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The Luxury Strategy

Discussion in 'Business Models, Niches, Industries' started by smark, Aug 8, 2018 at 8:53 PM.

  1. smark
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    Since most of you guys here focus on consumer goods and "traditional"/mass marketing methods, I thought it would be a good idea to provide you with a macro-level view of the so-called "Luxury Strategy." This is the most successful marketing & management strategy used in the luxury sector (cars, yachts, jewelry, resorts, etc.) to date and is what allowed a number of small but profitable European companies to grow into global billion-dollar enterprises during the late 20th century.

    Note: Though the “Luxury Strategy” has primarily been used (and has been more successful) in the usual luxury sectors listed above, it can be used in any saturated/competitive sector where one wishes to differentiate himself. Best Example: Apple. Having said that, from here on I will be focusing on the application of this strategy in the luxury goods sector and NOT the luxury services sector.

    This strategy is based on the synonymous book The Luxury Strategy by two professors of HEC Paris (Europe's luxury research center) and one of which used to be the CEO of Louis Vuitton in the 1980s when it was still a rapidly-growing ‘local’ company.

    Luxury’s Four ‘Ps’ (product, price, place, promotion)
    1. Product.
    • Quality, timeless products made to serve a certain purpose (no matter how small or insignificant that purpose may be) that are highly beautiful.
    • Tied to a heritage, unique artisanship/know-how and a specific culture.
    • Products should take the role of social markers, thus providing the owner with a certain degree of status in any social setting (as long as the brand and/or the product are recognized by others).
    • Luxury products are not perfect products. They may be of superb quality but it is their flaws that distinguish them (similar to a worshipped piece of art). I like to refer to this as ‘imperfect perfection.
    • At least one part of each product should be made by hand.

    2. Price.
    • Products should be offered at a price that cannot be justified by their mere function(s).
    • This high price is justified by a number of intangibles such as: the perceived rarity of some of the materials used, the culture to which the luxury brand is tied to and maintains a constant connection with (i.e. Ferrari and Italy), the ‘unique’ manufacturing and testing methods used to create each product, the rarity surrounding a product due to the low number of pieces made, the prestige surrounding a well-known brand, etc. A ‘test’ to see if a brand truly is luxury is if it can ask any price it wants for a product (only applies to already established brands). In the book, this is referred to as pricing power.
    • The average price point of a luxury brand should increase overtime. This is done by constantly releasing pricier and pricier products.
    • Though luxury products are most often quite expensive, it is their price in relation to the price of other ‘comparable’ non-luxury products that makes them expensive, NOT their absolute price.
    • A relatively high price alone is NOT enough to classify a product/brand as luxury.
    • The price of a luxury product should NEVER be communicated. This includes ads, as well as not using price tags at the brand’s points of sale (if legal).

    3. Place.
    • Distribution is restricted and controlled. Usually, products are only sold in the brand’s own stores (think Hermes) OR through a qualified network of authorized dealers (think Rolex).
    • Service should always accompany a luxury product, whether through exceptional customer treatment or personal product delivery, for example.
    • A luxury brand store should be thought of as a sacred temple where everyone is welcome, but only those who believe in the brand and are willing to pay the required price can join.
    • The store must enhance the image of products by elevating them as objects of art.
    • The appearance of the store, as well as the management of client relations, should signify the brand’s price level (not too ‘cheap’ but not too ‘expensive’ either). The ‘trap’ here is for a store to appear so luxurious that buyers are intimidated to walk in.

    4. Promotion.
    • In the book this is primarily referred to as ‘communication’ and consists of (list is in order of increasing significance): paid advertising (mostly magazine ads and billboards in strategic locations), some influencer marketing (where known influencers/bloggers review the brand’s products), brand content (videos/short films, as well as pictures and small bodies of text on social media and the brand’s own website), sponsorship of sporting and cultural events as well as exclusive parties/galas. The most important form of communication for a luxury brand though is word of mouth; which funny enough, is primarily encouraged through the exclusive parties/events mentioned above.
    • The goal of luxury brand communication is not to sell more products, that is the result of ‘the dream;’ which is what happens when the brand and its products are respected and talked of in a dream-like way, leading to each individual identifying with the dream that the brand can offer (i.e. Rolex watches and the dream of success).
    • Thus, communication is used not only to create this ‘dream’ but also ‘recharge it.’ Because every time the brand sells a product, a piece of the dream is lost and the brand is partially weakened.
    • Everything a brand does should be PR-able (personal/public relations). It is said that a brand which is not often mentioned in the press or displayed/talked about in films, music, or any type of pop culture is not truly a luxury brand.
    • No, or little, passive mass advertising (i.e. TV). The only clear exception to this is perfume, but even perfumes released by true luxury houses such as Louis Vuitton do not usually follow a luxury strategy.

    For a brand to be truly luxury, all four ‘Ps’ must follow a luxury strategy. If even one luxury ‘P’ is not followed (for the most part) then the brand is following what is known as a ‘mixed strategy’ (example: Nespresso).

    So what do you guys think?
     
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  2. Merging Left
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    Merging Left Bronze Contributor Read Millionaire Fastlane Speedway Pass

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    I might just have to pick up this book...

    "Products should be offered at a price that cannot be justified by their mere function(s)."
    I love this. I wonder if this is why I haven't seen any true luxury technology brands. Rolex can charge $20,000+ for a watch. What would a $20,000 phone or tablet look like?
     
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  3. 404profound
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    I've got it. Carbon fiber dildos. "It rides like a Bugatti, because it's made from the same stuff."

    Jokes aside, luxury products are great for kickstarter. Working with suppliers is probably hellish, but well worth it.
     
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    Why do you think a luxury product is good for kickstarter? A true luxury good, as described in OP, should have value from essentially being unobtainable by mere mortals. It's so exclusive that the customer is lucky to have bought it. I don't see how that would work on Kickstarter, but share some examples if you have them!
     
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  5. 404profound
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    Belcori - True Luxury Leather Goods Without Luxury Markups

    Luxury Luggage, Made from Aeroplanes.

    8 of the best luxury products to back on Kickstarter this week | Verdict
     
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    Rep transferred for follow-through.

    On the other hand, the Belcori bag is 9"x11.25" for EUR 299. A Hermes bag, similar in size (9"x12") is $1,425.

    Maybe I'm being too narrow in my definition, but EUR 299 for a cross-body bag doesn't scream "luxury" as it's defined above. It says "high quality, priced for the masses" to me.

    Also, half of the "8 best luxury products" are less than $100.
     
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  7. 404profound
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    I'd argue "luxury" means different things to different demographics. For the one-percenters this stuff is all trash. Conversely, to the middle class many would categorize those products as luxury. To me luxury is itself a highly subjective label to which meaning is ascribed by the type of consumer. I have a friend in investment banking who scoffs at Rolex and won't wear anything but Patek Phillipe.
     
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  8. rpeck90
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    Read the book a while back, some good ideas but rambled on about China etc.

    FYI the 4 P's you put up are the marketing mix (not to confuse its luxury connotation with general marketing principles).

    If you really want to learn about Luxury, I would strongly advocate looking at Markus Kramer, whom I had the pleasure of meeting in 2014. He used to be the Global Marketing Director of Aston Martin, has worked with a multitude of brands, largely focused on the "luxury" market.

    Here's a TED talk by him:

    View: https://www.youtube.com/watch?v=SiL3upgq3pw


    He told me the underlying pre-requisite to luxury is pedigree. You simply cannot have luxury without some sort of heritage. Looking at some of the larger luxury holding co's demonstrates this -- LVMH's oldest brand was founded in 1530.

    Another amazing resource you should look at is this video by LVMH CEO Bernard Arnault:


    View: https://www.youtube.com/watch?v=EhNKy5yNIgs

    The biggest problem most people have with luxury is that they conflate it with premium. Premium and luxury are not the same (just because you can charge a "premium" for a product does not make it luxury). Luxury is ostentation (rather like art); premium retains functional value. Fabergé is luxury. Pandora is premium.

    [​IMG]

    That was $10k until the company went bust.

    --

    My advice - if you have to label it "luxury", it is likely premium.

    Luxury speaks for itself.
     
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  9. jon.M
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    jon.M Never Stray From The Fastlane Read Millionaire Fastlane I've Read UNSCRIPTED FASTLANE INSIDER Speedway Pass

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    You'd be surprised. Once had a chat with a luxury company who sold dildos and massagers plated in 24k gold. Their most expensive variation goes for $12,200 today.

    If you're strapped for money, they luckily offer the same product plated in stainless steel for just $6,000.

    "You can’t put a price on pleasure"

    Anyways, don't mean to go off topic. Interesting contributions from all of you, thanks.
     
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  10. 404profound
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    I am indeed surprised!
     
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    But you have. I've already named it in my post. Although this particular brand's production could use some work.

    Yes it is!

    You are absolutely right. In fact, the book differentiates between luxury for one's self and luxury for others (which is primarily used to show off). But to come up with a true luxury strategy one needs to first identify what luxury is (which I will probably go over soon).
     
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    I'm aware of that but thanks for pointing it out. I just found the marketing mix to be a simple way of explaining this to people who are mostly familiar with "traditional" markets & marketing methods.
    Thank you so much for the videos! It would be great to meet someone like Markus Kramer or Bernard Arnault and be able to have a chat with them.

    Also, as far as pedigree/heritage goes the book uses the example of (non-luxury brand) Ralph Lauren as a great example of this, as well as luxury watch maker Bell&Ross. The first one rose to prominence through the "exploitation" of the American dream and the "ideal" lifestyle of wealthy white Anglo-Saxon Protestants migrating to the east coast of the US. The latter, found inspiration primarily through aviation and the harsh conditions that aviators would have to put their bodies through since the invention of the plane about a century ago.
    Honestly though, this is something I've been having some trouble with.
    Would you be interested in talking more about this @rpeck90?

    P.S. I believe it would be helpful for everyone here if I do some follow-posts to correctly identify luxury, as well as outline its differences between "premium" and "fashion."
     
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    Didn't mean to be condescending - many people have little-to-no experience with it, that's all :)

    Sure! rpeck@frontlineutilities.co.uk

    As someone who's worked for 6+ years on a "brand building" CRM software (and thus having looked quite deeply into the draw of brands), the secret can be summarized as follows: people NEVER buy the product.

    The product is the "delivery" mechanism for a deeper result. The potency of this result, and the context of the environment through which it's delivered, determines its value to the buyer.

    This comes from within, and is typically heavily tied to craftsmanship/excellence/experience of the originator (hence the perceived necessity of a pedigree/heritage). The deeper the perception of the illustriousness of the craftsmanship (and the perceived result it brings), the deeper the reverence of the brand.

    This is why many influential brands are named after the craftsmen/women who founded them (Chanel/Porsche/Ferrari/Disney/Hughes/Ralph Lauren/Louis Vuitton/Christian Louboutin etc), and why "big names" from history are those who are perceived to have achieved more than others.

    Caesar, Alexander, Hannibal and Napoleon are some obvious examples - Hannibal's being so potent that the Italian national anthem still includes an ode to the man who finally beat him, Scipio.

    To be esoteric, it's my opinion that everybody has a pool of "creative energy" inside their soul. This energy can be directed however you wish - the best focus it intently on a particular "thing"... the more given to the pursuit of this "thing" determines the level at which others perceive your brand. Most give it away.

    The process for this has remained consistent for the past 2k+ years - someone of magnanimous talent "got to work" in whichever field was conducive to their skills. Through the continued delivery of their service, they'd happen into ideas / problems for which they "wanted" a solution. If the tools (products) they created as solutions were good, they'd be adopted. The art of business was to manage the production & distribution of these solutions.

    This is what happened with James Watt, without whom we would not be conversing today. It also happened to Imhotep, one of only two non-Pharaohs to be deified after he died.

    What I've seen from the "luxury" sector is the steady commercialization of this process.

    The mistake 99% make is putting the product first.

    The product is merely a tool - designed to achieve a particular "result" conducive with the person who created it. This result, and its pursuit, is really what people are buying, and associate with a brand - be it luxury, premium or convenience.

    The magic lies in the service delivered as a means to achieve the result.

    I won't go into depth about it - all I'll say is that what most people ascribe to a brand is only what you see externally. Really, the magic happens "internally". What we've seen over the past 60+ years is the movement of this into the "post industrial" era, with the manufacturing of the goods first getting industrialized, and latterly their accessibility (through the net).

    Today, people accept you can buy any brand at the click of a button - what they're hungry for is how it's actually going to improve their lives...

    If the 20th century was about manufacturing,” said Michael Burke, the chief executive of Louis Vuitton, “the 21st century will be about intangibles” — concern for preservation, heritage, the environment... 1.

    In the case of Vertu, for example, the $10k phones were interesting - but what people were really buying was the "lifestyle" attached to them. Exclusive clubs, vacation spots, business networking, product/service purchasing, credit facilities etc - stuff that only Vertu could offer, and happened to be delivered through their technology (which they did do, but nowhere near as deep as I thought appropriate).

    Their big problem was being too focused on the phones themselves. The phones have very little to do with the underlying "offer" people were buying. What they should have done is shifted the underlying offer to being the most exclusive "business" device in the world, and tied their product + ancillary services to it.

    They key is understanding what "result" you're there to deliver to a community.

    Why not try and explain why brands such as Ralph Lauren and Michael Kors have massive followings, and how luxury / premium can be used to induce that? It's a question I've considered for a long time.
     
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    That was quite a read. I appreciate all the insight!

    I find that focusing on the product itself too much is a big "trap" in the luxury sector (as you pointed out) but one that is quite easy to fall for when one is marketing a high quality, beautifully designed product.

    The way I see it, in the same way a brand selling purely functional products should focus more on the benefits that its products can provide and less on their features, so should a "luxury" brand; but in the sense that the "benefits" of a luxury product (whose use value might be quite low) lie on a series of intangibles that the creator/founder must identify before embarking on any sort of "brand building."

    Which I assume, is what Nokia failed to adequately do with Vertu.

    Excellent idea, especially of Michael Kors as it's a brand which has amassed quite a large worldwide following the last few years, but one which I know nothing about. I'll take a look into this and let you guys know my results in the next few days.
     
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  16. Walter Hay
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    Below is an extract from my book on labeling:
    "Here is one outstanding example of labeling and a slogan that created a perception of exclusivity and extravagance that appealed to the target demographic:
    upload_2018-8-14_12-5-41.png

    Who would think that a time when extreme poverty was widespread and many thousands of businesses and business owners had suddenly been bankrupted, would be the right time to launch “The World’s Most Expensive Perfume”? This was one of the most successful product launches ever, but is now almost lost in the mists of time. It happened during the Great Depression of the 1930s when millions were out of work, and many formerly successful businesses had folded. That’s when the most expensive perfume ever sold was launched with staggering success.

    It was created in 1929 (the year of the Wall Street Crash), and even though it was marketed as “The World’s Most Expensive Perfume” it was a huge hit.

    The bottle had simple straight lines and the label seemed so ordinary, with a stark black print on a beige background, but by twining a golden thread around its neck the designer gave an impression of luxury. It succeeded largely because it gave wealthy women whose fortunes had survived the stock market crash of 1929, the opportunity to shamelessly flaunt their wealth.

    In Life Magazine 1933 it was stated: "Most expensive of Patou's perfumes is ‘Joy’ which commands $35 for two-thirds of an ounce.” This was at a time when a loaf of bread cost $0.05 and huge numbers of people couldn’t even afford to buy a loaf. The selling argument behind this walloping price is that each customer who ordered it was entitled to have a special label bearing the message: "Made for….." (The rich woman’s name.) The perception created was brilliant: Exclusivity. Only attainable for the richest and most successful people."

    The brilliance of this appeal to exclusivity is seen in the fact that after a brief launch campaign, no further advertising was needed. The customers unknowingly sold the product by almost invariably displaying it in their bathroom so that guests at their lavish parties would see it and envy their hostess. The result was of course, they had to have a bottle too.

    The problem eventually was that the more women there were who copied their hostess, the less exclusive the product became.

    Walter
     
    Last edited: Aug 13, 2018 at 10:43 PM
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  17. smark
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    Thanks for sharing this Walter!

    I really like the "Made for..." labels used to promote exclusivity, although I would argue that something like this is only suitable for top-of-the-range luxury products.

    I believe the reason this product failed to sustain its sales in the long-term was due to the lack of continued communication (aka advertising) with the public (which includes ANYONE and not just the wealthy people who could afford it).

    If you read the Promotion part of my post above you will see that according to the authors of "The Luxury Strategy" communication is used to create and fuel the 'dream' (i.e. the lifestyle/intangibles related to the product/brand) and NOT to sell more products. And the more luxury products one sells the MORE advertising is required to sustain this 'dream.' Which is why luxury advertising should be targeted at the public at-large and not to a specific demographic. This is how mass-consumption goods 'advertising' and luxury goods 'communication' differ.
     
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  18. Walter Hay
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    Walter Hay Legendary Contributor FASTLANE INSIDER Speedway Pass LEGENDARY CONTRIBUTOR

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    Yes I agree. In regard to the case in point, what's the point in having something unattainable by the masses if the masses don't know about it and lust after it?

    The product still sells, but there are numerous knockoffs on the market and there are now (literally) watered down versions. What is worse is that what is possibly a knockoff is sold on Amazon!!!!! Shock --- Horror !!!!!

    What a fall from such a great height. The labels no longer bear the name of the purchaser, yet women buying on Amazon are still paying $350 for 1/2 oz, or $600 for the 1 oz bottle, so some of the effect of being unattainable lingers.

    The concept has been transferred to a new perfume, Joy Baccarat Pure Parfum, Limited Edition, but hurry, only 50 small "Inscribed" bottles are sold each year, at a price of $1800 each. Sorry - not available on Amazon.

    Walter
    P.S. But where is the advertising?
     
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