On June 6, 2011 he Financial Times' Business of Luxury supplement featured an article about diffusion brands and affordable luxury (you might need to register with FT to view the article). The article addresses benefits and possible disadvantages of introducing the so called diffusion brands -- a strategy often used by luxury brands to cash in on their well-established image and boost revenues by positioning a new, more democratic, child brand as affordable luxury. An example of this strategy is the luxury brand Armani launching its more affordable diffusion brand Armani Exchange. I was interviewed for this article, and you can read my views there. Whereas launching affordable luxury brands as diffusion lines is often practiced by luxury companies, creating an affordable luxury brand from scratch is also possible, and in many cases very successful. An example is Victoria's Secret in the United States.
Here’s a fascinating study that many nerdy (and funky) marketers will find useful.
The study was written by professors Niro Sivanathan from London Business School and Nathan C. Pettit from Johnson Graduate School of Management at Cornell and it’s called Protecting the self through consumption: status goods as affirmational commodities. Professor Sivanathan from LBS has kindly shared the study with me, and today I’m happy to give you a short overview of its main findings.
Let me start by asking you this simple question: WHO are luxury goods produced for? If you think that it’s only wealthy folks who wear expensive clothes and go vacationing in the world’s best hotels, you will be seriously mistaken.
The truth is, low-income individuals often pay for luxuries that they can theoretically not afford.
How can this be explained? The main reasons are, according to the study, psychological. Sometimes, buying a luxury good, or indulging in a luxury service is the simplest way to repair our egos.
This can take several forms:
1) People seek status goods when they experience self-threat and need to heal psychological wounds. This is true for both high and low-income individuals.
For example, if you are a woman who has just gone through a divorce, you’d be likely to find yourself tempted to spend significant amounts of money on new clothes, beauty treatments, gym subscriptions and exotic vacations. Because this can make you feel good about yourself -- and this is worth paying a high price for.
Interestingly, the study showed that when individuals have another route to repair their self-integrity -- an alternative to acquiring status goods -- they tend to be less interested in seeking these goods.
2) Status goods serve the purpose of protecting an individual’s ego from future self-threats. They often serve as a buffer, or armor, against things that can go wrong in the future. In the study, those individuals who were asked to imagine that they had an expensive car, felt less threatened to face future self-threats than those without a car.
3) Some individuals’ lowered self-esteem drives their willingness to pay a premium on status goods. This explains economists’ observation that it is “often those earning the least that spend the greatest fraction of their income on conspicuous consumption”. They acquire goods not for their functional properties, but to signal social status.
I remember witnessing my friends spending all their annual savings in one go (!) on a pair of shoes or jeans right after the Soviet Union collapsed. Status was everything and people were prepared to give all the cash they had to signal their associations with expensive and, importantly, famous, brands.
What might be the implications of this study for those who want to build Funky Brands™ ?
- First of all, a status good is technically speaking not only simply a very expensive and good quality item. It is first and foremost a strong b r a n d. From the consumer’s perspective, there’s for sure no reason to spend any money, especially if her income is not that great, on something that is not known by others.
- It’s often not just luxury, but affordable luxury goods producers, who are able to deliver on two important aspects. First, they can sell their products at prices which are not as high as pure luxury. And second, they are able to infuse these goods with an aura of style, luxury and status.
So, if you urgently need to repair your ego, you can do it perfectly well by getting yourself a Victoria’s Secret lingerie set, and skipping La Perla altogether.
Join the Affordable Luxury group on LinkedIn, and share the news and opinions about this exciting segment.
Coach and Affordable Luxury brand strategy
Coach -- a brand of hand bags from the US -- has frequently featured in class discussions during my marketing courses. One could argue that its phenomenal brand success story can be attributed to a carefully orchestrated strategy of affordable luxury -- selling high quality bags at high prices, and at high volumes. In fact, its success has been so big that it has posted sales of $ 3.5 billion in the United States in the last financial year.
I knew about Coach not only from my nerdy MBA books. I visited a Coach shop for the first time during my first visit to the US, back in 1994. I went to a Coach shop again in 2000, when I was studying in Boston.
Both times, I was almost mesmerized by the almost magical effect that this brand seemed to have on those who visited its stores. American women looked happy and proud to leave with a new status symbol in their hands.
But to the Europeans, spoiled by a massive choice of high quality brands of hand bags, Coach has been literally unknown. With the competition so fierce, no wonder Coach waited for so long before entering Europe.
Coach in Europe -- lessons for other American brands
And finally, here it is. It chose to open its first European shop-in-shop in Paris -- a logical choice of the iconic capital of European fashion and style. The grand opening took place at Printemps on August 31st.
The distribution strategy that Coach will adopt will play an extremely important role for the degree of its brand success in Europe. Provided it is able to compete with many European brands in the same product category, it will establish a good pathway for other American affordable luxury brands in Europe.
A specific US brand with a successful affordable luxury positioning is Victoria's Secret. A sure winner on the US market, Victoria's Secret is likely to face a challenge of many established lingerie brands on the European market. It should closely watch Coach and learn lessons from its brand strategy in Europe.
Here is a direct link to this new LinkedIn group and I invite you to join it!
Another LinkedIn group recently created by SCHMOOZY FOX is called Affordable Luxury. It is also very relevant to all those who are in the business of building innovative, striking (aka "funky") brands. Here is the direct link to this LinkedIn Group.
In one of my previous articles called How Funky Brands Can Be Profitable, I discussed how a consumer product or service could succeed if positioned in the affordable luxury segment. This segment can also referred to as mass luxury or new luxury.
From SCHMOOZY FOX's perspective, there's a close link between two groups.
The Affordable Luxury group falls nicely with the concept of funky brands.
There are several ways of looking at it.
In fact, most of SCHMOOZY FOX's clients are consumer goods or services seeking to craft a brand strategy that will aim at their positioning as affordable luxury brands. And in our experience, most funky brands are exactly affordable luxury products or services!
Just have a look at our Funky Brand Interviews with all those brilliant businesses that have been built based around such elements as creativity, design, affordable luxury and fun!
SCHMOOZY FOX invites you to become members of one of both groups on LinkedIn!
Schmoozing and fun are guaranteed! :)
Having talked about square wheels in the previous interview featuring a Swiss watch brand Maurice Lacroix, today our focus is on round wheels -- a Danish brand of bikes called Biomega. Launched in 1998 by an industrial designer Jens Martin Skibsted, Biomega is a company that has been building its brand through a rigorous strategy of brand partnerships. Through co-operation with PUMA and such world-famous designers as Marc Newson, Ross Lovegrove and Karim Rachid, as well with its bikes featuring in permanent collections of art museums, the brand of Biomega has occupied a very interesting niche on the bike market: a stylish, funky and functional luxury item for use in the city. Today I am happy to host Anders Wall, CEO of Biomega who shares his views on city bikes and funky brands.
SCHMOOZY FOX: Anders, the name Biomega sounds a bit like it could be a brand of healthy food or vitamins. Could you tell me the story behind the brand name?
Anders Wall: Indeed, some people also think that there is something “bio” about it. But in reality, the name was conceived as “bi omega” which visually would look like this ΩΩ. Two letters "omega" put together do look like a bike. Later on the name took a life of its own, and there’s no such association in customers’ minds.
SCHMOOZY FOX: Did Biomega follow a strategy of brand partnerships and co-operation with famous designers right from the beginning?
Anders Wall: Jens Martin Skibsted, the founder of Biomega, has designed most of the bike models. But indeed, Biomega was set to build its brand through partnerships with such famous designers as Marc Newson early on.
SCHMOOZY FOX: What’s the brand philosophy of Biomega? How are you reinventing the wheel?
Anders Wall: We think that a bicycle is often portrayed as a product consisting of many spare parts, rather than a complete whole. The “spare part” brand discourse is very typical to most bike brands, and it’s very rare that they address the values and needs of consumers other than technical performance. For Biomega, a bike is based on the concepts of integration, drivability, durability and visibility. By integration, we mean that a bike is one whole that can bring a lot of aesthetic value to the owner. By drivability, we mean that a bike should be easy to drive, fast in acceleration and quick in braking. Durability refers to the fact that our bikes will last. All of these qualities are important to keep in mind when a new model of Biomega bike is conceived and designed. And finally, visibility means that our bikes must make both the product and the user noticeable. Our products stand out in the crowd, and so does the person who's using the bike!
SCHMOOZY FOX: Why do you refer to Biomega bikes as New Luxury?
Anders Wall: Bikes and biking as a process in general is hardly ever associated with luxury. Biomega does add luxury to bikes, primarily through superior design. What’s important is that Biomega bikes are meant to be used only in the city. Through their ease of use and funky design they in fact compete with cars! In this sense, owning an astonishing bike with luxurious design as opposed to having to sit in traffic jams becomes a true luxury.
SCHMOOZY FOX: How much does it cost to own such an object of new luxury?
Anders Wall: The majority of our bikes cost around 1.200-1.500 Euro. Our special models like the MN is more expensive (prices start at around 3.500 Euro). Our most exclusive bike, a carbon version of the MN with special components, is sold at the price at 6.500 Euro. Our bikes are distributed through design stores, as well as selected bicycle stores.
SCHMOOZY FOX: Besides co-operation with famous designers, Biomega also went into brand partnerships. Could you speak about Biomega’s partnership with Puma?
Anders Wall: We have worked on a brand partnership with Puma for five years now. The brand partnership was based on the Biomega model Boston, which was created in special versions for the Puma brand stores around the world. These Puma versions carried both the Puma and the Biomega logo, and were unique in colors. Last year, our partnership was taken further and we are now a licensee of Puma. In the coming months we will introduce a new range of Puma bicycles – 5 models in total – which have been designed and produced by Biomega. Where the previous bikes were only sold in Puma brand stores, the new range will be sold through bike stores all over the world and online. This is a very exiting new business for both Puma and Biomega.
SCHMOOZY FOX: To what extent do you think Biomega can be called a Funky Brand?
Anders Wall (smiling): I think that SCHMOOZY FOX’s definition of funky brands is very much in line with Biomega’s philosophy. We are small (there are only 6 employees at Biomega!) but a very agile company. We think we have created a great company culture and built the business through a very rigorous brand strategy right from the start. The funky aspects are certainly seen by the final customer, but only few people realize that behind this there’s a lot of very meticulous business and brand strategy work done within the company! We’re also outward rather than inward-looking, and through our brand partnerships we have achieved a global reach.
SCHMOOZY FOX: Do you bike to the office?
Anders Wall: I live outside of Copenhagen, and actually take a train every day. But once I am in the city, I of course bike! I own several models of Biomega, including the MN model. After all, apart from being a CEO, I am also Biomega’s brand ambassador, and I very much enjoy it!
SCHMOOZY FOX: Thank you, Anders!
An important one is the fact that they are not driven by innovative and creative ideas alone, but are or have the potential to be profitable. This, of course, requires a good deal of business development and brand building work done.
In today's post, I want to talk about how your brand can benefit and become profitable from mass luxury brand positioning.
Mass luxury (often referred to as affordable luxury or new luxury) brand management essentially combines characteristics of building brands that have the luxury and exclusivity appeal, with techniques that can lead to relatively high sales volumes.
My marketing professor at ESSEC (a Paris-based business school famous for its luxury marketing program) was a former Armani guy. He certainly knew a lot about sustaining those "old luxury" brands like Chanel and Gucci (and Armani, of course). But he was nevertheless fascinated how some innovative companies managed to combine classical Kotler marketing with the know-how of luxury brand management by building extremely funky brands in the mass luxury segment.
Some of these brands were created completely from scratch (for example, Coach and Victoria's Secret in the US, Agent Provocateur in the UK, and a Dutch brand Marlies Dekkers whose founder spoke in an interview on this blog), and others were born under the umbrella of already existing "true luxury" brands (for instance, Armani Exchange as a modest brother of the brand Giorgio Armani). Over the past decade or so, many brands were launched to satisfy a desire for a better lifestyle expressed by wealthier middle class eager to splash out on previously unaccessible items.
So, what can you learn from mass luxury brands in order to make your brand profitable? You'll be surprised how many potentially funky start-ups fail just because they are disconnected from their potential customers. So, the most important rule of thumb is that you gotta get to know your consumers, their lifestyles and their desires as much as you can.
Stop for a moment doing this tedious market segmentation based on geographical location, age and gender. This stuff tells you nothing about your consumer's deep emotional needs and desires. Unless you've understood what emotional connections they can make with the products you sell, you'll be wasting your time.
Besides that, keep in mind the following factors which, in my view, may trigger consumers' interest in purchasing your funky mass luxury goods or services:
- The lifestyle factor: Whereas splashing out on a single Gucci outfit is an extremely rare occasion for most people, and buying a Lamborghini is simply out of the question, a sizable market out there still wants to have a luxurious lifestyle. "Luxurious" can mean different things for different customers, and the trick is to find your loyal segment for whom your product will be a luxury. The right combination of such items as furniture, consumer electronics, food and drink, beauty products and fashion can do wonders and make our lifestyles luxurious and enjoyable. Not every item in your customer's home has to be of super funky design and great quality, but make sure your brand can end up on your customers shelves!
- The self-worth factor: people appreciate goods and services that can contribute to their enjoyment of life (e.g. high quality perfumed candles, a meal at a gastronomic restaurant, or a visit to a spa) and feeling of self-worth. Do you know what contributes to the feeling of self-worth within your customer segment? If not, the first step towards making profits is to find that out fast and act on it.
- The funky factor: people like standing out from the crowd, and making a statement about who they are. They often express themselves through the clothes they wear, or items they use (computers, phones, cars). If your customers have created emotional connections with the products you sell, and even made them part of their personal brand, you've for sure kept the funky factor in mind successfully! Again, if you know how the attributes of your brand can enhance the funky factor of your customers, you've certainly moved forward towards a beefed up bottom line.
Mass luxury is the most profitable segment of many markets because attractive margins can be combined with sales volume. But the challenge is, mass luxury brands do not sell themselves . They are driven by hard-to-define factors like fashion, word-of-mouth, and constantly evolving preferences of your customers. If you've managed to apply a rigorous framework to identify these factors, and closely monitor them, you'll certainly be on the path towards making sizable profits and building funky brands.
Finally, a good article on the subject that I can recommend is "Luxury for the Masses" by Michael J. Silverstein and Neil Fiske, published in Harvard Business Review in April 2003. Have fun learning the tricks of the funky brand trade!