BRAND PULSE … Luxury Brands in Transformation (2 of 4)

> Adam Needles, 2009 MBA Candidate, Center for Brand and Product Management

The first piece in this series introduced this topic and examined the drivers behind the current evolution – transformation – in the luxury brand market. It argued, in particular, that there are four, key drivers reshaping the current luxury brand environment. So what are the implications for luxury brand companies, and how should they respond? That brings us to our second strategic question …


What are the positioning opportunities and challenges for luxury brand companies in an evolving market?

> Bifurcation of the market category: What was once a singular luxury brand market is rapidly evolving into two, clearly-discernible macro customer segments, with very different demand and marketing characteristics. One is the lower-end and more income-elastic mass luxury segment – targeting the ‘working rich’ (primarily) and the middle class (secondarily) with aspirational and affordable luxury goods. The other is the higher-end, largely recession-proof and less income-elastic super luxury segment – targeting the ‘ultra rich’ and attempting to differentiate itself from anything that might be considered ‘mass market.’ Demand in these two segments is rapidly diverging. “Old luxury brands that depend on small numbers of very high ticket sales will continue to prosper, as they have in the US,” comments Mark Ritson in a recent piece in Marketing. He goes on to say, “When times are good, everybody loves luxury. But when the going gets tough, only the middle-classes get going. [Super luxury] consumers shrug, stick around and keep spending.”

In terms of segmentation, super luxury is also increasingly split – characterized on one hand by an old-world / ‘old-money’ orientation and on the other hand by an orientation toward the international, modernist ‘nouveau riche’ – reflecting the diversity of tastes and experiences in this segment (and the origins of their wealth and values).

In either case, super luxury is growing to new heights – focusing on customers who are not price sensitive in the least bit – meanwhile, mass luxury is finding itself struggling for direction.

> Increasingly-conservative consumer product preferences: There is an ongoing shift from a desire for the ‘exotic’ (and perhaps ostentatious) to that for products and fashions that are ‘classic’ and clean in design and colors. This is related, in part, to a subtle realization by many in the wealthier set that times of economic slowdown are not the time for overly-conspicuous consumption. "The rich are different than we are. But there comes a time that even the rich understand that there's some anxiety in the world," according to Peter Solomon, chairman of retail-focused investment bank Peter J. Solomon Co. in an article in The Wall Street Journal.

There is also a sense that, especially in the fashion arena, many designers are out of touch with the conservative and realistic sensibility of the times – especially in super luxury. Christina Binkly of The Wall Street Journal commented on this season’s business fashions from New York Fashion Week: “[A]ll too often, designers get so carried away with their art – this season it was ostrich, pheasant and peacock feathers in show after show – that they seem to forget the real women out there who want to buy clothes.” She urges simplicity and practicality – synced to an overall trend (noted in the previous post on this topic) that welcomes simplicity in design and that embraces social and environmental sustainability.

It should be noted that embracing classic and clean design and integrating a sense of conservative sustainability will also benefit brands as they grow their footprints in more-traditional parts of the world such as the Middle East.

> Emergence of experience and services as the driving component of what defines and differentiates luxury: The luxury brand market is returning to its roots. Whereas luxury goods retailers were once marked by superior customer experiences, global brand expansion by firms such as Gucci and Louis Vuitton have commoditized signature handbags, sold in unenthusiastic and ‘clinical’ environments. But there are indications that this trend is reversing itself.

Customers – especially those in the super-luxury segment – look to luxury brands for unique, non-replicable and high-quality services and experiences. They embrace retail as theater. (Even Louis Vuitton has responded with its newly-revamped Flagship stores over the past few years.) These customers also embrace new services as part of luxury brand-line extensions – such as luxury hotels by Bulgari and Armani and fractional vacation residences by hotel leaders such as The Ritz-Carlton Company.

The luxury brand of the future will be less about the products conferred and more about the relationship with and experience of the elite customer – in a brand community that compounds exclusive identity and excitement.

“For [today’s wealthy], interesting life experiences and sophisticated service matter more than pride of ownership,” notes Milton Pedraza, CEO of the Luxury Institute in New York in a BRANDWEEK Q&A.


So how have luxury brand companies responded to these positioning opportunities and threats? Who are the winners and losers, and over what horizon? Check back here for the next installment, which will dig into specific companies’ approach to a luxury brand market in transformation …