During the recession some brands launched new and special products while simultaneously trimming their overall product lines. This resulted in fewer offerings and simultaneous price increases on both existing and new products, stimulating consumer demand and generating market interest, discontinuing low-margin products, and increasing prices in some product categories. Some companies ventured into new products and product lines (deepening), whereas others consolidated their brands under one umbrella. Burberry ventured into a new product line with a stand-alone children's store in Hong Kong, Bottega Veneta ventured into watches, and Versace launched a new fragrance, Gianni Versace Couture. Brioni reacted to the crisis by including more accessible items in its product range of suits such as T-shirts. Coach kept the prices of its regular lines stable, but introduced new lines, such as the Poppy handbags, to cater to a less affluent segment. Estée Lauder moved away from a strategy that fostered competition among various brands. It believed in following a more synergistic and coordinated policy of brand interdependence rather than competition. Its aim was probably to make the consumer feel that its brands were complementary in nature rather than supplementary. By maintaining or increasing prices for example, these brands resegmented their consumers and were more likely to pick up market share after the recession. Francois-Henri Pinault, CEO of Kering, was of the opinion that “There's a new perception of luxury, a more discrete sophisticated luxury where notions of heritage and craft play a big role.”9
During this period many consumers had to cut back on their purchases, and many sensed that it was not appropriate to show off with obviously expensive products. It was something that only traditional, artisanal, and legitimate houses could uphold. Brands did not act at all but kept true to their values and their traditional offerings. These included Hermès, Harry Winston, IWC, Chanel, and Patek Philippe.
Some brands explored new channels to deliver their products to the customer. Gucci and Ralph Lauren adopted the QR code. This was an image that shoppers could scan and download through their camera phone to obtain more information about the product or make purchases via their phone. Cartier adopted advertising through mobile phones. Companies like LVMH and Gucci also adopted online retail as an option for selling their products. This was quick to gain acceptance in Japan, where 20 percent of consumers make their purchases online.
Some brands diversified during the recession to strategic but complementary businesses or acquired greater control of their current businesses. From 2000 onwards, most if not all luxury brands, be it multibrand conglomerates or family houses, expanded horizontally into different traditional luxury categories. For example, Louis Vuitton expanded into fashion, high jewelry, and watches. Montblanc expanded into watches and jewelry. Chanel diversified into high jewelry. Salvatore Ferragamo expanded into fragrances and accessories. During the recession, Louis Vuitton, Bulgari, Armani, Missoni, and Trussardi diversified into a nontraditional luxury goods category with the opening of luxury hotels. Moreover, brands acquired greater control of their core businesses to integrate vertically, purchased key suppliers, and bought back licenses and franchises to increase efficiency, control their brand image, and generate superior margins.
Some companies tried to understand changing customer needs during the recession. For instance, Diageo noticed that people reduced their consumption of alcohol outside their homes. Thus it launched premixed cocktails such as Smirnoff Tuscan Lemonade for home consumption. Ritz-Carlton coined Mystique, its CRM system, to keep a closer tab on the consumers' pulse. Taking this flexibility a step ahead, some companies let the consumer guide the company, rather than the other way a round (which has been the norm in luxury branding). For instance, Nordstrom was lauded for its policy of refunding money to dissatisfied customers.
Conclusion
In conclusion, different brands adopted different strategies as a response to the crisis. None of the brands adopted a single universal strategy. They remained creative in their responses. Some succeeded, some did not. As the industry rebounded, they adjusted. The bouquets of responses were meant to encompass different type of customers from different cultures and geographies. A global brand strategy was needed to convince several segments of clients – so different and interested by so many various luxury sectors. With crisis it was seen that luxury loses its definition, the market remained totally open, and goods varied from premium, super-premium, and ultimate luxury.
Formerly accessible to a few, the luxury industry democratized from 1985 onwards – three decades – with brand extensions such as perfumes and eyewear attracting more numerous (and younger) consumers. The future of luxury would therefore be built on the capacity of brands to understand the scope of potential customers, fixing a strategy based on a specific language. There was no universal response, nor any universal language. Chanel speaks Chanel, Hermès speaks Hermès, and Gucci has its own vocabulary – the challenge is to keep the dream going, for everyone, after the crisis.
Figure 1.5 summarizes the different strategic responses of luxury brands to the global financial crisis.
Figure 1.5 Luxury Brands and Their Crisis Management Strategies
Chapter 2
Evolution of the Global Luxury Market
Luxury is the opposite of vulgarity. Luxury is the opposite of status. It is the ability to make a living by being oneself. It is the freedom to refuse to live by habit. Luxury is liberty. Luxury is elegance. True elegance is refusal.
The term luxury goods was popularized by Wall Street analysts who needed a term to describe companies such as LVMH, Richemont, and Gucci, which had become public companies. Prior to the popularizing of the term luxury goods, these companies were not really known as luxury goods companies but instead were known for their specific areas of expertise and the global reputation they had garnered.
Luxury is about exception and exclusivity, whether it comes to products, or services. A luxury product/service is unique, and not only because of its outstanding quality. It tells more than what it is. Beyond the usefulness or the wellness it brings, it tells a story, it reflects a style and a spirit that contribute to the dream. Luxury is about a product but also a brand, a universe.
It is an association with a compelling and binding meaning in terms of emotional connectivity, personal harmony, spiritual connection or a connection to the world of the inherently beautiful, the greater the marginal value of the object to the seller.
Luxury used to be “ordinary goods for exceptional people” but now can be defined as “exceptional goods for ordinary people.” It had to do with an object, its use, five senses, it was an offering, attraction, a product, a niche and serendipity. Today it is about marketing push, process, synergy, volume and efficiency.
Luxury is a state-of-mind. It is about a bridge between dream and daily routine, a way of appreciating one's time and life, a statement of being oneself.
The language of value in the world of objet de luxe is modest in inverse proportion to the price, value, and authenticity of the item. Value might connote a different meaning in the world of luxury.
The value of luxury products is shaped by meaning content, not design; even clumsy design can be valued, collected, and treasured.
The Boston Consulting Group defined luxury goods as “Items, products, and services that