In the mid-1970s, a group of famed European luxury brands decided to tap into the resurging globalization of the post-World War I and World War II economy in order to grow significantly beyond their pools of existing customers. In order to do so, they implemented a new marketing/operations strategy, one that aimed to enable them to not only grow their consumer base, but to remain firmly cemented within the luxury sector.
The strategy that they adopted was a largely novel one, and Louis Vuitton led the way. Then still largely viewed as a luxury trunk-maker (as opposed to an international luxury goods and high fashion brand), Louis Vuitton was just beginning to attract a notable amount of interest among consumers in the U.S. Developed, at least in part, by Vincent Bastien, and titled, “the Luxury Atrategy,” (Bastien has since authored a book bearing this title), the goal of the strategy was to transform small family businesses into profitable global giants without the widespread dilution that often comes hand-in-hand with such large scale expansion endeavors.
The so-called Luxury Strategy angles to simultaneously allow for significant growth and continued luxury positioning. The key? Creating long-selling products, as opposed to best-selling products. Two examples set forth by Bastien: The Porsche 911, which debuted in 1964, and Chanel’s N°5 perfume, launched in 1921 – both of which are still very much in demand today. Additionally, at the core of this growth strategy is a heavily focus on one-to-one direct relationships with clients and an emphasis on the importance of directly operated, brand-owned stores.
Originally developed for the broadly defined “luxury market” – which its originators view much more narrowly than the market currently does, with its various versions of “luxury,” such as affordable luxury or the synonymizing of high fashion with luxury fashion – the luxury strategy has only mildly permeated into other sectors since its initial use in the 1970s. Although, Bastien has long held that it is capable of extending beyond the most traditional luxury sector.
The corresponding 24 anti-laws of marketing – which Bastien says are labeled as such “to designate the counterintuitive managerial principles, empirically carved through time by the founders and owners of these brands [that enabled] these brand command their incredible pricing power and margins” – are as follows. The rules are accompanied by notes from Bastien …
In consumer marketing, at the heart of every brand strategy, you will find the concept of positioning, of the unique selling proposition and the unique and convincing competitive advantage. Every classic brand has to specify its positioning, and then convey it through its products, its services, its price, its distribution and its communication. Positioning is the difference that creates the preference for a given brand, over the one that it has decided to target as a source of new business and whose clients it is going to try to win over.
When it comes to luxury, being unique is what counts, not any comparison with a competitor. Luxury is the expression of a taste, of a creative identity; luxury makes the bold statement “this is what I am,” not “that depends”– which is what positioning implies. It is identity that gives a brand that particularly powerful feeling of uniqueness, timelessness, and the necessary authenticity that helps give an impression of permanence. Chanel has an identity, but not a positioning. Identity is not divisible, it is not negotiable– it simply is. Luxury is superlative, and not comparative. It prefers to be faithful to an identity rather than be always worrying about where it stands in relation to a competitor.
This is a provocative statement. For most people, luxury is the last word in hand-crafted or craftsman-built products. It is true that in surveys into the perception of luxury, consumers from all over the world were interviewed and the consensus was that ‘product excellence’ is the primary prerequisite of luxury. It would suffice to imagine a bisecting line between two axes – price and functional quality: at the very top right would be luxury. Now, in our view, nothing could be further from reality.
The aim of an upper-premium brand is to deliver a perfect product, to relentlessly pursue perfection. But it would take a touch of madness for it to be counted a luxury. Functionally, a Seiko watch is superior to many luxury watches – it is more accurate (because it’s a quartz watch) and shows the time directly and in a perfectly legible manner (because it is displayed on a digital face). If you were to buy some of the famous brands of a luxury watch, you would probably be warned that it loses two minutes every year. The flaw is not only known, it is assumed – one could say that that is both its charm and its guarantee of authenticity. It is the specific and singular nature of their movement that is responsible for that. For luxury watchmakers like adding complications, indeed seek them out in their endless quest of art for art’s sake. This is the ‘madness’ touch that goes beyond perfection and makes people collect them.
Let us look at some of the watches that Hermès has to offer, where the time is indicated by just four figures: 12, 3, 6 and 9. So you have to guess the time – as if knowing the time accurately was somehow unimportant, even pleasure-killing and dehumanizing. They are certainly far removed from those state-of-the-art precision chronograph watches, for luxury brands are not interested in being the leader in utilitarian or functional comparisons – primarily they are hedonistic and symbolic.
In the world of luxury, the models and the products must have character or personality. In the world of automobiles, a Ferrari is anything but a perfect car if you like easy, smooth and silent driving; that is why people would do anything to own one. Every model forces its owner to accept its flaws.
Of course, if a luxury product is not a flawless product, the reverse is not true: adding flaws does not turn a regular product into to a luxury product.
Luxury is a non-necessity made desirable on the basis of emotional values (surprise, beau- ty, elevation of self through hedonism and elitism): asking people what they want is by definition a contradiction in this respect. They will answer something that generally de- stroys the dream – that is to say the lever of pricing power … When one asks consumers what luxury brands should do to please them, they generally do not understand the long-term interest of these brands, which is to preserve their attractivity based on prestige, creativity, surprise and high pricing power.
In traditional marketing there is this obsession with poaching clients from other brands: sales growth is management’s principal measure of success and of the performance of its managers. This leads companies to come up with new products that will help extend market penetration and thus steal a march on competitive brands. To increase the relevance of the brand – the number of people who would say that the brand was of interest to them – it is necessary to avoid being too exclusive or too different.
When it comes to luxury, trying to make a brand more relevant is to dilute its value, because not only does the brand lose some of its unique features, but also its wider availability erodes the dream potential among the elite, among leaders of opinion. BMW is typical of a brand that is able to grow without cutting back on its rugged features, which are in any event highly exclusive. The Bavarian management has calculated that BMW’s target accounts for 20 percent of the premium segment of the population – only one person in five.
This means that 80 per cent are not at all attracted by BMW’s values. The brand has preferred to exclude these 80 percent and base its growth on its true target, those who wholeheartedly share its values. Brand growth is achieved by penetrating new countries, not new customer segments. In order to grow, the BMW Group preferred to buy two other brands which on their own, like BMW, define a segment – Mini and Rolls-Royce; having taken good care to keep Rolls-Royce’s identity separate from BMW’s.
The prime objective of traditional marketing is volume growth. It sets its sights at achieving leadership in market share to gain muscle with mass distributors, department stores and superstores, and presents itself as a force to be reckoned with in some of its lines. This ensures wide distribution and broad visibility and provides the justification for a national television advertising campaign.
With sufficient volume, the business can work with small margins and still make money. This is the essence of the mass marketing model. Product managers are then judged on just one criterion – growth in annual results. At Ferrero (Kinder, Nutella, Tic Tac) it is not allowed to fall below double figures. The job of each product manager is to increase the penetration be it of Kinder Surprise, be it of Kinder Bueno, and then to push up per capita volume (consumption frequency). If the demand goes up, there have to be supplies to match it – that’s the key to this economic model.
Not to satisfy rising demand is to annoy the distributor because unhappy customers will not wait and will always hold it against the company. They will take their revenge by gossiping over dinner about their bad experience with the brand. What an absolute scandal having to wait! Sheer mismanagement!
At Ferrari, production is deliberately kept to fewer than 6,000 vehicles a year – rarity value sells. So long, that is, as the customer understands why the product is rare and is prepared to wait. Rarity can be managed just like the relationship with the clientele; so it is not a matter here of poor sales forecasting but of a deliberate strategy of resisting demand in order to be master of it.
Luxury is a consequence of meritocracy. Once the exclusive privilege of the aristocracy, luxury today is what restratifies our so-called classless societies, but on the basis of merit, no longer simply on birth. So everyone is looking for ways to pull themselves up – luxury brands are at the same time a reward and a token of gradual elevation. To preserve this status, the brand must always dominate its client. This is not the same as saying don’t respect them: parents dominate their children, but that does not mean that they don’t respect them; on the other hand, if they treat them as ‘best friends’, making themselves out to be their equals, they lose their aura and profoundly disturb their offspring. This relationship between parents and their children is very close to that between brand and client.
As a result, a certain distance is preserved that is not supercilious or aloof, but nevertheless maintains an aura of mystery.
Luxury is the domain of culture and taste. Even if many well-off buyers do not actually have the codes themselves, they deduce from the limitless consumption of a luxury brand the fact that it must be coded as a luxury. The luxury brand should be ready to play this role of advisor, educator and sociological guide. On this account it simply has to dominate.
The luxury brand is something that has to be earned. The greater the inaccessibility – whether actual or virtual – the greater the desire. As everyone knows, with luxury there is a built-in time factor: it’s the time spent searching, waiting, longing…so far removed from traditional marketing logic, which does everything to facilitate quick access to the product through mass distribution, with its self-service stores, self-checkout systems, the internet, call centers and introductory offers. Luxury has to know how to set up the necessary obstacles to the straining of desire, and keep them in place. People do eventually get to enjoy the luxury after passing through a series of obstacles – financial obstacles, needless to say, but more particularly cultural (they have to know how to appreciate the product, wear it, consume it), logistical (find the shops) and time obstacles (wait two years for a Ferrari or a Mikimoto pearl necklace).
Luxury needs to excel in the practice of distributing rarity, so long as there are no real shortages. It’s quite natural: just as actual shortages stand in the way of growth, so the absence of rarity leads to the immediate dissipation of desire, and so to the disappearance of the very waiting time that sustains luxury.
To create this obstacle to immediate consumption, it should always be necessary to wait for a luxury product – time is a key dimension of luxury, as with all desire for anything even remotely sophisticated.
Modern luxury works on the open–close principle. Too much ‘open’ is harmful to the brand’s social function – Ralph Lauren’s success undermined one of the foundations of his success with professionals in Europe: sporting the polo shirt enabled them to be different from Crocodile, the other great casual wear premium brand, from whom Ralph Lauren got his inspiration when he was starting out in the United States. On the other hand, too much ‘closed’ is too confining and leads to financial suffocation.
In practice that meant that the brand became segregationist and forgot all society’s democratic principles. In stores, for example, it is necessary subtly to introduce a measure of social segregation: ground floor for some, first floor for others. Armani set up specialist stores for each of his product lines. Advertising and promotion is for all, but public relations are ultra-carefully targeted, like the CRM for the privileged (personal invitations to meet the designer, the brand perfume nose, or the head wine buyer).
In aviation, these days everything is done to ensure that clients of the new first class (Emirates offering pictured above) never have to meet other passengers, whether from business class or (heaven forbid!) from economy class, and this is not just on boarding, but right from leaving their office until their arrival in the office at their destination – just like being in a private jet. A truly superior private club depends on how successful staff are in preventing ‘other clients’ from imposing on their own clients.
Look at Tag Heuer’s advertising. One side features the endorsing celebrity, the other the model of watch. No commentary, no description of the watch, no sales pitch – just the cryptic line: ‘What are you made of?’
Nothing is more alien to traditional marketing than this declaration; in traditional marketing the first step is to discover a sales proposal, to have a unique selling proposition – the text is there to make the sales pitch. In luxury, the dream comes first. The explanations of the salesmen are simply post-rationalizations. If you go to a Tag Heuer shop you are handed a thick brochure the size of a book, which says everything there is to say about the Tag Heuer brand, its origins, its finely tuned processes, respectful of a unique design, etc. Then it goes on to describe the various models, one by one…
If you go to a Porsche dealer they will talk to you about racetracks, about road-holding, about everything that feeds the myth of the hero, after which they will tell you about reliability, etc – by way of post-rationalization. American society being what it is essentially compels people to justify spending dollars by adducing qualities that can be presented publicly by the owner of a luxury item, even if it is the dream that is the major selling point. The purchaser of an impressionist masterpiece could say that it’s a good investment.
The dream must always be recreated and sustained, for reality kills the dream. Every time a flesh-and-blood human being buys a luxury product they destroy a little bit of the equity, they increase the product’s visibility – and contribute to its vulgarization by putting it in the public eye. The opposite applies when marketing everyday goods: there is an advantage for the market leader, for the dominant market share, and therefore for maximum visibility – it becomes a reassuring purchase.
Luxury has two value facets – luxury for oneself and luxury for others. To sustain the latter facet, it’s essential that there should be many more people that are familiar with the brand than those who could possibly afford to buy it for themselves. In traditional marketing, the keyword is return on investment. In advertising for example, the media plan must concentrate on the target consumers and nothing but the target consumers– every person reached beyond the target is a waste of investment money. In luxury, if someone is looking at someone else and fails to recognize the brand, part of its value is lost. It is essential to spread brand awareness beyond the target group, but in a very positive way– brand awareness is not enough in luxury; it has to be prestigious.
It is a telling fact that advertisements for luxury products often show only the product, without any descriptive copy, and certainly no prices. In the luxury world, price is something not to be mentioned. When you are dining in a top-class restaurant, do you select your dishes on the basis of price? Besides, in many such restaurants the guests’ menus do not show prices.
As a general rule, the imagined price should be higher than it really is. It’s the opposite in traditional marketing. Renault announced its Logan model as starting at $8500, but with the full set of options this would bring it up to $11,000. Every seller tries to attract consumers with a low price, a so-called introductory price, then tries to persuade the consumer to go up-range. EasyJet offers the prospect of round-trip tickets from London to Paris at around $45, but the number of seats available at that price are quickly sold.
In luxury, when an imagined price is higher than the actual price, that creates value and this result: (1) When someone is wearing a Cartier Pasha watch, everyone around them more or less knows its price, but tends to overestimate it (on account of its aura of luxury). This increases the wearer’s standing; (2) When offering someone a luxury gift, the gesture is all the more appreciated for the price being overestimated; and (3) Lastly, when advertised, the price is that of the top of the range.
The luxury brand is something that has to be earned. The greater the inaccessibility – whether actual or virtual – the greater the desire. As everyone knows, with luxury there is a built-in time factor: it’s the time spent searching, waiting, longing…so far removed from traditional marketing logic, which does everything to facilitate quick access to the product through mass distribution, with its self-service stores, self-checkout systems, the internet, call centers and introductory offers. Luxury has to know how to set up the necessary obstacles to the straining of desire, and keep them in place. People do eventually get to enjoy the luxury after passing through a series of obstacles – financial obstacles, needless to say, but more particularly cultural (they have to know how to appreciate the product, wear it, consume it), logistical (find the shops) and time obstacles (wait two years for a Ferrari or a Mikimoto pearl necklace).
Luxury needs to excel in the practice of distributing rarity, so long as there are no real shortages. It’s quite natural: just as actual shortages stand in the way of growth, so the absence of rarity leads to the immediate dissipation of desire, and so to the disappearance of the very waiting time that sustains luxury.
To create this obstacle to immediate consumption, it should always be necessary to wait for a luxury product – time is a key dimension of luxury, as with all desire for anything even remotely sophisticated.
In the standard market model, when the price falls, demand rises. With luxury, the relationship is reversed. To live in luxury you have to be above others, not be ‘reasonable’, in both senses of the word. A reasonable price is a price that appeals to reason, and therefore to comparison. Now, recalling our anti-law no. 1, luxury is ‘superlative’, not ‘comparative’. To be reasonable is also to reduce the object to its tangible dimension and to deny the intangible.
By increasing prices you lose the bad customers, but now you suddenly become dazzlingly attractive to people who would previously not have given you a second glance.
The final point of this policy of systematically raising prices is that it gives the whole company a sense of responsibility. Price is a decisive factor in bringing about a change in mentality; indeed, we see quite profound internal changes in mentality, as every person in the company in their own way is constantly trying to find new ways of creating more value for the customer. It’s all a matter of living up to the price.
One of the key principles of the luxury strategy is to keep raising the average price of the brand. This does not mean having one or two alibi products, exceptionally high priced, and created just to launch the buzz: this is a classic PR game. Not a real luxury strategy … Systematically increasing price point is a real challenge, as it goes against all the legitimate habits of company management.
More: luxury customers are educated customers. They are ready to pay more… but for getting much more. So, just increasing price without adding significant value leads to disaster – as ‘luxury brands’ relying purely on Veblen effect have quickly discovered at their expense. You need lots of creativity in the fashion industry to keep on selling at the same price point – but it is the job of the designer. In luxury, you must install the whole the company in the creating value process: luxury value creation does not rely only on the talent of a creator, but on each employee of the company.
Louis Vuitton’s huge success in luxury leather goods is a good example of this management. New products are not introduced to replace an exiting one – they keep their standing – but to add value to the whole range. They are sold at a higher price, but this higher price is always explained and justified in the shop by the sales people. And never by saying “this new product is better or more fashionable than this old one”, but by saying “we have added this new product to our line to bring a new idea.” In fact, the increasing price point is not due to the price increase of existing products – which price stays the same – but to the introduction of new complementary lines.
This isn’t arrogance, not at all. The luxury strategy is the very opposite of the volume strategy. If you pursue the strategy of systematically raising all your prices, you have to be prepared to lose sales and to lose customers. Most brands don’t dare risk it, or else go running after customers; when you get to that point you’re no longer talking luxury but mass consumption – which of course can be extremely profitable as everyone knows.
Krug – the famed champagne company – did lose some accounts, some importers, it is true. If not supported by the Rémy Cointreau management in the steps it took, Krug’s change in strategy would have been stopped as soon as the first big client walked away. In luxury, not trying too hard to sell is a fundamental principle in relations with customers. You tell the customer the story of the product, the facts, but you do not pressure them into making a purchase there and then.
We said a few words earlier about the campaign BMW had conducted on the internet in the US; a number of the most prominent film directors each made a short-length film around BMW, having been given completely free rein – not a commercial, but free expression. These films were made available on the internet and they very quickly did the rounds in the United States. Commenting on this decision, the marketing director at BMW USA said: “When it comes to luxury, the best way of reaching the very well-off is to let them come to you.”
Using celebrities to promote luxury products is extremely dangerous. A luxury brand is courted by the stars, in the same way as those stars are courted by journalists and paparazzi. As we mentioned earlier about a luxury brand’s typical relationship with its customers, it must respect them, but it also has to dominate them. Even the most famous ones. Calling on the services of a star is tantamount to saying that the brand needs some of this star’s status just to survive, and admitting that it has none of its own.
For the luxury brand, this is a gross error of strategy, for it turns the relationship on its head. Only brand domination, standing above everything like a god, is acceptable, not simply behaving like any ordinary mortal. If celebrities are used to promote the luxury product, the status of the latter is reduced to that of a mere accessory. Louis Vuitton advertising with Mikhail Gorbachev, former USSR President avoids this: First, the celebrity is not a fashion symbol but a man who changed the world; and second, his Louis Vuitton is not the hero, but only the witness of an exceptional moment (a strategic negotiation).
Celebrities are to be used with caution in the luxury strategy, if the brand wants to build its pricing power, distinction, style and sustained appeal. They are not used as selling agents, for new customers to buy the product through an imitation model (“I want to buy the bag because this celebrity has it”) – this is the fashion business model. They must be used, when used, as a testimonial (“this famous person is also using my bag, staying in the hotel I went last year”) for existing customers. However, although brand ambassadors cannot be used fully in luxury, they can be used locally – as a nation have one ambassador in a specific country. The goal, especially when the brand is not well known in a specific country or if its dream seems too exotic, is to give a relevant incarnation to the dream.
In traditional marketing, the brand seeks to appeal and to create an affective relationship. For that it often uses music, music that is as popular as possible, or at least appreciated by its target audience. The brand follows people’s tastes. The luxury brand is a promoter of taste, like art. As we explored in earlier posts, it maintains close links with art. But luxury is not a follower: it is creative, it is bold. That is why it is best for luxury to remain close to the unpopular arts – or rather the non-popular arts – those that are emerging and have yet to appeal to the majority, if they ever will. Louis Vuitton has long been sponsoring concerts of contemporary music, for example bringing the pianist Maurizio Pollini to the Abbaye de Royaumont to perform music by the little-known composer Luigi Nono, rather than by a great such as Mozart or Chopin.
Similarly, following the pioneering work done by Cartier, the Fondations d’Art Contemporain are now flourishing in all the great luxury groups. In this way they are making themselves patrons of emerging trends, where they are forming symbiotic relationships that serve their purposes – making luxury-brand objects that are themselves works of contemporary art.
Reducing cost prices is vital in the mass consumer markets, and this often means relocating factories. Luxury management does not apply this strategy. When someone buys a luxury item, they are buying a product steeped in a culture or in a country. Having local roots increases the perceived value of the luxury item.
BMW, which is successfully pursuing a luxury strategy, builds all of its automobiles in Germany – apart from the entry line: the 3 Series – and is keeping production of the Mini in the United Kingdom. Keeping production of its models and engines in Germany is at the heart of its brand identity: every BMW is an authentic product of German culture – apart from which, producing them in Germany is perfectly viable, there being no difficulty in passing any such additional costs on to the client. In addition, BMW has a factory in the USA for its current models (3 Series), and also produces some of the 3 Series models in Thailand and elsewhere; these relocated models are no longer true luxury products, but they do serve as access products – products designed to initiate customers into the brand – like the small leather goods at Louis Vuitton: as soon as they can, every purchaser of one of these locally produced 3 Series will want to buy a ‘real’ BMW ‘made in Germany’.
Not relocating factories is as much a question of creativity as of production. When you no longer have a manufacturing workshop near you, creativity takes a nose-dive, because you lose the contact with the raw material and the way of working to be able to sublimate it into a luxury product. Once prêt-à-porter’s production facilities were moved abroad, French haute couture gradually went into decline; but, on the other hand, locating manufacture in China is going to lead to the emergence of haute couture in that country, especially as China has a history of luxury clothing – for the emperor’s court – going back several thousand years, and of producing very high-quality fabrics, silk in particular.
Management Consultants sell “do like others.” This is called benchmarking or also ‘best practices’. Using management consultants, formed in global MBAs to the universals of management, in this way would erode the specific characteristics of a luxury brand – and its ability to maintain its pricing power to this specificity.Let’s take a dramatic example: any non-luxury automobile manufacturer should be obsessed by reducing costs. This is why industrial platforms strategies, sharing all back-office costs, are so widely spread. By the same token, relocations are nothing but normal for a mass brand and even a premium or super-premium one. When one buys an Audi every single dollar paid is to bring a return on investment: you pay for what you get (more functionalities, that is all).Now, the same rules should not apply to a brand considered as luxury, such as Jaguar.
Luxury pricing power is not based on cost reduction but on added value and feelings of uniqueness. Certainly Hermès has to buy the crocodile skins at the best price it can. But, in any case, it will never buy anything but the best skins. A similar risk is taken when luxury companies hire advertising methods coming from Fast Moving Consumer Goods sectors. In FMCG / CPG, the marketing of demand is the rule. All the concepts, methods, skills and frameworks are based on the idea that one should be led by consumers’ wishes. How many advertising agencies’ recommendations to luxury companies start with a chapter called, “Understanding your target,” a deep analysis of the motivations and declarations of the so-called target. The natural consequence is to think of the luxury brand as a brand trying to please these consumers, answering their needs, proposing consumer benefits, having a brand positioning strategy.
Luxury companies do not test among consumers. If you test, you are a mass prestige company. Coach does use a lot of tests, as any traditional marketing company: In fact, 80 percent of its new products are tested. Louis Vuitton, Chanel, or Hermès never test. Testing means that the decisions of the luxury brand are subject to the taste of the consumers. Fast moving consumer goods companies thrive by trying to solve a consumer problem: they need to ask what is the current problem and does the advertising show effectively how much the product solves the problem. Mass-prestige brands such as Chivas or SK2 do tests. It is normal: the goal of their advertising is to build sales, with fast returns.
Luxury is a taste educator. It builds the classics of tomorrow not the hits of today, soon forgotten. To do so, one cannot rely on today’s preferences. Luxury’s avant-garde status is reinforced by the fact that its messages are mysterious, not easily grasped. The same holds true for art: a mass-prestige brand would always check if the music it chooses is liked by the target. Luxury brands aim at pricing power based on the status of the brand itself as an emitter, shaping the taste of elites.
However, it is legitimate for a luxury brand to test new products with a selection of existing good customers of the brand, and especially on the shop floor, where a real face-to-face discussion is possible. Not only is the opinion of these brand-lovers good to collect, as they share the dream of the brand, but also it helps them to feel more ‘part of the club’, enhancing their brand loyalty.
You can even go further. By asking its customers, through the internet, their opinion on a new television campaign – more precisely, by asking them to vote between two campaigns – Nespresso made an excellent move both in its relationship with its customers and in the validation of the final decision.
The dream must always be recreated and sustained, for reality kills the dream. Every time a flesh-and-blood human being buys a luxury product they destroy a little bit of the equity, they increase the product’s visibility – and contribute to its vulgarization by putting it in the public eye. The opposite applies when marketing everyday goods: there is an advantage for the market leader, for the dominant market share, and therefore for maximum visibility – it becomes a reassuring purchase.
Implementing group synergies is one of the most obvious ways to improve the net financial result of a brand. But, as Ford discovered with Jaguar and GM with Saab, in luxury, it is the best way to destroy the dream of the brand. For some pennies saved, you lose your pricing power – one of the strongest points of a luxury strategy. This is well known in the luxury market – as proven by the number of luxury brands that have been almost eliminated by group synergies implementation — where improving the net financial result is the ultimate goal.
Luxury brands face this threat each time one is acquired by an organization who does not understand luxury strategy. One example is Dell’s acquisition of Alienware in 2006. Founded in 1996 in Miami, Alienware was the success story of luxury gaming laptop and desktop computers. In 2005, Alienware had a net profit of $170 million. To improve on already strong profits, Dell decided to reduce production costs. This was counter to Alienware’s business strategy which had built its success on using the best elements among all suppliers – whatever the cost.
A strategy which earned the brand thousands of passionate and loyal customers. Discounts were never offered nor needed. Willing to implement ‘group synergies’, Dell cancelled all of the agreements with top-end suppliers, relocated production to Poland, created new distribution agreements and offered discounts on the corporate website. The result: Alienware remains a premium brand, but has lost its aura – and its pricing power. This is why luxury groups such as LVMH maintain the independence of their brands as much as they can.
Creating value is the motto in luxury marketing. But this value creation must not come from cost reduction. It must come from added value. Being creative is not enough to sustain a systematic price increase – which is the key issue in luxury. For example, brands need lots of creativity in a low-cost industry to reduce costs and invent new business models, sell at a significant lower price than competition, and be profitable – but this is the job of the CEO. Luxury brands need lots of creativity in the fashion industry to keep selling at the same price point – but this is the job of the designer. In luxury, you must install the whole company in the creating value process: luxury value creation does not rely only on the talent of a creator, but on each employee of the company:
Production people: Lots of new ideas originate on the workshop floor. This is the reason why a luxury company must make its products and not relocate production – creation teams live in symbiosis with artisans.
Sales staff: New ideas come from customers – not by pandering to their wishes, but by understanding their dream. This is why you must have your own sales staff (they are fully part of the company) and why they must be local – the customer must be able to talk in his or her language with sales people sharing his or her culture.
And, of course, top managers must lead the value creation process.
Selling on the Internet is strictly hype in luxury marketing. Many marketers seem to think that if you do not sell on the Internet, you are ‘out’. There, the distinction between luxury, fashion and premium strategy of prestige brands operating on the luxury market is crucial. Internet sales are extremely well adapted tofashion and premium, but not to luxury. Self-proclaimed ‘web specialists’ fault the luxury companies for not selling online, forgetting – or ignoring – that all the ‘plusses’ of digital trade (instantaneity, permanent change and actualization, availability, accessibility, price reductions, automation of service, crowdsourcing, etc.) are huge ‘minuses’ for luxury.
Luxury purchase needs time and effort to be deserved, true price and no discounts on excessive prices, one-to-one relationships with the salespeople and not with a machine, feeling of belonging to a ‘club’ of selected people and not being part of an anonymous crowd. The Internet can be used as a complementary service for existing customers, or as initiation to the brand story or to the product for potential and selected new customers. It cannot be used as a selling tool, except for products that are not part of the luxury strategy of the brand, such as fashion lines or entry products.