Summary and Keywords
The luxury business has been one of the fastest growing industries since the late 1990s. Despite numerous publications in management and business history, it is still difficult to have a clear idea of what “luxury” is, what the characteristics of this business are, and what the dynamics of the industry are. With no consensus on the definition of luxury among scholars and authors, the concept thus requires discussion. Luxury is commonly described as the high-end market segment, but the delimitation of the lower limit of this segment and its differentiation from common consumer goods are rather ambiguous. Authors use different terminology to describe products in this grey zone (such as “accessible luxury,” “new luxury,” and “prestige brands”).
Despite the ambiguous definition of “luxury,” various companies have described their own businesses in this way, and consumers perceive them as producers of luxury goods and services. Research on luxury business has focused mostly on four topics: (1) the evolution of its industrial organization since the 1980s (the emergence of large conglomerates such as Moët Hennessy Louis Vuitton SE or LVMH, and the reorganization of small and medium-sized enterprises); (2) production systems (the introduction of European companies into global value chains, and the role of country of origin labels and counterfeiting); (3) brand management (using heritage and tradition to build luxury brands); and (4) access to consumers (customization versus standardization). Lastly, new marketing communication strategies have recently been adopted by companies, namely customer relations via social media and the creation of online communities.
Scholars, investors, and financial analysts often assert that the luxury industry has been growing rapidly since the early 1990s. According to the consulting firm Bain & Company, the value of the global personal luxury goods market increased from 73 billion euros in 1994 to 128 billion euros in 2000, then to 253 billion euros in 2015 (Bain & Company, 2015). Moreover, this sector is characterized by the domination by numerous European companies that lost their competitive advantage in many other fields of manufacturing.
Discussing the “luxury business” leads to an epistemological and methodological problem related to the definition of the object. There is no common, shared concept of what “luxury” is, how it can be defined, and what it includes. Hence, it appears necessary to discuss the definition of luxury. Two preliminary comments can be made.
First, luxury is not an industry like most others, which are defined by the nature of their products such as cars, electronics, and food, or of their services such as communication, insurance, and transportation. Rather, it is understood as a particular segment of the market, and it can include almost all kinds of goods or services. Consequently, the task here is to properly delimit this segment. i.e., to clarify what luxury is and what it is not. However, no consensus exists about terminology in this area, which can lead to confusion. Some scholars have argued that there are several kinds of luxury, all with their own positioning, strategies, and management. Allérès (1991) spoke of “inaccessible luxury,” “intermediary luxury,” and “accessible luxury.” The problem is that she was not very clear about the differences between these categories and did not really explain what “luxury” itself is. Barnier, Falcy, and Valette-Florence (2012) showed that, from a consumer perspective, there is a continuum between these categories of luxury and that their boundaries are somewhat unclear. Moreover, Allérès (1991) did not explain the differences between “accessible luxury” and non-luxury-brand consumer goods. She also showed that the same company and the same brand could have products in different categories of luxury. This idea of vertical segmentation between different levels of luxury became popular among scholars and managers to define the shift of some luxury brands (e.g., Armani and Gucci) toward mass markets, which was called a “vertical extension” by Keller (2009). Silverstein and Fiske (2008) named it “new luxury,” while Truong, McColl, and Kitchen (2009) proposed the concept of the “masstige brand” (from mass prestige). They argue that mass consumption and democratized luxury can cooperate in various ways, for example, via the hiring of celebrity designers to create collections for fast-fashion (e.g., Karl Lagerfeld for H&M).
Second, luxury is not “branding,” nor is it “fashion.” Although brands add value to products (Lopes & Duguid, 2010), this brand does not necessarily transform a common good into a luxury good (Kapferer & Bastien, 2009a). Most of the world’s famous brands are goods aimed at a mass market—particularly for food and drink, electronics, and clothing—and not to a specific top-of-the-range segment. In fact, the ranking of the World’s Most Valuable Brands, realized by Forbes in 2015, included only a few luxury brands in the top 100 of The World’s Most Valuable Brands: Louis Vuitton, Gucci, Hermès, Cartier, Coach, Rolex, Prada, and Chanel. Consequently, several scholars, especially those with experience of management in luxury companies, have emphasized the need to give a precise definition of “luxury,” as opposed to other branded consumer goods, to be able to effectively position luxury products in the market. The brand management of luxury goods needs to ensure that these types of products cannot be confused with non-luxury goods—it is essential for the industry to retain and reinforce the specificity of luxuries (Kapferer & Bastien, 2009a; Keller, 2009).
Fashion has been defined as a “system of signifiers” (Barthes, 1967) and a “manufactured cultural symbol in an institutional system” (Kawamura, 2005), which results from the combined action of producers, consumers, and intermediaries. Beginning in the late 19th century, some authors argued that conspicuous consumption (Veblen, 1899) and fashion (Simmel, 1904) enabled higher classes to distinguish themselves from the rest of society. Most religions have criticized social distinction through consumption, particularly as a waste of resources and a surge of vanity (Morand, 2012). Fashion is indeed a way to express social and gender identity (Crane, 2000), so it can be linked to luxury in some cases, such as “luxury fashion” (Fionda & Moore, 2009), but these concepts are not synonymous. Hence, when Vickers and Renand (2003) maintained that luxury products could be defined as “symbols of personal and social identity,” they were actually giving them a meaning that resembles that developed by social science scholars with regard to fashion. They considered luxury goods as a tool for identification with a social class or personal taste, as is the case for fashion. That perspective does not precisely express the nature of luxury, however, as luxury brands are intimately linked to a market segment.
The borderline between luxury, brands, consumer goods, and fashion is thin, as all of these sectors use similar strategies to establish and strengthen a strong positioning in the market, particularly for distribution and retail. Consequently, there is often confusion between these concepts in the literature (Allérès, 1992; Chevalier & Mazzalovo, 2008). Nueno and Quelch (1998) stressed that “luxury goods” have a set of characteristics, such as tradition, heritage, and high-quality craft and design. However, in many cases, these elements are not so much the nature of luxury goods but marketing resources used to strengthen the positioning of products in the luxury market. Kapferer and Bastien (2009a) probably gave the most useful definition: luxury brands are defined by their marketing strategy, which differs and is opposite to common marketing rules. As they wrote in their seminal work, “The luxury sector refers to brands and companies that are considered by their peers as manufacturing and marketing luxury products or services.” This is quite an ambiguous definition, but it emphasizes that the elements usually stressed in a definition of luxury goods are not important. As luxury products form a segment of the market, the strategy that makes it possible to position and keep them positioned in this high-end segment is the most important determining factor. Therefore, luxury products are provisionally defined here as products in high-end segments.
The lack of consensus between scholars and the ambiguity of Kapferer and Bastien’s (2009a) definition means that defining “luxury” is still an open question and a major issue for scholars, making it necessary for each author to clearly state his or her own definition.
The Historical Development of the Luxury Industry
The lack of a precise definition of “luxury” also has important implications regarding the historical evolution of the luxury business. The high growth experienced by this industry since the 1990s has led numerous social, cultural, and economic historians to carry out historical surveys, mostly based on specific industries and countries—some of them commissioned by the owners of luxury brands. Luxury goods have, of course, always existed, considered as goods destined for a social elite, and some scholars, both in history and in management, have traced the evolutionary path of the consumption of luxury goods from antiquity to the present time (Allérès, 1992; Marseille, 1999; Castarède, 2011). Such works undeniably strengthen the idea of a continuum through centuries, hence supporting current marketing strategies that are built on those used in the past. They are, however, not so useful as marketing tools, but more for understanding the evolution of the dynamics of the luxury business.
One of the major contributions regarding the beginnings of the luxury business is by Maxine Berg on the birth of consumption society in the United Kingdom during the 18th century (Berg, 2007). She emphasized that this was a turning point for the concept of “luxury.” While it used to be associated with wealth, status, and the power of the aristocracy, and criticized for this reason by writers during the 17th and 18th centuries, the meaning of luxury shifted to the consumption of products that were more than merely necessary (Berg & Eger, 2003). Rather than emphasizing the rarity of goods, which characterized most the products imported from Asia to Europe since the time of Marco Polo (such as spices, silk, and porcelain), Berg argues that craftsmanship and quality became distinctive features of luxury in the 18th century (Berg, 2007). The same phenomenon has been demonstrated for the United States (Anderson, 2012) and continental Europe (Sougy, 2013), sometimes from a perspective of cultural history and gender studies (Simonton, Kaartinen, & Montenach, 2015).
Economic growth, international trade, and the “industrious revolution”—the growth of a market economy based on household production and consumption (De Vries, 1994)—led to the development of middle classes, and, consequently, to an enlargement of consumption. Studies in economic and social history largely considered luxury goods to be consumer goods that are not necessities. Berg (2007, p. 7) also discussed “new consumer products,” and Verley (2006) introduced the idea of “half-luxury” (“demi-luxe” in French). Berg (2007, p. 21) gave the following explanation about the nature of these new products: “Luxuries, formerly negatively associated with foreign imports and with elite ostentatious display, gave way to consumer goods identified with middling-class domestic interiors and dress. Distinctive British consumer goods connected the middling classes to an economy extolling the virtues of quality, delight, fashion and taste, comfort and convenience, and variety and imitation.” The coexistence of various levels of “luxury” was the outcome of the emerging consumption society, in which consumption had become an expression of social distinction based both on imitation and distinction (Simmel, 1904; Bourdieu, 1979).
While Berg and others emphasized trade with Asia as a major channel for the supply of luxury goods during the 18th century, some scholars focused on the emergence and growth of a craft industry in Europe that responded to the new needs of the middle classes. Verley (2006) argued that the structuration of an international market during the 17th and 18th centuries was first made possible by the trade of luxury goods imported from Asia. Then, in the early 19th century, the industrialization of production led European countries—mostly France but also the United Kingdom to some extent—to establish themselves as the first exporters of luxury goods aimed at a specific market, the United States. In this context, Bergeron (1998) showed that the growing demand for luxury goods at the beginning of the 19th century led to the creation of numerous companies that remain today among the best-known luxury brands, such as Hermes and Louis Vuitton. Woronoff (1994) also analysed the high growth of the manufacturing industry based on small, specialized enterprises in Paris resulting from the rise in demands for luxuries. Furthermore, the link between social class and luxury has been exaggerated. Some authors have even spoken of a democratization of luxury (Daumas & Ferrière le Vayer, 2007; Albert, 2015), resulting from a process of imitation of the upper social classes as described by Bourdieu (1979). For example, Carnevali (2003, 2007, 2011) considered cheap, mass-produced jewellery as “luxury for the masses.” One can, however, argue that such products should be looked at as “fashion products” rather than proper “luxury” (as distinguished in Section 1).
Yet, if only goods aimed at the social elite are considered, the industrialization of the production of these goods can be observed since the late 19th century. Historians have presented two main approaches regarding this issue. First, some authors have maintained that the introduction of methods of mass production enabled a high growth of production without having any negative impact on the quality of goods or brand image. Hence, industrialization supported the growth of luxury manufacturers. This was, for example, demonstrated by Tesson (2013) with the case study of the champagne maker Moët & Chandon. A second way to extend profitability has been the diversification of accessories, a strategy pioneered by Christian Dior as early as the 1960s (Okawa, 2008). Yet, other scholars have had a rather pessimistic view of these changes. Ferrière le Vayer (2007) lamented the industrialization of production in the traditional French luxury goods industry, stressing the “dichotomy between production and creation” (p. 161). However, his analysis was based more on a nostalgic and idealistic view of traditional crafts rather than a purely academic perspective.
This short presentation of the historical evolution of the luxury business since the 18th century has two implications for scholars in business studies. First, it shows that there is no consensus among historians of a definition of “luxury.” The boundaries between consumer goods and luxuries between 1750 and 1950 are rather vague. Second, historians did not pursue their research beyond the 1960s, mostly due to difficulties accessing archival sources, and to the traditional reticence of historians to focus on the recent past.
Management Studies on Luxury Business
Research on luxury business covers a wide range of issues. The following section explores four main themes: organizational structure, production systems, brand management, and access to markets and consumers.
The high growth and changes in organizational structure experienced by the luxury industry since the 1990s gave rise to an increasing scholarly interest in the management of luxury companies. Importantly, the needs of luxury companies were the driving force of this academic development. Numerous authors have had experience in the industry and have carried out consulting work for luxury companies or trained new generations of employees for them. Today, business schools throughout the world offer MBA programs to educate the future managers of the luxury industry. For example, among the most renowned institutions, ESSEC Paris offers an MBA in International Luxury Brand Management, while Columbia University (New York), Waseda University (Tokyo), Bocconi University (Milan), and the London School of Economics all have their own MBA courses in Luxury Brand Management. The University of St. Gallen (Switzerland) also opened a Competence Center for Luxury Management in 2010.
Researchers studying the luxury business usually publish their work in management journals and more specifically in marketing journals, which often have special issues about the luxury business. Several recently created journals are dedicated to the luxury business: Luxury: History, Culture, Consumption (2014) and the Luxury Research Journal (2015).
Moreover, management scholars, business analysts, journalists, and professional writers have published a large number of books about luxury since the 1990s. Although these are not always the direct outcome of academic research, they are worth mentioning here for two reasons. First, these publications have a strong impact not only on professional practice in the luxury business but also on academic research itself. Second, the boundaries between academic research and professional practice are very ambiguous. Books are released by the same publishers, like Kogan Page and Palgrave Macmillan, and some of their authors have careers in both fields. For example, Vincent Bastien was not only professor of marketing at Hautes Etudes Commerciales de Paris (HEC Paris) and the author of several academic books and articles, but also the former chief executive officer (CEO) of Louis Vuitton and Yves Saint Laurent–Parfums.
Books published outside of academia usually give a general overview and offer a good understanding of specific topics and countries. For example, several recent publications have focused on China (Lu, 2008; Tsai, 2008; Chevalier & Xiao, 2009; Rambourg, 2014), providing readers easy access to various facts regarding this market. However, these publications are rather descriptive and lack an analytical perspective. Many books in this area are textbooks for business schools (Thomas, 2007; Chevalier & Mazzalovo, 2008; Tungate, 2009; Hoffmann & Coste-Manière, 2012; Briot & Lassus, 2014; Berghaus, Reinecke, & Müller-Stevens, 2014); consequently, they mix academic perspectives with professional discourse. For example, the preface of Briot and Lassus’ (2014) publication was written by Frédéric Bernardaud, a general manager of the family firm Bernardaud, a French manufacturer of luxury porcelain.
Consequently, although the amount of scholarly investigation into luxury business has increased rapidly over the last 20 years, it is sometimes difficult to distinguish between applied and academic research. The overwhelming majority of papers related to luxury that are published in management journals aim at a better understanding of specific and practical issues for companies and daily management, not at contributing to the discussion about the nature and the functioning of the luxury business.
The growth experienced by the luxury business since the 1990s is not only a consequence of the increasing worldwide demand; it also results from a deep organizational change that occurred mostly during the 1970s and 1980s, which gave birth to new kinds of enterprises in the industry. Today, two major kinds of organizations can be observed.
On the one hand, conglomerates or groups of enterprises have emerged. Bonin (2012) emphasized that, in France, the general crisis of the manufacturing industry led to waves of mergers and to the formation of holding enterprises that controlled a wide range of brands and operating companies, like Louis Vuitton Moët-Hennessy (LVMH), founded in 1987. Compagnie Financière Richemont (founded in Switzerland in 1988) followed a similar development path, while other companies diversified to luxury products in the 1990s and then built conglomerates, like the Pinault-Printemps-Redoute (PPR, Kering since 2013) in France and Luxottica in Italy (Jackson, 2004). These groups adopted a growth strategy based on the takeover of multiple luxury companies that used to be family owned and managed but lacked the capital necessary to pursue their expansion on the global market. For example, LVMH purchased—and continues to purchase—numerous companies like Kenzo in 1993, Guerlain in 1994, Tag Heuer in 1999, Fendi in 2002, and Bulgari in 2011. These groups thus became widely diversified conglomerates, managing portfolios of brands (Donzé & Wubs, forthcoming). The business model of these conglomerates relies on the vertical integration of distribution and the management of global retail networks, the rationalization of financial flows, the employment of new managers from the global consumer goods industry—called “Procterians” by some French authors (Bonin, 2012) in reference to Procter & Gamble and their famed brand management—and the globalization of brands. In addition, Moore and Birtwistle (2005) pointed out that the integration of Gucci in a huge financial group (French PPR) supported the rebirth of the company in the late 1990s and its successful move to become a “multi-luxury-brand conglomerate,” which they called the “parenting advantage” process. Conglomerates can use the facilities of various brands (for the manufacturing of perfume or leather goods, for example) to launch accessories for other brands in their portfolios.
Yet, beyond a general business model common to all these groups, each of them has some specificities related to the particular nature of their portfolio of brands, which leads to different forms of management. For example, Richemont has a core business in watches and jewelry and is “craftsmanship driven,” while LVMH has a core business in fashion goods and is “fashion driven,” which is why it employs star designers (Terasaki & Nagasawa, 2013).
Although authors usually have a positive view of the construction of conglomerates and their impact on the development of the luxury business, Okonkwo (2007, p. 226) described this organizational change as a “deconstruction process.” The arrival of institutional investors and equity fund companies in the capital of luxury firms led them to change their brand management and distribution strategy to attain greater financial profit. She suggested that the brand and retail management of luxury goods became similar to that of fast fashion brands as a result of the transformation of the luxury business into big business.
On the other hand, small and medium-sized enterprises (SMEs) are still important actors in the luxury business. Numerous small, uncompetitive family firms have become merged into the big luxury conglomerates, but some of them have been able to reorganize and reposition themselves to experience growth while remaining independent. Hence, success does not depend only on the size of the business. For Italy, Colli and Merlo (2007) and Merlo (2012) stressed that family firms from the textile and clothing industry shifted toward luxury fashion during the 1970s and 1980s. In the context of building new global value chains, production was mostly transferred abroad, and companies, usually family-run SMEs, focused on design, branding, and distribution. In the United Kingdom, Moore and Birtwistle (2004) used the case of Burberry to emphasize the importance of rebranding and the role of new managers, with a tighter control of the brand, manufacturing, and distribution since the late 1990s. The top–down control of the brand seems to be decisive. Prada followed a similar path in the 1980s (Moore & Doyle, 2010). In the case of Chanel in France, Nagasawa and Sugimoto (2010) stressed the importance of the strategy of diversifying to accessories and the role of personal designers like Lagerfeld. Although Chanel remained independent, it developed the same strategy as large conglomerates in terms of managing its supply chain for accessory production since 2002. This later case shows that designer-managers (such as Tom Ford at Gucci, Karl Lagerfeld at Chanel, Marc Jacobs at Louis Vuitton, and John Galliano at Dior) can implement new strategies to strengthen their positioning in the luxury segment, and even to create their own enterprise, as was the case in France, the United Kingdom, and Italy. Daumas and Ferrière le Vayer (2007) also emphasized (through the case of the French Comité Colbert, founded in 1954 and still active today) the role played by collective institutions to regulate production and support the international expansion of SMEs. Importantly, however, history is not made only of success stories. Vernus (2007) analyzed the failure of a French silk company to compete in the global market, and its closure in 1992 after more than a century of business. He emphasized that this firm, which was essentially a supplier of Parisian haute couture, was unable to adapt to the new environment created by the organizational change in the French luxury fashion industry since the 1960s.
The organizational change and the fast growth of the luxury industry have had a deep impact on production systems. Companies now face a no-win situation. On the one hand, the keen competition between luxury companies and the need to answer an increasing demand lead to the necessity to mass-produce and cut production costs; one possible answer is to subcontract manufacturing and to relocate production to low-wage countries. On the other hand, brand management requires that the image of European craftsmanship and manufacture is kept intact, so it would seem that the globalization of production should be avoided. How do luxury companies deal with such a contradiction between the control of production costs and the brand identity? In other words, how do they organize their production systems?
Strangely enough, very few scholars have focused on the issue of production, so further research in the field is crucial. Although companies tend to emphasize their craft tradition as a source of uniqueness and competitiveness, scholars should look more closely at the nature of the companies’ production systems, particularly their position in global value chains, to properly understand the dynamics of the luxury business. Degoutte (2007) is one of the very few to have tackled this issue, but it was only secondary in her study; she mentions that some companies in the European luxury fashion industry outsource their production, but she provides no in-depth analysis of this phenomenon. Studies on topics related to the evolution of the production systems of luxury goods can be divided into four themes.
First, studies on the use of global value chains by European manufacturers tackle cases in the Italian luxury fashion industry and look at the impact of new global value chains on traditional industrial districts. Some authors have demonstrated that traditional craft production could have been locally maintained but that manufacturers had to accept a “functional ‘downgrading’ by abandoning design and sales” to their buyers—luxury groups outside of the region—as observed in the Brenta shoe district in Italy (Rabellotti, 2004). Other scholars have emphasized that subcontracting for luxury groups did not prevent the relocation of production in low-wage countries. For example, the manufacturers of sunglasses as accessories for the global luxury fashion industry relocated part of their production to Eastern Europe and East Asia without harming their product brands (Campagnolo & Camuffo, 2011). The study by Brun et al. (2008) on supply chains in the Italian luxury fashion industry emphasized that the increasing dependency of specialized manufacturers on luxury groups is not necessarily fatal, and that some of them could remain independent through vertical integration and investment in distribution and retail.
Second, the regulation of production at national or regional levels has attracted the attention of numerous scholars. Trade associations have existed since the middle of the 19th century; examples include the Chambre Syndicale de la Couture Parisienne, which formed in 1868 as an organization of high-fashion manufacturers in Paris (Pouillard, 2016), and the Comité Colbert, which formed in 1954 to protect the interests of French luxury companies (Castarède, 2011). These two bodies serve to regulate the boundaries of luxury business, using their authority over the membership to introduce rules regarding production. Another issue related to the regulation of production is the concept of country of origin (COO). Country of origin is widely discussed in the literature and has important implications for the luxury business; the “Made in” label appears to justify brand strategies that emphasize the territorial roots of crafts and expertise. Hence, location is not only a source of material advantages (such as natural resources, technology, and labor) but also a way to build brands and add value to a product.
For example, Aiello, Donvito, Ranfagni, and Grazzini (2013, p. 326) stated: “Made in Italy appears to overcome the meaning of a simple indication of country of origin, becoming a synthesis tool capable of linking aesthetics and quality components with technological contents; Made in Italy takes the role of a container of intangible and evocative values linked to the ‘Italian style and way of life.’” Although research about the impact of “Made in” labels on consumer behavior (Snaiderbaur, 2010; Koromyslov, 2007; Bertoli, 2013) and on their use in brand management by luxury companies (Baker & Ballington, 2002; Gabriel & Urien, 2006; Kapferer, 2012) covers a broad spectrum, there are very few studies on the legal definition of “Made in” labels. The case of the Swiss watch industry illustrates that the legal definition of a national label (“Made in Switzerland”) does not conflict with the relocation to Asia of some parts of the production process (Donzé, 2014). Location can also be related to a region, like Champagne in France. The definition of the boundaries of the “region” is a source of conflict, as it becomes an almost insurmountable entry barrier. The case of champagne shows that small, local, and uncompetitive producers have fought to benefit from a very restrictive protection, while big merchants and large companies want a more pragmatic definition of the region (Guy, 2007).
Third, the counterfeiting of luxury goods is a major issue related to production. The usual view of scholars is similar to that of the industry, which is that fake goods are harmful for the luxury industry in terms of revenue and reputation (Nia & Zaichkowsky, 2000; Phau & Teah, 2009; Wiedmann & Hennigs, 2013). In contrast, other authors have stressed that fake luxury products can actually contribute to enlarge brand awareness and act as entry goods, and thus can have a positive function (Ahuvia, Gistri, Romani, & Pace, 2013; Grappi, Baghi, Balboni, & Gabrielli, 2013). However, the organization of production systems behind counterfeiting and their relations with the suppliers of the original luxury goods remain open questions.
Fourth, rarity is a major component of luxury-good production. The use of rare materials (e.g., diamonds, platinum, gold, and pearls) and specific handicraft techniques make the corresponding manufactured good a luxury product due to its production costs. Rarity, price, and market positioning consequently share close links. Customers acquire luxury goods because of their rarity, particularly in East Asia (Phau & Prendergast, 2000) and enjoy buying the symbolic value of luxury products (Kapferer, 2012). Yet, as Kapferer (2009) argues, rarity is not an objective factor but rather a resource that emerges through careful management to give a product luxury status: The restriction of production, an approach that carmaker Ferrari and watchmaker Patek Philippe adopt, is one example of that management. Non-delocalization and handiwork are processes of creating “qualitative rarity” (Kapferer, 2009, p. 457).
The management of luxury brands is definitely the field that has attracted the largest number of scholars. However, many studies are cases of applied research commissioned by or for luxury companies, so their primary objective is not necessarily to contribute to the academic discussion about the dynamics of the luxury business. The most important contribution regarding the brand management of luxury goods is probably the seminal work of Kapferer and Bastien (2009a). They argue that the specific nature of luxury goods, due to their positioning (high-end market) and the aim of their consumption (social distinction), makes it necessary to adopt a different strategy than that used for more commonly branded consumer goods (such as no advertisements, no discounts, and no enlargement of production). This analysis is based on a rather radical view of luxury, and the authors are conscious that such a brand management strategy is difficult to observe today, as most luxury companies have had to make a trade-off between a pure luxury brand identity on the one hand, and the enlargement of their market and profits on the other hand (Bastien & Kapferer, 2013).
Since the 1990s the growth of the European luxury business in global markets has relied largely on brand identity related to craft, tradition, history, and lifestyle. Barrère (2000, 2007) discusses “heritage management” and shows how intensively champagne producers engaged in the valorization of their own history as a means to strengthen their image of a luxury company. Similarly, in the watch industry, the use of history as a marketing resource was at the core of the strategy implemented in the 1990s by Swiss companies to respond to the growth of Japanese watchmakers in the global market, to assert their status as producers of luxury goods (Donzé, 2014).
The use of history and tradition as resources has led to a wide range of actions, driven by storytelling techniques (Salmon, 2007). Kapferer and Bastien (2009a, p. 93) argue that “what is important is not simply the history, but the myth that can be created around it, the source of the brand’s social idealization. [. . .] If there is no history, it must be invented.” For example, many luxury companies opened museums where they could present their own history and reinforce the tradition of their brand (Courvoisier & Courvoisier, 2010). Briot (2014) emphasized that most luxury brands do not reveal their production methods in these museums and focus instead on the end product itself. Pronitcheva (2016) also showed that luxury companies use public museums to co-organize exhibitions, and hence benefit from academic validation of their discourse on their own history. Other actions carried out to strengthen brand identity based on heritage include the publication of books and commissioned corporate histories, such as that of Desbois-Thibault (2012) on champagne or that of Cologni (2005) on Vacheron Constantin. Such works give a historical dimension to today’s forms of communication. They look at the past from the perspective of the present, emphasizing the continuity of today’s messages and values, rather than offering an academic historical work, which would focus on the process of the construction of values, brands, and identities.
Furthermore, heritage and tradition are not the basis of brand management for all luxury goods. In some specific cases, such as the hotel industry, luxury is instead associated with advanced technology and the high quality of its service. This feature can be observed as early as the first part of the 19th century in the United States (Berger, 2011). The brand image of luxury hotels is directly linked to these characteristics (Kim & Kim, 2005). The car industry is another example in which technology can be a basis for building a luxury brand. Kapferer and Bastien (2009a, p. 57) argue that “in luxury, technology contributes to create a separate world.” It does not aim to improve the intrinsic quality of products for common use but rather to differentiate the luxury good through the adoption of very special—and often useless—technologies, such as those for mechanical watches.
Access to Markets and Consumers
The growth of the luxury business since the 1990s was made possible by the constant increase in demand throughout the world. Mature markets, like the U.S. or Western European markets, are still major outlets for luxury goods; however, they are no longer the only luxury markets. For companies, the expansion toward new outlets, especially in East Asia, but also in Russia and the Middle East, continues to be a key challenge, and it has been studied by numerous scholars. In management studies, the idea that the globalization of markets would lead to unification (Levitt, 1983) has sparked a long and ongoing controversy. Zou and Cavusgil (2002) showed, for example, that global marketing strategy is positively linked with the financial outcome of global companies. A key issue that is widely discussed is the extent to which firms should standardize or customize products (Laroche, Kirpalani, Pons, & Zhou, 2001). Studies in business history have shown that the globalization of brands and products is a relatively new phenomenon, which has mostly occurred since the 1990s. Meanwhile, the need to have some customization for specific markets is still important in the luxury goods industry, such as for wine and spirits (Lopes, 2007) and cosmetics (Jones, 2010).
A quick look at the geographical breakdown of the sales of LVMH, the world’s largest luxury group, in 2014 sheds light on the impact of local cultures on consumer habits. Sales in Asia (including Japan) amounted to 41% for fashion and leather, and 39% for watches and jewelry, but only 30% for wine and spirits, and 30% for cosmetics (LVMH, 2014). These figures reflect differences between the West and Asia in terms of cultural attitudes toward beauty (Jones, 2010), as well as eating and drinking habits. Hence, some products, like fashion and leather accessories, seem easier to globalize than others.
The need to adapt global strategies to the specificities of local markets has been directly addressed by studies on consumer behavior (for example, Husic & Cicic, 2009; Wiedmann & Hennigs, 2013). This is particularly the case with research tackling non-Western countries, like China (Mo & Roux, 2009) and other emerging economies (Atwal & Bryson, 2014). Another issue for entering non-Western markets is accessing retail networks. Hence, luxury companies have to work together with appropriate partners to implement specific strategies to access new markets like Asia (Donzé & Fujioka, 2015). For example, in Japan, it was essential in the 1950s to 1980s to cooperate with department stores. Many European luxury fashion companies, such as Christian Dior and Yves Saint Laurent, licensed the production of their goods to Japanese partners (Fujioka, Li, & Kaneko, 2017). In countries newly open to luxuries, like China, establishing mono-brand (flagship) stores was the most successful way for luxury brands to enter these foreign markets (Moore, Doherty, & Doyle, 2010). These types of stores played an important role in educating customers about a new culture of luxury brands (Hanssens, 2008).
However, the expansion of markets does not rely only on Asia. Traditional outlets, such as Europe, are still an important basis for sales, and luxury companies can also enjoy growth through the expansion of consumption beyond the traditional small circle of wealthy consumers. The so-called “democratization” of luxury consumption has been a driving force for the growth of this business (Danziger, 2005). For example, Fernie, Moore, Lawrie, and Hallsworth (1997) showed that the development of mono-brand stores in big cities like London enabled producers of luxury goods to directly reach a growing number of new customers. The use of celebrities as ambassadors is another way to facilitate communication between brands and mass consumers (McCracken, 1989).
New Perspectives on Luxury Brands
In addition to managing their history and heritage, luxury brands see marketing communication as a necessary step for further development. New marketing tools such as social networking sites like Facebook and Twitter can help build good relationships between luxury brands and their customers. Luxury companies can also start researching these kinds of new trends and to determine how well they work for branding. Business scholars, also, can investigate new marketing tools and the possibilities of future heritage management.
In terms of brand management, marketing communication is generally a crucial strategy for building relationships with consumers and creating brand equity by establishing a distinctive, memorable brand image. Companies do well to communicate with consumers through the marketing mix strategy, as McCarthy (1960) emphasized in underlining the importance of the “Four Ps” (product, price, place, and promotion) in marketing strategy.
For luxury brands, the promotion strategy is particularly effective for public relations, publicity, and direct marketing, all of which continually inform the consumer’s perception of the brand. The cosmetic company, Kiehl, for example, succeeded in spreading word-of-mouth promotion by giving away vast amounts of free samples to customers who came to its stores and events (Kotler & Keller, 2005). Brand management first focuses on the company, which needs to influence the consumer, and then identifies the type of consumer that would be targeted by the brand communication. Brand image is always being subjected to contextual and cultural influences, and since the year 2000 it has been particularly affected by the development of the internet and social media (Heding, Knudtzen, & Bjerre, 2016).
This kind of influence, such as the online community and its social context of consumption, has heavily impacted luxury brand management. Roper, Caruana, Medway, and Murphy (2013) examined the co-creation of luxury brands by both companies and consumers, and viewed luxury brands as a socially constructed discourse. Choo, Moon, Kim, and Yoon (2012) also identified that the focus of luxury brand marketing is moving to connect with and empower the customer, who actively creates and determines its value. They stressed that loyal customers of luxury fashion brands are more likely develop a positive relationship with these brands, and this strong long-term relationship with customers is the ultimate goal for luxury brands. Jin (2012) surveyed Louis Vuitton’s Facebook page and investigated the function of social media for luxury brands. This study examined the relationships between consumers’ perceptions of luxury brands, their satisfaction with the luxury brand’s Facebook interface, and their intentions to utilize social media for the purchase of luxury brand products. Reyneke, Pitt, and Berthon (2011) also examined the opportunities of social media in the case of luxury wine brand management. Kim and Ko (2012) pointed out the positive effect of social media-based marketing among luxury fashion brands on customer equity and purchase intention.
Therefore, the consumer’s perceived value of luxury brands is created not only by the company or its history but also by the interaction between the brand and its active customers. Further studies in the fields of marketing, sociology, and psychology, as well as business history and strategic management, should try to shed more light on the changing consumption of luxury brands.
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