Luxury may seem like a simple concept, one which we tend to only associate to the high price of certain goods and services. In luxury, however, pricing is only one of the elements that comprise the end cost of a product. Luxury is about detaching the price of an item, or service from its perceived value.
Obtaining the “luxury experience effect” is a challenge for many companies, but those who can compete in this segment can access a very profitable market.
In this post, we are going to discuss the concept of luxury in fashion in more detail and clarify all of the implications related to selling luxury goods and services.
Here is a list of the main topics we are going to cover in this post:
1. Understanding the value of luxury and brand equity
2. How companies can develop a “luxury experience”
3. Elements of a luxury fashion brand
The luxury segment requires companies to compete on two different levels, one operating internally and pertaining to a vertically integrated value chain, and one operating externally, relative to the implementation of high-value adding marketing strategies. The combination of an ‘internal excellence‘ and an external marketing appeal allows firms to access the “luxury” markup. Luxury companies are in fact able to draw higher profit margins, due to the lifestyle associations which increase the perceived value of the brand.
In simpler terms, luxury is a word capable of evoking high brand equity. When this is achieved, a company can “stretch” aside from its core products and cover a much wider product range, still benefiting from the same luxury markup achieved in its core product line. When a brand is associated with luxury, it can monetise this “added value” on all of its products, because of the aspirational values connected to the brand itself. Achieving a luxury status, however, can be a wildly expensive endeavour but the payoff is certainly worthy of consideration.
Luxury, however, does not apply to all the segments, business models and firms in fashion. Within the fashion industry, luxury is usually connected to only the top two tiers of the ‘fashion pyramid’: the haute couture and ready to wear/prèt-a-porter segments.
Despite applying only to this particularly exclusive market segment, luxury products foster great movement in terms of brand positioning.
If on the one hand haute couture brands try to ‘stretch’ their brand with “second lines” or “masstige” products in order to monetise their brand equity, on the other hand, designer brands try to create ‘limited collections’ to further enhance their exclusivity factor and narrow the gap with more luxurious heritage brands.
An example of this is shown by established luxury brands like Hermés moving from leather goods into the fashion apparel segment, while other Italian brands like Prada are moving within the apparel line towards custom-made collections.
The concept of luxury, however, is a cultural relative. According to different nationalities, luxury and ‘access to luxury’ can be perceived in very different ways. According to different nationalities, the value of luxury can vary greatly, let look at some examples:
As other countries – like China and Russia – are growing their luxury markets, a unique connotation of this term will be developed to better describe the unique nuances of their customers. The perception of luxury is, in fact, a function of the welfare of a country whereby consumers transition from satisfying more essential needs (like health and education) to making more status-oriented purchases.
When it comes to the product itself however, luxury goods are items often associated with the individual as they represent objects with a high intrinsic value which fit particular product categories.
The fashion luxury system can be broken down in the following segments:
Brand equity in luxury relates to how ‘credibly’ a company is able to stretch its ‘luxury umbrella’ in order to cover product categories that are not core-specific. In the case of fashion firms, we use the term ‘masstige’ to refer to those commodities sold by luxury brands at higher price points because of high value of luxury branding.
In luxury, we see very clearly that no product is “only” a product. A product is always – at least in part – a service, or better yet an “experience”. Fashion companies are global companies that try to access a variety of international markets in different regions of the world, by subtly adapting their products to better fit new social and cultural environments, with a compelling unique selling proposition.
When it comes to entering foreign markets, fashion firms thy to access international distribution networks to physically move products and merchandise abroad. The challenge in these operations is maintaining a consistent “luxury experience” at every point of contact between the customer and the brand.
Often times, this “service component” can only be provided through vertically owned retail stores, which allow firms to manage entirely the relationship between the brand and the final customer. Moreover, owned retail stores allow companies to expand the relationship with a paying customer, by offering a series of post-purchase services which helps retaining a client and keeping him loyal.
By developing a firm’s owned retail stores global products can be supported worldwide by a clear brand and retail identity capable of adapting products to the particular shopping expectations of the foreign market.
‘Purchase Experiences’ are more than the sum of its parts, as they allow firms to detach pricing from the material aspect of the purchase, and leverage intangible aspects of the shopping experience which are simply hard to price, like the quality of customer service.
As discussed in the previous section, delivering a “luxury” experience is a challenge for many fashion firms. A luxury experience is, in fact, a hybrid experience between the item a customer purchases and the service provided in the store.
The service component of luxury comprises:
The luxury products that are sold in-store, however, need to be aligned with the total brand experience delivered by the firms’ communication department. This typology of high-end communication entails:
How can a company create a luxury experience capable of leveraging on all of these factors? There are places where companies are able to create a theatrical, educational and purchases experience where all of these elements can be delivered seamlessly. Fashion firms create flagship stores to provide the “stage” for all of the firm’s stakeholders to engage with the brand and celebrate it. We discuss the relevance of flagship stores, as well as the future of fashion retail in this post.
If fashion is about ‘today’ or about anticipating the future, luxury is about celebrating the past. There is no recipe to create a luxury product or service, but heritage and storytelling go a long way in delivering a brand identity which speaks above the noise of fast fashion companies.
An important role in creating a luxury effect is leveraging the country of origin effect and allowing a brand to be imbued with values which are associated with the brand’s country of origin.
We’d like to close this post with a quote from Coco Chanel which is able to perfectly summarise what luxury is about.
“Some people think luxury is the opposite of poverty. It is not. It is the opposite of vulgarity.”
As we delve deeper into the tangible and intangible elements of a luxury fashion brand, we need to address the country of origin effect in the next instalment entitled: The Importance of the Country of Origin Effect.
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