Crème de la crème: Managing luxury brands
Dated: 24th June 2014
In 2013, Millward Brown- a leading global research agency valued the Louis Vuitton brand (owned by Louis Vuitton Moet & Hennessey – LVMH) at USD22.7 billion, making it the most valuable luxury brand in the world, for the eighth year. Hermes was valued at USD19.1 billion, making it the second most valuable luxury brand globally, while Gucci (owned by Kering Group) was valued at USD12.7 billion. Financial markets recognise the value of the luxury industry, a sector of high margins and high returns.
According to Bain & Company consulting group, the number of luxury consumers has more than tripled in less than 20 years, to at least 330 million people, globally. In addition, roughly 130 million of these consumers are from emerging markets, with 50 million of them coming from China. Every year, at least 10 million new clients enter into the luxury market, with the existing clients remaining even more loyal to luxury brands and services.
The BRICS markets; Brazil, Russia, India, China and South Africa are crucial to this market. Cur- rently, MINT countries-Mexico, Indonesia, Nigeria and Turkey where there is a significant increase in the number of dollar millionaires and consumer spending on luxury goods and services are now on focus. Wealthmonitor stated that the MINT countries performed better than the BRICS and G8 countries. Furthermore, in Africa, the new focus markets are Nigeria, Angola, Ghana and Mozam- bique. The traditional luxury markets are South Africa and Morocco.
Understanding luxury and the luxury consum- er becomes important as the middle class grows in developing markets and spending on luxury goods and services increase. The largest luxury groups
in the world, (LVMH), Kering and Richemont are paying extra attention to this growing market.
The universe of luxury is a universe of heritage, craftsmanship, aesthetics and social distinction.
But it has its own laws, the anti-laws of marketing. Sometimes, consumers confuse fashion brands, premium brands and luxury brands. One reason that leads to this confusion is high pricing. It is often perceived that an item of high price is a luxury brand, which is not the case. Dior is a fashion brand, BMW is a premium brand that uses the luxury strategies, and Maserati is a luxury brand just like Chanel. It is essential to understand what defines a luxury product and service to be able to develop these objects or to understand the luxury consumers who are constantly increasing globally.
The luxury universe
What laws govern the luxury universe? Luxury is an expression of a taste; sophistication, craftsman- ship and quality. Hence the reason that certain indi- viduals will purchase a Hermès bag of USD20,000 instead of a cheaper bag from a different brand. This is because by purchasing that object, the individual enters the Hermès universe, its heritage and knows it. Hermes is company of the finest quality (from its calfskin, crocodile, alligator and ostrich skins), and understated luxury with no heavy logos. Only a keen eye can identify certain Hermès products.
Luxury is not concerned with its competitor. Its brands or services are not positioned. Luxury is not comparative. Positioning is the heart of consumer marketing which is conveyed through price, distri- bution and communication. In luxury, businesses are complementary. When you purchase an item from one luxury store and you go to the next store, the staff finds a luxury item to complement the purchase you made from the previous store. That is the reason luxury boutiques are next to each other as seen in Champs Elysees Street in Paris.
Luxury does not respond to rising demand as it is not a business of volumes. “A luxury brand must have far more people who know it and dream of it, than people who buy it,” says Jean-Noel Kapferer, a Luxury Professor at HEC School of Management. In luxury, prices are increased and sales are never done.
Sales and adopting strategies to accommodate a rise in demand is familiar in fast moving con- sumer goods. In luxury, the rule of rarity applies. Rarity increases the value. Ferrari strives to keep its production at less than 6,000 vehicles a year.
Maison Hermès (the house of Her-mès) is known for using waiting lists to purchase its beautifully crafted leather bags such as the Kelly bag. Bottega Veneta produces a limited number of 100 bags of one of its lines of crocodile bags that retail for 60,000 euros, which are usually purchased immediately by the luxury consumers. In beauty, La Prairie is one of the most established luxury products known for its caviar collection.
Responding to demand drops your brand to a premium or fashion brand, and going back to the status of luxury is almost impossible. Mercedes Benz was a luxury brand, until it decided to re- spond to volumes by producing the A class, B class and purchasing the Chrysler. These were business errors that led it to becoming a premium brand. Though in markets such as China, Brazil, and in Africa it is perceived as a luxury brand.
Telling the luxury story
Communication is important in luxury. It increases the brand value hence the valuation of the LV brand by Millward Brown as earlier stated. Advertising is used to tell a story and share heritage. The famous Cartier advertisement known as Odysee de Cartier, used a panther to show- case the history of Cartier, heritage, and markets it was sharing its heritage with. The panther journeys through France, China, Russia, India and back home to France. The budget for this three and a half minute commercial was USD5.3 million.
In luxury, prices are increased. In 2013, Louis Vuitton increased its prices twice in one year. This is to attract more high end customers, especially from China. Clients who know your luxury good or service will come to you; luxury does not chase its clients. They know the value of the luxury. That is why, even when there is a recession, luxury is unaffected, and it is recession proof.
In Africa, different markets have different strengths defined by location and popu- lation amongst other drivers. Countries such as Kenya, that gains foreign exchange from tourism, has the opportunity to establish hotels that cater for the ultra and high networth clients, by offering luxury experiences in an extremely luxury setting. Luxury hotels can be a source of revenue from countries known for luxury retail consumers such as China, Russia, Japan, and others where products of the highest quality can be located from Ruinart champagne, Beluga caviar, encompassed with the use of very high quality African products at a price that is different from the rest of the hotels. There are hotels in Kenya pursuing this strategy and there is the opportunity for even more to capture this space, where customer is King or Queen.
Paris has managed to establish this successfully and the hotel George V is known to be the leading hotel in the world for luxury customer service. A room costs from USD1,200 per night and higher, but clients are comfortable to pay this cost for a luxuri- ous experience, where they are recognised and their needs well known
Paulina says: This is the first time I'm hearing about the MINT countries, which is made up of: Mexico, Indonesia, Nigeria and Turkey.... I'm really impressed and pleased for our brothers to the east --Nigeria.