Today, luxury is a really hot and rapidly growing global market. Chinese consumers continue to boost sales of top luxury brands around the world, especially in Paris. However, as reported by CNBC, the biggest driver of this $260 billion industry appears to be wealthy Americans, who account for about 89 percent of its growth.
According to the 2014 Credit Swiss Global Wealth Report, “despite the challenging economic environment, wealth has recently grown at a record pace, rising by $20.1 trillion over the past year to reach $263 trillion.” Last year, the United States created 90 percent of new millionaires in the world (about 1.7 million out of total 1.8 million), while China, by contrast, minted only 90,000.
The result? The globally rising demand in luxury business, which no longer focuses on value and mass-marketing, but rather on the high-priced exclusivity of premium brands. This means only the wealthiest slice of consumers – a segment showing very little price sensitivity – are being targeted.
Luxury appeals to consumers on so many different levels, including quality, craftsmanship, exclusivity and innovation. There is also a “snob appeal” – the knowledge that when you buy luxury you can get not only a superb product, but also the satisfaction of the fact that not everybody can afford it.
Luxury is all about prestige, status and excellence. That’s why branding plays such a significant role in product pricing – hence, profitability – thanks to consumer loyalty and trend setting from high-visibility customers. So, how can a new brand take advantage of the luxury market? The answer is that, at most, its success lies in smart branding. This includes a reversal of the typical tiny-margin/high-volume strategy of the mass market to instead focusing on low volumes and super-high margins. And, of course, there are several marketing strategies that are helpful to conduct luxury branding with success:
❏ Exclusivity and lack of accessibility always drives up prices accordingly. Instead of bringing a product to the mass market, a luxury retail brand should focus on creating “limited editions” and niche distribution channels to assure the calibrated marketing of its status symbol to a select few.
❏ Snob-appeal of outrageously high prices is one of the most paradoxical yet effective strategies in luxury branding: the higher the price, the more people want it because of the perception of a higher value and better quality. It’s all about satisfaction of owning a perceived status symbol – at any cost!
Formula of Success in Retail Luxury Branding
By Yuliya Suleymanova and Victoria Stowe