Why luxury brands need to go back to basics?

Consumers make a social statement when using luxury brands. Therefore, creating a fit between the social trends and keeping up with them is one of the critical strategic issues for all luxury brands. But many mass-market brands are catching up due to the winds of globalization and it is becoming ever so hard for luxury brands to stay ahead.

In this scenario, many luxury brands have decided to move beyond their niche and diversify very quickly into other market spaces which the consumer may not associate with the specific luxury brand. The idea of brand extension and at times irrelevant diversification (i.e. moving away from one product category to another one) is particularly delicate issue for luxury brands. This is mainly because of the strong brand origin and brand image associations luxury brands have in consumer minds.

Many luxury brands have diversified successfully however on the other hand, many have struggled a lot and therefore this issue must be dealt with a lot of caution. For example, Prada’s move from shoes to handbags and then into ready-to-wear market worked every time. Same was the case with Gucci. However, it took many years for the first Bulgari watch to become a success. Big brands have lots of resources but small brands many not be able to conjure such long-term losses and therefore diversification can become a big bottleneck for them. For example, in 2005, Mattel decided to create Barbie-themed clothing and accessories and involved fashion designers such as Tarina Tarantino and Anna Sui to interpret Barbie’s wardrobe for grownups. Interestingly enough, it was suggested as one of the worst brand extensions of the year by BusinessWeek. Another example of this is Audi in US market. Audi still struggles to crack the US market as consumers remember those sudden unintended acceleration issues and a series of product recalls associated with it nearly 3 decades ago.
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In this regards, I would urge luxury brand managers to be highly cautious of brand extension and diversification. There are many other routes suggested by marketing experts which can be taken into account. For example, Ansoff’s Product/Market matrix provides good few insights on what other options can be exploited without diversification.

In the quadrant 1 where a company wishes to expand itself into its present local market, could focus on various ‘market penetration’ strategies by (a) increasing the frequency of usage; (b) increasing the quantity used and (c) identifying new application of the product. I am sure the options a and b are quite feasible in case of most luxury brands which are used occasionally only by consumers as my research has shown. This in itself can lead to higher market share and stronger customer loyalty.

The quadrant 2 which focuses on developing new products for the current markets does not mean diversification but instead looks at ‘product development’ strategies. In this case, luxury brands can focus on product improvements (highlight them in communications carefully) and line extensions (after careful market research rather than an insiders only brainstorming).

The quadrant 3 focuses on ‘market development’ strategies. In this case, luxury brands should focus on (a) geographic expansion and (b) target new segments. For each of these options, specific strategic initiatives are required. Such as, for geographic expansion, cultural proximity and market understanding are a must. Similarly, when targeting new segments, it would be desirable to identify those peripheral groups which take the current luxury brand consumers as their aspirational leaders.

The quadrant 4 relates to diversification. However, remember this is quadrant 4 of 4 and that means it should really be thought of as one of the last options. If growth has not been possible with the first 3 quadrant a luxury brand should focus on diversification. However, in my own experience, I have seen entrepreneurs/managers focusing this as their first option. While if done carefully it can provide significant benefit, it’s quite risky also as seen in earlier examples.

My aim in this article was to offer some alternative strategies for luxury branding rather than just thinking diversification. Going back to basics can always help any luxury branding effort and I hope it would ignite that thought in you.

The article was originally published on my website with the post titled Luxury branding: back to basics.

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Massification of luxury

Experts all over the world have been penning about luxury consumption among the Chinese customers. A Few have also discussed the issues of Chinese luxury brands aimed at worldwide customers including Shanghai Tang and LaVie. However, there is hardly any discussion on how slowly but steadily Chinese enterprises are acquiring or taking over Western luxury brands. This post is an attempt to highlight that.

In the later half of last century, a revolutionary style of luxury customers emerged. This involved successful business people, industrialists, artists and those who acquired brand-new riches in several marketplaces across the globe. This nouveau riche had little idea on how to use their new-found wealthiness and how to become stylish person. A innovative service industry emerged due to this: the fashion stylist who assisted this nouveau riche look and feel modern person.

One of the major impacts of this revolutionary luxury customer was that they made a second rung of overambitious leaders, directors and carrier go-getters at large. These materialistic customers also wanted to consume luxury however didnt have the means to purchase such goods.

To get out of this market luxury companies came up with a totally brand-new set of products which later on were defined as accessible luxury. It included bags, scarves, wallets and bags, belts and such other low-price goods. While the new marketplace was lucrative, most luxury organizations recognized that the production prices didn't provide enough margins when produced in the European factories.

To amend their financial bottom-line many luxury firms then looked for markets where these goods can be made for a cheaper cost. China was the most apparent options, still it was a unruly marketplace to establish relationships with local manufacturers. Many Hong Kong based dealers took advantage of the position and jumped opening up factories in China which developed luxury goods for many well recognized luxury houses.

As they gained knowledge and expertise in developing quality high-priced luxury goods some of his Hong Kong dealers and their Chinese counterparts realized that the greatest profit margin lies in the ownership of a luxury organization. In the early part of the brand-new millennium the Chinese encroachment in the luxury market jumped.

The most booming stories among these is the Chinese entrepreneur Silas Chou, the President and CEO of Novel Enterprises Limited, one of the worlds leading vertically-integrated textile and apparel manufacturer. In 1984, he actively helped his family in establishing Dragonair. He took over Tommy Hilfiger Corporation tacitly. Within 8 small years as a chairman he changed the luxury company from a US$25 million only America centric clothes company to a world-wide US$2 billion brand.

The above presents us a little thought of how the Chinese businessman are now stepping up in the luxury business which was predominantly European a few decades ago. As the market presence of Chinese consumers grow in the field of luxury, the other side of the movement also is going to grow only. Certainly some food for thought for the European luxury manufacturers and marketers.

Source: Massification of Luxury: the Chinese Invasion

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