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The Terrifying Challenges of the Luxury brand – redux

Because of the holiday weekend, we’re repeating a popular blog post from the past. This one first appeared on December 18, 2017. Please enjoy.

Luxury brandsSo you want to launch a luxury brand. I hope you’re well capitalized. In fact, if we were friends, I’d probably try to talk you out of it. There are so many hurdles, so many barriers to entry above and beyond the not insignificant hard work of starting any business. According to Gian Luigi Longinotti-Buitoni, President and CEO of Ferrari North America, when you’re selling luxury, you’re selling dreams. So, to build the luxury brand, not only do you have to reach your market like any other brand, you have to reach into the dreams of your market and become a fixture there. And that is exceedingly difficult. But when you examine the journeys of successful luxury brands, there is not much of a clear pattern to follow. There is no road map, only landmarks. And the threats are many.

Positioning any product or service as a luxury seems, at first glance, to be the holy grail of marketing. After all, luxury products are well-known, in demand and can command huge premiums. The margins are generally very high. Add to that, luxury brands exist in a world of abundance, celebrity and glamor. So it’s a lot more fun than selling, oh let’s say, spark plugs. Still, it can be an exceedingly long sales cycle. You don’t just make something, slap an astronomical price on it and watch celebrities rush to buy it. In fact, you’ll probably want to give it away to celebrities so they’ll be photographed with it, driving up interest and demand. That’s what’s meant by selling the dream before selling the product. If you wear this perfume/shoe/raincoat, you too can be just like Beyoncé.

But even that doesn’t get you past the premium market. People want to wear Beyoncé’s raincoat because it’s so cool and it has X, Y and Z features. Once informed of them, people will pay extra for that kind of cool and those kinds of features. But that’s just the premium market. Almost any consumer can pay a premium price for something if it means enough to them. The premium market is really just a tick above the mass market. How do you go from there to the very exclusive luxury market? As mentioned earlier, there is no road map. But there are a few landmarks. Let’s take a look at some of them.

Market. Luxury targets a very narrow market who will pay more for exclusivity and cachet, above and beyond the additional benefits that premium pricing will deliver.

Design. A brilliant, timeless and iconic design, that evolves very slowly, if at all. So good it transcends fashion or trends.

Variations. There should be no product line to speak of. Just the main product or service with a few subtle adjustments to suit customer’s bespoke needs.

Price. Premium pricing buys additional benefits. Luxury pricing pays for customization, personalized service, name, cachet, exclusivity.

Origin. Luxury automobiles from Italy are sexy. From Germany, they’re efficient. From the UK, classy. All have different associations. Place of origin adds to the myth.

Distribution. Available only through a very few, select channels. Hard to get. For the very best stuff, you have to know someone.

Marketing. Communication should be through limited, select media and should assume target market is already exceedingly well-informed.

Production. Hand-crafted with the rarest of high-quality materials and services.

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The order in which you string all these landmarks together will depend on the product or service you’re offering and on your circumstances. But let’s say you’ve done it. You’ve managed to launch a brand with luxury positioning. Now your work really begins. Because there are more threats to luxury brands than to other brands. To wit:

Counterfeits. It’s a never-ending expense to find them, stop them and prosecute them.

Recessions. Luxury spending is impervious to minor market slumps but some luxury brands can be surprisingly vulnerable in a real downturn.

Taxation. Higher marginal tax rates slows luxury spending. Granted that’s not likely to happen any time soon. But still.

China. According to Business of Fashion, China accounts for 30% of worldwide luxury spending. So any sort of political or financial trouble over there could turn into an existential problem for some luxury brands.

Currencies. Exchange rates fluctuate wildly and can influence luxury spending in various markets. So gains in one part of the world can be wiped out by losses elsewhere.

Fear. Outbreaks of disease. Kidnapping plots. Terrorism. Cataclysmic world events or personal targeting can be enough to make the luxury spender stay home and pull up the drawbridge.

Overexposure. Luxury brands run the serious risk of becoming passé. It only takes one D-list celebrity to destroy your brand’s cachet by publicizing how much she loves it.

Environmentalism. Dependence on exotic (endangered?) raw materials is problematic, to say the least. Even the luxury market is coming around to care about sustainability.

Overhead. Think that flagship store on the Champs d’Elysee comes cheap? Or that 16-page spread in Vogue? Or that SuperBowl ad featuring Giselle Bündchen?

This is what I meant by hoping you were well capitalized. Positioning, marketing and maintaining a luxury brand is a slow, laborious and expensive process. It will take years of outgo before seeing much income. And it’s like building a house of cards in that it only takes one mistake to bring the whole enterprise down. So, if you’re still intent on launching your luxury brand, realize that it will take a resolute brand strategy, plenty of money, nerves of steel and not a little luck.

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