LUXURY BRAND

MANAGEMENT
CASE STUDY: ABUNDANT RARITY:
THE KEY TO LUXURY GROWTH

SUBMITTED TO:
PROF. ANNAJI SARMA
F.M.S. DEPARTMENT

SUBMITTED BY:
ANKITA AGARWAL
M.F.M. SEM- 3
ROLL NO. 3
SEPTEMBER 8, 2016

CASE SUMMARY
As luxury items keep on penetrating the worldwide markets, the esteem of brands has not
declined by any means. This appears inconsistent with the idea of extravagance being
attached to irregularity and selectiveness. In this manner, so as to catch mounting requests,
from the phenomenal individuals, as well as from customary people, luxury brands establish
virtual irregularity strategies, build themselves as craftsmanship and embrace a design plan of
action while deemphasizing remarkable quality and nation of source. Uncommonness of
fixings or art has been supplanted by subjective irregularity. Further, the clique of the
fashioner is an intense apparatus in building enthusiastic associations with a limitless number
of customers. Today, marks in luxury segment are really offering typical and enchantment
energy to the masses. There exist a society hole amongst Asia and the West; in particular
Asian customers feel more secure purchasing prestigious Western brands with which people
around them are recognizable. The bits of knowledge offered thus give pieces of information
to business visionaries endeavouring to dispatch luxury brands.

1. MEANINGS AND ESSENTIALS OF LUXURY

Luxury as an absolute concept:
Luxury as an absolute concept typically evokes images of rich and powerful individuals
lives; that is, the ordinary of extraordinary people. As noted, it is no surprise that luxury
DNA can be found in the history of societys elites. Luxury was first found in religious
temples, churches, pagodas, Egyptian pyramidal tombs, and so forth, in the form of tributes
to god(s) and attempts to buy mercy through the sacrifice of wealth.
Only recently has there been a paradigmatic shift: luxury now creates social stratification in
countries in which it did not previously exist. As a newly rich Chinese man, participating in a
focus group put it: what I like about luxury is that it is expensive. This is luxurys core,
latent sociological role. Luxury as an absolute concept needs no brand as people talk more
about lifestyle elements than about products. However, if the interviewer instead asks, What
brands come to your mind when you hear the word luxury? then the answers change and
refer to products or services with the list being more or less the same worldwide: Louis
Vuitton, Chanel, Gucci, Rolex, Ferrari, Dior, Prada, Bvlgari, Ritz Carlton, et cetera . Note
that these brands are more accessible than the former evocations. They also communicate a
lot in the media and through their extravagant stores.
My Luxury:
My luxury has a different meaning, most often referring to a small personal luxury
purchase. My luxury is clearly a break from plain, normal life and its many constraints: an
escape into an ideal world of beauty, pleasure, taking care of oneself, and a bit of eternity.
Individuals compulsorily buy what they do not needwhether it is a product or service
at a price far above what functional values command, and they do this to pamper or reward
themselves. However, in order to feel the full effects of my luxury, these products or services
need to be from prestigious brands.
Luxury as an economic sector:
Luxury in the form of economics is the meaning implied when one talks about the growth of
luxury. In fact, Bain & Co, a consulting company specializing in the luxury sector, regularly

publishes forecasts about luxury sales. How does Bain generate these forecasts? Its analysts
add up figures from companies that syndicated authorities consider being part of the luxury
sector.
Bains fore-casts do not encompass automobiles, five-star hotels, or resorts; rather, they
concentrate on luxury fashion, leather, watches, skincare products, fragrances, jewelry, and
shoes. In order to continuously grow and following LVMHthe worlds number one luxury
group with more than 50 luxury brands these companies have decided to democratize the
sector and capture part of the massive demand in emerging economies (e.g., BRICS,
CIVETS) in which the middle class is growing with an appetite for recognition, status, and
pleasure. To do so, many luxury brandsconsidered as such by the corporative syndicates
have moved away from the classical luxury business model in two major ways.
First, many luxury companies now base their profits on logo-typed accessories or second
lines produced on a larger scale and sold as fashion objects such that consumers feel the need
to buy new products each season as the fashion system dictates. For example, the notorious
It bag changes from season to season depending on trends and popularity.
Second, many luxury companies have abandoned a major obligation of the luxury business
model: no delocalization. For example, by making some of its products in China, Prada has
reduced its production costs and improved its gross margins thanks to low labor wages. In
addition, the company is even more appealing to Asian investors who can now buy the
companys shares on the Hong Kong stock exchange, and lower production costs also allow
brands to invest more in communication to build the dream consumers associate with them.

2. LUXURY AS A BUSINESS MODEL

Luxury is a business model that has been empirically fine-tuned over time by luxury brands
that dominate worldwide, such as Louis Vuitton, Chanel, Gucci, Herme`s, Ferrari, and Rolex.
companies, many of which are still family owned, have crafted a common, yet unique,
business model: a pillar of their resilience and profitability. This business model runs contrary
to most present business models in any sector. It rests on strict principles that maintain the
uniqueness of luxury and preserve the non-comparability of those luxury brands that adhere
to its guidelines.
Here are a few examples, some of which have been called the anti-laws of marketing:

Do not delocalize production

Do not advertise to sell

Communicate to non-targets

Maintain full control of the value chain

Maintain full control of distribution

Never issue licenses

Always increase the average price

Develop direct one-on-one relationships with clients

This luxury business model can be applied to companies in any sector. Thus, Apple, MINI,
and Nespresso are typical examples of companies that are not considered to be luxury, but
nevertheless follow the luxury business model. There are other business models among more
high-end labels, including the fashion business model and the premium business model. The
main characteristic of the fash-ion business model is that it delocalizes production in search
of low-cost labor forces. Unlike luxury, fashion does not sell timelessness. As soon as the
fashion season ends, sales and super-sales slashing margins are employed to eliminate
inventory. Fashion does not worship quality like luxury does.
As for pricing, in the luxury business model, average prices should always go up because
there are enough newly rich consumers to justify this strategy as long as they dream of the
brand. When this dream falters, many luxury companies prefer to expand downward, selling
to more people thanks to profitable accessories that have more accessible prices and can be

produced in larger quantities in countries with low labor costs. Such accessories can then be
bought repeatedly by consumers, a sign that the luxury brand has moved to a fashion business
model where originality and change are valued, not rarity and timelessness.
The premium or super-premium business model rests on a brands willingness to create the
objectively best product. Grey Goose super-premium vodka, for instance, advertises itself as
the worlds best-tasting vodka since it has received many awards from expert juries.
Unlike luxury, which refuses to bear any comparison, super-premium brands look for it and
build their fame through it.

3. ASIAN LUXURY FROM THE DEVELOPMENTS THAT ARE

HAPPENING FROM THE ASIAN ECONOMIES
Most of the rules of luxury brand management were invented in the West. They reflect the
sociology of Western societies and are dominated by concepts like distinction, class
differentiation, and elite cul-ture. In such a context, increasing the penetration of a luxury
brand dilutes feelings of privilege. As a result, the elite accept paying more so conformists
can no longer afford the higher prices. This is confirmed by the dream equation: the notion
that the desirability of a luxury brand is correlated with the difference between brand
awareness and brand penetration. Unknown brands do not create desire and magnetism, but
when luxury brands are too mass-marketed and go after all consumers through the so-called
democratization of luxury, they lose their cachet. They are no longer distinctive enough, at
least in Western countries, but maybe not in Asia..
Since 1980, Japan has been the gold mine of the luxury sector. Soon, however, China will
become the worlds largest luxury market. Interestingly, Japan has a very egalitarian culture,
yet it made Louis Vuitton the worlds number one luxury brand. This seems like a paradox,
but it is not.
One should keep in mind that when it was penetrated by luxury brands, Japan had the largest
middle class of all developed countries, with a very high average income per household:
more than $60,000 USD. Japan is also a society in which the group is more important than
the person, and it has a very hierarchical structure. Western luxury brands provided the
Japanese with a way to reward them-selves, but also enabled individuals to behave ac-cording
to their rank in society without disturbing social order/conformity. In Japan, owning an unknown luxury brand meant taking a risk. The fame and distribution of mega brands, such as
Louis Vuitton, was very reassuring from a face-saving perspective. Furthermore, these brands
made a wide array of products available, ranging from attain-able accessories to extremely
expensive items. As a result, both the Tokyo administrative assistant and the CEO could buy
the same brand at the same store, but of course they bought very different products. Thus,
price distributes rarity through discriminatory levels. There is a price for the many and a price
for the few. Even the lowest price must be seen as a sacrifice, though, or else the magic of
luxury does not work.

The same process is now taking place in China, with millions of consumers eager to show
they are succeeding while they remain novices in terms of knowing what is or is not a luxury
product. Chinese consumers love leading brands. This is clearly an advantage for brands with
high brand awareness and a network of stores in all major capital cities, and now even
regional cities. For a local Chinese consumer, buying a luxury good is a way to participate in
the world of consumption. It is also egalitarian.
CURRENT HAPPENINGS:

Where Asia, particularly China, was the engine for luxury growth through the global

recession, it now becomes the biggest source of concern.

While Japan provides promise as a source of growth, it is still limited by a weak Yen.
The protests in Hong Kong highlight the instability that is affecting wider confidence
in Asia. However, what has dealt the biggest blow to sales is the Chinese government
crackdown on corruption. With increasing numbers of state officials receiving
custodial sentences for corruption the corporate gifting culture that fuelled the
luxury boom has receded, further deflating the luxury market. As a result, Chinas
richest spent 15% less overall in 2013 than they did in 2012, according to the Hurun
Report, and 25% less on gifts overall. The common view from market analysts is that
China will contract as a market and now is the time for luxury brands to reconsider

their expansion plans in China.

Luxury brands, in the search for lower risk but faster growth, may look at countries
such as Turkey and Mexico that provide attractive opportunities in rapidly advancing
economies. As an example, luxury spending in Turkey has grown by over 30% in the

last four years.

Moreover, Travel is a core element of luxury customers and this has fundamentally
changed the buying experience for many consumers. The traditional model for luxury
retailers had been to adopt variable pricing strategies, seeking to exploit the varying
sensitivities to price in different markets. International travel is challenging that
model. In particular, Chinese travellers are embracing travel and buying the majority
of their goods internationally. They avoid the high domestic prices and taxes, and
often gain access to products well ahead of their release in China. Chinese consumers
now purchase more luxury goods abroad, often visiting New York and Paris to buy

handbags and pens. Today, more than 60% of Chinese luxury goods are bought
outside of the country. It is a similar picture in Brazil and Russia, with countries now
actively wooing the wealthy elites to shop in their countries, which is particularly true
in the luxury real estate market.