian customers need real curate brand knowledgeand an Indian celebrity endorsement. Counterfeits are generallyignored, but this attitude is unfortunately changing. The new Indiaappeared in 1992 and a careful retail infrastructure developmentmust be led, much more adapted to mass luxury, and dissimilarpoly-ethnic or incomes-centered consumer segments.

Heritage Hotels as Luxury by Ravi Shanker6

The Heritage Hotels in India have mushroomed due to several reasons.A rich architectural and cultural heritage lies preserved in them. The con-cept started from the royal state of Rajasthan where the present royalfamilies could not maintain their huge properties without assistance.The mansions were converted into hotels to offer travellers to the land

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a unique and unforgettable experience. The Heritage Hotels thus bornwere followed elsewhere in the country too. Many of them required yearsof restoration, reconstruction, and renovation to make them suitable forinternational tourists.

Established hotel players like Taj and Oberoi showcase their her-itage properties with pride. Taj manages palaces and rustic safari lodgeslike Fort Aguada Beach Resort in Goa, Usha Kiran Palace in Gwalior,Rambagh Palace in Jaipur, Umaid Bhawan Palace in Jodhpur, and SawaiMadhopur Lodge at Ranthambore in Sawai Madhopur. Oberoi haveheritage properties like Oberoi Cecil in Shimla, and Maidens in Delhi.

Many major hoteliers are acquiring the old forts and havelis and con-verting them into luxurious hotels and resorts. The best example is thatof ITC group who is playing a significant role in developing heritageinto luxury business. WelcomHeritage, one of the chains of hotels in theITC group, brings together a chain of palaces, forts, havelis, and resortsthat offer a unique experience. WelcomHeritage endeavors to preserveancient royal homes and the historical Indian grandeur and opulence forfuture Indian generations.

The Neemrana Group of Hotels, another player in the hospitalityindustry has not so much raised the bar of Indian hospitality, but hasworked concertedly towards creating another niche whereby the expe-riencing of history and its architectural treasures has now become apart of the Indian tourism repertoire. It is for this ‘experiential authen-ticity’ that the Neemrana ‘non-hotel’ Hotels have now come to beknown.7

Rajasthan, the land of kings, is the largest state of India. It is one of themost sought after states in the country in terms of tourism and holidays inIndia. It attracts tourists through out the entire globe with its rich culture& tradition, heritage, and glorious past.

The above-mentioned countries should allow the growth of theworld wealth estimated at around 60 trillion dollars by the year2012 with an average increase of 7.7 percent compared to 2007.Growth rates such as 10 percent for Africa, 8 percent for PacificAsia, 11 percent for Latin America and even 15 percent for the Mid-dle East are expected, an entropic growth which is nowhere elserecorded. Even in ‘stagnant’ economies figures are interesting; theNorth America and Europe luxury markets are to increase at a lowerspeed of 6.8 percent and 4.9 percent, which is far above the growthof the GDPs and wealth.

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1.5 FROM HERE TO ETERNITY

We have seen over the past 20 years that the concept of luxuryhas evolved radically. As incomes have risen, so has the demandfor luxury, and this increased demand, from a far wider range ofconsumers, means that luxury has become more difficult to define.As it is no longer limited to an elite class, the price-quality dimen-sion is not a sufficient criterion. Today’s luxury consumers are lessconcerned than in the past with social status and prestige, andwith the intrinsic ownership of the luxury item. They are moreconcerned by the whole luxury experience: an experience thatincludes innovative design, consistent quality, and superior serviceover time.

To keep pace with such radical changes in the concept of luxury,luxury brands have to be more competitive, innovative and awareof customers’ slightest needs, dreams and desires. Brand stretch-ing, as personal incomes rose, made luxury marketers able to offerless luxurious product lines at more reasonable prices. This typi-cal avalanche diffusion model boosts the audiences, and slightlyreduces the affinities.

Market surveys are declining as they are already off as soon asreleased, giving place to pure trend-spotting analysis. Having flairis of major importance when talking about strategies or launches.These abrupt changes came from great consumer behavior modifi-cations, which have been leading companies to adapt their market-ing strategies. It is commonly admitted that all the different crisisfrom 1992 to nowadays (from Gulf wars to SARS, or financial crisis,or 9/11 attacks) have been favoring a price-hunter feeling amongconsumers.

The confrontation to the explosion of unexpected distributionchannels (parallel importation, gray market, vintage, second-hand)has been making luxury brands react by at least influencing bet-ter the market and improving their communication strategy, usingmore and more endorsement and celebrities and refreshing RenéGirard’s mimetic theory. In the meantime, the consolidation ofthe listed luxury and fashion companies has also been followingthe same trend, while most of them could keep on protectingand increasing their ‘brand value’ and brand- and consumers-basedequities.

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Finally, the frontal confrontation between different generationsis occurring more than anywhere else in the luxury world. Eachgeneration has precise and different relationships with luxury.What used to be age concerned is now increasingly being driven bybehaviors. These greater and greater differentiations are driven bythe background evolution of social, political, and economic factors.In terms of social neighborhood pressures, each generation is influ-enced by the preceding generation’s relationship to luxury. In otherwords, and for once, we could be talking about a ‘cultural mimicry’which is to be almost opposed to ‘communication and advertis-ing’. From modernists to postmodernists and followers, the shifthas been almost perpetual. The greatest coincidence comes fromthe fact that the lean, Generation-X ‘less is more’ philosophy of the1990s has been preceded and then immediately followed by thebaby boomer’s conspicuous consumption ideals of the 1980s.

Luxury used to be a mink fur coat, a Cadillac car, sticking to the3Rs (Rolex, Rolls Royce, Riviera) complex. Today, the greatest lux-ury might be time. A full and complete revival of hedonism can beexpected, as the one observed within the cosmetic industry withthe so-called spa effect.

It is definitely time to live and enjoy life, to stick to more andmore refined lifestyles, keeping us healthy and balanced. In otherwords, luxury can still be regarded as a stairway to heaven, but astairway that is accessible to all, whatever their spending power.

ACKNOWLEDGMENTS

I dedicate this chapter to the memory of my mentors EdmondRoudnitska Paul Teisseire and Pierre Soustelle who created L’Airdu Temps, Han Paul Bodifee Chairman of Prodarom. The sections‘The luxury industry 1990–2000: Starting the change’ and ‘Theluxury industry 2000–2010: Global luxury activities’ are adaptedfrom a report by SKEMA MSc students Lucile Egal, Martin Favre-Felix, and Alexandre Lanoue whom I thank for their work. Finally,I warmly thank Ruchita Sharma, Aman Nath, Jean Claude Novaro,and Richard Mille, and all my friends and artists at Dassault, RSWAF Corse, MPM Monaco.

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November 12, 2011 18:26 MAC/LXA Page-202 9780230_354548_13_ind01

INDEX

Accessibility, 76, 83Advertising, 116Armani, 145, 151–4, 157–9

brand architecture, 152Assets, 41Audemars Piguet, 85Augmented reality, 85

Balance sheet, 40, 42Balmain, 7Barrick Gold, 165Bell & Ross, 94Bernard Arnault, 7Biomimicry, 173–4, 176Boo.com, 31–2Bottega Veneta , 138, 141–2Boucheron, 120Brand

awareness, 130–1concept, 128–9equity, 132identity, 129–30, 135image, 129–30loyalty, 132personality, 129–30positioning, 131–2value, 132–3

Brazil, 15, 64, 69, 71–2Bulgari, 94Business model, 126, 143

Cash flow statement, 41, 45Celebrities endorsement, 131,

136, 166Chanel, 58, 62, 72, 112Children’s wear, 144, 152,

157–8China, 17, 59, 71, 162–3, 179Christofle, 10Collaboration, 155–7Cosmopolitan Boulevard, 95Craftsmanship, 23, 57, 59–60,

66, 71–2, 126, 135, 137Creativity, 62Cultural creative, 161–2Custom Made, 97Customer knowledge

management, 70

Daslu, 69Decoupling, 176Delvaux, 133, 135Design, 77–9, 81–3, 85, 87, 92,

96, 98, 100, 105, 108Dior, 112Discount rate, 55Discounted cash flows, 50–3Discounts, 89–90, 98Diversification, 9, 144–6, 147,

151–3, 159Dream equation, 76–7

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I N D E X

e-Branding, 109e-Commerce, 112, 120, 124e-CRM, 119e-mailing, 110, 123e-Marketing mix, 114–5e-selling, 30e-Shop, 110Eco-efficiency, 170–2, 176–7Editions Temps International, 85Emerging countries, 15Expedia, 115Extension(-s)

brand, 144–59category, 145–6downward, 146–9, 150, 153,

158horizontal, 145line, 145–6, 148vertical, 145

Extranet, 116

Fabergé, 76, 95–7F-commerce, see Facebook

commerceFacebook commerce, 94Fashion, 23Flagship, 127, 141Franchising, 91François Pinault, 7

Galleries Lafayette, 90Gemstone handcraft, 59Geolocation, 112–3Global luxury activities, 11Globalization, 70–1Greenpeace, 166Gucci, 179–80

Harrods, 90Heritage Hotels, 18Hermès, 7, 10, 88, 126, 128,

129, 133, 136, 137, 179

High-Net-Worth-Individuals, 75Home-made logic, 8Hublot, 87Hunter, 155–6

India, 17, 59–60, 71, 162, 163,166, 167, 178

Internationalization, 10Internet, 110–24IRR, 56

Jewellery, 59, 63–4, 112Jimmy Choo, 147, 155–7

Karl Lagerfeld, 62Key money, 89

Large luxury groups, 6Liabilities, 42Life cycle, 165, 171, 172

analysis, 171Limited Edition, 97Loewe, 136, 138LOHAS, 162Louis Vuitton, 58–60, 62–3, 88,

128–9, 133, 136, 138Luxury

branding, 10, 12company structure, 25criteria, 147, 151, 155–6definition, 23management complexity, 29personal, 76pricing, 27retail distribution, 28sampling and prototyping, 26social, 76sourcing and manufacturing, 27trademark and creation, 26wholesale distribution, 28

LVMH, 6, 8, 171

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I N D E X

Marc Jacobs, 62–3Marginal analysis, 48, 53Marina Bay Casino, 63Marketing, 9Masstige, 13Mercedes-Benz, 147, 150–1Mobile, 111–2, 118Multisensory experience,

79–81, 84

Navigation, 110–1Neimann Marcus, 90Net-a-porter, 31Net Present Value (NPV), 56New luxury, 157–8

Offline, 77–8, 84, 94–6, 98, 103Online customer, 110–24Online, 75–8, 83–5, 88, 93–6,

98, 103, 104Orient-Express, 113Osisu, 163Outnet, 95

Packages, 110, 115Paraiba tourmaline, 64Parent luxury brand, 146–50,

153, 158–9Passion, 73Patek Philippe, 92Pay per click ads, 116Peta, 166Piaget, 85, 87PIER Framework

Execution excellence, 66–8Insight, 61–5Path, 58–61Rareness of experience, 68–70

Pisa Orologeria, 91–3Prada, 141Premium brand, 150–2Price comparison, 113–4

Pricing, 114–5Privacy, 110, 119Profit & Loss, 41, 43Purchase, 98–101, 103–4

Racamier, 7Recommendation, 69Reputational damage, 166Resources management, 164Richard Mille, 57, 61–7, 69Richemont, 7Rolls-Royce, 147–51, 159Royal Monceau, 1673R (reduce, reuse, recycle), 177Russia, 16

Saks Fifth Avenue, 90Scarcity, 97Search Engine 109

Baidu, 109Google 109, 118, 121Optimisation, 109–10Yahoo, 109Yandex, 109

Selfridges, 90Silk, 59Singapore, 162Social added value, 178–80Social Media, 121–3

Facebook, 119, 121–3Optimisation, 121Twitter, 123

Stakeholder, 163, 168, 169Stella McCartney, 144, 158Sunk costs, 49Sustainable luxury consumer, 161

Tag Heuer, 87Technology, 70–1Terminal value, 54The Washington

Convention–CITES, 35

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I N D E X

Tiffany, 94Traffic, 110, 116, 123Training, 99, 102, 105–7

UGG Australia, 156–7Unicef, 179–80Usabillity, 110, 113–4

Vacheron Constantin, 85, 92Value, 38, 52Value Proposition, 65Vente-privee.com, 33, 95

Watch Avenue, 85–7, 95Watch@Tablet R©, 106–7Web, 110–24Web 2.0, 121–2Web Ranking,

109–10, 122Wristwatch, 23

raw materials, 23manufacture, 24

WWF, 163, 166

Yoox, 33

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luxury strategy in action

Documents

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