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HOT TOPIC The Luxury Strategy

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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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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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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.
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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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!
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.
 

404profound

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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.
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.
 

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.

What would a $20,000 phone or tablet look like?


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.
 

jon.M

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I've got it. Carbon fiber dildos. "It rides like a Bugatti, because it's made from the same stuff."
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.
 

404profound

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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.
I am indeed surprised!
 

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smark

smark

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I wonder if this is why I haven't seen any true luxury technology brands.
But you have. I've already named it in my post. Although this particular brand's production could use some work.

Working with suppliers is probably hellish, but well worth it.
Yes it is!

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





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.
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."
 

rpeck90

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I'm aware of that but thanks for pointing it out.
Didn't mean to be condescending - many people have little-to-no experience with it, that's all :)

Would you be interested in talking more about this @rpeck90?
Sure! rpeck@frontlineutilities.co.uk

Honestly though, this is something I've been having some trouble with.
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.

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."
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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smark

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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.
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.

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.
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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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
 
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smark

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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:
View attachment 20868

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
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.
 

Walter Hay

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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.
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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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?
Exactly!

P.S. But where is the advertising?
I'm guessing they're probably doing a good job at selling those 50 "inscribed" bottles per year (even without advertising) and especially considering their past success. But is this worth it?

50 * 1800 = $90,000

Is the money required to manufacture and "launch" a proper high-quality perfume (which if you're not aware can go up to the millions) worth those ninety thousand dollars a year? My guess is no. It was probably done more so as an attempt to revive some of their old glamour in the hopes of launching other hit products in the future.

The interesting thing about a new luxury product is that the authors advise AGAINST investing in advertising until the product has achieved a stagnant sales volume in the regions where it is being sold. Only AFTER that sales volume has been achieved should a brand invest into advertising. This sounded a bit strange to me at first but it all makes sense.

Best Example: Rolls-Royce. Despite its impeccable reputation achieved through advertising and the promotion of exclusivity with made-to-order models, Rolls-Royce has gone bankrupt multiple times in the past and has gone multiple years without reporting a net profit. Only recently has the brand been able to increase profits (almost) year after year since it was acquired by BMW in 1998.

P.S. BMW happens to be following a "luxury strategy" with their own brand; hence their relative success at managing Rolls-Royce
 

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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.
Rolex is junk. They’re mass-made and faux-quality. Like if you hold a Patek Phillipe and play with it for a while it’s just embarrassing. They’re muchhhhhh higher quality. Your friend isn’t an elitist.... Rolex is just hated among watch lovers. They’re the Bose of watches. It's is what peasants believe is quality, just like they think Lexus is a luxury car despite the fact that it has the same exact chassis as a Toyota and rides like a tin grocery cart. Rolex, to watch lovers, is ca-ca.

But it’s not necessarily about price... like Movado is a highly respected brand among watch lovers, even though you can get one of those for like $150. While a Rolex can run you $3000 and a Patek 20K+.

Rolex is literally the only brand of watch I’d never buy. I’d buy a timex before a Rolex.
 

socaldude

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I guess it's all just how people perceive brands.

I mean if everyone had a Louis Vuitton purse, most women wouldn't want one anymore.

I guess its just how we compare ourselves to others is the key.

Luxury brands are a way to feel socially superior.
 

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ChrisV

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I wrote this post in the other thread, but I wanted to copy it here too...

I definitely don’t agree when people look at Luxury as a simple marketing strategy. It’s not.

I love this quote by Coco Chanel:


Luxury isn’t a marketing gimmick. Luxury happens when every detail is pleasing to the senses. The product being purchased is beautiful and pleasing to the eye. The feel... it’s not made of cheap materials. It’s not made from plastic. It’s made of beautiful materials like pewter or silver or platinum. When you close the door on a Rolls Royce it feels solid and good. Imagine buying a Rolls Royce and closing the door and it having a hollow tin can sound like a Hyundai. Or taking off the license plates off your Mercedes-Maybach and seeing plastic screws. When you buy an Aston Martin the key i doesn’t say “Made in China,” and it’s made of cheap plastic. They’re made of glass. They feel nice. They’re heavy. They’re solid.

Just watch 20 seconds of this video real quick. Starting at 16:05 and Up to the part about the floor vents:
The 2018 Rolls-Royce Phantom Is a $550,000 Ultra-Luxury Car

Luxury products aren’t luxury becasue someone decided they were luxury. They’re luxury because every aspect of them are designed to elicit pleasure. That’s the difference between a 17K Japanese Transportation Appliance by Toyota and a 118K Mercedes S-Class Luxury Vehicle. The Mercedes S-Class elicit pleasure in every detail. The leather is supple and feels good to the skin. The contours of the vehicle are beautiful yet aggressive. The ride is comfortable. You don’t hear the annoying road noise. They spend extra time gradually sanding away every minor annoyance, so you’re more comfortable. People buy products that increase pleasure and decrease pain. In a sports car, it’s different. The focus is on creating an exhilarating driving experience rather than focusing on comfort. But the goal is the same: increase pleasure, decrease discomfort. And the more you can do that, the more people will pay. You can’t just slap a Rolls Royce logo on a Honda and think that’s the only reason people pony up 400K for the thing. I’m sorry but it’s just delusion.
 
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smark

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But it’s not necessarily about price...
Agreed. Although a high price IN RELATION to "similar" non-luxury goods is one of the prerequisites for classifying a good as luxury, it is not the "end all be all." A high relative price (and thus, high margins) is just the RESULT of luxury. Thus, pricing anything higher won't make it "luxury," but rather an over-priced good.

I doubt it any true watch lovers believe Patek Phillipe watches are overpriced.

I mean if everyone had a Louis Vuitton purse, most women wouldn't want one anymore.
Yes, but it also has to do with so much more: quality of the product, the product's aesthetic appeal, the perceived level of hedonism the product offers to its owner, the brand's unique heritage, the brand's ties to a specific culture, involving the human hand in production, production of relatively low number of pieces, promotion of ideas and beliefs through the brand's identity, etc...

Luxury products aren’t luxury becasue someone decided they were luxury. They’re luxury because every aspect of them are designed to elicit pleasure. That’s the difference between a 17K Japanese Transportation Appliance by Toyota and a 118K Mercedes S-Class Luxury Vehicle.
Couldn't had said it better myself. Also, thanks for posting this here as well @ChrisV .
 
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ChrisV

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A high relative price (and thus, high margins) is just the RESULT of luxury. Thus, pricing anything higher won't make it "luxury," but rather an over-priced good.
Love this... said perfectly.
 

rpeck90

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Rolex is literally the only brand of watch I’d never buy. I’d buy a timex before a Rolex.
Agreed. But do you not get a similar vibe from Hublot also? Hublot seems like the Audi of the watch world... "functional luxury" I guess.

Rolls-Royce. Despite its impeccable reputation achieved through advertising and the promotion of exclusivity with made-to-order models, Rolls-Royce has gone bankrupt multiple times in the past and has gone multiple years without reporting a net profit
Don't forget a formidable pedigree, especially in aerospace (if you've flown in the past 10 years, chances are it was done with RR Trent engines - my bro used to help build them).

Luxury isn’t a marketing gimmick. Luxury happens when every detail is pleasing to the senses. The product being purchased is beautiful and pleasing to the eye. The feel... it’s not made of cheap materials. It’s not made from plastic. It’s made of beautiful materials like pewter or silver or platinum. When you close the door on a Rolls Royce it feels solid and good. Imagine buying a Rolls Royce and closing the door and it having a hollow tin can sound like a Hyundai. Or taking off the license plates off your Mercedes-Maybach and seeing plastic screws. When you buy an Aston Martin the key i doesn’t say “Made in China,” and it’s made of cheap plastic. They’re made of glass. They feel nice. They’re heavy. They’re solid.

Just watch 20 seconds of this video real quick. Starting at 16:05 and Up to the part about the floor vents:
The 2018 Rolls-Royce Phantom Is a $550,000 Ultra-Luxury Car

Luxury products aren’t luxury becasue someone decided they were luxury. They’re luxury because every aspect of them are designed to elicit pleasure. That’s the difference between a 17K Japanese Transportation Appliance by Toyota and a 118K Mercedes S-Class Luxury Vehicle. The Mercedes S-Class elicit pleasure in every detail. The leather is supple and feels good to the skin. The contours of the vehicle are beautiful yet aggressive. The ride is comfortable. You don’t hear the annoying road noise. They spend extra time gradually sanding away every minor annoyance, so you’re more comfortable. People buy products that increase pleasure and decrease pain. In a sports car, it’s different. The focus is on creating an exhilarating driving experience rather than focusing on comfort. But the goal is the same: increase pleasure, decrease discomfort. And the more you can do that, the more people will pay. You can’t just slap a Rolls Royce logo on a Honda and think that’s the only reason people pony up 400K for the thing. I’m sorry but it’s just delusion.
THIS - but how would one go about pricing such a thing? And how would you make a valid market entry within the space? It's my opinion that all mercantile pursuits have a grounding in some level of functionality.

Also, when it comes to luxury / premium - do I have an outdated view of the two? To me, luxury is the £53m Ming Dynasty vase that has absolutely *no* functional value. Premium is the S-Class Mercedes which uses extra workmanship to create a superior product to its present competition. In 15 years, it will still depreciate in value, just like the Toyota. LV / Moet etc could be considered "luxury" because their quality is timeless.
 

rpeck90

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As a follow-up, from Seth Godin's blog:

Luxury goods are needlessly expensive. By needlessly, I mean that the price is not related to performance. The price is related to scarcity, brand and storytelling. Luxury goods are organized waste. They say, "I can afford to spend money without regard for intrinsic value."

That doesn't mean they are senseless expenditures. Sending a signal is valuable if that signal is important to you.

Premium goods, on the other hand, are expensive variants of commodity goods. Pay more, get more. Figure skates made from kangaroo hide, for example, are premium. The spectators don't know what they're made out of, but some skaters believe they get better performance. They're happy to pay more because they believe they get more.

A $20,000 gown is not a premium product. It's not better made, it won't hold up longer, it's not waterproof or foldable. It's just artificially scarce. A custom-made suit, on the other hand, might be worth the money, especially if you're Wilt Chamberlain.

Plenty of brands are in trouble right now because they're not sure which one they represent.
Here's another good one:

For many consumers, the dividing line between premium goods and luxury goods is hazy, but for branding purposes, there are clear differences. A common misconception is that luxury goods are simply more expensive than premium goods, but it’s not the price tag which defines luxury. While it’s true that luxury brands are typically (but not always) more expensive than premium brands, luxury is defined by timelessness, story, scarcity and social cachet.

Premium brands on the other hand, are defined by their price-quality ratio – we feel that it is worth paying extra for a premium brand because of the product quality, whereas luxury brands usually have a price which is far beyond their actual functional value.

The branding strategy is very different for luxury brands and premium brands. It would be a major mistake for either type of brand to emulate the other’s marketing – premium brands cannot become luxury brands simply by raising their prices, and luxury brands should not attempt to broaden their appeal into the premium market, or they risk losing the very exclusivity which is part of their luxury appeal.

Positioning, a mainstay of premium marketing, has no place in luxury branding. Luxury doesn’t meet a need or solve a problem, and so it is intrinsically wrong to position a luxury brand based on how it compares to its competitors. Luxury consumers aren’t interested in more features giving better value for money – that’s a premium marketing angle. Luxury consumers want to know about a brand’s heritage, prestige and uniqueness; it’s identity which counts, rather than a competitive edge.

Customer feedback has an active role in premium marketing, as manufacturers and service providers strive to provide something better; something that the customers have asked for. In luxury marketing, however, brands must remain faithful to the vision of their creator, such as when BMW refused customer requests to increase legroom in their back seats, for fear of spoiling the car’s line.

Perhaps the most counter-intuitive of all luxury marketing techniques is this; it helps to put obstacles in the way of the purchase. Premium branding means making it easy to buy. However, if anyone can walk into a store and buy that bag, it’s not an authentic luxury item, no matter how big the price tag. The Hermes Birkin bag is an excellent example of how scarcity, and difficulty in buying, feeds into the feeling of exclusivity and luxury. To retain a strong presence in the luxury marketplace, brands will need to come up with ever more inventive ways to limit the availability of their products.

While premium advertising seeks to sell, luxury marketing seeks only to educate – and much of it is meant to be seen by those who could not possibly afford the products, feeding again into the air of exclusivity and the magic of desire. Similarly, while premium brands may lower their prices to stimulate demand, luxury brands raise their prices to increase their cachet with consumers.

Understanding these core differences in branding and marketing strategies is essential if your luxury or premium brand is to maintain its market share, and to grow in a competitive marketplace.
 

GoGetter24

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Yes, but it also has to do with so much more: quality of the product, the product's aesthetic appeal, the perceived level of hedonism the product offers to its owner, the brand's unique heritage, the brand's ties to a specific culture, involving the human hand in production, production of relatively low number of pieces, promotion of ideas and beliefs through the brand's identity, etc...
It's more about social rank.

An LV is just a bag. Some of them are just a single colour, small leather bag, that likely cost about $50 in materials. The chief costs are in the marketing that "this item indicates high social status", by paying famous actresses & models to pose with the bag and mention the brand in their press appearances etc. The actual item is just a small piece of dead cow with some paint.

Same with watches. A simple $10 quartz Casio wrist watch is a far superior piece of technology to any Swiss mechanical watch. But the latter look special. You have to be explained to, using terms like "exquisite", and wankingly referring to the watch as a "time piece" (or a "fine time piece"), why the watch is good. When in fact it's inferior to the Casio, as you have to wind it everyday, and those "special handcrafted" wheels in it are far less accurate than quartz, and you can read a digital time much faster than an analogue one.

Again with DeBeers & diamonds. People are gullible. You can sell anything to them as "luxury" as long as your marketing budget is big enough. In Asia they eat birds nests because it's "luxury" FFS.
 

dzackb3l

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Thanks for sharing! and What a coincidence! It is actually my book of the week and I am pretty much 25% through it. So far, I would definitely recommend it.
 

Merging Left

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It's more about social rank.

An LV is just a bag. Some of them are just a single colour, small leather bag, that likely cost about $50 in materials. The chief costs are in the marketing that "this item indicates high social status", by paying famous actresses & models to pose with the bag and mention the brand in their press appearances etc. The actual item is just a small piece of dead cow with some paint.
I'm not sure that's entirely true. The product must still be high quality. It has to last a long time - that's how you build the reputation of "timeless." Maybe the raw goods are cheap, but the craftsmanship is expensive.

Factually, LV's cost of goods sold for 2017 was 34.7% of their revenue. So their €1,500 bag actually costs them €520.50. Granted, there's more than just material costs included in that figure, but luxury ain't cheap to make. To your credit, their Marketing expense was 38.5% of their revenue. All the way to the bottom line, the net profit percentage is only 12%. So on that €1,500 bag, they're keeping only €180, which is not nearly as impressive as I had hoped. Operating profit, which I think is EBITDA, or Earnings Before Interest, Taxes, Depreciation and Amortization, is 19%.

Finally, it's worth noting that this info is for LVMH, the luxury conglomerate that owns Louis Vuitton and other brands.
 

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