LUXURY BRAND MANAGEMENT

LUXURY BRAND MANAGEMENT

A PRESENTATION ON THE WORLD OF PRIVILEGE FOR EDUCATION PURPOSE ONLY This slide deck was compiled because the notion of luxury is so central to contemporary consumption, but academic and popular business publications about luxury business, and importantly, luxury branding has been largely conceptual.

“Some people think luxury is the opposite of poverty. It is not. It is the opposite of vulgarity.” - Coco Chanel

HOW IS THE LUXURY SECTOR DIFFERENT? Every brand manager is quick to assert that their business or brand is different from any other, but those managing luxury brands are possibly the only ones who are justified to claim such massive differentiation in their businesses and brands.

BRAND AWARENESS GAUGE Luxury brands enjoy very high brand awareness - both aided awareness and top-of-the- mind awareness. Allow me to explain the high awareness by taking a luxury and non luxury brand as an example.

REVENUE BY BUSINESS (millions of Euro) 12/31/2012 12/31/2011 AUTOMOTIVE 38,229 42,710 EQUIPMENT 17,365 16,190 FINANCE COMPANIES 1,910 1,902 ELIMINATIONS -2,128 -2,293 TOTAL 55,376 58,509

REVENUE BY BUSINESS (millions of Euro) Until 10/31/2012 12/31/2011 DIOR COUTURE 1,003 1,000 WINES/SPIRITS 3,216 3,524 FASHION GOODS 7,977 8,712 PERFUMES/COSMETICS 2,993 3,195 WATCHES/JEWELRY 2,300 1,949 SELECTIVE RETAILING 6,099 6,436 ELIMINATIONS -252 -188 TOTAL 23,336 24,428

Though Peugeot is twice bigger than Dior, most consumers around the world will name Dior before Peugeot when quizzed. People the world over read about Dior in magazines, see them on TV and fashion shows, and want to know more about Dior. BRAND AWARENESS

Most luxury companies are small- or medium-size enterprise. You could say the number of marketing executives in a P&G or Unilever will outnumber the marketing executives in the total luxury-goods industry. COMPANY SIZE

BRAND PRESENCE Though small, luxury brands must be present everywhere in the world. Tourists must ﬁnd luxury brands where they travel even if they purchase them only at home.

FLAGSHIP STORES Countless tourists/visitors and locals are awed by the iconic and unabashedly extravagant luxury ﬂagship stores that reinforces the brand’s image in consumers’ minds.

FASHION BEVERAGES JEWELRY EYEWEARBEAUTY PROPERTY AUTO Hotels Homes Clubs Prescription glasses Sunglasses Costume Watches Wines Champagne Cognac Cosmetics Perfumes Hair Resorts, spa Accessories Apparel Haute couture Prêt-à-porter THE SEVEN MAJOR PRODUCT GROUPS LUXURY SECTOR OPERATES

NOW, WHAT IS REALLY LUXURY?

Luxury is a term is derived from luxurie meaning ‘lasciviousness, sinful self-indulgence’

Goods not essential to growth and prosperity Goods for normal growth of people and communities Goods limited in supply, diﬃcult to procure, and/or very expensive Goods to maintain life ADAM SMITH’S CLASSIFICATION OF GOODS

PARTIAL ROSTER OF LUXURY BRANDS (sales above $1 billion)

RATIO N AL FU N CTIO N AL EM O TIO N AL RELATIO N AL Who are you? What are you? What about you and me? What about you? Keller, Kevin Lane; Brand Pyramid Model ➡ Very expensive ➡ High brand awareness ➡ Available in ﬂagship stores ➡ Diﬀerentiated product features (technically superior) ➡ Very high on quality ➡ Attributes may be compensated for design ➡ Extravagant designs ➡ Known for unique craftsmanship ➡ Not known for extensive product use ➡ Memorable brand experience ➡ High social approval ➡ High on hedonism (status, esteem) ➡ Satisfy emotional desire ➡ Status relationship ➡ Status stories ➡ Satisfy role-playing aspects ➡ Relationship with symbolic meaning

Kotler, Philip; Diﬀerentiation of Products, Marketing Management Rolls-Royce Mercedes Inﬁniti Dodge KiaBASIC UTILITY QUALITY PREMIUM LUXURYLUXURIFICATIONMASSIFICATION

ARMANI ARMANI PRIVE ARMANI CASA ARMANI EXCHANGE ARMANI JEANS ARMANI SPA SINGLE BRAND ACROSS THE LUXURY SPECTRUM MONOLITHIC BRAND Uniﬁed brand identity One visual system Consistency Extensions built by descriptors SUB BRANDS

WOMEN’S FASHION MEN’S FASHION CHILDREN’S FASHION JEWELRY WATCHES EYEWEAR BEAUTY HOME SERVICES OTHERS Armani Privé Armani Privé Fine Jewelry Armani Privé Fragrances Armani Casa Armani Hotels and Resorts Armani Samsung TV Giorgio Armani Giorgio Armani Armani SPA GA Jewelry Giorgio Armani Giorgio Armani GA Beauty Armani Ristorante GA Samsung Smart Phone Armani Collezioni Emporio Armani Emporio Armani Emporio Armani Emporio Armani EA Fragrances EA Caﬀé EA Samsung Mobile Phone Armani Jeans Armani Jeans Armani Baby Armani Junior Armani Teen AJ Caﬀé Armani Dolci Armani Fiori Armani Libri Armani Exchange Armani Exchange AX Jewelry Armani Exchange Armani Exchange FASTFASHIONLUXURY

CONSPICUOUSSUBTLE Consume for prestige, status, and association with higher class Consume to dissociate from lower class $1,300 $700 $180$400 $650$2,000 MASSTIGEPRESTIGE

Owing to high brand awareness and perceived quality, consumers confer high social status and prestige value for for consuming luxury brands. Based on consumption of luxury brands, four groups of consumers emerge according to economic status and motivating force for status.

PATRICIAN POSEUR PARVENU PROLETARIAN STATUS NEED WEALTH LOW HAVE-NOTSHAVES HIGH Quietly signal each other Use loud signals to associate with Haves and disassociate with Have-Nots Aspire to be Haves that they mimic parvenus Do not engage in signaling Han, Young Jee et al., “Signaling Status with Luxury Goods,” Journal of Marketing 2010

LOW PURCHASE FREQUENCY HIGHEXCLUSIVITYLOWEXCLUSIVITY HIGH PURCHASE FREQUENCY INACCESSIBLE LUXURY ACCESSIBLE LUXURY Inaccessible luxury is a necessity that begins where necessity ends. Downward extension of luxury to make it accessible for mass.

MULTIBRAND SPECIALTY STORES DUTY-FREE STORES FLAGSHIP STORES ExtenddistributionFollow customers intheirtravel Displayfull assortment Poseurs Patrician,parvenu A major existing paradox lies in creating “desire” and ‘exclusivity” of luxury brands on the classless virtual world. Versace did not have a website until 2005; Prada until 2007. Though luxury industry is known for creativity, it has been slow on digital channels. Luxury brands have since become more accessible, collaborative, and experiential. Today, brands across the luxury spectrum mediate tension between exclusivity that protects brand desirability and the inclusivity needed to attract new customers on social media networks.

INPUT PROCESS OUTPUT Branding Marketing mix Social groups Psychology personality Motivation attitude Perception learning Purchase behavior Involvement Evaluation

Luxury branding is not about getting a consumer to choose a luxury brand over the competition. It’s about getting them to see the brand as the only solution to their desire.

LUXURY BRAND COUNTRY OF ORIGIN BRAND VALUE (2013) BRAND VALUE (2012) Louis Vuitton France $22,719 $25,920 Hermes France $19,129 $19,161 Gucci Italy $12,735 $6,420 Prada Italy $9,454 $5,788 Rolex Switzerland $7,941 $7,171 Chanel France $7,075 $6,677 Cartier France $6,377 $4,843 Burberry England $4,194 $4,090 Fendi Italy $3,636 NA Coach USA $3,276 NA TOP TEN LUXURY BRANDS Evaluation of brand value conducted by Millward Brown in 2012 and 2013

Segmenting luxury consumers based on physical and psychosocial attributes of luxury brands Hudders, Liselot, “Consumer Meaning Making,” International Journal of Market Research 2013 Rarity Expensiveness Uniqueness Conspicuousness Exclusivity Inaccessibility ExcellentQuality Craftsmanship Durability Refinement Elegance Sophistication Innovativeness Comfort Handicraft Creativity Psychosocial attributes Psychosocial attributes Physical attributes Expressive dimension Impressive-functional Impressive-emotional LUXURY BRAND MEANING 3.0 3.5 4.0 4.5 5.0 5.5 6.0 6.5 7.0 Expressive segment Impressive segment K-means Clustering Experiential valueFunctional valueSymbolic value

O N TO LO G ICAL M O D E AESTH ETIC M O D E Enduring (being) erm anence Transience (becom ing) ﬂux N ovice (observer) surface Expert (preserver) depth AESTH ETIC M O D E O N TO LO G ICAL M O D E POSTMODERN WABI SABI CLASSIC MODERN Evanescent conspicuous consumption Commercial conspicuous consumption Ephemeral aesthetic consumption Monumental aesthetic consumption Eg. Purdey sidelock shotgun Eg. Louis Vuitton bag Eg. Haute cuisine Eg. Hyper-real experiences TAXONOMYOFLUXURYBRANDS Berthon, Pierre et al., “Aesthetics and Ephemerality,” California Management Review, 2009 EducatePopularize Exclucivize Expertize

HOW IS LUXURY BRANDED?

BRAND PURCHASE CIRCLE UNAWARE DETACHED LOYALISTS CONVINCED ADVOCATES INFORMED ANTI

8PsTHE EIGHT CORNERSTONES OF LUXURY BRANDING Perceivedquality Paucity Price Place Publicﬁgure Pedigree Presence PR

Quality is not an accident. It is the result of high intention, high craftsmanship and aesthetics, sincere eﬀort, and skillful execution; it represents the wise choice of many alternatives in the luxury spectrum.1PERCEIVED QUALITY

2 Luxury brands have very short life span. Also, luxury brands want to maintain the perception that luxury is scarce. Both natural paucity and tactical paucity generate artiﬁcial demand and desire. PAUCITY

3It is not luxury without premium pricing. Price helps generate the luxury stature in consumers’ minds. In order to maintain the perceived value and quality, price is set higher than the consumer expectation and willingness. PRICE

Consumers must live luxury from Milan to New York. Luxury brands are in every major international city taking into account image-creation (ﬂagship stores) and image- consumption activities (licensing for secondary products). Original Company Distribution System Licensing Distribution for Licensees HOME OVERSEAS CORE LICENSED 4PLACE

5Movie stars, musicians, sports personalities, royal families, TV personalities, fashion models, and designer themselves garner attention and impact at special events and award/fashion shows. This sort of product placements and subtle endorsements from celebrities positively aﬀect brand perceptions. PUBLIC FIGUREHEADS

6History helps in familiarity. Rich ancestry and tradition wraps the brand with deep mystique. Mystique is an aura..a framework of beliefs constructed around the founder or object, endowing the person or object with enhanced value and profound meaning. An ounce of mystique is worth a pound of performance. PEDIGREE

7Every customer touchpoint is a moment of truth heightening the brand experience and amplifying the aura of luxury. Aesthetics, craftsmanship, and high art value is extended not only to the physical or virtual environment where the brand retails/e-tails, but to every customer touchpoint where luxury is experienced. BRAND PRESENCE

8Public relations is a sophisticated branding machine that plays a humungous role in image proliferation and in inﬂuencing public opinion favorably; fashion shows, celebrity endorsements at award shows, designer talk shows build brand relevance and dialogue with luxury consumers. PUBLIC RELATIONS

Applying brand identity prism to Chanel to understand the multiple facets of luxury identity PHYSIQUE PERSONALITY RELATIONSHIP CULTURE REFLECTION IMAGE Independent, sensual woman Long-lasting and respectful Liberation Modern day elegant woman Liberated lifestyle Sophisticated, progressive, and daring Kapferer, Jean-Noel, “Brand Identity Prism”

Andrea Semprini extended the Greimas Square, which helps in marketers understand luxury consumption values better. S1 S2 ~S1~S2 S S Contrary Implicatory Contradictory S1 positive seme S2 negative seme S complex axis (S1+S2) ~S neutral axis (neither S1 nor S2)

Practical U topian Critical D iversionary MISSION PROJECT EUPHORIA INFORMATION Allegiance Obligation Visionary Mythical Transcendence Utilitarian Functional Valuable Advantageous Adventure Transgression Dream Transformation Amusement Indulgence Incitement Divertissement

CRITICAL DIVERSIONARY PRACTICAL UTOPIAN POSITIONINGOFLUXURYBRANDS

MULTIPLE CONSTRAINTS TO CREATIVE DEPT. CREATIVE Brand Identity Direction Retail and Wholesale Merchandising Dept. Production and Sourcing Dept. Fashion Trends Customer Evolution In Europe, luxury sector has the creative dept. (or designer) as the fulcrum, and the emphasis is on creativity, craftsmanship, and innovation. On the other side of the Atlantic, personalization, customization, customers’ desires and feelings are central to luxury businesses. Consequently, brand management takes a signiﬁcant role in the business of luxury management.

SYNTHETIC FLOW CHART OF FACTORS OF LUXURY BRAND SUCCESS EFFECTIVENESS RELEVANCEENGAGEMENT IDENTITY-IMAGEALIGNMENT COHERENCECONSISTENCY LUXURY HOUSE MARCOM PRODUCT DIST. PERCEPTIONS PURCHASE

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