'Luxury brands sell dreams, not products…'?

Dr B K Mukhopadhyay

(The author is a Professor of

Management and Economics, formerly at IIBM (RBI) Guwahati. He can be contacted at m.bibhas@gmail.com)

Dr. Boidurjo Rick Mukhopadhyay

(The author, international award-winning development and management economist, formerly a Gold Medalist in Economics at Gauhati University)

Christian Louboutin once said 'luxury is the possibility to stay close to your customers and do things that you know they will love. One of the common traits of luxury brands is offering customisation which not only helps in distinguishing luxury brands but also reinforces the craftsmanship, and the core creativity of the brand. Some companies do a lot more than customisation and giving the luxury customers a lot more than a product or service that is unique and rare, e.g., Louis Vuitton involves clients in the design process of shoes, bags, and trunks, or Rolls Royce with its unique 'discover bespoke' option and their catchphrase is 'you don't just purchase a Rolls-Royce, you commission it' where a customer can design every inch of the interior on top of capturing the feeling of older models in every new car by diffusing a blend of mahogany wood, leather and oil.

While customisation makes 'customer the king' when it comes to improving brand value, on the contrary, there are cases where brands artificially limit access to their brand. For example, a customer of Hermes may have to wait up to six years for a product (e.g., a handbag) which also contributes to their overall appeal. Interestingly, this tactic is also being increasingly picked up by high street brands who are in the fast fashion industry, e.g., H&M in particular who are now offering time-sensitive clothing collection, similarly Tom Ford who hosted a fashion show for a very selected audience, each one of them was personally invited by telephone.

A. 'Choose your words wisely'

Choice of words is so important, e.g., 'Timeless', 'luxury', 'performance', 'prestige' - they add value, rarity, and uniqueness regardless if an advertisement is placed on a popular social media platform or a Superbowl TV spot or Google Ads; the target demographics must 'feel' a physical manifestation of luxury. It is also important to retain uniqueness by not using a marketing tactic that would diminish the value of a brand to satisfy a short-term goal. For example, it would be highly unusual to expect a brand like Gucci to go for '50% sale', 'all must go', since they target a very specific income group.

A study by McKinsey suggested that digital advertising influences at least 45% of all luxury sales. Luxury brands are dealing with greater complexity than ever before. While loyalty is slowly fading, social media is making it harder for image control of brands. Particularly, when luxury brands have their strategic alliances to reach markets where they don't personally have direct operations. To enter and succeed in a new market while making sure that exclusivity is maintained and core consumers are not alienated can be difficult at times.

Research shows that luxury brands set up their image in the market using four broad steps - firstly, establishing a culture of trust and ownership; secondly, putting the customer at the heart of strategy; thirdly, as risky as it can get at times it is important to stay agile whereby making use of data and streamlining decision-making becomes a priority. Agility and adaptability help in keeping disruption at bay. Finally, reimagining the organisational model and leveraging a knowledgeable board. In the luxury sector - fashion, in particular - it is essential that the board members are fully up to date with technology which otherwise causes a significant lag in decision-making. A board generally benefits from having a digital expert in the boardroom and diversity in terms of gender, background, and experience, and age helps a ton. As for any other industry, the board composition matters for organisational performance and overall effectiveness.

B. 'Luxury brands don't sell products, they sell dreams' – Cadillac CMO.

Another study shows that the basic tenets of a luxury brand are about A) Creativity, B) Craftsmanship, C) Authenticity, D) Timelessness, E) Heritage and F) Human values. Many luxury brands have traditionally been led by families, they share organisational stories, history, and identity which helps in building a culture of trust and ownership (as mentioned in the last paragraph). E.g., Hermès, Patek Philippe, Ferragamo, etc.

Luxury is in the business of being and staying unique, and at the same time, it is important to note that it is not about comparing with a competitor. The nature of competition is different. Essentially, therefore it is about 'this is what I stand for' or 'this is who I am and not that depends on. Positioning is critical; therefore, a luxury brands' internal organisational culture matters heavily. The sense of permanence of these brands could be achieved with rarity, timelessness, and authenticity over time and growing client trust. For example, Chanel or Bugatti has an identity rather than what products they sell.

C. 'Et Tu, Digital Marketing?'

For luxury marketers, social media does not make it any easy. Some conservative luxury houses consider that social media influencers and celebrity culture have diluted the world of luxury. The essence of luxury is somewhat lost. For example, when advertisements show that more and more people are using these brands and their unique products, the element of exclusiveness and rarity is gone. The feeling of 'unattainable' that gives value (and high price) to these brands can consequently fade.

D. 'Going Green' can add that sustainability component

A study by the Harvard Business Review suggests that luxury consumers around the world, especially Generation Z and millennials expect that brands make a more positive impact on the planet and society. Consideration of triple bottom line, i.e., people, planet, profit is therefore important for brands, regardless of which sector they are active in. Board composition of luxury brands are therefore changing, and consumers have various channels to verify whether the companies align words with actions. The demand for green and sustainable practices, ethical manufacturing, respect of digital privacy, and taking a stand for social justice are some of the actions that the companies try to stay active with. Leveraging the brand name to support (and build new ones) social causes is now a prerequisite. e.g., Stella McCartney and Gucci – they have both partnered with luxury fashion resale seller The Real Real to ensure pre-loved clothing does not go to waste. Similarly, Tesla's green innovation successes (both with EVs and solar city) led it to be the highest performing automaker in terms of total return, sales growth and long-term shareholder value - this evidences that consumers are keen to support eco-friendly luxury businesses.

The year 2020 was albeit a tough year for all businesses and the luxury industry took a palpable hit also. However, during this period, the number of high-net-worth individuals (HNWIs) grew by 2.5% globally, of which 12% is in Asia, so the market for luxury goods and services are expanding as ever.

E. 'Who you are' is more important than 'what you do'!

Luxury brands often leverage nostalgia as an effective tool. The past 18 months have been a nightmare for businesses in general, and now markets are looking back to the past to gain a sense of security and comfort. e.g., recently, Gucci reminisced about glittery 90s office parties and Dior went back to chic 1950s silhouettes. Interestingly, the concept of Luxury 4.0 is primarily associated with the technological shifts of Industry 4.0 (as discussed in our article last week), especially the disruption sparked by what is considered to be the most valuable resource we have nowadays - digitalisation. This allows companies to connect to each stage of the value chain and transfer information from downstream to upstream or vice versa.

'Walking through the doors is just like walking into our website', Angela Ahrendts, CEO of Burberry, recently said. Firms with multiple point-of-sale (physical and virtual) could benefit from reverse Omni-channelling but the challenge lies in ensuring that in-store marketing needs to have that tech boost to catch up with online channels by enabling BOPIS, buy-online-pick-up-in-store model, that enables them to have an excellent in-store experience and interact with the salesforce. e.g., Baume 3D watch configurator combined with Augmented Reality are available both online and in physical stores. The automation (Industry 4.0 has four components - automation, intelligent systems, agile, and cloud) support flexible manufacturing and mass customisation, which is a huge plus for luxury brands given the huge demands of customising items to keep the 'exclusivity' and 'unattainable' elements of the products or services.