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Luxury Branding

Marketing Luxury Brands Q&A



Not too long ago I was interviewed by Amanda Tattam of Melbourne University’s Up Close program. Here’s the discussion that transpired.

Amanda Tattam
The massive growth of luxury goods has now extended deeply into China, India and other markets. Estimates vary, but some say the luxury market is worth between 60 billion and 20 trillion US dollars, including consumers who are trading up. That is, the increasingly wealthy middle classes, who 30 years ago, would have thought it luxurious to have two TVs in a household. Mark, can you explain how a luxury brand distinguishes itself from other brands?

Mark Ritson
The question today of what makes a luxury brand a luxury brand and how do we distinguish it is very hard to answer. The standard business response is to say, ‘they are more exclusive’. And we get exclusivity by having high price and relatively small amounts of the product available. The reality, however, of luxury brands is that they are sold in their millions, and in some cases, are not priced that much higher than the standard output. The only way I can really answer your question is to say, it is all relative. As you said in your introduction, it wasn’t that long ago in Australia that we would have considered two televisions to be a luxury, or even further back, one colour television. And you can make a strong argument, for example, that Starbucks in China, right now, is a luxury purchase – because of its cost, because of how frequently it is purchased by many people. So, I think the long answer is a complicated one, but the answer is, it depends who you talk to. I think in the business community what we would say, is that there is a small cluster of ‘more expensive brands’ which have a distinct strategy that we would identify as being ‘luxury brands’ and they start with the Rolls Royces and the Tiffanys and the Louis Vuittons of the world. And, I think that tends to be how we see them.

Amanda Tattam
Okay. So, what is the difference between ‘old’ and ‘new’ luxury for example?

Mark Ritson
It is an interesting one. It isn’t actually related to the age of the brands. So, two of the new classic luxury brands would be Coach, which is more than 60 years old, and in many cases would refer to Burberry, as using new luxury strategies. And Burberry is 151 years old. So, it isn’t their actual age. The term, ‘new luxury’ refers to a different approach to marketing luxury brands. A different approach in the sense that there is more focus on customers, greater production of the numbers. So, they might still have higher prices, but if you look at the typical Coach handbag, which is a well-known brand Japan, China and America, Coach would be making significantly more of it than the ‘classic’ old luxury brands like Gucci or Prada. And the final limit of new luxury which is of, I think, great distinction, is the new luxury brands have embraced production in China, far more so than the older luxury brands that continue to make most of their products, in some cases, in the traditional European artisan centres.

Amanda Tattam
Okay. When you market a luxury brand, what instincts and desires are you really appealing to and has that changed over time, do you think?

Mark Ritson
Clearly, when you are marketing luxury brands, you are selling more than the functional product itself. No one buys a Louis Vuitton bag for four or five thousand American dollars, simply because they want a bag. And, indeed, if you look at luxury watches, we spend, in many cases, tens of thousands of dollars for these items. Clearly we don’t need that, because our phone tells us the time. There is usually a clock in the room. We could buy a one-dollar watch, which would do an equally good job. So, beyond the function there is something else, and it is clearly the symbolic. Clearly, it is the identity, which the brand confers upon the owner. You might see that as being a sense of superiority, perhaps. But we don’t think so within luxury brands. We like to think – and I think it is true of most of the customers that we bring into luxury brands that the real attraction has always been a link to ‘something special’. A link to a story, or a founder, or a creator or a time, that is something a little bit special. And I think it is that ‘authenticity’. When one buys a Dior handbag, there is a strong line of authenticity, going all the way back to Christian Dior, 1947, this incredible moment of fashion. So, I think what we are really appealing to in a world where most people feel dislocated from any sense of authenticity, here is something which is ‘pure’, here is something which has a ‘specialness’ to it and you can be a part of that.

Amanda Tattam
You’ve noticed that there is a proliferation of these cheaper imitations, the fakes, especially with jewellery and shoes and handbags and so forth, this doesn’t seem to damage the genuine article, though, why is this so?

Mark Ritson
It is a very complex picture. And, I think, before we get onto these counterfeits and talk about why they don’t damage them, let’s also be clear that it isn’t a legal practice and certainly it is true that all the luxury brands have worked together with various different countries and law forces to attempt to reduce them. Now, having said that, from a business point of view, counterfeit goods have absolutely no impact whatsoever on the success of luxury brands. In fact, they may even work to their favour. The reason, first of all, why they don’t damage a luxury brand, is very simple, I don’t think that, in the history of Gucci, they’ve lost a single customer who bought a counterfeit rather than the genuine item. Now, do people buy the counterfeits? Absolutely, in their thousands. Would any of those people bought the genuine article? Absolutely not. If one is paying ten thousand dollars for a bag, it is certainly not because one is attracted to just the bag. It is the brand itself. And when one buys a counterfeit bag one is not buying the brand, and the consumer knows that. So, the first thing to say is that, I don’t think it cannibalises the sales.

Now, another argument that is often used with counterfeits, is ‘yes, but it damages the brands exclusivity, to see all of these Louis Vuitton, Gucci, Prada bags walking around the streets’. Again, that may be true, but I’d offer an alternative explanation as well, which is: you’ll often see someone walking down the street and you might think in your own mind, ‘that’s not someone who should be carrying that beautiful Gucci bag. It must be a fake.’ In reality, perhaps it is not. And yet, that counterfeit mindset often allows us to offset, the ‘non-exclusive’ image of the brand. So, are counterfeits a problem? Yes. Do they cause a major impact on these brands? No. And in fact, many of the luxury brands use them very strongly to measure market demand. One of the reasons you know that a luxury brand is healthy, is when it has attracted a good deal of counterfeits.

The black market is much quicker, much faster, much leaner, much more entrepreneurial. So, when they start to copy your bags in Canal Street or in the markets of Shanghai, it is because they’ve recognised that market demand for that brand is growing. But it is fair to say that we spend a lot more time in luxury brands worrying about what is called the ‘gray market’. The black market is when you sell fake or counterfeit or stolen goods. The gray market is when you sell genuine products but through non-affiliated or non-endorsed channels. Everyone has bought luxury products through the gray market, they just don’t know it. It is a genuine watch, but it is sold to you through someone who isn’t one of the approved sellers. And he has bought that watch, from either a wholesaler from another country, he has got them in a cheap job lot, and he is selling them to you in a discount price in a non-appropriate way, in a non-appropriate place to a non-appropriate customer. These are the people that damage our brands. Because, over time what happens is, the prestige and exclusiveness of these brands is damaged when they are sold at discounts in the wrong places to the wrong people.

Amanda Tattam
You touched then about fashion and so forth, how does gender influence things, are there different ways that you market to men and to women and what about in different parts of the world, do Asian women respond differently to advertising, than say, western women, I know we’re using very broad terms here, ‘Asia’, ‘west’, but – and also the other demographics, age and race – I know there are some big topics there, but-

Mark Ritson
Gender is not as important as we might think. Luxury has always been a predominantly a female market; age is incredibly important. And it has become more important in the last five to ten years. We see a group of – to use the common phrase, Baby Boomers – but, essentially this demographic group that we see across the world, these people are now in their 60s and beyond. They have a large amount of money. They have limited amounts of time. Still, they like to travel and they know they are not going to be around forever. These people are discerning. You know, if you’re going to buy a bottle of wine and I’m 65 years old and I’ve 250,000 dollars in the bank, you know what? It is going to be a good bottle of wine. The final issue of race is an intriguing one, particularly in North America. I personally believe that the face of luxury in America is ‘black’. The group that leads luxury is not this WASP community of very well off middle aged Americans – who do buy their luxury brands – but the people who lead that market, are, for me, for the most part, African American. It would be a mistake to see, for example, the hip-hop community as being not consistent with the luxury brands. If anyone has grasped the true meaning and heritage of luxury brands, it is that African American community. So, I think there, race plays an interesting role to.

Amanda Tattam
Sure. So, in Asia, what brands or products do customers identify more strongly with?

Mark Ritson
It is interesting and I think if you look at the Asian region, there are a couple of different stories playing out. The first and the one we shouldn’t forget is the story of Japan. Japan has, for at least the last forty years, been the leading market for all things luxury. It is a generalisation, but it holds true almost every time, that all great luxury trends, all great brands have found success first in Japan. Very simply because the Japanese are probably the most discerning and tasteful customer on the planet. They love heritage. They appreciate the finer things in life. And it is very hard to find any example of a luxury brand that has not first had success in Japan.

Amanda Tattam
Even in good times and bad?

Mark Ritson
Especially in bad times. So, one of the intriguing things about luxury brands and Japan is a notable example, they’ve had a very tricky ten or fifteen years, only now really have they come through what has been one of their worst times in their postwar economy. And yet, during this time we have seen sales of most luxury items, whether it be luxury wine, watches, jewellery, leather goods, fashion, all of these products have sold spectacularly well. So yeah, even in good times and bad. Look, aside from Japan within Asia, clearly the other story is the story of China. And we are seeing in China a remarkable revolution in luxury. All the research that has been done, all the indicators we have so far, suggest that the Chinese consumer, is as, if not more interested in luxury brands than the Japanese consumer. So, once you do the maths on that one, it becomes pretty obvious where the future of luxury will be. And of course, one of the things that is feeding into that is that when, a new economy, like the Chinese economy, really gets going, it begins with luxury. It doesn’t start with small, domestic brands. It trickles down from the top. We saw that in Eastern Europe 15 years ago. The first stores to open in East Germany, for example, were the Versaces of the world. So, in that sense, I think there are two stories. The oldest story in the world, that is, of Japanese discretion and the story of Chinese growth. And yet, both I think represent the two, most important poles of the luxury consumption.

Amanda Tattam
So, you’ve talked about these demographics, what kind of market research and methodologies are used before you decide how money should be spent in a marketing campaign?

Mark Ritson
There are many so-called ‘old luxury brands’ that would perceive research to be the wrong thing. And will have a long, 200 year old history of being very successful and doing absolutely no research of any kind at any time on anyone. They would believe that their brands are about creativity, about fashion, and the definition of fashion is not about giving people what they want, it is about changing things. The creative directors make the decisions and the consumers will follow them. It is fair to say, however, that in the last five years, we’ve seen a revolution – and I don’t use that word lightly – from some of the brands who have used extensive market research. Similar to the kinds that we would see in the consumer goods: focus groups, surveys, the analysis of sales data. So, it isn’t the most advanced research. But there is a growing focus on doing it. And I think that is probably the biggest question mark right now for most luxury brands: to what degree should we ask the consumer what they want?

Amanda Tattam
So, as high-end consumers become more discerning and ethically driven with their purchasing, how does the luxury industry handle concerns for example, the use of sweatshop labour or sustainability issues?

Mark Ritson
It is an interesting one and for once it is not that relevant to luxury brands. And I say that because, the luxury brands have never had a problem with sustainability or with sweatshop labour. They’ve been playing a very sustainable game for a very long time. The idea of using sweatshop labour would be literally impossible for a luxury brand. Not because of any ethically driven decision making, but simply because of the quality and the huge necessity to produce the very best clothing or products – you simply wouldn’t use people who weren’t artisans, that weren’t very heavily remunerated, that spent a lifetime working for you. I think on the environmental issues again, there are some key questions. Specifically, I think in the areas of fur and in the way that animals are treated and in animal testing. But again, with those to one side, you can again argue if you look at the way that premium wines are grown and the way in which the land is respected, if you look at the relatively small amounts of product that are used, in a very sustainable way because they’re very expensive products, actually the luxury brand industry, I think, has something to teach the consumer goods industry on sustainable business practices too. Again, not because there has been any ethical orientation within these companies, simply because when the raw materials are so expensive and the need to produce quality is so paramount, a sustainable approach tends to be the one that is adopted.

Amanda Tattam
Finally, I would like to ask you about the expansion or contraction of the market for luxury goods, does making luxury goods more affordable to more people actually diminish their value – because, a lot of people want to buy them because they know only a small number of people have them, aren’t they always going to be by their very nature, exclusive and only available to a very small group?

Mark Ritson
It is absolutely true that in the original histories of most luxury brands, there was a natural limitation on the number of products that were available. So, exclusivity originally was, in the case of Champagne, for example – Champagne is an area, it is not a grape – there weren’t that many fields in Champagne, and the original manufacturer of champagne was a problem, because many of the bottles, almost 40% in some years, would explode. Because, in the early days, they hadn’t worked out the correct manner of storing the champagne. This is way champagne became a luxury wine. Because there wasn’t that much of it. There was natural exclusiveness. In the global world we live in today, we certainly sell a very large amount of these so-called exclusive brands. So, if it was purely being based on the number being sold, it would be very hard to claim that a brand like Bollinger, for example, is exclusive when it is selling two hundred or three hundred thousand cases of champagne a year. So, the trick is to get as many sales as possible, but while maintaining a very high level of quality and also using price to maintain that exclusiveness. So, if we were to begin to lower the prices of these luxury brands, combined with their large sales, it perhaps would begin to tarnish their images and that is where, I think, you will see luxury brands in trouble, when they begin to sell – not just a lot of these things, but at lower prices, not monitoring the quality carefully enough.

The reality for most luxury brands is their shareholders these days, or their families demand enormous global sales. So, while they are certainly more available than they once were, in terms of where you can buy them and in what numbers, price prevents you from going out and drinking a bottle of Bollinger everyday. Simply because one cannot afford to do it. So, in that sense it is a balancing act. The numbers sold these days are extraordinary, of course, but the price, the quality, the creativity, if they remain leading and in the appropriate place, then, as we have learned over the last fifteen years, a luxury brand can sell extraordinary large numbers and still be seen as extraordinarily exclusive.

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1 Comment

Scott Gould on July 04th, 2009 said

Hi Mark,

I thoroughly enjoyed this article and retweeted it, along with some of my favourite thoughts that I took from it.

I am continually astounded that when someone has a profound understand of a subject, when they break it down for the reader or listener, it appears so much like common sense that you can’t believe you never noticed it before.

I’ve never considered that luxury brands go beyond status and image to the authenticity and history of the brand – the brand’s story, as well as the story of your own interaction with the brand. You use the word ‘purity’ and it resonates with me and my own experience with luxury brands. I’m so thankful that I now understand what has been there this whole time!

Love reading the blog and thank you all for your continued insights – they help a lot!

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