the paradigm cut - a definitive model for luxury brands

7/23/2019 The Paradigm Cut - A Definitive Model for Luxury Brands

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xury Branding is an agency that provides

nsulting, Creative and Communications

vices to the global luxury industry.


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The Paradigm CutA definitive model for luxury brands

By Piers D. Schmidt and Clifford J. Nichols II


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Introducti on 06

Inflection Point and Identity Crisis 10

The Absence of D efi niti ons and Mode ls 16

In Search of Richness We Found a Diamond 34

Desperately Seeking 24

From Rough to Cut: Preparing the Raw Material 42

The Luxury Brand Paradigm Cut 52

The 4 Cs of Luxu ry: How to Q uali fy a nd G rade Luxu ry B rand s 62

Conclusion 80

Appen dix 1 . Lux ury B rand Grad ing Sy stem Tables 82

Appe ndix 2. Gl ossar y of Terms 88

Appen dix 3 . Bib liogra phy 94

CONTENTS


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76

nor true luxury is immune from recession.

Many brands have had to resort to heavy

discounting to move distressed inventory

and, in the process, burst the illusory bubble

of their birthright price premiums. In parallel,

many consumers who are still free to spend

as they did before have come down with a

temporary bout of luxury shame, meaning

a market once synonymous with conspicuous

consumption is presenting the previously

much rarer symptom of stealth wealth.

Furthermore, luxury, as a distinguishing

term, has been hijacked by the mass market

to such an extent that it has been rendered

almost meaningless as a moniker. Applied

both loosely and liberally to diverse products

and services, the term all too frequently now

functions as a lazy shorthand, calculated

cheaply, to instill connotations of prestige

to a willingly gullible audience.

Finally, many of the corporations that own what

most of us would recognise as luxury brands

have mortgaged their brand equities in often

ill-judged attempts to satisfy the short-term

growth demands of global stock markets.

The net result is that the real meaning of

luxury and the identity of luxury brands is

in danger of becoming obfuscated and its

going to take something more substantive

than mere protestation or a collective

lets hope consumers have short memories

to set the record straight.

In all the present circumstances and given

the lack of an existing model, we believe that

now is the time to establish a framework and

propose a model that can help luxury brands

and their consumers alike to reposition the

'brand' of luxury brands.

WHAT THE MODEL DELIVERS

From a purely intellectual perspective, we

were excited by the challenge of constructing

a model that would enable users to precisely

describe and define what constitutes a luxury

brand. However, as practitioners in the field,

we were also aware of the need to develop

not just a blueprint but to create a tool that

would enable brand owners, managers and

commentators to qualify, grade, value, rank

and compare the constellation of singular

brands that populate the luxury firmament.

For the first time in the history of the luxury

brand industry, the Luxury Brand Paradigm

Cutwill provide professionals working in it with

a precise definition of theirmtier; a common

language for how their brands should be

described; a method of qualifying whether

or not brands are luxury and a transparent

technique for their evaluation in terms of

both momentum and status.

Piers D. Schmidt

Clifford J. Nichols II

LONDON 2009

INTRODUCTION

BACKGROUND

In mid 2009, our firm, Luxury Branding,

in conjunction with the Southern Africa

Luxury Association (SALA), embarked upon

a major qualitative research study into the

shape and nature of the market for luxury

brands in South Africa.

In a country that suffers from one of the

widest poverty gaps in the world, luxury as

a social construct resonates with a unique

tension. We recognised this dichotomy

and before designing the questionnaire and

commencing fieldwork, we wished to further

explore the origins and fundaments of luxury

itself to understand what role its brands can

play in such a fragmented society.

We also determined to limit our scope

to the application of the concept of luxury

to brands rather than to society as a whole.

This was because, despite evident differences

in the consumption of luxury brands between

developed and emerging economies,

our hypothesis subsequently confirmed

by the research itself was that across

cultures and race, there exists a basic

and shared human desire to mark progress

and reward success with the benefits

afforded by luxury brands.

In part these benefits indicate our status

and discernment; in part they help us to

self-actualise, making us feel more confident,

satisfied and fulfilled.

It may seem odd coming from an eponymous

team of consultants but our next step was

to question what actually is a luxury brand?

If we were going to research what luxury

brands mean in South Africa and why people

there desire them, we wanted to be certain

ourselves as to what they are. A lively but

ultimately inconclusive group discussion

prompted us to research the topic further

to inform our deeper deliberations, and we

fully expected to unearth a surplus of stimulus.

We were genuinely surprised, therefore,

to discover that whilst much has been written

about luxury, there is relatively little published on

the subject of luxury brands. There also exists

no universal basis from which to consider luxury

brands generally or to interrogate them as

a special example.

Having satisfied ourselves, from this initial

literature review, that there was no extant

model for luxury brands with which to work,

we resolved to embark on the development

of one, in parallel with our research.

WHY IS A MODEL FOR LUXURY

BRANDS REQUIRED?

We believe that, as we enter 2010, luxury

brands have reached an inflection point in

their development and that many are

suffering from a crisis of identity.

The phenomenon of trading up has created

a two-class category where old luxury lies

uneasily next to itsarrivistebedfellow new

luxury. The global credit crunch, brought to

public prominence by the collapse of Lehman

Brothers in September 2008, has debunked

the notion that neither the super-rich consumer


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BRAND PYRAMID

If the definition of luxuryis becoming subject to the

tastes and predi lect ions ofan increasingly complex setof consumers, how is the poormarketer to begin to createa cohesive definition of luxury?Has the luxury brand becomeso specialised and fragmentedthat i t can no longer be effectivein a mass market context?

PATRICIA GRAHAM AND MARCUS MATTHEWS


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The media is replete with gloomy commentary

on the $170 billion global luxury market today

and it is generally acknowledged, inside

and outside the sector, that luxury brands

are experiencing unprecedented upheaval.

In its12 Rules for the 21st century Luxury

Enterprise: Survive and Thrive in the Rugged

Luxury Landscape(July 2009), the Luxury

Institute suggests that this new landscape

demands a reinvention of massive proportions

and warns that senior luxury executives will

require a rewiring of their mental models

of the luxury world.

The 12 rules draw a thought-provoking

distinction between what the Luxury Institute

sees as the obsolete model, which it terms

Old World Luxury Co. and a new kind of

luxury entity, which they coin as the 21st

century Luxury Enterprise.

But what has precipitated such seemingly

tumultuous change and so quickly?

OLD LUXURY VS. NEW LUXURY

Until late 2008, the affordability and general

availability of luxury products increased

significantly, fuelled by steadily rising incomes,

spiralling home equity and the seemingly

endless supply of debt. Luxury producers

responded to newly unleashed consumer wants

and desires by making their products more

accessible to the masses, a trend often referred

to as the democratisation of luxury.Masstige,

the term originated by BCG consultants Michael

J. Silverstein and Neil Fiske in their article,

Luxury for the Masses(HBR, April 2003)

and expanded upon in their bookTrading Up:

Why Consumers Want New Luxury Goods

And How Companies Create Them, describes

the provision of prestige to the masses through

goods that occupy a sweet spot between mass

and class. The authors define new luxury as

products and services that possess higher

levels of quality, taste and aspiration than other

goods in the category but are not so expensive

as to be out of reach. In other words, while

commanding a premium over conventional

products, they are priced well below super

premium or old luxury goods.

CREDIT CRUNCH

What will become of brands that staked their

houses on the new luxury phenomenon now

that their consumers, who during the good

times would spend merrily on high-ticket items,

have taken such a financial battering? And it

isnt only their sales that are down. So too are

reputations. In their eagerness to capture the

consumer trading up, too many luxury brands

have tolerated an unhealthy marking down

in their standards.

Even super-luxury brands like carmakers

Bentley and Rolls-Royce, which had previously

seemed immune to the boom-and-bust cycles

that affected their mass-market counterparts,

have been hurt by the fallout from the credit

crisis and the economic slowdown. The wealthy

have shunned luxury cars during this recession

as their personal worth has plummeted in line

with collapsing financial markets and real estate

values. Bentleys US sales, for example, were

down 57 percent in the year to August 2009

and, according to industry tracking service

INFLECTION POINTAND IDENTITY CRISIS1


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from more brands, but from a permanently

more discerning consumer base: one that

demands legitimacy in all its goods, from history

to conception to manufacturing. His point, in

summary, is that old luxury was always rooted in

certain immutable product attributes and should

redefine itself in those terms now that the term

luxury has been so pillaged and devalued.

I prefer to think

of luxury as quality.Bernard Arnault, LVMH Mot Hennessy Louis Vuitton

IDENTITY CRISIS

Luxury brands may indeed have crossed

the proverbial Rubicon but behind all this

upheaval, change and transition resides

a more essential question.

We believe that the very identity of luxury

brands has been eroded or diluted and not

merely as a consequence of the economic

crisis but, even prior to that, by i ts relying too

heavily and complacently on two prior decades

of easy growth. During this period many luxury

brands prostituted themselves at the altar of

commercialisation and as ever, when entering

into a Faustian pact, the devil is bound to

come knocking for his dues eventually.

The result is that luxury brands are experiencing

something of an identity crisis. On the one hand,

consumers have plenty of reason to be confused

as to what a luxury brand is is it old luxury, true

luxury, new luxury, masstige, premium or what?

On the other, the brands themselves may well

be wondering who their real customers are?

In the first regard, its revealing to note how

different industries generate their own methods

of buttressing or bolstering the impotent luxury

descriptor. In hospitality, its no longer good

enough to be only five star. Luxury hotels

describe themselves as five star deluxe,

six star or even, in the case of Dubais iconic

Burj Al Arab, seven star!

The luxury automotive market has no fewer

than four luxury segments: entry-level luxury,

mid-luxury, high-end luxury and the ultra-

luxury segment. How much does it say that

the term luxury now requires the qualifier

ultra to be considered suitably descriptive

of Bentley or Rolls-Royce?

If the market for luxury brands is in flux, then

this is in no small measure down to the brands

themselves being unsure of whothey are, what

they do,howthey do it in a way that is different

and special, and where they are going the four

big little questions, the answers to which

mould a brands identity.

The model that we introduce in this paper will,

we hope, go some considerable way in helping

brands and their consumers to answer the first

three of these fundamentals. Naturally, where

a luxury brand is going is a matter for it alone

to determine so the role of our model in relation

to the whereis to help others evaluate its

direction and progress.

AutoData, the overall luxury segment, which

includes Lexus, BMW and others, was down

32 percent in the same period.

POP GOES THE PREMIUM!Old luxury didnt go On Sale and some

brands still refuse to discount. Versace never

holds sales and both Louis Vuitton and Chanel

actually raised prices i n 2008 and 2009.

However, many luxury brands, saddled with

high costs, had to engage in steep discounting

in order to shift large quantities of distressed

inventory, and this popped the premium pricing

bubble. Reminiscent of Hans Christian

Andersens fairy tale The Emperors New

Clothes, in this real world version of the tale,

the falsehood that both luxury brands and their

consumers were perpetuating was that

significant price premiums, previously

commanded by all luxury brands, were justified

by underpinning fundamentals such as

excellence, exclusivity and pedigree.

This Utopian idyll came to an abrupt end as

slashed prices exposed the naked truth that,

for too long, consumers had been paying too

much for too little.

LUXURY SHAME

Referred to variously as luxury shame,

stealth wealth or guilt downsizing, in these

recessionary times it can be considered plain

vulgar to flaunt your luxury lifestyle. If you are

still doing well, the pli ght of others has brought

new meaning to the phrase embarrassment

of riches. For those who used to spend with

impunity, stealth wealth is emerging as a new

mode of consumerism. Even High Net

Worths, for whom the crunch has been less

consequential, are frowning on conspicuous

consumption. Glamorous fashionistas are

remodelling themselves as recessionistas.

THE L WORD

The descriptor luxury is not only generally

misunderstood but is widely abused by

undiscriminating producers and service

providers who will plaster the label onto,

very often, ordinary offerings in a cynical

attempt to lift their image and therefore

the price that can be achieved.

As fashion writer Dana Thomas reported

in Deluxe: How Luxury Lost Its Lustre,

the L word is now so misused as to have

become almost meaningless.

And it isnt just that the luxury brand bar

has been lowered; its been literally fractured

with new variants splintering from the main

body with i ncreasing frequency. New terms

that can currently be found in the marketplace

to describe different tiers of luxury brand

include old luxury, true luxury, real luxury,

contemporary luxury and super luxury.

So tarnished has the L word become, that

Bernard Arnault, chairman of Mot Hennessy

Louis Vuitton, the largest luxury company in the

world, says he does not like the word luxury.

Interviewed in the Financial Timesin June 2009,

he is quoted as saying I prefer to think of it as

quality. The FTreports that Arnault envisages

up to a decade of approximately two per cent

growth in developed markets, meaning that the

luxury industry will f ace more competition, not

INFLECTION POINT AND IDENTITY CRISIS


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8180

In early 2009, prompted by the apparent

dichotomy of operating an international luxury

brand consulting firm from South Africa, we

set out to conduct primary research into

the local consumer market for luxury brands.

Through our due diligence for that study,

we were surprised to discover that, despite

many yards of copy being written each day

on the subject of luxury brands, there neither

exists a satisfactory description of what exactly

constitutes a luxury brand, nor a model that

could be used to define and describe ones

nuances and complexities.

Having identified this gap in thinking, we

embarked on the ambitious some might

say foolhardy process of developing both

a definition and model; to provide our

consultancy, and the luxury industry in general,

with a tool that is capable of both describing

and evaluating the enigma that is luxury brands.

Using our research study as a platform

to test hypotheses and extract insight, we

supplemented the primary data gathered with

an exhaustive literature review. It was when

trying to reconcile the rich and plural outputs

from this process to the constricting, singular

conventions of traditional brand models

that we had our epiphany. If l uxury brands

are defined by being multi-faceted, then

we required a model that was similarly

multi-dimensional to represent them.

The metaphor of a diamond, in addition to

its associations of rarity and preciousness,

immediately offered a generous and liberating

descriptive framework. From this basis, we

then attempted to construct a model that was

sensitive to the sophistication of luxury brands

yet could accommodate their complexity in

a structure that would allow critical evaluation

within and comparison between brands.

Mining the metaphor further enabled us to

arrive at a final model that, at once, celebrates

subtlety and enforces precision.

Publication of The Paradigm Cutis but a

first step and we expect the model itself and

the scope for its application to evolve further.

Nevertheless, we are already excited by

its promise to provide a common language

and definitive framework for all types

of luxury brand. Augmented with further

qualitative and quantitative inputs, we believe

The Paradigm Cuthas potential to be

adopted as the industry standard.

Over the coming months we will release the first

annual Luxury Brand Order of Merit, a global

rating of luxury brands from across all categories

based on theLuxury Brand Grading System.

For further information about

The Paradigm Cut, please contact

Piers Schmidt or Cliff Nichols

at Luxury Bra nding.

CONCLUSION

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We are enormously grateful to all of the

respondents who took part in our research

study during July and August 2009, and whose

organisations are listed in the companion

volume to this document,South Africa:a New Frontier for Luxury Brands?

The authors would also like to thank their

colleagues at Luxury Branding, notably

Matt Morley, David Cooper, Sarah Lovemore,

Gemma Burdett and Darius Meadon, for

their invaluable assistance with the research,

modelling, reading and challenging the

assumptions contained herein. Without their

help, completion of this exercise would not

have been possible. We would also like

to acknowledge Rob Burton of Platandia

for sharing with us his diamond expertise.

Creative direction and design by & SMITH

& SMITH is an independent graphic design

studio based in London. Passionate about

the craft and value of design, they work closely

with clients to achieve a full understandingof their business. This enables them to produce

work - across a range of media, that both

engages and inspires the intended audience.

& SMITH can be found online at

www.andsmithdesign.com

Printed by

Gavin Martin

www.gavinmartin.co.uk

Photography credits

Front tip in Lee Funnell

Page 9 Neil McKenzie

Page 15 Daniel Fells Photography

Page 61 Sean Kennedy Santo

Page 79 Teng Tan

Luxury Branding 2009

No part of this publication may be reproduced, stored

in a retrieval system, or transmitted in any form or by any

means, graphic, electronic, mechanical, photocopying,

recording or otherwise, without prior permission of

Luxury Branding.

www.luxury-branding.com

Price: Euro 350

ISBN 978-1-85669-674-6

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