1. Introduction

1.1. Context and Rationale

Cristóbal Balenciaga founded his couture house, Balenciaga, in 1936. His silhouettes defied the fashion standards at the time, debuting loose-fitted pieces that became social statements (Threaducation, 2021). With Cristóbal setting the house’s standards for innovative and disruptive designs, these principles are still achieved in Balenciaga’s current environment. Balenciaga is reinventing the luxury industry to incorporate the hype-inducing ideals and experimental strategies of streetwear, while also reviving the classic tradition of haute couture collections in 2021 Since his appointment as Creative Director, Demna Gvasalia has revolutionized the luxury house through digitalization of their runway shows, clothing items, and advertisements. In addition, his unique, oversized silhouettes blended with a tailored construction ‘kickstarted a global renaissance’ that is still reverberating throughout the fashion industry (Cavanagh, 2020; Cartner-Morley, 2021). With a strategy to collaborate and partner with retailers (i.e., Farfetch), other brands (i.e., Gucci, Adidas, Crocs), gaming platforms (i.e., Fortnite), celebrities (i.e., Kanye West, RuPaul), and other forms of media (i.e., the Simpsons), the house has created a unique selling point amongst consumers, creating a competitive advantage in the market (Tratten, 2019; Larsen, 2021). Balenciaga creates value for consumers through their use of innovative technologies and unique product and experience offerings. However, with such a disruptive strategy, comes a multitude of controversies.

Demna Gvasalia’s influence on Balenciaga gained hype for the brand, but his pieces constantly receive backlash from consumers claiming appropriation of artists’ works, of black and Chinese culture, glorifying homelessness, in addition to promoting child abuse, in most recent controversy. Gvasalia’s response to backlash on his ‘trash pouch’ was “I couldn’t miss an opportunity to make the most expensive trash bag in the world, because who doesn’t love a fashion scandal” (Krishnasai, 2022). However, the scandal inducing designs and campaigns have possibly gone too far, with consumers losing trust in the label. Balenciaga continuously proves to lack social and cultural intelligence, showing little responsibility and actionability for change regarding the multitude of controversies they spark. Key issues lie in Balenciaga’s main innovation strategy of technology and design driven, rather than a market pull strategy, or user centered. A user-centered strategy is determined by consumer needs and demands (Verganti, 2008). If Balenciaga were to consider their consumers and the market, the brand could reduce the amount of backlash they receive

With the fashion industry moving towards more environmentally conscious ideals, luxury brands are innovating their product offerings. While Balenciaga has partnered with some brands to establish sustainable offerings, their marketing strategies do not communicate these schemes. But rather, the brand is using marketing tactics to promote campaigns, then soon deleting such social media posts, making the message temporary to consumers. Establishing meaningful connections with consumers between the ’functional and aesthetics of the physical object’ is something Balenciaga needs to capitalize on, to continue being a successful label in the luxury industry (Clark, 1985)

In the current environment, brands are experimenting with digitalization and Web 3.0 strategies, however the market calls for brands to be transparent and authentic in their communications, committing ‘to do better and create more human relationships with customers’ (Napoli, 2022). With consumers demanding more social and environmental responsibility and accountability from the brands they shop from; it is imperative for brands to transform their business models to incorporate such innovations in these sectors. Analyzing Balenciaga’s current innovation strategies and main business problems is crucial to providing recommendations for further growth and success amongst customers and the market.

1.2. Aims & Objectives

To critically analyze Balenciaga’s current innovation strategies and evaluate the current issues faced by the business, this case study aims to: à Examine Balenciaga’s general business strategy on digital innovation à Analyze key business problems regarding social and environmental innovation à Critically review the effectiveness of Balenciaga’s response to such business problems à Propose recommendations to implement for a successful and viable business for the future à Reflect on personal attributes developed during this unit and create an action plan for future learning and career opportunities

1.3. Research Methodology

To effectively analyze Balenciaga’s innovation strategies and evaluate the business problems associated with them, secondary research is undertaken. Academic and business sources, such as WGSN, Vogue Business, Mintel, and various academic publications, provide key insights into successful business strategies in the current fashion environment and specifically Balenciaga’s approach to innovation. Primary research, such as two interviews with a luxury consumer and a temporary Balenciaga employee, a comparative shop, and a competitor’s analysis, yield crucial evidence to supplement the secondary research

2. Innovation Strategy

2.1. Business Strategy

Balenciaga redefines modern luxury with ‘hype-inducing and disruptive strategies common among streetwear brands’ and a mission to honor its history ‘while paving a path for its future’ (Larsen, 2021). With their virtual fashion and technology-based marketing, Balenciaga’s strategy is considered to focus on technology-push innovation (See Figure 2.1.). Verganti (2008) explains that the overlap of design-driven and technology push innovation ‘highlights that breakthrough technological changes are often associated with radical changes in product meaning.’ The generation of a new definition of fashion, regarding digital fashion, pushes technology to create innovations like 3D fashion through virtual and augmented reality.

Figure 2.1. Innovation Strategies

Balenciaga has implemented innovation strategies that allow the brand to continue to transform with the everchanging market. The luxury brand is at the forefront of these key digital transformations, accelerated by the Covid-19 pandemic and ‘evolving consumer appetites for messaging’ (Napoli, 2022). The house applies a complementarities-centered business model design, with the blending of activities and exchanges to create value for consumers between products and services, online and offline assets, and technologies (Zott and Amit, 2010) While Balenciaga is not the first to market with such strategies, the luxury brand has still taken a leadership role, capitalizing on digital fashion and 3D advertising for their collaboration with Fortnite. This partnership aimed to blend ‘IRL and URL experiences,’ launching ‘virtual skins for avatars inside the platform’ and physical merch in boutiques around the world, where in some stores, the ‘collection unlocked ingame goods with each IRL purchase’ (Larsen, 2021).

With a shift in the fashion industry towards Web 3.0 design, luxury brands need to transform to create a more consumer-centric approach for an experiential and digital shopping experience (See Figure 2.2). Napoli (2022) explains that ‘the brands of tomorrow will experiment with digital creativity, commit to do better and create more human relationships with customers,’ further driving the need for brand strategy transformations. Balenciaga creates an immersive experience through their digital innovations, however an employee recounts that “they haven't really stuck out digitalization wise, as opposed to other brands that are similar to them. Even within the Kering Group, Gucci is clearly doing so much more digitally. And Balenciaga really does have that modern, streetwear, innovative vibe that could very well translate into digital technologies, but I haven't really seen any marketing about it” (See Appendix 8.4). While the brand is executing innovations in the technology sphere, consumer knowledge of such strategies is not as apparent as competitors, like Gucci (See Appendix 8.3).

Digital transformations drive brands to innovate the classic business model of luxury brands and their marketing tactics (See Figure 2.3) Balenciaga as a luxury house needs to create a strategy that continues the ideals of luxury marketing while also imposing Web 1.0, 2.0, and 3.0 strategies

3. Social Innovation

3.1. Business Problem

Balenciaga has a successful digital innovation strategy, yet still must develop a more user-centered approach. Verganti (2008) explains that market pull innovation relies on ‘users to directly or indirectly identify directions for innovation.’ Balenciaga’s social innovation is continuously revealed to be lacking, with cultural intelligence playing a role in the recurring backlash amongst their products. Luxury consumers gain value through the product quality, experiences offered, and exclusivity that luxury allows (Smith, 2022a). Balenciaga articulates their business model through their value proposition (See Appendix 8.1) yet struggles with relationships amongst consumers.

The creative director of Balenciaga, Demna Gvasalia, explains that old “luxury used to be so exclusive that it would sell a dream to the people who could afford it, and to others who couldn’t afford it to still dream about” (WWD, 2019). However, the brand has come under fire with their new Paris shoe style, ‘customized to look annihilated, shredded, stained, and graffitied…,’ where Livia Firth remarked, “To buy something so destroyed is beyond offensive towards people I actually met who wore shoes like this because they couldn’t afford even basic meals (Fury, 2022). Explaining her opinion on Balenciaga’s social strategies, one employee divulges on the positives and negatives, “…the tribute that Demna wrote a letter when the war in Ukraine broke, but at the same time, they do some stuff that is just annoying, for example, those hobo-ish, beat-up sneakers, those I found very controversial and just simply unnecessary, as well as the trash bag. That's so expensive, and it is literally trash bag.” (See Appendix 8.4). The irony and lack of social consideration lies in the fact that Gvasalia explained that old luxury sold a dream to people who could not afford luxury, and yet created a designer shoe, retailing for £1290, that mimics homelessness (See Image 3.1).

While destructed fashion is not a new concept, like the punk sub-culture, the public reaction emphasized the difference between distressed and mimicking the clothes worn by the homeless or impoverished. Gvasalia says, “For me, fashion has to be inclusive and cannot be exclusive any longer to survive. It no longer sells a dream, but it sells an identity to people” (WWD, 2019). So, it bares the question, what kind of identity are you selling with the Paris sneakers?

Demna Gvasalia explains that consumers are interested in fashion brands for the designs and the look it gives them, but also for “the values it upholds and promotes,” as he strives for Balenciaga to be socially involved and use “garments as a tool of communicati (WWD, 2019). While Balenciaga creates interesting and edgy silhouettes for the modern luxury consumer, the brand’s designs often get lost in translation. Balenciaga was under fire after the release of the limited-edition collection for China’s Qixi Festival (Chinese Valentine’s Day). The bag itself was deemed ‘unsophisticated’ compared to other Qixi themed items released by other luxury brands, and the advertising campaign was seen as tacky, dated, and tasteless (See Image 3.2; James, 2020). Many international fashion brands feel the need to use elements that they think are representative of Chinese aesthetics, but these efforts are often seen as stereotyping Chinese culture or Chinese people in a disrespectful way (James, 2020). Balenciaga received backlash about the Trompe-L’Oeil Sweatpants, with comments about the cultural appropriation of black culture. Marquita Gammage, an associate professor of Africana Studies, explains that sagging pants with “boxer underwear exposed at the top of the waistline has been popularized in hip hop culture”, but also this style has “been used to criminalize Blacks, especially Black males as thugs and a threat to American society” (Alfonso III, 2021).

Social value refers to relationships concerning individual and societal wellbeing, as well as community, social cohesion, and inclusion (Bourdieu, 1986). Gvasalia mentioned that the values a brand holds are what draws consumers in. And the consumer reactions to numerous products and campaigns clarify the brand’s value proposition around creative value, and how this lacks social awareness.

3.2. Strategy Review

Balenciaga’s pieces that receive backlash are often greatly misinterpreted by the public and require the brand to issue a statement explaining the design Many of their controversial products, most recently the ‘Paris’ sneaker, the ‘Trompe-L’oeil’ sweatpants, have prompted press releases as a response. Balenciaga’s press-release regarding the ‘Paris’ trainers ‘suggested that the bashed-up shoes are meant to look as if they will be worn for a lifetime’ (Fury, 2022). Ludivine Pont, Chief Marketing Officer at Balenciaga, stated "…in many of our collections, we combine different wardrobe pieces into a single garment, such as denim jeans layered over tracksuit pants, cargo shorts merged with jeans and button-up shirts layered over t-shirts," regarding the sweatpants backlash calling out appropriation of black culture (Alfonso III, 2021). Demna Gvasalia, Creative Director at Balenciaga, ‘acknowledges that he borrows and/or references obvious pieces of popular consumer,’ but says appropriation is “…a big word everyone is throwing around left and right, but nobody really knows where it actually comes from and why. And that it’s not Demna who started this” (Hargrove, 2019). Balenciaga’s strategy in the instances of appropriation was to publish a press-release explaining the meaning behind the item, but not necessarily apologize for how the item was interpreted and affected by consumers. A Balenciaga temp employee exclaims, “I feel that it's easy not to get why Balenciaga puts out some designs. I think there's a fine line between making a statement through a piece that is more of a work of art than a fashion commercial product and then if something being offensive, for example the homeless people shoes. Those even I believe were offensive because I don't see anything artistic in them necessarily. Or the bag that is made out of the chips packet is so expensive for no reason that's not an art piece that's just making something commercial even more commercial and I get why consumers are mad at this but at the same time, I feel like the people that get angry at this aren’t the typical Balenciaga customer.” (See Appendix 8.4).

The brand’s strategy at solving issues of appropriation seem dismissive to consumer demands. Gvasalia announced that he will no longer be explaining the motivations behind his work, “I hate boxes and I hate labels and I hate being labelled and placed in a box. Society, the internet, and the world in general loves doing that, because it feels safe that way. Fashion in its best-case scenario should not need a story to be sold to someone. You either like it or you don’t” (Rodgers, 2022). The creative director even says, “I just wanted to point out that appropriation didn’t start as a concept in fashion with me. I’ve just maybe modernized it in a way that’s understandable for my generation of consumers who I talk to. Because we grew up with the same values, the same interests, and I would call this the first internet generation” (Hargrove, 2019). He claims that his version of appropriation is understandable for his generation of consumers, but the market response from his designs often stirs up claims that Balenciaga lacks cultural intelligence and social innovation.

Most recently, Balenciaga has gone under fire for a series of campaigns regarding their Adidas collaboration and holiday campaign and child protection The house’s response was posted to their Instagram account, as the brand deleted their Twitter following Elon Musk’s takeover, addressing the controversies (See Image and pursuing a lawsuit against its production company (See Image 3.4).

However lot of push-back from the community on the lawsuit, a statement made by édric Charbit, President and CEO, was published on their Instagram deciding not to pursue litigation and steps forward for the luxury house (See Image 3.5) as well as a personal statement made by Demna (See Image 3.6) Following this controversy, a lot of consumers have lost trust in the brand and feel as though Balenciaga induced marketing has gone too far (See Appendix 8.5).

4. Environmental Innovation

4.1. Business Problem

The environment is becoming increasingly important to consumers in the fashion industry, especially after the Covid-19 pandemic, with heightened attention due to social media (Smith, 2022b). Luis Bravo Martins, chief marketer at KIT-AR, describes that a Chief Marketing Officer “of the future will probably be one-third marketer, one-third technologist and one-third activist, but hopefully and above all else, 100% human-centered” (Napoli, 2022). With Balenciaga creating digitally innovative marketing campaigns that gain recognition amongst consumers, the luxury brand needs to develop environmental awareness into their communications.

Gvasalia shares his definition of “new luxury,” which seeks to be inclusive, sustainable, involved in society and the community, and maintains the avant-garde DNA of Balenciaga (WWD, 2019). Balenciaga has previously released collections with sustainable properties, like their collaboration with Farfetch in 2019, created without leather, fur, or down materials (Tratten, 2019). Balenciaga’s website has a sustainability page (See Appendix 8.2), that delves into the brand’s strategy of not using fur or exotic leathers, but the bags are mainly made from calfskin leather, which is not an animal-free alternative. The brand claims to use more responsible, recycled, and upcycled materials. However, the products pages on the website do not show any recycled or upcycled materials being used (See Appendix 8.2). It is important for brands to reinforce their statements with actionable approaches, to create an authentic and transparent strategy. One interview participant discussed the importance of transparency in brands, “but overall, admitting that they're not sustainable would be the first step because faking sustainability when you literally sell leather goods as your main category is just dumb” and explaining that brands should exhibit an action plan for the future to be more eco-conscious (See Appendix 8.4).

Balenciaga uses collaborations to create a unique selling point amongst their competitors (See Appendix 8.3), but many of these partnerships do not align with the environment. Efforts like partnering with ‘Kiss the Ground’, regenerative agriculture advocates, for Earth Day and ‘Reflaunt’, for their new resell program, are not as apparent as their competitors’ efforts (See Appendix 8.3). Their attempts at sustainable fashion are clouded with the news of the house’s latest designs, like a designer trash bag (Marain, 2022). Through Balenciaga’s new resale program, customers can resell Balenciaga clothing, shoes, and accessories through the website or in Balenciaga stores (Weston, 2022). One interviewee acknowledges that this is a good business strategy as it keeps the process of reselling items in-house. However, she only found out about this by working in the store, saying “I feel like it’s not publicized enough in the general public” (See Appendix 8.4). Another participant admitted that they had not heard about any Balenciaga’s environmental strategies explaining that “…if they are doing something sustainable, it's not something that is at the forefront of their communication… And if they're not that means, maybe there isn't a lot of strategies that exist in itself” (See Appendix 8.5). A key issue of the house’s eco-conscious ideals is that they are not the leading strategies of the business model (See Appendix 8.1).

Balenciaga has an approach that is technology and design driven, yet Gen Z and Millennial consumers prioritize the environment and sustainable shopping habits when buying fashion (Shepherd, 2022). Developing a more customer-centric business model, the environment should influence the designs of Balenciaga’s items, like using mushroom or pineapple leather, instead of animal leather in general. This barrier is caused by the luxury industry’s position amongst other retailers; that using real leathers and bio-fabrics, like silk, creates a higher quality product. Stella McCartney is constantly transforming the luxury industry with sustainable innovation, as the brand debuted the first-ever mushroom leather bag in July 2022 (Webb, 2022). During an interview, the participant rationalized “ With luxury brands, it's more difficult, because they do use materials like leather and fur, but from my research, what I found is that it is better to buy real leather I'd rather buy real leather from a luxury brand, which I know number one has not exploited their workers, number two is far better quality and is going to last me years on end, and third, at the end of the day real leather will decompose into the soil, it can go back into the earth and not cause a negative impact” (See Appendix 8.5) While real leather can decompose more than alternative leathers, 90% of leather is tanned using chemicals harmful to humans and can hinder the biodegradability of the leather itself, in addition to the copious amounts of water used in the leather-making process (Håkansson, 2022). This further proves that real leather is not a more sustainable option, and Balenciaga should employ innovative alternative materials.

4.2. Strategy Review

Luxury products are sold at high-price points because of the quality of product and services, as well as status of the brand. Balenciaga has been described as “charging luxury prices for anti-luxury goods” selling “working class brands and motifs to rich consumers” (Hargrove, 2019). The luxury brand’s new Autumn/Winter collection features a calf-skin leather trash bag, selling for $1,790, with the aim to store/collect trash (Krishnasai, 2022). One customer reacted, “this is absolutely idiotic. To kill an animal to make this ridiculous and disgusting overpriced bag is just what’s wrong with this world. We don’t deserve this planet or its animals” and Gvasalia’s response was, “I couldn’t miss an opportunity to make the most expensive trash bag in the world, because who doesn’t love a fashion scandal” (Krishnasai, 2022). The design of Gvasalia’s avant-garde products using animal leathers is regarded as unsustainable, as his designs are often misinterpreted and do not justify the allocation of materials.

The luxury house has recently partnered with Reflaunt for the new resale program (See Appendix 8.1), where the products can be sold back to the brand in exchange for store credit or customers can choose to be paid by bank transfer (Weston, 2022). This is a great option for brands to be sustainable and create a more circular economy. However, a temporary employee of Balenciaga explains the lack of market knowledge of this program through their marketing techniques, specifically Instagram, “ … they'll delete everything once they have a new thing dropping for example now, they have their holiday pieces collection and they've deleted all the pictures of the previous thing they were promoting… maybe they did post about the this resell program, they've probably deleted so a lot of people don't even know about it” (See Appendix 8.4). This marketing strategy acts a form of hype-induced traffic, as consumers know when something is going to be dropped from the brand, following the deletion of previous posts (See Appendix 8.5). On the other hand, it hinders their ability to efficiently promote activities they are currently engaging in, like the resale program and other sustainable schemes, as few as they are. Interviewees both explained that the brand does not have many environmental strategies and do not promote this as their main strategy, but rather Balenciaga’s focus is on shockfactor and hype-induced marketing (See Appendices 8.4 & 8.5).

Other than product design sustainability, Balenciaga does not engage in environmental forums and events, like COP27, and invests in influencers, like Kim Kardashian, that are not particularly environmentally conscious (See Image 4.1; Appendix 8.5). Compared to the label’s competitors, such as Fendi, making strides to become more sustainable, Balenciaga

Has Little Actionability On

their plans

to be a more eco-conscious business

The luxury house’s current strategies are not enough to be considered a positive of their business model and should employ the same innovative ideals for digitalization towards the environment.

5. Strategic Recommendation

5.1. Conclusion

Balenciaga has innovated its business model to create value through technology and blending online and offline experiences. With a reinforced concept of creating modern luxury fashion goods, the linkage between the core concept and the components of luxury fashion (i.e., materials, services offered) have been transformed by the creative director’s vision for innovation. Analysis of Balenciaga’s innovation approach underpinned the house’s technological and design-driven strategies, through digital fashion and augmented/virtual reality, with a focus on key partnerships. However, the brand needs to develop a more user-centered approach to fulfill the social and environmental strategies that are lacking within their innovation approach. Cultural intelligence and demands for eco-friendly products are dictated by consumer needs to build meaningful relationships from the brands they shop. In order to gain competitive advantage and truly capture the market, Balenciaga has to focus on social and environmental sustainability, while also continuing their digital innovation efforts.

5.2. Recommendations

Balenciaga already implements a technology and design-driven approach to innovation but creating a more consumer-centric approach to their business model will create a competitive advantage. “Brands need to support [consumers] in new holistic ways, offering co-creation, part ownership and commitments to people and planet to redirect those attitudes” (Napoli, 2022). Smith (2022b) illustrates that luxury brands are targeting Gen Z through customization. One of Balenciaga’s competitors, Louis Vuitton, has implemented co-creation and customization with the ‘Run Away’ trainers, allowing customers to choose the color, material, and having the option to add initials to the shoe (See Appendix 8.3; Smith, 2022b). Product development wise, co-creation involves consumers in the brand and their products, while also creating a unique piece. Balenciaga’s brand image is considered as edgy streetwear and references styles from people in historical fashion culture who created streetwear. Co-creation still aligns with the image of the brand, especially as the label takes references from popular culture, like creating Lays chip purses and Ikea-inspired tote bags.

Regarding their design-driven approach, Balenciaga constantly receives backlash from their products and marketing campaigns Specifically, to product design, one interviewee recommends differentiating and “drawing a line” between their commercial products and their avant-garde, artistic pieces, by having the brand explain “this is a couture piece, it's meant to be appreciated as an art form, as opposed to sold and bought by customers will make things clearer overall” (Appendix 8.4) In their most recent controversy concerning child abuse and the two campaigns aligned with that issue, one luxury consumer divulged into the composition of the team that allowed for these campaigns to be published, “I think a more diverse team would help having focus groups could help in situations like this, that 'we've come up with a design, we cannot decide whether it's controversial and socially acceptable, let's ask a group that are from that community and see how their feelings are about that” (See Appendix 8.5). Aligning with the recommendation of formulating a user-centered approach, listening to consumers and the market on past issues, and making a conscious effort to be more socially and culturally aware is the best course of action for this brand that continues to be spark controversy. As Balenciaga was going to sue the production company that created these campaigns, consumers were more enraged as the brand did not accept responsibility for this campaign and rather deflected the blame onto a third-party. So, accepting responsibility and having the willingness to change is a business model transformation Balenciaga needs to make, to further the viability and success of the business.

On an environmental note, the label needs to employ more environmental strategies, as their innovation is lacking in this sector and consumers do not see Balenciaga as “sustainable.” The brand practices innovative strategies in digitalization and are one of the leading brands in this shift to a Web 3.0 industry. Executing the same ideal environmental innovation would create more of a competitive advantage, as competitors are leading the eco-conscious luxury industr

The Cornerstones of Good Marketing Communications (See Figure 5.1) is a tool Balenciaga should implement into their marketing strategies, through unifying their brand narrative with their consumers and use technology to their advantage in order to do so. Integrating better marketing communications and corporate culture will ensure the brand positions itself better amongst the amount of controversy Balenciaga receives from its campaigns. While the brand profits from their hype and shock value through the products and editorials, employing a more thoughtful and transparent marketing strategy could possibly reduce the backlash of appropriation and insensitivity they often receive.