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15: Learning from Luxury

Thus far, the authors have focused on the luxury market - but are now shifting to discuss ways in which the premium and mass markets can borrow elements of the luxury strategy to achieve competitive advantage in their own sectors.

The very lowest of the markets, the economy market, deals entirely in commoditized goods that compete exclusively on price - and in that competition, quality is entirely meaningless. However, in the premium and standard markets, competitive advantage is created and sustained by giving offering the customer a specific value-for-price proposition. In doing so, certain qualities of the luxury market can be leveraged to support the claim to quality.

Luxury concerns all trades

In the introduction chapter, the authors worked to clarify the definition of luxury - which went beyond "anything that is not necessity" or "anything that provides personal pleasure" to distinguish true luxury goods from lesser goods that wish to have the esteem of the luxury market. But when one considers the claim of quality for goods in any market, certain of these discarded notions still apply: and product can claim to offer "luxury" in a broad sense.

The author considers surgery as a product, which is the opposite: it is used because it is needed, there's little prestige (and often shame) in having undergone a surgical procedure, and the entire experience is thoroughly unpleasant. There is still quite some degree of differences in quality among hospitals - such that when surgery is necessary, patients are highly concerned about the quality of the procedure and the care they will receive.

Cosmetic surgery, meanwhile, verges on luxury - people show off the results of it (though if done well, it should not be obvious that their physical appearance is the result of surgery rather than good genes) and seek out "superstar" surgeons and clinics. A cosmetic surgery clinic has about it more the feel of a beauty parlor than a hospital, and the focus is on beauty rather than health.

But even when the focus is on health and the surgery is a routine procedure, there is a great deal of distinction between clinics, to the degree that they borrow the qualities of a luxury service.

Understand the rules in order to adapt them

A mass-market product that wishes to adopt some of the qualities of luxury must not do so randomly, but instead must understand the rules of luxury. It is especially important not to imitate without understanding, as mistakes are noticeable and immediately punished.

Understanding is also necessary because the rules of luxury may not be applied to mass-market goods exactly as they are written, but must often be adapted. For example, a luxury item has a high price, but in the mass market, prices must be competitive compared to others - as a result, the mass-market product can have a high price relative to other mass-market products, which will still be significantly lower than luxury pricing.

(EN: What is implied here, and might be better expressly stated, is that the market will not accept that a product has the characteristics of luxury unless the company that provides it adopts the practices of luxury. Luxury cannot be faked for an extended period of time.)

Case Study: Apple

Given that consumer technology is ubiquitous, devices are short-lived, and there is tremendous competition on price, such that it seems impossible to fully adopt a luxury strategy. However, Apple follows a strategy that is inspired by luxury, taking on some of its qualities.

From the onset, Apple was built around the concept of a computer that is the servant of man and not the other way around, in an era in which computers were sterile and incomprehensible, requiring an "ordinary mortal" to subordinate himself and learn the way that the machine worked in order to be able to use it.

The dream of Apple was personified in Steve Jobs, whose personal involvement with the firm was as critical as that of a fashion designer and the brand that bears their name. When Jobs left the firm in 1985, it underwent a slow decline to the point of near bankruptcy, and it wasn't until his return that the firm found its footing - and achieved rapid and stellar success.

Apple applied "all of the characteristics of a luxury strategy" to a mass-market product:

• The product is based on a strong vision (user-friendly computing)
• Its has a "messianic creator" with a legendary story (ousted from the company he founded, returned to restore it to glory)
• The product is highly distinctive, recognizable at a glance for its elegance of design
• Ownership of a product confers an air of distinction
• There is a sense of culture among its consumers, who feel part of a privileged group
• The brand is deeply revered by some, and its critics have a tone of bitter envy
• Apple cultivates a close relationship with the design community, and maintains a connection to the fine arts
• The product can be personalized "to the extreme" though accessories and customization
• There is a strong demand for the product, exemplified by media coverage of long lines of people who will wait overnight for the opportunity to buy a new device
• Distribution is increasingly controlled through exclusive boutiques (Apple Stores) that are elegantly appointed
• Apple defies direct comparison to other PC brands: the consumer first chooses to buy an Apple product, then considers models
• The prices clearly higher than all competitors' prices and never reduced (EN: I'm not sure if this is true - they historically discounted after the release, and discounted very deeply prior to releasing the next version of a device, but they may have switched to JIT manufacturing and discontinued the discounting practice)
• For many years, Apple could also claim a close connection to a location (California), though that has changed since production of certain devices has been outsourced to China. There remains the perception that it is an American product, but that may fade.

In all, Apple has clearly chosen to pursue a luxury strategy, even though it is in the non-luxury market, and the results have been an overwhelming success in both the consumer and financial markets.

What remains to be seen is whether the legend built by Steve Jobs can be sustained after his death. There are already doubts that the firm will be able to sustain its distance, and some signs (namely price decreases and looser distribution of its iPhone line) that it may be slipping.

Case Study: Mini

While the Mini is among the cheapest cars in the market, its strategy is "directly inspired by luxury."

• The product has a strong cultural anchor, associated with Britain in the 1960s, which is a nostalgic era for many customers
• While the mechanical workings of the vehicle have been brought up to date, its heritage has been respected. It's noted that the current model is only 6 cm longer than the historical original (to accommodate a larger engine), and the proportions have been maintained within very strict tolerances.
• The brand is presently owned by a German firm (BMW), but it is still produced in England and some components (the leather on the front seats) are handmade.
• The Mini is an impractical car due to its diminutive size yet relatively poor gas mileage. It is purchased because consumers adore the design.
• The enthusiasm of customers has created a "cult" of admirers who feel affinity to the brand and their fellow owners, and there is a significant appetite for logo merchandise
• The vehicle is highly customizable, with 300 exterior and 320 interior options and a profusion of accessories.
• The Mini is built to order, adding the temporal dimension of customers who order a personalized vehicle and must wait for its delivery
• The vehicle is sold price-as-marked: there is no haggling and no reductions in price
• The Mini is a labor of love - for 41 years prior to its acquisition by BMW, the company never made a profit (though today it is very profitable).

Mixed strategies

The authors took a firm stance that a luxury product must maintain a luxury strategy across the board, and could not sustain its status if any of the "four Ps" were managed in the traditional manner - it would inevitably fall to the mass market if it attempted to do so.

However, this does not mean that mass-market products cannot reach upward in some regards, and benefit from managing some elements according to the rules of luxury. It is in fact typical of premium products to manage one part of their business according to luxury rules in order to have an advantage over their peers.

The 'two-tier' system

Some companies maintain a two-tier system, with one of the tiers in luxury and the second in premium. The tiers are distinct, but they are managed within the same house. An example of this is Claudalie, which is a luxury spa that sells premium cosmetics under the same brand.

(EN: I expect the authors are loath to admit it, but many "luxury" groups that manage several brands have a blend of luxury and premium brands, and many luxury houses have at least partially degraded themselves into the premium category with some of their product lines.)

True mixed strategies (linked products)

The authors suggest that a truly mixed strategy offers the consumer products that must be purchased as a bundle, some of which are luxury, others are not. They offer Nespresso as an example - it is a firm that sells single-cup espresso machines that use distinctive cartridges. The authors consider the cartridges to be luxury and the machine to be premium.

(EN: I balk at this assessment: Nespresso is merely premium in both regards. Its machines are in the $250 price range and coffee cartridges are about $1 apiece, about double the price of mass-market Keurig brewers on both counts, but still well short of the luxury range.)

The authors suggest that the cartridges follow a luxury strategy because the firm has tight control over the distribution, have an artistically designed package, have high-quality coffee, and have a very high price strategy (EN: The first and last are patently untrue, as the cartridges can be bought online from a number of retailers at about $1 per cup, and the middle two are not sufficient qualifications for luxury.)

They do concede, however, that there is a premium strategy on the machines: they are widely available from a number of retailers, the price is higher but not astronomically so, and they use celebrities in their advertising.

Managing a luxury strategy in B to B

A luxury brand must maintain a close relationship to its client, which often means participating in the retail space to carefully manage the customer experience in the rigidly controlled environment of a brand-owned boutique. With this in mind, it would seem impossible to manage luxury in a B2B context, in which the brand is a supplier to another firm who maintains the relationship with customers.

Nevertheless, B2B represents a major part of industry, and while it is doubtful that a true luxury brand could maintain its prestige while being distributed through other companies, a premium brand can maintain some air of luxury.

The key is that a company must thing B2B2C - considering its direct customers (businesses that resell its products) as a link in the supply chain, while considering customers to be the ultimate destination.

In marketing terms this means adoption of a "pull" strategy - to create so strong a desire among customers that they demand retailers stock the brand. This is opposed to a push strategy in which, by offering a low wholesale price and a high retail price, retailers are cajoled into pushing the product in order to generate exceptional profit. This also requires "partnering" with retailers to ensure that the esteem of the brand is preserved in their contact with the customer.

The authors suggest that four conditions must be satisfied in order to succeed at B2B2C marketing of a luxurious premium product:

• Their own product must be delivered to the customer as it is, or it must at least be a major component that is highly visible in the finished product
• The customer is familiar with the original brand, such that it is desirable in itself
• The brand must not be easily replaceable by the middleman or substitutable by the customer.
• The middleman must respect the brand enough to regard it as a value-add that raises the esteem of their own brand

(EN: The example that jumps immediately to mind is Intel - computer manufacturers mention the brand of processors in their marketing communications and product badging, and customers insist on having an "Intel" computer and will not accept other processor brands. That's not to say Intel is luxurious at all, but it does demonstrate the power a luxurious brand must possess.)

Some B2B firms are suppliers to luxury producers, rather than manufacturers of luxurious brands that are sold through other retail outlets. In some instances, a luxury supplier may be regarded as desirable by the end user - but unless the customers are aware of the supplier's brand, it is not sustainable as a luxury.

The author provide the example of SGD (Saint-Gobain Desjonqueres), a firm that manufactures construction materials, but which began in 1665 as a manufacturer of mirror-glass (they supplied the glass to the hall of mirrors in Versailles). In particular, SGD was the manufacturer of choice for perfume bottles.

Since perfume appeals to the olfactory sense, its only visual and tangible element is the bottle in which it is sold - and since "time immemorial" fine perfumes have been placed in precious vessels. Given that SGD was capable of producing highly elegant glass at a time when most glasswork was primitive, it became the supplier of choice to the French perfume industry - the be packaged in an ordinary glass bottle was unthinkable, and only SGD could produce a vessel precious enough to contain luxury cosmetics.

(EN: The authors do not assert that consumers demanded the SGD brand, and likely they were unaware - but this is an area in which technology and craftsmanship distinguish one company from the rest. If a firm is capable of achieving quality that others cannot match, it has the credential to be regarded as luxury even if it does not meet any of the normal qualifications. However, this is not a sustainable strategy because competitors catch up - when elegant bottles could be manufactured cheaply, SGD no longer had exclusivity. So while modern perfumers enlist renowned artists to design their bottles, the manufacturer is of no consequence.)

The pursue a luxury B2B strategy, it is first necessary to discover how and for whom your product can be a luxury - whether as a component or a product to be resold without modification. The investigation must start with the ultimate customer and trace backward through the supply chain. It is also necessary to break through the barrier that your direct client may wish to impose between yourself and the customer, such that the customer remains aware of your brand and considers it to be a major contributing factor to the value of your client's product or service.

Because there is no direct connection between your firm and the customer, indirect methods such as advertising must be used to considerable advantage. This is how DuPont built a reputation for Lycra: the customer was sufficiently educated about the material brand to seek it from suppliers.

The authors acknowledge that the example they have used focus on material products, but are also applicable to the service industry - perhaps even more so because the suppliers' own personnel are visible to and have contact with the customer.

There is another brief mention, this time of charitable organizations, who receive donations from some to fund a service that is provided for others. Specifically, a charity must not only accomplish its stated goals, but must also respect the dignity of its benefactors in order to be respected by donors.

Luxury marketing as the future of traditional marketing

Luxury marketing is distinguished from traditional marketing in that it does not promote the price or describe the features of a product, but instead communicates intangible qualities of the brand - largely associating the brand to emotional qualities and the social effects.

For traditional products, the advertising message evolves with the maturity of the market. The first product communicates how the product, not the brand, serves the functional needs of its users. As other brands enter, each brand positions itself according to its quality (efficient/effective service of the functional need) or its price to distinguish itself from other brands.

When a product fully matures, the difference in price and quality among brands becomes negligible and products are commodities that sell within a tight price range, hence marketing can no longer rely on distinctions and must sell the intangible qualities of the brand: the emotional qualities and social effects, similar to luxury brands.

Thus considered, most products in developed western economies now must use the tactics of luxury marketing to appeal to their audiences, though there are still some opportunities to leverage price and features when one particular brand moves ahead of the pack and gains temporary distinctiveness.

The authors describe a number of specific issues in mass marketing that luxury marketing tactics can help to address:

• Traditional marketing practices focuses on identifying the customer's needs and positioning products as solutions. Given that most customers have similar needs, marketing homogenizes brands. Luxury marketing convinces customers that they have a need, and as such can be more proactive in choosing its messages.
• The expense of mass marketing far outstrips the investment in product development - which is to say that companies invest more in convincing the market its product is different while failing to actually improve the product. Luxury invests little in advertising and much in the product itself, counting on superiority to sell itself through word-of-mouth from genuinely satisfied customers.
• Investment in product and packaging design as a means of marketing helps to distinguish the product from its rivals - it gives marketers the ability to speak to unique characteristics of the brand that the consumer can immediately observe, rather than trying to convince consumers that there are imperceptible differences
• Luxury marketing is not comparative, but extols a brand without reference to its competition. This provides an escape from comparative advertising in which competing brands engage in mud wrestling competitions in which everyone seems filthy no matter who wins.
• Given that the marginal profitability of investment in advertising is shrinking, or negative, firms can no longer afford to pummel the market with repetitive messages, but must instead use fewer messages that are more skillfully targeted and have a higher impact.

Case Study: Lacoste

The authors declare "Lacoste is not a luxury brand," and that even since its creation it has been marketed under the oxymoron of being "a luxury product within everyone's reach" - which is to say it is a quality premium product.

The product's claim to quality is high-quality workmanship and materials, but the shirts are sold at department stores at competitive prices - and while the product is not luxury, its management follows the model of many luxury brands. Consider the following:

• The brand's name and legend draws from tennis champion Rene Lacoste, at a time when the sport of tennis was associated to the upper classes
• There is a concern for product quality and manual work is performed to finish the buttons and affix the totem crocodile
• Marketing messages do not speak to the product, but the notion of athletic performance
• Lacoste boutiques are maintained in fashion districts such as fifth avenue in New York and Chaps-Elysees in Paris, giving the brand a presence in the company of luxury brands
• The brand maintains a presence in the more prestigious sporting events, chiefly tennis and golf
• The brand enlists the creativity of fashion designers who were formerly employed by luxury brands
• Lacoste maintains a connection to high art by offering some limited editions that are designed by renowned artists
• A wider range of products are offered (shoes, sunglasses, watches, etc.) that are associated to the primary brand
• There has been some segmentation and stretching into lower markets, but the brand maintains a distance from the lowest tiers of retail

As a consequence of these choices, Lacoste is regarded as a prestige brand in developed nations, respectable while being short of luxury, but it lacks sufficient prestige to draw customers in developing markets.

The authors suggest that it may slide further, given that Lacoste has almost fully outsourced its products, has licensed its brand too widely, and is aiming at lowering prices to gain access to additional markets where its esteem is insufficient. But as a mass-market product, shedding a little prestige to reach more customers is a valid choice, and it can scale back its esteem a little without losing face.

Learning from luxury

Any of the "laws" of marketing that were described in chapter three can be implemented in non-luxury markets.

Any of the "laws" of marketing that were described in chapter three

However, the traditional approach to marketing is based on abundance. For mass-market goods, the means of growth is to produce and sell more - to raise the price of a good means producing and selling less. Scarcity, which is the anathema of the mass markets, is a quality that is requisite to luxury, and embracing this approach requires a firm to resist the urge to seek to increase anything but its revenue.

It's also characteristic of mass-market goods to seek to automate, outsource, and relocate in order to profit from the cost savings, whereas luxury squanders on artisanship and personal services that are far beyond the functional necessity. As a result, mass-market goods seek to provide as little value as the customer will tolerate. This, too, must be abandoned or compromised in pursuit of luxury.

Sidebar: Luxury strategy and healthcare

The authors return to give more attention to an industry that was mentioned in passing. It seems that healthcare is linked to luxury in many ways, just but its nature:

• Healthcare is associated to the dream of immortality and eternal youth and vigor
• It does not fully deliver on that dream, but has many flaws and imperfections
• Healthcare is not comparative, and patients do not shop
• Neither do patients dictate to healthcare providers, but allow themselves to be dominated by them
• Healthcare does not mention its price, and it is in many locations illegal to advertise specific benefits
• The price is high and constantly rising
• New technologies are constantly increasing the quality and the price
• Hospitals are not relocated, but cluster in medical districts and people will travel long distances to be treated at certain clinics

(EN: Much of this has changed lately, given the rising costs of care and competition in the pharmaceutical industries, as patients are seeing themselves as more empowered to question the authority of doctors and be more selective in treatment facilities.)

However, healthcare does not lend itself to all of the laws of luxury. The service is a necessity that patients are not enthusiastic to have and don't care to show off or brag about. Cosmetic and other elective surgeries are exempt from these qualities, but most healthcare cannot escape them.

Even more importantly, luxury is a means and result of social stratification, which is being questioned in political circles: the notion that wealthy people should be able to afford better healthcare is an inescapable reality that democracies wish to legislate away - the goal of "free and for all" makes healthcare unviable as a luxury product, or as a commercial product at all, and reduces it to the status of a public utility.

The authors side with the political camp that insists that making healthcare a utility will be devastating to its quality - the lack of profit will mean talented surgeons and administrators will be turned away from the profession, that there will be no interest in research and development, and that the general state of healthcare will degenerate rapidly.

However, it will also lead to the resurgence of private medicine, doctors and clinics that withdraw from the utility and specialize in non-emergency procedures, treatments, and health maintenance - following the model of cosmetic surgeons.