Who is beyond our desires? Which are the main marketing techniques of luxury design houses? Let’s take a journey.
The luxury goods industry is unique in that it is an industry that relies strictly on marketing and promotion to sell products to a specified group of people . Although a select few are able to afford luxury goods, the vast majority of people who are exposed to advertisements for certain products generally have aspirations of being able to own these products someday. Footwear industry is truly global in scope in that manufacturers can now sell different products that are produced in different countries and spanning many different continents and a multinational strategy is necessary to implement because it allows manufacturers to increase their revenues by focusing on selling their products in countries with rapidly growing economies. This industry serves two types of consumers: for the practical consumer, it provides sensible and affordable footwear which style will not change drastically from year to year, and for the fashion-conscious consumer, industry type will attempt to provide styles of footwear that will keep up with the current season’s trends and for which it is able to command a price premium.Footwear industry is highly competitive and fragmented due to low barriers of entry. It is fairly easy for new companies to enter into footwear industry, however most companies lack staying power. Technology has expanded operations of footwear industry to a more global scale. It has also provided closer working relationships between retailers and manufacturers. Technology has improved efficiency and has reduced the amount of manual labor.Distribution is a key factor to the success of apparel or a footwear companies. It is important for manufacturers to understand customer trends and attitudes toward different retail outlets. The main concern of manufacturers is to ensure that the retailers’ prices for branded products matches the brand’s image. Lowering the price of these products weakens the brand image in the mind of the consumer.Brand names are becoming increasingly important to consumers as disposable income and the amount of time consumers are able to shop around is slowly diminuishing. Therefore consumers are relying more on established brand names and the images they convey when purchasing products. From the manufacturer’s point of view, brands build customer loyalty, which generates repeat business. Companies are now putting more emphasis into market research to keep up with their customers’ needs and current trends in the marketplace : it involves shorten cycles of design, development, marketing and distribution. In order to survive, companies must constantly come up with new designs, new product line extensions, or even new product lines. These products may be developed either internally or externally through acquiring other companies and/or licensing agreements.
Luxury goods manufacturers like Louis Vuitton, Gucci, Hermes, Burberry, Versace, Prada, and Chanel are concentrating their efforts on targeting Japanese consumers. Over the past three years these European designers have been opening more and more boutiques in Tokyo.European luxury labels thrived in Japan in 2002 while other sectors of the economy drastically weakened. Prada’s earnings in Japan alone for 2002 was $3.3 billion while worldwide profits fell 45%. Louis Vuitton, who currently holds 46 boutiques in Japan, earned approximately $1.4 billion in sales for 2002. “Exclusive” European fashion labels have become commonplace among Japanese consumers, and Japan has become one of the world’s first mass market for luxury goods. In 2000, luxury goods companies have become one the strongest contenders in the world’s financial markets and have a rapidly growing consumer sector. At the end of 1999, luxury goods brands like Gucci, Louis Vuitton, and Hermes had gains of over 100%. Gucci reported gains of a 178% end-of-year increase in its stock and a 70% leap in profits to $273.2 million. There’s a combination of factors driving this sector, which has been booming since mid-1999. The recovery in the Asian markets is by far the most important, as this is a crucial area for a lot of these brands, and a stronger yen has also increased the spending power of Asian tourists. Lastly, there is generally a lot of new wealth, generated by the strength of the stock market and the e-economy. Luxury goods brands are largely dependent on its Asian consumers; 40% of Gucci’s sales revenue comes from Asia. In the past three years, luxury goods brands are beginning to broaden their appeal to a wider consumer base. An example of this would be the emergence of e-commerce and how the Internet can be advantageous for luxury goods brands to create and reinforce their brand image and at the same time increasing brand awareness. However, industry analysts are skeptical about luxury goods brands selling their products online, which would reduce the exclusivity associated with these brands. Analysts say that e-commerce is below them.
An example of strategy in luxury companies: Gucci
Domenico De Sole, the Italian-born, 53-year old president and CEO of the Gucci Group, has staged the biggest company turnaround and brand renaissance in high-fashion history-and practically overnight. When De Sole took the reins in 1994, the fabled Florentine company was perilously close to bankruptcy, plagued by years of bruising infighting among the Gucci family members. Recklessly selling schlocky goods, they had trashed the once glamorous brand name. Production was at a standstill, suppliers hadn’t been paid, and the workforce was angry and dispirited. Now Gucci has become one of the fastest-growing luxury goods brands with 158 international boutiques, and revenues have skyrocketed since 1993 and were expected to hit $1 billion in 1997. Net profits doubled to $168 million during 1995-1997. De Sole says his goal for Gucci is to keep pace with larger competitors like privately held Chanel, with estimated revenues of $2 billion, and he boasts that sales already surpassed those of rival Hermes in 1996. De Sole’s marketing strategy consisted of:
• Making Gucci a recognized leader in the high-fashion industry. • Recapture Gucci’s heritage of quality • Lowering prices • Creating a unity of style in boutiques around the world • Running provocative advertisements in top fashion magazines to show Gucci’s changing brand image• Creating a consistent advertising campaign worldwideDe Sole’s management philosophy is that of consistency because he believes that consistency is the distinguishing factor of great brands. De Sole indicated that a valuable lesson that he has learned is over distribution would ruin the idea of exclusivity of luxury brands.
Acquisitions Over his 40-year career of making women’s shoes, Sergio Rossi earned the reputation of being one of the world’s leading couture footwear makers. In November 1999, the Gucci Group NV bought out 70% of Calzaturficio Sergio Rossi in hopes of bringing his craftsmanship to the whole world. The lion’s share of Gucci’s $40 million investment will go to doubling the number of freestanding Sergio Rossi stores in the next three years, particularly in the U.S. and Japan. Gucci will also expand production—now just 550,000 pairs annually—by a third and will entrust to Sergio Rossi the manufacturing of a new Rive Gauche footwear line for Yves Saint Laurent, the French group Gucci bought in 1999. The acquisition of Sergio Rossi will test Gucci’s strategy and ability to manage a portfolio of brands by means of acquisitions. For Gucci, whose greater strength is in bags and apparel, Sergio Rossi’s shoes fit nicely. Sergio Rossi remained faithful to its specialization in one product. That’s exactly why Gucci bought them’. Creative director, Tom Ford, devised a new marketing strategy for Sergio Rossi that was unveiled in spring 2001. In the meantime, Rossi planned on expanding his product lines to a men’s collection, a line of handbags, and leather goods. Currently Rossi remains the company’s creative director and has 30% ownership.