The Luxury Strategy. Break the Rules of Marketing to Build Luxury Brands

THE LUXURY STRATEGYTHE LUXURY STRATEGYTHE LUXURY STRATEGYTHE LUXURY STRATEGY
Break the rules of marketingBreak the rules of marketing
to build luxury brandsto build luxury brands
Prof JeanProf Jean--Noël KAPFERERNoël KAPFERER
HEC P iHEC P iHEC ParisHEC Paris
April 19 , 2010April 19 , 2010
©Jean-Noël Kapferer HEC Paris
p ,p ,

PlanPlan
Copyright JN KapfererCopyright JN Kapferer
•• The luxury business growthThe luxury business growth•• The luxury business growthThe luxury business growth
•• A growing market confusionA growing market confusion•• A growing market confusionA growing market confusion
•• The question of luxury definitionThe question of luxury definition•• The question of luxury definitionThe question of luxury definition
U d t di th ifi lU d t di th ifi l•• Understanding the specific rulesUnderstanding the specific rules
of luxury managementof luxury managementof luxury managementof luxury management

Luxury market is growingLuxury market is growing
COPY RIGHT J.N. KAPFERERCOPY RIGHT J.N. KAPFERER
Its highest perspective is in theIts highest perspective is in theIts highest perspective is in theIts highest perspective is in the
BRIC countriesBRIC countries

Why does this market grow ?Why does this market grow ?
There are more very rich peopleThere are more very rich peopleThere are more very rich peopleThere are more very rich people
--Oct. 2009 : 130 Chinese billionairesOct. 2009 : 130 Chinese billionaires $$$$
--Forbes Feb 2010 : 1000 billionnairesForbes Feb 2010 : 1000 billionnaires
--The CLEWI index goes up , muchThe CLEWI index goes up , muchg pg p
more than the regular price indexmore than the regular price index

The gap grows betweenThe gap grows between
extraordinary and ordinary peopleextraordinary and ordinary people

The democratization of luxuryThe democratization of luxury
-- economic growth : middle class feelseconomic growth : middle class feels
optimistic , is richer and wants to trade upoptimistic , is richer and wants to trade upp , pp , p
-- women work and marry laterwomen work and marry later
--« you are what you wear »« you are what you wear »
--access pleasure through shoppingaccess pleasure through shopping mallsmalls

Luxury is correlated to GDP growthLuxury is correlated to GDP growthLuxury is correlated to GDP growthLuxury is correlated to GDP growth

Because the mass wants to own aBecause the mass wants to own aBecause the mass wants to own aBecause the mass wants to own a
bit of what symbolizes the betterbit of what symbolizes the better
life of the happy fewlife of the happy few
-- economic growth makes you go beyondeconomic growth makes you go beyond
needs and liberates your aspirationsneeds and liberates your aspirationsy py p
-- Luxury is consumption at its best : itLuxury is consumption at its best : it
delivers rare intense emotions ( love ,delivers rare intense emotions ( love ,
power, pleasure, pride, reward, social sign)power, pleasure, pride, reward, social sign)
p , p , p , , g )p , p , p , , g )

Because people like luxuryBecause people like luxuryBecause people like luxuryBecause people like luxury

People like luxuryPeople like luxury
1 t 10 IPSOS WLT
China 8.2China 8.2 HKHK 6.36.3
1 to 10 ; source IPSOS WLT
China 8.2China 8.2 HKHK 6.36.3
Mexico 8 0Mexico 8 0 RussiaRussia 6 16 1Mexico 8.0Mexico 8.0 RussiaRussia 6.16.1
India 7 3India 7 3 Italy 6 1Italy 6 1India 7.3India 7.3 Italy 6.1Italy 6.1
UK 7 3UK 7 3 Germ 6 1Germ 6 1UK 7.3UK 7.3 Germ 6.1Germ 6.1
USA 6 8 F 5 7USA 6 8 F 5 7USA 6.8 France 5.7USA 6.8 France 5.7
K 6 4K 6 4 J 5 6J 5 6
Korea 6.4Korea 6.4 Japan 5.6Japan 5.6

Why people like luxuryWhy people like luxuryWhy people like luxuryWhy people like luxury
--It elevates themIt elevates them
--It gives them pleasure, beauty ,style in lifeIt gives them pleasure, beauty ,style in life
--It gives them products with meaning , withIt gives them products with meaning , with
high quality out of the ordinaryhigh quality out of the ordinaryhigh quality, out of the ordinary ,high quality, out of the ordinary ,
--With prestigious brands, known as visasWith prestigious brands, known as visas
of social distinction.of social distinction.
Saving the face becoming a personSaving the face becoming a person
--Saving the face , becoming a personSaving the face , becoming a person

Luxury is in dangerLuxury is in danger
The middle class growth in manyThe middle class growth in manyThe middle class growth in manyThe middle class growth in many
countries is a business opportunitycountries is a business opportunity
for luxury andfor luxury and also a great dangeralso a great danger
To capture this huge demand massTo capture this huge demand massTo capture this huge demand , massTo capture this huge demand , mass
brands imitate luxury , mimick its codesbrands imitate luxury , mimick its codes
How will luxury show its difference ,andHow will luxury show its difference ,and
avoid running too after volume ?avoid running too after volume ?

Confusion in the marketConfusion in the market
Main Street brands imitate HighMain Street brands imitate HighMain Street brands imitate HighMain Street brands imitate High
Street brands , creating confusionStreet brands , creating confusion
between luxury and non luxurybetween luxury and non luxury
Today many mainstream brands useToday many mainstream brands useToday , many mainstream brands useToday , many mainstream brands use
the codes of luxury (small series , topthe codes of luxury (small series , top
models ) : frontiers seem porousmodels ) : frontiers seem porous

Unclear frontiersUnclear frontiers

Chanel’s worldly known designerChanel’s worldly known designerChanel s worldly known designerChanel s worldly known designer
Karl Lagerfeld partners with H&MKarl Lagerfeld partners with H&M

Unclear frontiersUnclear frontiersUnclear frontiersUnclear frontiers

ZARA is a low cost producer butZARA is a low cost producer butZARA is a low cost producer butZARA is a low cost producer but
its stores do not look low costits stores do not look low cost

Confusion in the marketConfusion in the market
A lot of new terms come out everyA lot of new terms come out everyA lot of new terms come out everyA lot of new terms come out every
day adding to the confusionday adding to the confusion
--new luxurynew luxury
--mass prestigemass prestige
--mass luxurymass luxury
--trading uptrading up
--premiumizationpremiumization

New terms add confusionNew terms add confusionNew terms add confusionNew terms add confusion

Confusion:luxury or premium?Confusion:luxury or premium?

Key source of confusionKey source of confusionyy
LuxuryLuxury
Price
Premium
Brand
Mass Qualities

L i t “ f i ”L i t “ f i ”Luxury is not “more of premium”Luxury is not “more of premium”
Luxury
Price
Premium
Brand
Mass Qualities

L i ifiL i ifiLuxury is specificLuxury is specific
Luxury is not more of premium , orLuxury is not more of premium , or
beyond premium or more expensivebeyond premium or more expensivey p py p p
than premium : it is elsewhere ,than premium : it is elsewhere ,
Luxury is Janus: two indissociableLuxury is Janus: two indissociable
facesfacesfacesfaces
–– AA sociological facesociological face : it represents ,and: it represents ,and
bli l i t i l t tifi tibli l i t i l t tifi tipublicly incarnates social stratificationpublicly incarnates social stratification
–– AA psychological facepsychological face : giving oneself: giving oneself aa
l d d f til d d f ti
pleasure and dream of exceptionpleasure and dream of exception

A turning pointA turning point
Today, all these porous frontiersToday, all these porous frontiersToday, all these porous frontiersToday, all these porous frontiers
recreaterecreate a need of clear sociala need of clear social
markers of the latent verticalmarkers of the latent vertical
social hierarchysocial hierarchysocial hierarchy…social hierarchy…
especially in soespecially in so called open orcalled open or… especially in so… especially in so--called open orcalled open or
“classless” societies“classless” societies

A turning pointA turning point
Stripes and stars are backStripes and stars are backStripes and stars are backStripes and stars are back

Status for everyday lifeStatus for everyday life

What is luxury after all ?What is luxury after all ?

This is surely not luxuryThis is surely not luxury

This is not luxury eitherThis is not luxury either

Is this luxury ?Is this luxury ?

Are they all luxury brands ?Are they all luxury brands ?

No commonly agreed definitionNo commonly agreed definitionNo commonly agreed definitionNo commonly agreed definition
that clearly separates it from superthat clearly separates it from super
premium or even mass prestigepremium or even mass prestige

What definition for luxury?What definition for luxury?
What is luxury ?What is luxury ?
Traditionally the word luxuryTraditionally the word luxury
applies to tangible goods ,
suggesting superior materials and
designs sold in an upscale retaildesigns sold in an upscale retail
environment
Bain & co .
Bain & co .

What definition for luxury?What definition for luxury?
What is luxury ?What is luxury ?What is luxury ?What is luxury ?
«« Exclusivity premium pricesExclusivity premium prices«« Exclusivity, premium prices ,Exclusivity, premium prices ,
image and status which combineimage and status which combinegg
to make them more desirable forto make them more desirable for
th th f tith th f tireasons other than functionreasons other than function »»
T J kT J k
T.JacksonT.Jackson

What is luxury ?What is luxury ?What is luxury ?What is luxury ?
Another definitionAnother definitionAnother definitionAnother definition
« Expensive rare objects with an« Expensive rare objects with anp jp j
image of good taste »image of good taste »

Need to distinguishNeed to distinguishNeed to distinguishNeed to distinguish
«« LuxuryLuxury » ( absolute meaning ) from» ( absolute meaning ) fromLuxuryLuxury ( absolute meaning ) from( absolute meaning ) from
the happy few to the man in the streetthe happy few to the man in the street
«« A LuxuryA Luxury » ( relative meaning ) for a» ( relative meaning ) for a
specific group trading up for morespecific group trading up for morespecific group trading up for morespecific group trading up for more
quality and prestige ,not the happy fewquality and prestige ,not the happy few
«« My LuxuryMy Luxury » ( purely individual )» ( purely individual )

Ab l t lAb l t l«« Absolute luxuryAbsolute luxury »: a consensus»: a consensus
Categories and famousCategories and famous
brands held in the worldbrands held in the world
as symbols of luxury

«« A LuxuryA Luxury » is a relative statement» is a relative statement«« A LuxuryA Luxury » is a relative statement» is a relative statement
F C h iF C h iFor some consumers , Coach is «For some consumers , Coach is « aa
luxuryluxury », it gives them a feeling of extra», it gives them a feeling of extrayy , g g, g g
quality , of prestige, above that ofquality , of prestige, above that of
ordinary bags Same for Lancelordinary bags Same for Lancelordinary bags . Same for Lancel , …ordinary bags . Same for Lancel , …
But the «But the « happy fewhappy few » disagree» disagree
But the «But the « happy fewhappy few » disagree.» disagree.

“ A Luxury “ is relative“ A Luxury “ is relativeA Luxury is relativeA Luxury is relative
In India « a luxury » is drinkable water for a
majority of people but golden taps for a
minority

«« My LuxuryMy Luxury » is very private» is very private«« My LuxuryMy Luxury » is very private» is very private
«« My luxuryMy luxury » is not «» is not « your luxuryyour luxury »»«« My luxuryMy luxury » is not «» is not « your luxuryyour luxury »»
What is rare and priceless for me mayWhat is rare and priceless for me mayp yp y
not be the same for you. «not be the same for you. « My luxuryMy luxury »»
does not imply social comparison : it isdoes not imply social comparison : it isdoes not imply social comparison : it isdoes not imply social comparison : it is
intimate andintimate and does not create a marketdoes not create a market

Understanding luxuryUnderstanding luxury
HOW ECONOMISTS DEFINE LUXURYHOW ECONOMISTS DEFINE LUXURY

PRICEPRICE
FUNCTIONAL BENEFITS

PRICEPRICE
PremiumPremiumPremiumPremium
FUNCTIONAL BENEFITS

PRICEPRICE
LuxuryLuxury
PremiumPremium
yy
FUNCTIONAL BENEFITS

PRICEPRICE
LuxuryLuxury
ArtArt
PremiumPremium
yy
PremiumPremium
FashionFashion
FUNCTIONAL BENEFITS
FUNCTIONAL BENEFITS

Go beyond functionGo beyond function
art for art ?art for art ?art for art ?art for art ?

Luxury is close to artLuxury is close to artLuxury is close to artLuxury is close to art

Luxury cultivates the artsLuxury cultivates the arts

copy right J.N. Kapferercopy right J.N. Kapferer
What does Etymology say aboutWhat does Etymology say about
the essence of luxury ?the essence of luxury ?the essence of luxury ?the essence of luxury ?

copy right J.N. Kapferercopy right J.N. Kapferer
What does Etymology say aboutWhat does Etymology say about
the essence of luxury ?the essence of luxury ?the essence of luxury ?the essence of luxury ?
LUXUSLUXUSLUXUSLUXUS
L ti dL ti d l til ti lt f ilt f iLatin word «Latin word « luxatioluxatio », result of going», result of going
apart , making a leap ,apart , making a leap , a big gapa big gapp , g p ,p , g p , g g pg g p

What chinese etymology saysWhat chinese etymology says
Big people / Lot of peopleBig people / Lot of people
Big people / Lot of peopleBig people / Lot of people

What indian etymology saysWhat indian etymology says
sanskrit : vitasarsanskrit : vitasarsanskrit : vitasarsanskrit : vitasar
To dazzle , to impressTo dazzle , to impress

What History saysWhat History saysWhat History saysWhat History says
The business of luxury goods hasThe business of luxury goods hasThe business of luxury goods hasThe business of luxury goods has
been created by the collapse of thebeen created by the collapse of they py p
aristocratic societies where strictaristocratic societies where strict
l hibit d th diff i fl hibit d th diff i frules prohibited the diffusion ofrules prohibited the diffusion of
luxury signs and goods (etiquette)luxury signs and goods (etiquette)
luxury signs and goods (etiquette)luxury signs and goods (etiquette)

What History saysWhat History saysWhat History saysWhat History says
By making it accessible luxuryBy making it accessible luxuryBy making it accessible, luxuryBy making it accessible, luxury
business has grown on the basisbusiness has grown on the basisgg
of the drive for social imitationof the drive for social imitation
d th d ti i ht td th d ti i ht tand the democratic right toand the democratic right to
happiness and hedonismhappiness and hedonism
happiness and hedonismhappiness and hedonism

What is new today ?What is new today ?What is new today ?What is new today ?
Thi l ti h ti l t d thThi l ti h ti l t d thThis evolution has stimulated theThis evolution has stimulated the
consumption of luxury productsconsumption of luxury productsconsumption of luxury productsconsumption of luxury products
but the central sociologicalbut the central sociological
function (signaling the socialfunction (signaling the social
stratification )stratification ) has been losthas been lost
stratification )stratification ) has been losthas been lost

Why luxury ?Why luxury ?
A clear marker of a social gapA clear marker of a social gapA clear marker of a social gapA clear marker of a social gap
YesterdayYesterday TodayTodayYesterdayYesterday TodayToday
AristocracyAristocracy MeritocracyMeritocracyyy yy
An obligationAn obligation Reward byReward by
demonstratedemonstrate signing one’ssigning one’sdemonstratedemonstrate signing one’ssigning one’s
your inherited rankyour inherited rank successsuccessyy
Noblesse obligeNoblesse oblige and accessingand accessing
EtiquetteEtiquette elit pleasureselit pleasures

RECREATING THE GAPRECREATING THE GAP
P i i l f l tP i i l f l tPrinciples of luxury managementPrinciples of luxury management

Luxury : reLuxury : re--create the gapcreate the gapLuxury : reLuxury : re create the gapcreate the gap

Luxury fashion premiumLuxury fashion premiumLuxury , fashion, premiumLuxury , fashion, premium
LuxuryLuxuryLuxuryLuxury
Social elevation
Timeless
S lf di ti ti
Priceless
Hedonism
Self distinction Superlative
GiftDreamDream
Tribal differentiation Performances / Price
F hi P i
Tribal differentiation
Imitation
Ephemeral
Performances / Price
Rational Investment
Comparative
Seduction Realism
Fashion PremiumFrivolous Seriousness

The Luxury Strategy. Break the Rules of Marketing to Build Luxury Brands

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