An industry like no other
Luxury sells dreams. Luxury magazines regularly feature articles citing dream places to visit, dream houses to purchase, dream yachts, dream cruises, dream cars, dream watches and so forth. Headed by CEO Bernard Arnault, the worldâs leading luxury group LVMH sells billions of dollars of items that promise to âfulfill the hopes and dreams of consumersâ (Harvard Business Review, October 2001). As Robert Polet, former CEO of the worldâs second-leading luxury group explained, âWe are in the business of selling dreamsâ (Fortune, 6 September 2007). Gian-Luigi Longinotti-Buitoni, president and CEO of Ferrari North America, co-authored the book Selling Dreams (1999). A recent article from the Wall Street Journal (11â13 July 2014) had the following headline: âLaFerrari Is a Million-Dollar Dream Carâ. Selling dreams is indeed the core mission of the luxury sector and its brands.
The luxury industry has become a business of brands. Customers visit brandsâ websites and flagship stores. They click on and search for âPradaâ or âBottega Venetaâ, not âleather bagâ. The luxury market entails more than simply selling excellent products in excellent places with excellent service; it is the brand itself that activates and embodies the intangible element of the dream, the symbolic access to a specific universe of privilege and a measure of social stratification. Royal Salute is not simply a rare whisky that has been aged for a minimum of 21 years, unspoiled, waiting for maturity; it represents access to a highly symbolic moment and universe, the coronation day of Queen Elizabeth II, heir of a legendary dynasty. On 2 June 1953, 21 gunshots were fired by the Royal Navy and, on that day, this rare whisky was offered as a tribute to the new queen. By extension, the Royal Salute brand is a tribute to the new kings and queens of the modern day, namely, the successful entrepreneurs â particularly those from Asia â who have built new empires, companies and brands all over the world. Being a consumer of Royal Salute, then, is like being a member of an exclusive club. In short, the consumption of luxury products fulfils dreams and acts as a social stratifier. This dimension of dream fulfilment â that is, symbolic access to excellence and to a privileged life as a result of oneâs efforts and choices â is what separates luxury from premium.
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There are many premium brands of cars, all of which claim to be the âbest carâ. The essence of premium brand positioning is the ability to claim being the number-one brand in a given category and to furnish various offerings of proof to sustain this assertion. Premium brands need to justify their pretension of being best in class. For example, LancĂŽme advertisements often offer claims that a product is the best skincare cream because it has a unique feature or ingredient or creates a unique result that the competition cannot emulate. But luxury is not simply a matter of being best in class; it embodies class itself. This is why luxury brands seem able to command any price. Premium brands cannot do this; their price level is ultimately capped by the mere rationality of their proofs. Premium cars sell âprogressâ and, therefore, obsolescence: one version of progress will ultimately be replaced by another. Dreams, however, last a very long time.
A striking feature of the luxury industry is its constant growth despite economic crises, downturns, revolutions and wars. Bain & Company estimates that the luxury business represented âŹ800 billion in 2013, with âŹ319 billion spent on cars, âŹ138 billion spent on hotels and âŹ217 billion spent on personal luxury items (such as leather goods, clothing, watches, jewellery and fragrances). By contrast, these personal luxury items represented only âŹ80 billion in 1995.
The source of this significant growth in the luxury sector is the worldâs economic growth itself. Bernstein Research has demonstrated that luxury growth in a country is closely correlated to its gross domestic product (GDP) growth. This is to be expected because growth comes from companies creating value and distributing wages, and top managers enjoy harvesting the fruits of their efforts. Gone is the image of stingy or mean millionaires, who save money all their lives but never really enjoy their fortunes. This old type of ârichâ, aptly described in the book The Millionaire Next Door (Stanley and Danko [1998] 2008) no longer represents the reality of consumption among the new rich, especially those from emerging countries, with China being a prominent example. In China, chief executive officers (CEOs) are younger, and there are numerous millionaires under the age of 40. They want to live as their Western counterparts do and enjoy similar expressions of wealth and happiness, such as the consumption of luxury products and brands. The luxury sector has also thrived among the upper middle class in China, who want to emulate the lifestyles of their countryâs rich and famous as well as celebrities in the West. A symbolic part of such behaviour â and one that can be easily imitated â is the consumption of luxury brands. When luxury brands began being distributed in emerging countries, the luxury industry took off. In China, it is said that the luxury market started when Plaza 66, Chinaâs first luxury shopping mall, opened on Nanjing Road in Shanghai. The dream became visible and accessible for all those ready and willing to pay the price.
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With growth from âŹ80 billion in 1995 to âŹ217 billion in 2013 the personal luxury market is clearly no longer the privilege of just a few. The Websterâs Dictionary definition of luxury in 1828/1913 provides an interesting reminder of how the concept has changed: âanything which pleases the senses ⊠and is also costly, or difficult to obtain; an expensive rarityâ (see http://www.webster-dictionary.org/definition/luxury). Granted, only 6,922 Ferraris were sold in 2013 and 3,630 Rolls-Royces, but the Audi brand â[pulled] ahead of BMW worldwide to grab the lead in luxury car sales with 1.6 million cars soldâ (Independent Ireland Journal, 16 March 2014). Such statistics offer further proof that the luxury industry is no longer made up of small niche companies as it used to be. It represents a real macroeconomic sector, aiming at big numbers and under the direction of managers.
Unlike other economic sectors, however, growth creates problems for the luxury market because the luxury dream is partly based on the notion of rarity and of access to a privileged life, to products of exception and to a life of exception. These beliefs are at the core of what the luxury concept evokes among luxury consumers today. In one of our latest studies, 3,085 affluent consumers from six major countries (the United States, China, Japan, Brazil, Germany and France) were interviewed. Respondents were selected on the basis of their declared purchases of certain products above a given price and were asked to select the attributes that most defined their vision of âluxuryâ from a list of 10 attributes. Table 1.1 shows both the convergence of clientsâ definitions of what the luxury concept evokes and also some notable idiosyncratic differences between countries.
There is a striking similarity between these findings and the old Websterâs Dictionary definition, which emphasizes pleasure and costliness. Only the Chinese respondents explicitly reported that luxury evokes both the very expensive and exclusivity for a privileged minority of consumers so as to make these consumers stand out from the crowd. Among other nationalities, notions of rarity and being exclusive to a minority of the privileged few are present but not among the top four associations; instead, they are perceived as consequences or correlates of the high quality, high prestige and high cost of the luxury goods and brands.
TABLE 1.1 Meaning evoked by the word âluxuryâ for consumers in six countries (n = 3,085)
| France | United States | China | Brazil | Germany | Japan |
1 | high quality | high quality | expensive | high quality | high quality | high quality |
2 | prestige | expensive | high quality | pleasure | expensive | prestige |
3 | expensive | prestige | fashion | dream | fashion | expensive |
4 | pleasure | pleasure | minority | expensive | dream | intemporal |
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The more the luxury sector grows â as it has been doing for nearly 20 years â the more this threatens the levers of the luxury dream and the essence of what luxury evokes (Thomas, 2008). Growth of sales means growth of customers, as is evident from the long lines of Chinese clients waiting to enter the Louis Vuitton store on the Champs-ĂlysĂ©es in Paris or the Gucci store in London in order to buy expensive handbags for themselves and their friends. Ferdinand Porsche, son of the founder of Porsche and designer of the iconic 911, once said that he did not like it when he saw two Porsches on the same street (visiting London today would give him a heart attack!). Thus, a primary consideration for all general managers of luxury brands is how to reconcile growth and luxury. How can such a company grow while remaining true to the model of scarcity of supply that prevents growth? Can a manager adhere to the tenets of a true âluxury strategyâ and yet still grow?
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The Luxury Strategy (Kapferer and Bastien, 2012) reminds us that if luxury as a concept is subjective, and if the luxury sector is elastic in terms of the brands and companies that should be included, the luxury strategy is nevertheless a very precise notion and a demanding strategy â it is a unique mode of conducting brands and companies. The luxury strategy entails a certain obligation to break the rules of marketing in order to build luxury brands. We identified 24 âanti-lawsâ of marketing that should be followed to create a successful luxury brand. They have been developed and implemented by the most successful luxury brands over time. These anti-laws have become references among luxury companies and groups.
The present book is not intended to be a substitute for The Luxury Strategy. Rather, it focuses on the main challenge of the luxury industry and brands today â namely, the challenge of growth.