The Luxury Strategy

1. Luxury is about creating social stratification, not just high prices

Luxury is the expression of a taste, of a creative identity, of the intrinsic passion of a creator; luxury makes the bald statement 'this is what I am', not 'that depends' – which is what positioning implies.

Social function. Luxury serves as a modern-day social marker, recreating stratification in societies that have become increasingly egalitarian. It's not merely about high prices or quality, but about symbolizing success, taste, and cultural refinement. This explains why luxury brands are so powerful in emerging markets like China, where they help define new social hierarchies.

Beyond functionality. Luxury products transcend mere utility. They embody dreams, emotions, and cultural significance. A luxury watch isn't just a timepiece; it's a statement of personal achievement, an heirloom to be passed down generations, and a work of art on the wrist. This emotional and symbolic value is what justifies the high prices and creates desire beyond rational need.

Cultural significance. Luxury brands often serve as cultural ambassadors, representing the best of a nation's craftsmanship and creativity. French luxury houses, for instance, embody the country's reputation for elegance and refinement. This cultural dimension adds depth to the brand's appeal and helps create a sense of belonging among its clientele.

2. The anti-laws of marketing: Luxury defies traditional marketing rules

Do not pander to your customers' wishes.

Inverting traditional marketing. Luxury brands operate on principles that often contradict conventional marketing wisdom. While mass-market brands strive to meet customer demands, luxury brands lead and shape desires. They don't chase trends but set them, maintaining an air of authority and exclusivity.

Key anti-laws include:

• Forget about positioning; luxury is not comparative
• Raise prices to increase demand
• Keep non-enthusiasts out
• Do not respond to rising demand
• Make it difficult for clients to buy

Brand dominance. In luxury, the brand must dominate the customer relationship. This doesn't mean disrespecting clients, but rather maintaining an aura of expertise and cultural authority. Luxury brands educate their customers about taste and quality, rather than simply catering to existing preferences.

3. Luxury brands must maintain exclusivity while expanding reach

Luxury sets the price, price does not set luxury.

Balancing act. Luxury brands face a constant tension between growth and exclusivity. They must expand to remain profitable and relevant, but without diluting their brand equity. This requires careful management of product lines, distribution channels, and communication strategies.

Strategies for growth:

• Create entry-level products to attract new customers
• Expand geographically rather than downmarket
• Use limited editions and special collections to create rarity
• Develop sub-brands or diffusion lines carefully

Dream equation. Luxury brands must maintain a delicate balance between awareness and accessibility. They need to be known widely to create desire, but not so accessible that they lose their aspirational quality. This "dream equation" is crucial for preserving the brand's mystique and value.

4. The product is paramount: Luxury items blend functionality with dreams

The luxury product is not a perfect product, but a sacred product.

Beyond perfection. Contrary to popular belief, luxury products don't need to be flawless. In fact, minor imperfections or quirks can add character and reinforce the product's handcrafted nature. What matters most is the product's ability to evoke emotions and dreams.

Key product attributes:

• Exceptional quality in materials and craftsmanship
• Strong aesthetic appeal and creative design
• Rich backstory or cultural significance
• Multisensory experience

Balancing tradition and innovation. Luxury products must respect heritage while staying relevant. This often means subtle evolution of iconic designs or incorporating cutting-edge technology in ways that enhance rather than overshadow the brand's essence.

5. Pricing strategies in luxury: Increase prices to boost demand

Increase the price to increase demand and recreate the distance.

Counterintuitive pricing. In luxury, higher prices can actually stimulate demand by enhancing the product's perceived value and exclusivity. This "Veblen effect" is unique to luxury and premium goods, where price becomes a marker of quality and status.

Pricing strategies:

• Regularly increase prices to maintain brand positioning
• Avoid discounts and sales, which can devalue the brand
• Use price as a tool to control distribution and clientele
• Communicate prices discreetly, maintaining an air of mystery

Value creation. Luxury brands must continually enhance the perceived value of their products to justify price increases. This can be done through improved quality, enhanced services, limited editions, or by strengthening the brand's cultural cachet.

6. Distribution is key: Control the entire customer experience

Luxury is in the distribution.

Retail as brand expression. For luxury brands, distribution isn't just about selling products; it's about creating immersive brand experiences. Flagship stores serve as temples to the brand, showcasing its heritage, craftsmanship, and aesthetic vision.

Distribution strategies:

• Maintain tight control over all sales channels
• Invest heavily in flagship stores and brand-owned boutiques
• Train sales staff extensively in brand culture and product knowledge
• Offer personalized services and exclusive experiences

Digital challenge. The rise of e-commerce presents a unique challenge for luxury brands. While they must have a digital presence, they need to find ways to maintain exclusivity and personal touch in the online space. This often means limiting online sales to certain products or offering special online-only experiences.

7. Brand identity and stretching: Balancing growth with brand integrity

A luxury brand is a real and living person.

Strong identity. Luxury brands must have a clear, compelling identity that goes beyond product attributes. This identity should be rooted in the brand's history, values, and creative vision. It serves as a guide for all brand decisions, from product design to marketing communications.

Careful brand stretching:

• Expand into adjacent categories that align with brand DNA
• Maintain quality and exclusivity across all product lines
• Use sub-brands or diffusion lines strategically
• Avoid over-licensing, which can dilute brand equity

Storytelling. Luxury brands thrive on rich narratives that connect their products to broader cultural themes, historical events, or artistic movements. These stories add depth to the brand and justify its premium positioning.

8. Managing luxury in the digital age: Embracing technology while preserving exclusivity

Just sell marginally on the internet.

Digital dilemma. The internet presents both opportunities and threats for luxury brands. While it offers new ways to reach customers and tell brand stories, it also risks undermining exclusivity and the traditional luxury shopping experience.

Digital strategies:

• Use social media and digital content to build brand awareness and desire
• Limit e-commerce to entry-level products or special collections
• Create online experiences that complement, not replace, in-store services
• Leverage technology to enhance personalization and customer relationships

Future of luxury. As technology continues to evolve, luxury brands must find ways to incorporate digital innovations without losing their essence. This might mean using AR/VR for virtual product try-ons, blockchain for authentication, or AI for hyper-personalized recommendations. The key is to use technology in ways that enhance, rather than replace, the human touch that is central to luxury.

Last updated: November 3, 2024