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MARKETING: Luxury Brands
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When living in China it becomes quite evident why it is interesting to talk about the brand management and marketing aspects of luxury brands. China’s domestic market for luxury goods is exploding and so is demand on a worldwide scale. The growth of the luxury sector worldwide has been growing from a value of USD 20 billion in 1985 to more than USD 180 billion worth today. This growth is a consequence of globalisation, wealth creation opportunities, digital communications, international travel and culture convergence, and new market segments such as China, Russia, India, the Middle East, Brazil and Mexico.
 
China is the world’s second largest consumer of all luxury goods worldwide, next only to Japan, and having surpassed the United States in 2009. China accounts today for approximately 30% of the world’s luxury goods sales. 
 
Luxury brand management
 
There is actually no more pure form of marketing than luxury brand marketing. This is an industry where customers' perceptions drive everything. One false step and the fall from shoppers' most-desired lists can be swift and brutal.
 
Luxury products—clothes, handbags, shoes, and jewelry—might be well made, but they're not difficult to make. The entirety of the business’ success rests on keeping shoppers convinced that the brand name alone is worth paying extra for.
 
When managing a luxury brand, the four P’s of traditional marketing are still important: product, price, promotion and place, but further complexity is added. Successful luxury brand management demands substantially different considerations like experience, exclusivity, engagement and emotion.
 
Experience: Today luxury consumers are still buying. However they are becoming increasingly more selective about where they spend. So today it is not just about the luxury good itself, it is also very much the experience given to the consumer when buying and after the purchase. One can say that the experience a luxury brand provides is a product unto itself. 
 
Exclusivity: The traditional marketing paradigm treats exclusivity as secondary, as a derivative of the second P: price. But to luxury brands, exclusivity is far too dear to be viewed so casually. Exclusivity has forever been a linchpin in luxury brand success, and in this increasingly democratic digital world, no aspect of luxury marketing has been more vehemently protected. 
 
Engagement: No matter what, engagement relies on one thing: storytelling. A narrative that makes a participant feels something. When it comes to luxury brands, engagement is synonymous with a story and the story sells. Tiffany & Co. reported a 20% uptick in sales after the public and press alike lauded the company’s What Makes Love True microsite and Engagement Ring Finder mobile app, two digital marketing elements that communicate Tiffany’s powerful brand story about realizing true love. 
 
In today’s luxury marketplace, convincing consumers to buy isn’t enough. Convincing them to join a brand on a journey is the key, and that’s what stories do. 
 
Emotion: The first three E’s combine to form the fourth and final imperative element of luxury marketing. Luxury brands cater to a consumer that can buy almost any material thing he or she wants. A luxury brand’s physical product, therefore, is secondary. Like an experience, an exclusive insider’s view or an engaging story, a particular emotion is what luxury consumers are really after. 
 
However, with that said, it is a given that the performance of a luxury product must be outstanding and the quality of design excellent. Ingredients like craftsmanship, precision, materials, unique design, extraordinary product capabilities, technology and innovation are must haves for a luxury brand. And only when these elements are in place, the story telling can begin.
 
The top 10 luxury brands
 
Each year market research company Millward Brown ranks the top 10 luxury brands globally based on brand value, which takes into account the brand’s dollar earnings, its potential future earnings and the quality of the brand in the mind of the consumer. 
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1) Louis Vuitton. Brand value: USD 25.9 billion. LV’s strategy is to only associate itself with classic, iconic celebrities. Its new campaign will feature Muhammad Ali, for instance and the one just ended starred Angelina Jolie. The real growth of LV comes from Asia, Japan and South America, and sales are actually stagnant in Europe and the US.
 
2) Hermes. Brand value: USD 19.2 billion. The company sees itself as a guardian of creativity and craftsmanship, but is also a financially disciplined company. The chain has only 328 stores worldwide. 
 
3) Rolex. Brand value: USD 7.2 billion. Rolex associates itself closely with gold, motor sports, skiing, tennis and yachting, all of which are activities that are typically favoured by the super-rich, and furthermore, Rolex is the most popular watch manufacturer amongst very rich people worldwide. Rolex relies on print ads and sponsorship of tennis players. 
 
4) Chanel. Brand value: USD 6.7 billion. After the death of Coco Chanel, the brand rescued itself by cutting the list of distributors selling Chanel No. 5 from 18,000 to 12,000—and thus making it more difficult and more desirable to find. Chanel—and its head designer Karl Lagerfeld—have worked hard to retain this air of exclusivity (it doesn't sell certain products online, for instance), but it has actually extended its brands to become more mass-market again, for instance with the Coco Mademoiselle sub-brand for younger women. Like a lot of luxury brands, Chanel has also opened new stores in Asia. 
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5) Gucci. Brand value: USD 6.4 billion. Unlike the other luxury brands, which operate in an almost obsessive culture of secrecy about themselves (to maintain that elusive chic), Gucci is rather more down-to-earth about how it intends to operate. Gucci is rolling out an extravagant re-design of its major stores and the mother company of Gucci is constantly fussing over its factory-to-store chain, which it completely owns and controls.
 
6) Prada. Brand value: USD 5.8 billion. A huge part of Prada’s success comes from a massive expansion in the number of its stores. It opened 65 of them between April 2011 and April 2012. Most of the openings will be Prada brand stores, reflecting a general trend among luxury brands to assert tighter brand control by shifting away from licensing and franchising. 
 
7) Cartier. Brand value: USD 4.8 billion. The CEO of Cartier said the following last year about Prada and China: “I feel like I’m having a black tie dinner on top of a volcano. Okay? That volcano is China, but that’s what I feel like. I go, in the morning we put on our ties and our watches and we go, and the food’s better, and the wine’s better, and the weather is great, but let’s not kid ourselves. There is a volcano somewhere, whether it’s this year, in ten years’ time, or in twenty years’ time. We are exposed to China. I think they’re going to travel more. I think they’re going to survive. I think all of these things, but we are now a ‘China play’, and it suits us if the euro gets weaker”.
 
8) Hennessy. Brand value: USD 4.6 billion. The Hennessy story is all about the barriers to competition that can be erected after you've established a dominant market position—assuming you did that more than a century ago. Hennessy has been the top cognac brand since 1890 and now has a 41.1 percent share of the market.
 
9) Moet & Chandon. Brand value: USD 4.2 billion. The owner of Moet (LVMH) controls 1,697 hectares of the Champagne growing region in France. Its champagne brands include Moet, Dom Perignon, Veuve Cliquot and Krug, and together they hold 18.3 % of the global market. Good luck competing with Moet – the French regulatory agency that controls Champagne places annual caps on its production. It’s a classic barriers-to-competition situation created by government regulation. 
 
10) Burberry. Brand value: USD 4 billion. Burberry managed to reinvent itself with a full range of clothes, all trimmed in the Burberry plaid. The company has continued to expand its range, now also offering fragrances. Burberry’s recent growth report for China shows that it is slowing down.
 
So there are the top 10 luxury brands in the world today and a small note about each of them.
 
The luxury market in China
 
The luxury market in China is dominated by luxury products which are status symbols, and so are things that can be shown to others: bags, clothes, watches, jewelries, cars, gadgets and the like. The top three luxury brands in China in 2010 were Louis Vuitton, Chanel and Gucci. In 2010 and 2011, watches and bags led the growth of the luxury market in China. China has a long history of gift-giving and so this is also one of the drivers behind the growth in the luxury goods market here.
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Chinese luxury goods consumers are younger than in Europe and are in the age group 18-50 years old, compared to the European luxury goods consumers who are in the over 40 age group. For this reason, China’s luxury market is expected to grow faster than that of Europe’s. Many of the young luxury goods buyers in China are self-employed or professionals. Chinese luxury consumers can be generally categorized into three groups: First is the nouveau riche (ultra-rich) group who acquired their wealth over the past decades. These consumers and their families are purchasing luxury goods within mainland China and are not sensitive to the dramatic price differences (many luxury goods costs 30-80% more to purchase in China compared to Europe, because of import taxes etc). A majority of this nouveau riche group reside in 1st to 3rd tier cities. Second is the gifting group; consumers in this group are generally buying luxury goods within mainland China for gifting (mainly for business or government-related purposes). They are not sensitive to price differences because costs will be covered by their corporations. The third group, and by far the biggest in population, is the Chinese middle class consumers who are brand-conscious. These consumers are price sensitive. They often work and reside in 1st or 2nd tier cities.
 
It comes as a surprise to many that there are not so many Chinese luxury brands on the market, even though this is a big market in China, but the explanation is rather simple. A long history and strong traditions are often key components in a luxury brand. A lot of what distinguishes a luxury brand is its history – just look at the top 10 list. And this is one thing that many Chinese brands do not have. Chinese companies that made cosmetics, luxury clothing and jewelry – all unwelcomed symbols of decadence – shuttered their doors between 1950s and the late 1970s. Yet a few Chinese luxury products survived the period between communist takeover and the country’s reform and opening up. One is Moutai, a strong spirit known as baijiu. Moutai is the market leader for sales of baijiu and is one of the most valued companies on the Shanghai Stock Exchange. Only a few other legacy Chinese brands have been ushered into the present. Panda cigarettes, which became famous between the fingers of late Chinese reformer Deng Xiaoping, often accompany small glasses of baijiu at the banquet table. The brand's luxury line now sells for more than USD 600 a carton and aficionados know to expect long waiting lists for the product.
 
Beside these few strong local luxury brands, many of the international luxury brands are doing relatively well from a marketing point of view in China. Some have made mistakes in the past but this market is maturing rather quickly and international advertising agencies and brand advisers help these big global companies that breathe life into their brand every day to stir through the tough waters of China. 

By Heidi Skovhus
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