The Road to Luxury

The New Frontiers in Luxury Brand Management

Ashok Som, Christian Blanckaert

• Publisher: Wiley
• Year: 2021
• ISBN:
  9781119741367
• Edition: 2
• Topic: Betriebswirtschaft
• Subtopic: Vertrieb

Discover the meaning of the latest trends in the luxury industry with this resource from leading voices in the field

The thoroughly revised Second Edition of The Road to Luxury: The New Frontiers in Luxury Brand Management delivers a comprehensive overview of the foundations of, and new developments in, luxury brands. The book discusses a new wave of mergers and acquisitions, the rise of Gucci, the growth of Balenciaga, a variety of new collaborations between different companies, a growing support for sustainability, and the COVID-19 pandemic.

Readers will also benefit from the inclusion of:

• An insightful analysis of the impact and meaning of the COVID-19 for the luxury industry, particularly for market growth in China
• The creation of savoir faire and business plan competitions in the luxury industry
• LVMH's sponsoring of Viva Technology

Perfect for students in MBA programs or taking degrees or courses in Luxury Brand Management, The Road to Luxury will also earn a place in the libraries of executives and managers in the luxury business, marketing, branding, and advertising professionals and companies, and entrepreneurs interested in the workings of the luxury industry.

Part I
UNDERSTANDING THE LUXURY BUSINESS

Chapter 1
Introduction—Definition and Crisis of Luxury

Luxury has a long and fascinating history. This is apparent from artifacts of the Egyptian period of lavishness, from 1550 to 1070 B.C. The Italian Renaissance, an era of great painters, sculptors, and architects, through the course of the fourteenth through sixteenth centuries A.D., introduced another important wave of a lifestyle marked by luxury. This was followed by the reign of King Louis XIV of France (1638–1715), whose reign deepened the meaning of an authentic French lifestyle. Then came Charles Frederick Worth (1825–1895) of Great Britain, the designer who coined the concept of haute couture. Worth moved to Paris in 1846 to perfect and then commercialize his craft, holding the first fashion shows and launching the use of fashion labels. Coco Chanel (1883–1971) and Christian Dior (1905–1957) gave birth to modern trends and ideals, marked by the rise of New York City as a capital of luxury. Over the course of the 1960s and 1970s, the world saw the second Italian luxury revolution. Gucci and Bernard Arnault started applying the principles of strategic management to modern luxury by building the first multibrand conglomerate: the Louis Vuitton Moët Hennessy (LVMH) group. The latest chapter to this fascinating tale of luxury and high fashion is the information technology revolution, in which news about a new product spreads like wildfire, and how opinions pertaining to brands, products, and companies are shared at the click of a button. What is important to remember is that the history of the evolution of luxury is highly correlated to the evolution of society.

Changes in consumption in the luxury industry affect the ways countries evolve. The first stage is deprivation: despite being crushed by poverty, the population of a country maintains the desire to consume. The second stage is a new wave of prosperity: as the country witnesses economic growth, its middle class seeks to acquire luxuries that have high functional utilities, like washing machines, cars, and practical appliances. Then the wealthy and elite start buying luxury products. The third stage of development is the desire of consumers to show their wealth: mere possession is insufficient when luxury goods become a symbol of social status and bestow their owners with an aura of divinity. The fourth stage is that of being plentiful: in which most people in the nation are well-off and have sufficient resources; however, they have a need to fit in with their group. If someone is not carrying or wearing an appropriate social marker, they might find it hard to fit in with a particular group. The fifth and final stage is normalization: where luxury becomes a way of life. When people become used to this lifestyle, it becomes difficult for them to go back to their previous habits. Here luxury is more and more associated with personal tastes and pleasure, and not necessarily with wealth or status.

Issues of Defining Luxury

It is important to understand why certain brands are called luxury brands and what justifies the superior positioning they command. Luxury empires are not built by selling tasteful products at an exorbitant price. Luxury brands have been carefully crafted through meticulous strategies in marketing and brand building, making their mark in the consumer's subconscious and having the following main characteristics: brand strength, differentiation, exclusivity, innovation, product craftsmanship and precision, premium pricing, and high quality.

It is the differentiated quality of the material, design, and performance of a Patek Philippe watch that merits a 1,000% premium over a normal watch picked up from a general store. It is the craftsmanship that goes into the Kelly bag made by Hermès that justifies its exceptionally high price tag. It is only the brand strength of Louis Vuitton that can entice customers to preorder bags months in advance. It is attention to craftsmanship and nuances of details that help differentiate a luxury product.

Many misconceptions surround the luxury industry: (1) Do luxury and fashion mean the same thing? (2) Does a high price imply a luxury product? and (3) Does luxury imply perfection?

Luxury and fashion do not mean the same thing; they can coexist, but that's not always the case. Until the nineteenth century, only the very privileged few could afford to keep up with changing trends. So only those who could bear the cost of luxury could afford to make and follow fashion. However, the twenty-first century consumer doesn't need to be wealthy to be fashionable; being trendy no longer needs to be costly. For example, streetwear brands produced by H&M and Zara are fashionable and affordable. Haute couture is still the trendsetter but is not the only reference anymore. Luxury products used to be seen as an investment, which is not replaced that often, but now they have become more of a lifestyle choice. Many luxury houses try to release fashionable products along with their traditional luxury goods. For instance, Chanel offers fashionable products in order to keep up with the times and renew interest in their classic items.

A large price tag does not explicitly indicate that a product is a luxury good. Everyday products could trade up and charge a higher price. All luxury products are expensive, but not all expensive products are luxurious. This means that it is difficult to sell premium products as luxury goods—a phenomenon known as “premiumization” or “trading-up.” Similarly, it is unwise to reposition a luxury brand as a premium product to extend its market. Automobile companies have tried to reposition products both ways and have failed, such as Mercedes with both the launch of the Smart car and its acquisition of Chrysler. However, the brand managed to strengthen its luxurious image through its portfolio of products, namely Maybach, AMG, and its venture into the pure electric vehicle industry. In the meantime, Porsche rose to become the most valuable luxury brand for the year 2020 through a brand value increase of 15.6% to USD33.91 billion. When one pays a tidy sum to procure a luxury brand, what does he or she pay for? Perfection? Not necessarily. In some ways, what defines the luxury brands are the creators and not the consumers. A luxurious product may thus be far from perfect. However, would these characteristics be questioned in times of a recession, when consumers become more cautious, have a limited budget, and spend less?

Crisis

Bling is over. Red carpet covered with rhinestones is out. I call it the new modesty.

—Karl Lagerfeld

There were several economic crises during the 1970s to 2020, starting with the oil crises in 1973 and 1979, the stock market crash in 1987, the 1992 Black Wednesday crash, and 1997's Asian financial crisis. The first 10 years of the twenty-first century also saw many crises. The stock markets collapsed in early 2000, following the dot-com bubble of the late 1990s. In 2001 the world watched as the terrorist attacks in New York and Washington took place, followed by the war in Afghanistan in 2001 and the invasion of Iraq in 2003. The early 2000s also saw a recession in many countries of the world, aggravated by the outbreak of SARS in Asia in 2003. In 2004, the tsunami in Asia killed hundreds of thousands. In 2007 the subprime mortgage crisis that began in the United States housing market spread all over the world and caused, among many other things, the collapse of Lehman Brothers and the European debt crisis of 2011, which continues to have effects such as the Cyprus bailout and political turmoil in Russia and Italy. In 2020 the outbreak of the coronavirus all around the globe has wiped billions off luxury companies' market value.

Crisis can take four forms: (1) endogenous (inner), such as economic and financial crises; (2) exogenous (outer), such as a political crisis; (3) natural disasters; and (4) mixed characteristics. An economic crisis is one where the real economy, of one country or worldwide, experiences a significant slowdown. The gross domestic product consumption stagnates or shrinks, along with investments, capacity utilization, household incomes, company profits, and inflation, while bankruptcies and unemployment rates rise. Figure 1.1 shows periods of shrinking GDP ...