The DNA of Luxury – Cracking the Luxury Code
Luxury goods marketing, in its broadest sense, feels like it relies far more on the instinct of its creative directors than on any hard knowledge base.
We know it instinctively: the luxury business is all about conceiving, manufacturing, communicating and retailing image or rather, brand image.
And now the numbers support it. Research by Bain and Co (published in The Financial Times in May 2005) indicates that “the leading luxury businesses which together own 60-70 brands, find that fewer than 10 of them account for 80-90 percent of their profits.” And what’s more, the report indicates that global investment in luxury brand building as a percentage of sales revenue is on average around 12 percent compared to 4-5 percent in the packaged goods industry.
However, creating a luxury brand is a challenge and industry figures cite a range of reasons why they think listening to consumers is not helpful when building successful luxury brands. This explains why “for decades, the golden rule in the luxury business was: Don’t ask consumers what they want; tell them what they should have.”
Most other industries moved beyond this approach years ago: as brand owners know, good research is irreplaceable in giving you the edge. However, when it comes to luxury brands, if you only talk to consumers who are in the middle of the market you will end up developing yesterday’s brand image. But if you deliberately set out to talk to tomorrow’s consumers, even tomorrow’s image makers, you will be able to define your consumers with absolute clarity and develop more consumer-relevant and culturally progressive marketing. And from this, you will be better positioned to create uniquely compelling brands.
The Luxury Code
Luxury consumers pay luxury premiums to surround themselves with fantastically beautiful and exquisitely crafted things. And while different consumers in different markets express their relationship with luxury in different ways, all are driven by one common motivation: “Luxury makes me feel more desirable.”
When assessing the many things that matter in luxury, the focus must be on what matters most from a consumer point of view.
That’s why British luxury goods consortium Walpole commissioned Added Value to explore the lives of the exclusive few who live for luxury across five different markets: London, New York, Tokyo, Shanghai and Moscow.
“The Luxury Code”, a qualitative research project, was designed to provide answers to the compelling questions of the luxury category.
• Who are the luxury consumers?
• How do they discriminate between brands in such a fragmented market?
• What is different in developing markets such as China and Russia?
What does The Luxury Code tell us?
What are the ingredients that make luxury, “luxury”? Broadly speaking, those in the business of creating and defining luxury brands agreed that a number of principals underpin success in the category.
• Heroic Myth
• Exquisite Product
• Iconic Identity and Communication
• Carefully Engineered Celebrity
• Ultra Selective Distribution
• The Power of “Cool”
If a luxury brand exhibits all these attributes, by and large the cool police, the luxury consumers, and the analysts are happy.
During in-depth conversations with true luxury consumers, it became apparent that three things matter more than anything:
Brand soul, story, myth and legend. The belief that the brand possesses an exceptional history, either as a consequence of its own origins, or because of its association with exceptional people, periods or places in history.
Quality and rarity. All luxury consumers spoken to in the research talked about product. Everybody felt some need to explain why the luxury articles they had bought were items of genuine value, and not purely items purchased to feed their ego.
Certain categories, such as couture and leather goods, are transparently fashion-driven and, by definition, are assessed in terms of their ‘nowness’: who’s wearing it, who’s talking about it and does it have that ‘must have’ ticket. Luxury goods in all categories rely on cultural cachet for their appeal.
The next question was: is this equally true for all luxury consumers or will further consumer segments with markedly different motivations emerge?
Who are the luxury consumers?
The research identified four clearly defined types of luxury consumer, who differ from each other in their attitudes to luxury in varying degrees of “show” and “know”.
People Who “Show”
They are highly status driven, demanding extroverts and extremely materialistic. They see luxury as one of the principle mechanisms by which they can benchmark their success and prove that they are doing better than anyone else.
People Who “Can’t Be Shown Up”
They use luxury to give themselves confidence and social acceptance. They want to be seen to be doing the right thing, buying the right brand, but not overstepping the mark. Their preference tends to be for brands with an established reputation but not an identity that will clamour for attention.
People Who “Show They Know”
They know a thing or two about the things they buy, but only for the purpose of justification. There appears to be no deep or intrinsic appreciation of luxury. They acquire knowledge as a further confirmation of their social status and they tend to be a little older.
People Who “Know”
They love luxury for luxury’s sake. They appear to have a genuine appreciation of beautiful things, with no preoccupation with what other people think. They buy the brands they like, because they like them. They are the kind of people who if they drink malt whisky, will have in their collection both a place for the most esoteric small batch – unfiltered malt from an obscure croft on the Isle of Islay in Scotland, say – and a home for the Glenfiddich, the world’s most famous malt whisky.
Attitudes to luxury were also explored by country, though it’s worth pointing out that any exercise of this kind will be an over-simplication, because all four types are found in all geographies.
How do consumers discriminate between brands in a fragmented market?
Consumers were asked to make sense of an array of luxury brands by broadly categorising them. The purpose was not to produce a definitive map of the market, but to ascertain the extent to which consumer perception of the market varies between the developed markets and the developing markets.
Consumers everywhere make a distinction between Serious Luxury and Affordable Luxury. Within Serious Luxury they generally distinguish between The Establishment and the much more recently established (usually couture-driven) luxury players – what the research terms as Generation Now.
The Establishment spawned three groups: the real blue-bloods, the new establishment (Contemporary Classics) and the Carefree Classics. Generation Now split in two: Bold and Beautiful and Wild at Heart, largely in accordance with the design personality of the different houses. (see fig 2 overleaf)
Ultimately, six brand groups emerged:
The Establishment – i.e. Cartier, Rolex, Chanel and Hermes.
Contemporary Classics – i.e. Tiffany and Co, Giorgio Armani, Calvin Klein.
Carefree Classics – i.e. Yves Saint Laurent, Issey Miyake, Louis Vuitton and Prada.
Wild at Heart – i.e. Vivienne Westwood and Yohji Yamamoto.
Bold and Beautiful – i.e. Ferrari, Gucci, Jimmy Choo, Versace and Kenzo.
Affordable Luxury – i.e. Omega, Shiseido and Mulberry.
What was particularly interesting was how this ‘brandscape’ differed according to geographic market.
Moscow respondents segmented the market in almost exactly the same way as their counterparts in London, New York and Tokyo. However, given that these respondents were extremely wealthy, well-travelled Russians who did much of their luxury shopping in London and Milan, perhaps this should come as no surprise.
China on the other hand was a very different picture. Luxury has only really been a possibility since the mid 1990s – and for the consumers we spoke to, only for around the last five to six years. Few had travelled significantly and they relied on their own experience for their market knowledge. As a result, the luxury brandscape in China comprised only three of our brand groups: The Establishment, Generation Now and Affordable Luxury.
What is different in developing markets, such as China and Russia?
The Chinese Luxury Consumer
For most of the 20th century luxury was a politically incorrect concept in China. Not until Den Xao Ping famously announced in the mid 1990s that some Chinese would be allowed to become wealthy, did luxury become a serious possibility.
Ever since, Chinese consumers have been doing their utmost to demonstrate that they can achieve wealth, glamour and sophistication. Luxury, more than money itself, enables them to demonstrate this to their peers.
When dealing with Chinese consumers, think PQR:
• Pride: Consumers of luxury brands in China want to show. Luxury brands are an absolute display of pride.
• Quality: There is a very strong belief among Chinese consumers that you get what you pay for. They truly believe that the premium paid for a luxury brand is worth it, because of the design, the material and the overall quality.
• Respect: In China, respect is driven firstly from what you wear and then who you are. You need to dress up your appearance to suit the occasion; to give face to the people that you meet. It is a social norm. So a luxury brand is to give face to yourself and more importantly to give face to the people that are in front of you.
Currently in this market, it is ‘Show’ time, which could be good news for The Establishment brands, and hard work for anyone whose product portfolio is overly skewed towards jewellery. Chinese consumers buy luxury to show their wealth and if their peers don’t recognise the item they have bought as luxury, then their money is wasted.
The Russian Luxury Consumer
Well-off Russian consumers see themselves as professional luxury consumers on a mission. They profess deep affinity with the West and talk about themselves as belonging to the European tradition. For them, the market is perceived to have moved on from the ostentatious ‘bling’ of the mid 1990s, to the discretion and emergent sophistication of the early noughties, and on to the beginnings of individualistic self expression and “Know”. For celebrities to be seen wearing the brand was very important several years ago. Now, however, Russian luxury consumers are looking for a person who is a real authority: a real intellectual; really cultured; someone they can follow.
All of the typologies, except for the truly inner-directed “People Who Know”, seemed to be present in the Russian luxury market, but despite the high degree of product and brand knowledge, consumers still appeared desperate to impress.
So what are the lessons for South Africa?
Our experience suggests that South African consumers fit somewhere between their Russian and Chinese counterparts, exhibiting all typologies of “show” and “know”. The traditional high-end luxury brand market in South Africa is relatively small, and largely dominated by a niche group of high income consumers who are competing with dollar and pound buyers.
However, nearly all South African’s aspire to luxury purchases on some level and luxury brands are increasingly being used by aspirant, but low income consumers as very rare investment purchases to signal status and success: they want to “show”.
South African’s will spend luxury Rands on brands that genuinely deliver on the luxury promise. But since luxury in South Africa is relative, few South African’s can afford to regularly purchase “serious luxury” items, although as the economy grows, this stands to change. One challenge for the market may be to make the feeling of luxury accessible, but still aspirational and indulgent.
Cracking the Luxury Code
If we know luxury consumers want to feel sexier, command more respect and ultimately feel more desirable, how can we craft brands that signal the right emotional triggers at every touch point? Given the limited amount of consumer research available in the industry, the over riding impression is that very few luxury brands actually execute the success formula of “Myth-product-Cool ID-Retail-Celebrity”, confident in their successes of the past.
Luxury goods marketing, in its broadest sense, feels like it relies far more on the instinct of its creative directors than on any hard knowledge base. It’s not surprising then that only 10 of the world’s top 70 luxury brands produce 80 percent of the profit. Many of the other brands are still shooting in the dark.
So what is needed to fill the gap? Knowledge, insight, innovation, clarity and communication that help to consistently deliver what your customers’ desire can only grow your unique emotional identity and help your brand be tomorrow’s must have luxury item.
Alison Tucker is the Managing Director of brand development and marketing insight company, Added Value. Before joining Added Value, she spent 16 years with Unilever honing her skills across various categories and markets. A Rhodes University graduate, she obtained her Masters in Commerce in 1986 with a thesis focusing on marketing and innovation. Alison’s greatest luxury is finding the time to drink fine wine, spend time with her cats and run ultra marathons