How Premium Brands Grow Without Losing Their Glow – Part I

Marketing “guru” Martin Lindstrom is concerned about the effects that ‘reaching-down’ and the ‘fashionization’ of Luxury labels has on their long-term ability to maintain desirability and premium price points. He writes in his piece “The Luxury Catch 22”  “With a desperate ambition to achieve two-digit growth every year, brands like Louis Vuitton are now the territory of nearly every Japanese girl. […] Most business people, wannabes and youths choose Rolex. […] But what happens when it’s suddenly no longer fashionable to wear those “luxury” brands. They’ll move on, […] older and experienced brands will begin to fade away.”  These concerns make sense.  I just need to look out of my window here in Hong Kong to see the hoards of young luxury shoppers he is talking about at work.  But then, Martin wrote his piece in 2008.  And many of the premium brands he mentions have not only survived, but can actually look back at some of the strongest years of growth in their history since then.  How do they do it?

PART I – Physical Expansion Strategies and Presence in Stores

The “China Effect” – Easy Growth in Far Away Places
China helps explain a lot of these growth numbers.  There is a voracious and exponentially growing appetite among a generation in China (and Asia in general) that has moved from rags to riches – or at least the middle class.  A generation and culture that considers money a sign of success, is proud to display it and to shower their family, business partners, and friends with gifts to celebrate and ‘grease the skids’ of their good fortune.    They literally line up in front of Chanel or Gucci stores to claim their trophies.  The larger that logo, the more gold and glitter involved the better.  Price is (almost) no object.  In fact, the higher the price is known to be, the more prestige – or “face” – the object can convey to the owner or giver.  The European Luxury brand pioneers now make 25-50% of their global business in the Greater China region.  European and US Beauty-, Fashion- and lifestyle brands have taken note and entered joined the fray.  Many have re-positioned or simply priced themselves up to Masstige or Prestige levels had lost or never had in their home country.

Create Distance for Desire
The sometimes crazy run on these prestige brands by the ‘nouveau riche’ happens largely unseen by the older money in the more mature markets.  Where it doesn’t (think Champs Élysée), you might see prestige brands impose crowd and sales controls seemingly  protecting their prestigious brands from the invading populace.  In addition to being a measure to preserve perceived exclusivity (and profitability abroad), it might be a ingenious move to stoke the desire and then pride to ‘own a piece of it’ even more.

Feel Rare and Expand like a Jet Setter
This strategy turns around horizontal vs vertical geographic penetration is part of what we call “Moving with Gravitas” in our premium branding model.  It contrasts sharply with the mass brand mantra of deep market penetration.  The objective in mass marketing is market share leadership.  Key success drivers towards this goal are awareness, affordability and accessibility.  Mass brands want to be on top of consumers minds and the shelves they shop.  When you think ‘bread’ or ‘water’ the brand wants to be sitting squarely in front of you and be preferred because it owns ‘core category benefits’ like ‘taste’, freshness’ or ‘purity’ more than all the other brands in the vicinity.

Most premium brands – luxury brands, in particular – are not primarily bought for their utilitarian benefits, however, nor because they are easily accessible – physically, financially, intellectually or otherwise.  On the contrary;  as Martin implies, they are bought to make the buyer and/or user feel special.  That special feeling can be one of pride, sophistication or indulgence.  The brand involved being perceived as rare, unique, complex, expensive or exclusive will help trigger those feelings.  How do you feel about receiving a pack of Morton’s table salt from the local super market?  Compare that with how it might feel receiving or being able to serve hand-harvested Sel Gris de l’Ile de Ré salt in its wax-sealed clay pot.  Both products are at least 99% sodium chloride and 99% of us are unlikely to be able to tell them apart in a taste test.  But one seems imbued with a noble provenance, might have been purchased for a relative fortune at a gourmet store in a foreign land by a globe-trotting foodie friend or yourself.  At least that is the story you would love to hear or pass on to your guests at table. To give you the incomparable taste of admiration and Sel Gris de l’Ile de Ré.

Premium brands expand their mind and mortar presence in ways that preserves the perceived rarity or exclusive access as much as possible. Rather than saturating a market by driving distribution into more and more stores – i.e. ‘going deep’ – premium brands will jump from a few ‘magnet stores’ in a target catchment area to the next trying to avoid overlap.  A great example is Aēsop and their strategy to choose store locations in line with their avant-guard, urban-intellectual brand equity.  Rather than start to saturate their home country Australia, the brand chose to hop beyond the continent and find appropriate locations in other hip neighborhoods in urban centers around the globe.   That’s why you can now find the brand in the NOLITA, Aoyama or Sheung Wan districts of New York, London or Hong Kong, rather than the suburbs of Cairns or at popular drug store chains in Australia.  Wherever possible, Aesop will open its own stores to control not only location but also the full shopping experience.  This is an expensive process – in terms of a slower take-off and higher costs versus pushing the product through more mass channels – but the product is not cheap and this expansion strategy has consistently delivered double digit annual growth over the past 25 years.

Kiehl’s is another premium beauty brand targeting the urban-in crowd and showcases the same expansion strategy – at a higher speed.  Since being acquired by L’Oreal in 2000, Kiehl’s has expanded globally from its iconic 3^rd Ave apothecary in New York to some 400 outlets worldwide by now.  Without scarce resources being a natural speed regulator, the brand has truly exploded.  Now, it is possible to come across the brand a few times during a good day of shopping in many metro cities – and increasingly in secondary cities, as well. This visible multiplication threatens to make the stores and brand lose it’s eccentricity that appeals so much to those discovering it.  Are you still intrigued and and think of “Mr Bones” as authentically different when you meet him in a third store?

With increasing saturation, strategies and tactics at and around the point of purchase help premium brands to still be perceived as ‘special’:

Leverage flagship stores and retailers with a halo image.
Premium brands look to preserve their air sophistication by carefully selecting retailers which themselves are perceived as ‘specialty’, ‘high-end’, ‘exclusive’, etc. – if it is not their own stores.  At least the ‘first, long-lasting impression’ should come from an iconic store like Corso Como in Milan, Perigot in Paris, Biotop in Tokyo or appearances at ‘curated stores’ like Opening Ceremony or a Wu Hao in New York and Beijing.  The halo provided by an impressing presence in a flagship store or at a high-end lighthouse retailer, creates a brand image in the mind of consumers that can be projected onto less spectacular appearances at other retailers.  Think of the very visible and ostentatious Ralph Lauren flagship stores and the ‘artifacts’ which are used to recall these stores and provide a touch of exclusivity to the numerous and much more mundane department store-in-store locations.  Apple follows a similar approach: Iconic flagship stores provide a carefully staged brand theater that you are reminded of in their smaller mall outlets and the select network of “Approved Resellers”.  Most people will forgive apple that most stores can only provide ‘a touch of the real Apple experience’ – given the brand’s high standards.  In fact, when you pick up an iPad, Armani shirt or Weill watch at a ‘normal store’ it might feel like you and the retailer cheated – just to get you the prized items without having to make a long trip to the ‘proper store’ or not get the item at all.

I like Stihl as an example of how a distribution network that is perceived selective helps a brand in a segment as utilitarian as power tools to maintain their prices and top tier reputation.  The iconic orange brand is the leader in chain-saws and present in over eight thousand stores in the US.  But Stihl has leveraged the fact that those retailers are all ‘independent DIY stores’ to tell a story about personal service, supporting the local economy … and defying the big box retailer with their (implied) lower quality total proposition.  Absence from Big Box distribution makes Stihl stand out as “special” and the more individual and intimate shopping experience offers potential to also create a stronger emotional bond with the brand. – Yes, most guys will cringe at this thought, but at the end, it can really impact similarly to those personal beauty consultations the lady’s love so much.

Tier and compartmentalize the offer and shopping experience
When you shop for detergents, gum or diapers you are usually looking at a shelf or display full of brands and their line extensions.  There are ‘classic-’, ‘super-’, ‘ultra’, ‘platinum-’, ‘pro-’ and so on ….versions.  But seeing them all lined up next to each other, in a same store, on the same shelf, in similar packaging, in similar forms makes it hard to accept to spend anything but similar prices.  How would you feel about paying some $16 for a wrapper with 4 small pieces of Godiva ‘Gourmet dark chocolate’, when a similar looking wrapper with 4 pieces  of Godiva ’Classic Dark Chocolate’ would sit next to it for $2.99?  Compare that to that gourmet dark chocolate shaped into fine pralinés, being presented chilled behind a glass display at a Godiva counter and being hand packed into a small ballotine box for you.  Or go one step further and have those 4 pieces brought to your table on fine Picard china at a fancy tea salon… for $25 (including tip). Would you think as hard about whether that purchase is justified, whether it is ‘value for money’?

Premium brands understand how to differentiate and ‘compartmentalize’ their offering for what economist call ‘price discrimination’.  Think of everyone getting their chocolate  fix at the maximum price they are willing to pay and that without making those who pay a comparative fortune feel bad.  So while Martin noticed all these young Asian girls walking away with ‘cheap’ LV or Prada accessories, he might have overlooked the ‘ladies who do tea’ in the VIP room upstairs being shown the latest collections or offered bespoke services.  Who could blame him, they might have come through a separate door and were whisked away from the crowed in a private elevator… or LV might have come to them for an exclusive trunk show at their home.  In any event, each customer be met in their specific context and pay a much different price.  And the two groups might actually know of each other and it makes them feel good about their purchase: The “Aspirers” – as this cohort is often called – buy that white Dunhill shirt at the airport boutique, feeling part of that club they read about in the Airline magazine where rich customers smoke cigars and get shirts made that carry the same brand name. The members on the other hand like that the Dunhill Club is in the press, their ‘privileged life’ envied and the brand desired. – Who is really looking at the price of that white Dunhill Monogram shirt in that context?  For Dunhill the compartmentalization not only means they can sell white shirts at dramatically different price points.  It enabled the brand to more than double sales in the past 3 years, behind strong growth at their (now over 220) boutiques and through wholesale while – or because – it is also delighting their high-end clientele in four ‘Dunhill Homes’ and at special events.  And sales to/at the latter helps sell more/higher priced product to/at the former.

I was told the ‘white shirt story’ by the marketing director of Dunhill while we were lounging gentlemanly at their Bourdon House club in London after an exhaustive tour of the tailor suite, barber shop, humidor, bar, restaurant, limited edition showroom, museum and so on. There clearly is also an aspect of category expansion involved in the Dunhill success story.  I’ll cover the role of vertical and horizontal portfolio stretch in helping a brand grow without diluting its ‘premiumness’ in Part II of this blog.  “All told, I still wish our cheaper accessory sales were invisible.”  The Dunhill MD tells me.

That made me think of another club and modern retail channel that can be an enabler to exactly that effect of making consumption invisible:  The Nespresso Club and it’s sales through telephone and internet.  Imagine if the billions of colorful aluminum capsules were sold off supermarket shelves or even own stores.  Would Nespresso be able to keep its premium image and avoid price erosion as it has to date making more than three quarters of its sales through the clubs?   Luxury companies have just discovered the discreet (and profit sweetening) power of the internet for themselves and – for now – keep growing.

In part Two I will talk about the horizontal and vertical Portfolio strategies that premium to luxury brands use to keep growing while also keeping their star shining.

Sources and further reading:

Read more about the strategies of growing Ueberbrands in our book “Rethinking Prestige Branding – Secrets of the Ueberbrands“

– “The Luxury Catch 22” by Martin Lindstorm, MarketingProfs.com, August 2008
– Our post about the fabulous marketing at Aesop
– Our post about selective distribution strategies of Stihl and other brands

Please share your comments and own examples below!