Sunday, February 25, 2007

The paradox of luxury

Luxury marketers face a difficult challenge. They want to grow their revenue and profits, but one of the major strategies for doing so - growing the basic size of the franchise - risks undermining the brand if not done correctly.

Luxury brands are after all a privileged club in which access and membership are obtained from ownership of a product or consumption of an experiences. Therein lies the rub. The reason most luxury consumers are drawn to such possessions and experiences is because of exclusivity: it makes them feel special or important precisely because so many people can't afford to buy them and therefore are denied access to members' elite inner circle.

In the pursuit of growing the franchise, lowering price - the single greatest hurdle to membership for most people - will directly make access to luxury easier and thus dramtically lower aspirational and ostentatious appeal, which as noted above are the key ownership drivers among luxury good consumers.

This is not a danger inherent to a product portfolio strategy but one that occurs when it is focused in the wrong way. Automotive brands such as Mercedes and BMW have chosen to offer entry price points as low as $30K. This allows all sorts of people to get behind the wheel of these cars that do not represent the desired character of the brand and therefore dilute the brands's integrity and appeal.

(Though not a luxury brand per se, Apple is a great example of premium brand that has approached portfolio management the right way, to maintain premium pricing while opening up access. By introducing product varaints of the high-priced iPod, the Nano and Shuffle at much lower price price points, Apple enabled people to join the franchise without eroding appeal of more expensive, higher status offerings that better define the brand.

So what's a luxury brand to do? Or rather a luxury brand manager? The answer lies in a combination of activities. The first act is to price the entry point, and subsequent price points of portfolio offerings, at levels that will not undermine the luxury connotations that buyers (and existing owners) already seek). This is only possible as a result of second act which is by far the harder of the two: create a brand allure that has the potency to sustain a higher price points than competitors will no doubt be offering in the marketplace (in an attempt to win greater market share). It is only possible if the true luxury mindset of the category consumer is understood, and product and service elements are carfefully crafted to deliver a richer luxury offering than alternatives.

Nordstrom is a great example of a high end retail brand that can do just this. Its prices may be higher for even identical items sold at other outlets. But it has sustained its mythical reputation for service which fuels its luxury brand credentials, representing a powerful yet intangible yet tangiential element to the core products being bought at the store. Harrods is a worthy example from the UK. Beyond the obvious quallity of store fixtures and general showroom service, it is possible to buy anything from Harrods, even if they do not sell it, such is the commitment and resourcesfulness of this luxury retail brand. It's not a point of difference that the store publicizes through mass communication. But it is part of the culture and knowledge of it is disseminated through the approach channels so that it is acts as part of the brand lore and affirms the luxury character accordingly.

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