The Concept of Luxury Brands - Presentation by Klaus Heine

The Concept of Luxury Brands Presentation Vol. 2.0

by Klaus Heine, 28 December 2011 Klaus Heine, TU Berlin, Lehrstuhl Department Marketing, of Marketing, Steinplatz Steinplatz 2, 10623 2, 10623 Berlin,Berlin, Germany, Germany, Tel: +49.(0)30.314-29.922,, Tel: +49.(0)30.314-29.922,, Klaus.Heine@conceptofluxurybrands.com, Klaus.Heine@conceptofluxurybrands.com, www.marketing-trommsdorff.de www.marketing.tu-berlin.de

Technische Universit채t Berlin Department of Marketing Professor Dr. V. Trommsdorff

Definition of Luxury Products and Brands

The Concept of Luxury Brands Klaus Heine Technische Universität Berlin Chair of Marketing Steinplatz 2 10623 Berlin, Room ST 1.05 Tel: +49.30.314-29.922 Fax: +49.30.314-22.664 Mobile: +49.176.294.230.62 www.marketing.tu-berlin.de Klaus.Heine@conceptofluxurybrands.com

Please feel free to contact me for any feedback or questions you may have!

Technische Universität Berlin Department of Marketing Professor Dr. V. Trommsdorff Klaus Heine – The Concept of Luxury Brands

Definition of Luxury Products and Brands

The Concept of Luxury Brands What are luxury brands not?

www.conceptofluxury.brands.com

What are luxury brands?

Technische Universität Berlin Department of Marketing Professor Dr. V. Trommsdorff Klaus Heine – The Concept of Luxury Brands

Definition of Luxury Products and Brands

Objective of this Presentation

Definition of Luxury Products and Brands in order to differentiate between luxury and non-luxury products and brands and to distinguish luxury products and brands from similar concepts such as premium and masstige products and brands

Technische UniversitĂ¤t Berlin Department of Marketing Professor Dr. V. Trommsdorff Klaus Heine â&#x20AC;&#x201C; The Concept of Luxury Brands

Definition of Luxury Products and Brands

Intensional vs. Extensional Definition ► Intensional Definition by typical characteristics such as high price and superior quality

Extensional Definition by identifying all luxury brands in a directory

Heine, K., The Concept of Luxury Brands. In: Luxury Brand Management, No. 1, ISSN: 2193-1208, Technische Universität Berlin, www.conceptofluxurybrands.com.

Technische Universität Berlin Department of Marketing Professor Dr. V. Trommsdorff Klaus Heine – The Concept of Luxury Brands

Definition of Luxury Products and Brands

Overview about the Approach to Definition

Conceptual Framework

Identification of a basic definition of luxury Step 1:

Semantic Analysis

Differentiation by type of relativity

Color TV Luxuries

Differentiation by area of research

Luxury services

Differentiation by market segment

Clean air… Luxury goods… Luxury arts…

Result: Broad definition of luxury products and brands Step 2:

Selection of types of dimensions / approach to definition Analysis of existing definitions

Dimensional Analysis

Result: Set of requirements for luxury product characteristics Step 3:

Operationalisation Step 4:

Definition

Identification of dimensions by literature analysis and empirical study Result: Definition of Luxury Products and Brands

Step 5:

Review

Constantly updating the categorization

Heine, K., The Concept of Luxury Brands. In: Luxury Brand Management, No. 1, ISSN: 2193-1208, Technische Universität Berlin, www.conceptofluxurybrands.com.

Technische Universität Berlin Department of Marketing Professor Dr. V. Trommsdorff Klaus Heine – The Concept of Luxury Brands

Agenda • Basic Definition of Luxury • Major Understandings of Luxury by Area of Research & Broad Definition of Luxury Products • Limiting the Scope of Luxury Products • Operationalization of Luxury Products • Definition of Luxury Products and Brands • Major Types of Luxury Products and Brands • Distinguishing Luxury Products and Brands from similar Concepts • World Luxury Brand Directory

Heine, K., The Concept of Luxury Brands. In: Luxury Brand Management, No. 1, ISSN: 2193-1208, Technische Universität Berlin, www.conceptofluxurybrands.com.

Technische Universität Berlin Department of Marketing Professor Dr. V. Trommsdorff Klaus Heine – The Concept of Luxury Brands

Basic Definition of Luxury

What means Luxury? – Luxury is a relative Term that could refer to almost Anything or Nothing depending on whom you ask. “The only luxury good I own is my car. It’s a Volkswagen Polo. This is also something not everyone can afford.” (Constantin)

“Luxury means to me to have the freedom to set off against the mass – in every way – to maintain a lifestyle that fits me and that is not geared to the mainstream and to social norms. The real luxury for me is to have time and fun with my friends.” (Jasper)

“Luxury stands for exclusivity, excellent quality, rarity, differentiation. I am fascinated by luxury watches, since they are a symbol for the love for the detail. Preferably I also would like to say: "I don’t look for the time, I look for my watch." Typical for a woman, I have already an eye on the shoes of Manolo Blahnik. There are women in New York who take the risk of a surgery in order to fit into these shoes. I wouldn't go that far, because I already have perfect feet.” (Chun-Lan) Luxury Product Marketing Class, Winter Semester 2006/2007 Source: Statements of the participants of the seminar “Luxury Product Marketing” at the department of Marketing at TU Berlin, winter semester 2006/2007.

Technische Universität Berlin Department of Marketing Professor Dr. V. Trommsdorff Klaus Heine – The Concept of Luxury Brands

Basic Definition of Luxury

Basic Definition of Luxury „Bad“ (vs. “Good”)

Desirable

Necessity

Luxury

Ordinary

Luxury

Luxury is anything that is desirable and more than necessary and ordinary. Heine, K., The Concept of Luxury Brands. In: Luxury Brand Management, No. 1, ISSN: 2193-1208, Technische Universität Berlin, www.conceptofluxurybrands.com.

Technische Universität Berlin Department of Marketing Professor Dr. V. Trommsdorff Klaus Heine – The Concept of Luxury Brands

Basic Definition of Luxury

From 1900 to Today to Future – How Definitions of Luxuries change 1900

1910

1920

1930

1940

1950

• Model T cars

• Fur hats

• Fur coats

• Baseball tickets

• Televisions

• Color televisions

• Pianos

• Electric clocks

• Movie “talkies”

• Canned foods

• Air travel

• Credit cards

• Radios

• Fountain pens

• Gin

• Indoor plumbing

• College degrees

• Hand-cranked Victorians

• Cadillac's

• Vacuum cleaners

• Refrigerators

• Visits to Disneyland

• Kodak cameras • Transatlantic travel

• Convertibles

• Washing machines

1960

1970

1980

1990

2000

2050

• Stereo sound systems

• Designer jeans

• Vacation homes

• Internet stocks

• Space tourism?

• 35-millimeter cameras

• VCRs

• BMWs

• Palm Pilots

• Flat-screen monitors

• Solar homes exemplars

• Microwave ovens

• Cell phones

• Warhol lithographs

• Junk-bond portfolios

• SUVs

• Maybach

• Transatlantic travel?

• Yachts

• Eternal youth?

• PC’s • Champagne Source: According to Sacharidou, The Evolution of Luxury Market, LVMH 2006, p.4.

Technische Universität Berlin Department of Marketing Professor Dr. V. Trommsdorff Klaus Heine – The Concept of Luxury Brands

Basic Definition of Luxury

The Types of Relativity: The Relativity of Luxury splits into a Regional, Temporal, Economic, Cultural and Situational Relativity.

Situational Relativity

Cultural Relativity

Regional Relativity

Hierarchic Relativity

Temporal Relativity

Economic Relativity

Heine, K., The Concept of Luxury Brands. In: Luxury Brand Management, No. 1, ISSN: 2193-1208, Technische Universität Berlin, www.conceptofluxurybrands.com.

Technische Universität Berlin Department of Marketing Professor Dr. V. Trommsdorff Klaus Heine – The Concept of Luxury Brands

Basic Definition of Luxury

These Types of Relativity can be used to determine a General Perspective from which Luxury should be defined within the Field of Luxury Brand Management.

perspective:

normal conditions

global

Situational Relativity

Cultural Relativity

perspective:

Regional Relativity

Hierarchic Relativity

upper class

Temporal Relativity

perspective:

present time

Economic Relativity perspective:

representative for the entire society in developed regions Heine, K., The Concept of Luxury Brands. In: Luxury Brand Management, No. 1, ISSN: 2193-1208, Technische Universität Berlin, www.conceptofluxurybrands.com.

Technische Universität Berlin Department of Marketing Professor Dr. V. Trommsdorff Klaus Heine – The Concept of Luxury Brands

Basic Definition of Luxury

Accordingly, the Basic Definition of Luxury may be complemented as follows:

Luxury is anything that is desirable and which exceeds necessity and ordinariness. As a general rule, this is defined from a global perspective, for the present and for normal conditions. While the exclusivity of resources is evaluated by the entire society, the desirability of resources and the appearance of luxury are determined by the upper class.

Heine, K., The Concept of Luxury Brands. In: Luxury Brand Management, No. 1, ISSN: 2193-1208, Technische Universität Berlin, www.conceptofluxurybrands.com.

Technische Universität Berlin Department of Marketing Professor Dr. V. Trommsdorff Klaus Heine – The Concept of Luxury Brands

Basic Definition of Luxury

Based on the Extended Basic Definition, there are many Resources that can be differentiated from Luxury: Example of Non-Luxury

Type of Relativity

Explanation

Clean air

Regional relativity

A luxury in Jakarta, but not from the perspective of most people

Color TV

Temporal relativity

A luxury in the 1950’s, but not from today’s perspective

VW Polo

Economic relativity

A luxury for a student, but not from a gross-societal perspective

Gold teeth grill

Cultural relativity

McDonald’s Hamburger

Situational relativity

A luxury in the hip-hop scene, but not from the perspective of the upper class Might be a luxury after a strict diet, but not under normal circumstances

Accordingly, the extended basic definition limits the scope of luxury from almost anything to a more reasonable level and therefore already helps to dissolve a large part of the controversies about the definition of luxury. Heine, K., The Concept of Luxury Brands. In: Luxury Brand Management, No. 1, ISSN: 2193-1208, Technische Universität Berlin, www.conceptofluxurybrands.com.

Technische Universität Berlin Department of Marketing Professor Dr. V. Trommsdorff Klaus Heine – The Concept of Luxury Brands

Heine, K., The Concept of Luxury Brands. In: Luxury Brand Management, No. 1, ISSN: 2193-1208, Technische Universität Berlin, www.conceptofluxurybrands.com.

Technische Universität Berlin Department of Marketing Professor Dr. V. Trommsdorff Klaus Heine – The Concept of Luxury Brands

Major Understandings of Luxury by Area of Research

“Luxuries” correspond to the Philosophical-Sociological Understanding and the broadest Scope of Luxury.

Everything we can think of – “Luxuries comprise all resources which are desirable and exceed what is necessary and ordinary.”

Luxuries are not necessarily marketable, which means that we can’t necessarily buy/sell them. Heine, K., The Concept of Luxury Brands. In: Luxury Brand Management, No. 1, ISSN: 2193-1208, Technische Universität Berlin, www.conceptofluxurybrands.com.

Technische Universität Berlin Department of Marketing Professor Dr. V. Trommsdorff Klaus Heine – The Concept of Luxury Brands

Major Understandings of Luxury by Area of Research

Microeconomic Understanding: In Microeconomics the Term “Luxury Goods” is established and mainly refers to entire Product Categories.

Luxury goods are distinguished from necessary or ordinary goods by consequence-related measures; thus the luxuriousness of any good is not determined by its characteristics, but by peoples’ reaction (changes in demand) to exogenous stimuli:

High price elasticity (> =1) The demand of (dispensable) luxury goods decreases relatively strongly when prices are rising.

High income elasticity (> 1) The demand of (dispensable) luxury goods (also superior goods) increases relatively stronger than the income.

Luxury goods correspond to the micro-economic understanding and the middle scope of luxury, comprising all goods which exceed what is necessary and ordinary, and are suitable for exchange on the market. Heine, K., The Concept of Luxury Brands. In: Luxury Brand Management, No. 1, ISSN: 2193-1208, Technische Universität Berlin, www.conceptofluxurybrands.com.

Technische Universität Berlin Department of Marketing Professor Dr. V. Trommsdorff Klaus Heine – The Concept of Luxury Brands

Major Understandings of Luxury by Area of Research

Luxury level

The Managerial Understanding of Luxury usually refers only to the best Products of a Category: “Luxury Products”.

Examples of Non-Luxury Products Musical talent, time and true love Air conditioning and golf equipment

Criteria No Luxury Products, but. . . Philosophical-sociological Luxury resources understanding Micro-economic understanding

Luxury goods

The broad definitions of luxury products and brands can be summarized as follows:

Luxury products correspond to the managerial understanding and the smallest scope of luxury, comprising all products which exceed what is necessary and ordinary compared to the other products of their category. Luxury brands are associated with products which exceed what is necessary and ordinary compared to the other products of their category. Heine, K., The Concept of Luxury Brands. In: Luxury Brand Management, No. 1, ISSN: 2193-1208, Technische Universität Berlin, www.conceptofluxurybrands.com.

Technische Universität Berlin Department of Marketing Professor Dr. V. Trommsdorff Klaus Heine – The Concept of Luxury Brands

Major Understandings of Luxury by Area of Research

Louis Vuitton, Rolls-Royce …Ariel Motor?! …Are Ariel Race Cars Luxury Products? Ariel offers Functional Luxury :

• The Ariel is a race car for the streets; the driving experience may be “utterly, utterly addictive“. • The Ariel Atom V8 can cost £150,000. However, it’s not a (classical) luxury product – because it’s made for maximum functioning. • Same would be true for superior alpine climbing equipment. Heine, K., The Concept of Luxury Brands. In: Luxury Brand Management, No. 1, ISSN: 2193-1208, Technische Universität Berlin, www.conceptofluxurybrands.com.

Technische Universität Berlin Department of Marketing Professor Dr. V. Trommsdorff Klaus Heine – The Concept of Luxury Brands

Major Understandings of Luxury by Area of Research

The Understanding of Luxury by Area of Research: Luxury products constitute a Subset of Luxury Goods, which, in turn, form a Subset of Luxuries. Philosophic-sociological Understanding: Luxuries

Resources that are desirable and more than necessary and ordinary, e.g. musical talent, time, and true love

Microeconomic Understanding: Luxury Goods

Goods (product categories) that are more than necessary and ordinary and suitable for the exchange on the market, e.g. air conditioning systems and golf equipment

Managerial Understanding: Luxury Products

Products that are more than necessary and ordinary compared to the other products of their category, e.g. Louis Vuitton bags and Rolls-Royce automobiles

Heine, K., The Concept of Luxury Brands. In: Luxury Brand Management, No. 1, ISSN: 2193-1208, Technische Universität Berlin, www.conceptofluxurybrands.com.

Technische Universität Berlin Department of Marketing Professor Dr. V. Trommsdorff Klaus Heine – The Concept of Luxury Brands

Heine, K., The Concept of Luxury Brands. In: Luxury Brand Management, No. 1, ISSN: 2193-1208, Technische Universität Berlin, www.conceptofluxurybrands.com.

Technische Universität Berlin Department of Marketing Professor Dr. V. Trommsdorff Klaus Heine – The Concept of Luxury Brands

Limiting the Scope of Luxury Products

Despite its small scope in comparison to luxuries, the definition of luxury products still covers a wide variety of different products. Therefore, and according to the basic idea of definition by reduction sentences, the scope of luxury products is further limited by differentiating the major luxury market segments.

Luxury Products

Luxury Services

Luxury Real Estate

Private Luxury Products

Public Luxury Products

Branded Luxury Products

Unbranded Luxury Products

B2C Luxury Products

B2B Luxury Products

Founder-independent Luxury Products

Founder-dependent Luxury Products

Uni-regional Luxury Products

Multi-regional Luxury Products

Contemporary Luxury Products

Luxury Antiquities

Heine, K., The Concept of Luxury Brands. In: Luxury Brand Management, No. 1, ISSN: 2193-1208, Technische Universität Berlin, www.conceptofluxurybrands.com.

Technische Universität Berlin Department of Marketing Professor Dr. V. Trommsdorff Klaus Heine – The Concept of Luxury Brands

Limiting the Scope of Luxury Products

Luxury Products, Services and Real Estate Luxury Products

Luxury Services

Luxury Real Estate

No… • The managerial luxury understanding usually refers to movable assets (products in the classical sense), as the luxury industry was and is characterized by craftsmanship and engineering (Belz 1994, p. 648; Berthon et al. 2009, p. 50). • Beyond that, especially luxury real estate forms a distinct luxury segment. Marketing knowledge about products covers a basis for other luxury segments, but still needs to be adapted to their specific characteristics.

“World’s most expensive apartments at One Hyde Park set to make £1 billion profit.”

Heine, K., The Concept of Luxury Brands. In: Luxury Brand Management, No. 1, ISSN: 2193-1208, Technische Universität Berlin, www.conceptofluxurybrands.com.

Technische Universität Berlin Department of Marketing Professor Dr. V. Trommsdorff Klaus Heine – The Concept of Luxury Brands

Limiting the Scope of Luxury Products

Private vs. Public Luxury Products Private Luxury Products

Public Luxury Products

No… • Instead of public luxuries such as altar pieces or national monuments, the term luxury products usually refers to private luxury, which is owned by a person or a private organization (Sombart 1922, p. 86; see also McKinsey 1990, p. 13).

Heine, K., The Concept of Luxury Brands. In: Luxury Brand Management, No. 1, ISSN: 2193-1208, Technische Universität Berlin, www.conceptofluxurybrands.com.

Technische Universität Berlin Department of Marketing Professor Dr. V. Trommsdorff Klaus Heine – The Concept of Luxury Brands

Limiting the Scope of Luxury Products

Branded vs. Unbranded Luxury Products Branded Luxury Products

Unbranded Luxury Products

No… • Unbranded luxury products are usually made on commission by craftsmen. • Because of the high relevance of brands in the luxury segment, only branded luxury products are considered (see Kisabaka 2001, p. 104; Vigneron and Johnson 2004, p. 486).

Heine, K., The Concept of Luxury Brands. In: Luxury Brand Management, No. 1, ISSN: 2193-1208, Technische Universität Berlin, www.conceptofluxurybrands.com.

Technische Universität Berlin Department of Marketing Professor Dr. V. Trommsdorff Klaus Heine – The Concept of Luxury Brands

Limiting the Scope of Luxury Products

Private vs. Public Luxury Products B2C Luxury Products

B2B Luxury Products

No… • B2C luxury products, also referred to as personal luxury products, are marketed to end consumers and can be used by a person to enhance his or her personal life (Sombart 1922, p. 86; Reith and Meyer 2003, p. 10; Valtin 2004, p. 186).

“Peter Bock AG has been crafting the finest pen nibs since 1939.”

• In contrast to that, there is a distinct B2B luxury segment, which includes luxuryspecialized suppliers to luxury brands. One such supplier is Peter Bock, a manufacturer of nibs for luxury fountain pens. Heine, K., The Concept of Luxury Brands. In: Luxury Brand Management, No. 1, ISSN: 2193-1208, Technische Universität Berlin, www.conceptofluxurybrands.com.

Technische Universität Berlin Department of Marketing Professor Dr. V. Trommsdorff Klaus Heine – The Concept of Luxury Brands

Limiting the Scope of Luxury Products

Founder-independent vs. Founder-dependent Luxury Products Founder-independent Luxury Products

Founder-dependent Luxury Products

No…

Founder-dependent luxury by Alexander Vethers

• Only founder-independent luxury products are considered, which means that the existence of brands and the manufacturing of products should not depend on the life of their creators. The manufacturers of luxury products should possess a distinct brand personality and at least the capacity for infinite business operation. • Although an artist could become a brand, these requirements are not fulfilled as he or she may only create founder-dependent products. Compared to other products, the luxury art market follows very specific rules and therefore forms a distinct luxury segment. • The same is true for other industry segments such as (star) architect offices and the relatively complex and fastchanging market of (fashion) designer products. Source: www.alexandervethers.com, http://www.margarethe-illustration.com, Heine, K., The Concept of Luxury Brands, TU Berlin, www.conceptofluxurybrands.com.

Technische Universität Berlin Department of Marketing Professor Dr. V. Trommsdorff Klaus Heine – The Concept of Luxury Brands

Limiting the Scope of Luxury Products

Typical Founder-dependent Luxury: The vast Amount of Luxury Fashion Designers, who set up their Business within the last Years. Founder-dependent Luxury Products

Heine, K., The Concept of Luxury Brands. In: Luxury Brand Management, No. 1, ISSN: 2193-1208, Technische Universität Berlin, www.conceptofluxurybrands.com.

Technische Universität Berlin Department of Marketing Professor Dr. V. Trommsdorff Klaus Heine – The Concept of Luxury Brands

Limiting the Scope of Luxury Products

Uni-regional vs. Multi-regional Luxury Products Multi-regional Luxury Products

Uni-regional Luxury Products

No… • Uni-regional luxury products are only available in specic regions. • For instance, shopping in the KaDeWe is only possible in Berlin and spending the night in Le Meurice is only possible in Paris. • However, many uni-regional luxury brands have the potential to become global. For instance, the luxury group Hilton developed the New York-based Waldorf Astoria into a global luxury hotel chain. Heine, K., The Concept of Luxury Brands. In: Luxury Brand Management, No. 1, ISSN: 2193-1208, Technische Universität Berlin, www.conceptofluxurybrands.com.

Technische Universität Berlin Department of Marketing Professor Dr. V. Trommsdorff Klaus Heine – The Concept of Luxury Brands

Limiting the Scope of Luxury Products

Contemporary Luxury Products vs. Luxury Antiquities Contemporary Luxury Products

Luxury Antiquities

No… • With reference to temporal relativity, only new products are considered. • Luxury antiquities (including antique cars) form a distinct luxury segment.

Heine, K., The Concept of Luxury Brands. In: Luxury Brand Management, No. 1, ISSN: 2193-1208, Technische Universität Berlin, www.conceptofluxurybrands.com.

Technische Universität Berlin Department of Marketing Professor Dr. V. Trommsdorff Klaus Heine – The Concept of Luxury Brands

Limiting the Scope of Luxury Products

Complementing the Broad Definition of Luxury Products Based on these limitations, the broad definition of luxury products can be complemented as follows:

Luxury products correspond to the managerial understanding and the smallest scope of luxury not comprising services or real estate, but products which exceed what is necessary and ordinary compared to the other products of their category. These products are branded, founder-independent, multi-regional, contemporary and possessed or used by a person to enhance his or her personal life.

Heine, K., The Concept of Luxury Brands. In: Luxury Brand Management, No. 1, ISSN: 2193-1208, Technische Universität Berlin, www.conceptofluxurybrands.com.

Technische Universität Berlin Department of Marketing Professor Dr. V. Trommsdorff Klaus Heine – The Concept of Luxury Brands

Limiting the Scope of Luxury Products

Examples of Non-Luxury Products Examples of Non-Luxury Products Penthouse at the “One Hyde Park” in London

Criteria Movable assets

No Luxury Products, but. . . Luxury real estate

Luxurious built-in cupboards made by Branded products a carpenter for his client

Unbranded luxury products / commission work

Cologne Cathedral

Private luxury products

Public luxury products

Peter Bock quills for luxury fountain pens

B2C luxury products

B2B luxury products

“Garçon a la pipe” by Pablo Picasso

Founder-independent products

Luxury art

Badminton Cabinet from 1732 and Bugatti Royale Type 41 from 1931

Contemporary products

Luxury antiquities

Staying at Le Meurice in Paris

Multi-regional luxury products

Uni-regional luxury products

Heine, K., The Concept of Luxury Brands. In: Luxury Brand Management, No. 1, ISSN: 2193-1208, Technische Universität Berlin, www.conceptofluxurybrands.com.

Technische Universität Berlin Department of Marketing Professor Dr. V. Trommsdorff Klaus Heine – The Concept of Luxury Brands

Heine, K., The Concept of Luxury Brands. In: Luxury Brand Management, No. 1, ISSN: 2193-1208, Technische Universität Berlin, www.conceptofluxurybrands.com.

Technische Universität Berlin Department of Marketing Professor Dr. V. Trommsdorff Klaus Heine – The Concept of Luxury Brands

Operationalization of Luxury Products

The Analysis of 31 in-depth Interviews led to a Consumer-oriented Definition of Luxury Products Symbolism

Symbolism as major benefit

Extraordinariness

Price

ESP instead of USP

Price as a benefit

Characteristics of Luxury Products Rarity

Quality

Limitation and Individualization

Quality as perception

Aesthetics

Stimulation as a main benefit Heine, K., The Concept of Luxury Brands. In: Luxury Brand Management, No. 1, ISSN: 2193-1208, Technische Universität Berlin, www.conceptofluxurybrands.com.

Technische Universität Berlin Department of Marketing Professor Dr. V. Trommsdorff Klaus Heine – The Concept of Luxury Brands

Operationalization of Luxury Products

Eccentric Selling Proposition (ESP): Case Study Silk Production

• “Earlier the main exports of silk cloth, at first restricted to the nobility, had been from Bologna, Lucca and other Italian towns. They had developed the mechanical reeling of silk using water power, apparently developing a Chinese model, while the French industry at Lyon operated at a less sophisticated level. • But the French court started to invite silk manufacturers from Lyon every six months to discuss future designs. By the time that their patterns had been produced and the Italian manufacturers had set up their looms to copy them, the French court was about to place its next order for a new pattern. So the Italian manufacturers were never able to catch up, leading to the collapse of the weaving industry, and eventually of the production of yarn, in Bologna and elsewhere. • It was not the appearance of change, of new fashion, that was remarkable but the way that change was regularly established and the effects this had on industrialized production which were remarkable. It rivalled, and set the pattern for, today’s annual fashion shows in Paris, Milan, New York, London and other capitals, shows that are marketplaces for the costumes of the rich but which also set the terms for production for the masses, who with socio-economic developments have now been drawn in to the frequent dictates of fashion” …. “After that time, fashion and ‘taste’ took over the role of distinguishing the elite, with the whole process becoming more complex when this occurred.” Source: Goody, J. (2006) From Misery to Luxury. In: Social Science Information, Vol. 45, Issue 3, p. 344 et seq.; Heine, K., The Concept of Luxury Brands., TU Berlin, www.conceptofluxurybrands.com.

Technische Universität Berlin Department of Marketing Professor Dr. V. Trommsdorff Klaus Heine – The Concept of Luxury Brands

Operationalization of Luxury Products

The Analysis of 31 in-depth Interviews led to a Consumer-oriented Definition of Luxury Products Symbolism

Symbolism as major benefit

Extraordinariness

Price

ESP instead of USP

Price as a benefit

Characteristics of Luxury Products Rarity

Quality

Limitation and Individualization

Quality as perception

Aesthetics

Stimulation as a main benefit Heine, K., The Concept of Luxury Brands. In: Luxury Brand Management, No. 1, ISSN: 2193-1208, Technische Universität Berlin, www.conceptofluxurybrands.com.

Technische Universität Berlin Department of Marketing Professor Dr. V. Trommsdorff Klaus Heine – The Concept of Luxury Brands

Operationalization of Luxury Products

Symbolic Meaning of Luxury Products & Emotional Branding: Product Recommendations without Products

Source: Spiegel Neon/Modeheft (2009), April, p. 22.

Technische Universität Berlin Department of Marketing Professor Dr. V. Trommsdorff Klaus Heine – The Concept of Luxury Brands

Operationalization of Luxury Products

Symbolic Meaning of Luxury Products & Emotional Branding: Product Recommendations without Products

Source: Spiegel Neon/Modeheft (2009), April, p. 16 & 18.

Technische Universität Berlin Department of Marketing Professor Dr. V. Trommsdorff Klaus Heine – The Concept of Luxury Brands

Operationalization of Luxury Products

The Most Important Ingredients of a Luxury Brand: Emotions & Image

Margin

Communication, Know-how, Image Production costs

Dior

Source: Lebas/Israel-Russo/De Gouyon (1990) Stratégies de luxe. Jouy-en-Josas: Groupe HEC, p. 48; Heine, K., The Concept of Luxury Brands., TU Berlin, www.conceptofluxurybrands.com.

Technische Universität Berlin Department of Marketing Professor Dr. V. Trommsdorff Klaus Heine – The Concept of Luxury Brands

Operationalization of Luxury Products

Symbolic Meaning of Luxury Products & Emotional Branding: Aldi vs. Monoprix Aldi

Monoprix

If products at Aldi say anything at all, they may say “I’m cheap and cheerful” or the butter may say “I’m a butter” and the cookies may say “We are cookies” – while luxury products seem to be real chatterboxes. Heine, K., The Concept of Luxury Brands. In: Luxury Brand Management, No. 1, ISSN: 2193-1208, Technische Universität Berlin, www.conceptofluxurybrands.com.

Technische Universität Berlin Department of Marketing Professor Dr. V. Trommsdorff Klaus Heine – The Concept of Luxury Brands

Operationalization of Luxury Products

A typical Exemplar of a Luxury Product: The “Kiss Kiss Or & Diamants“ by Guerlain

Symbolism Extraordinariness

Reminds on 3 dices

Rarity

Design and brand image

Constitutive Characteristics of Luxury Products

Price

45,000€

Quality

Only 100 pieces; Made of diamantes personal lip stick color and precious Aesthetics and gravure Classic, time-less design; metals by a helps to conceal signs of aging, French to be free of duties and goldsmith limitations of space and time; its design helps to forget its purpose Source: Trommsdorff/Heine (2008) Das Marketing von Luxusprodukten. In: WISU, Issue12., pp. 1669-1674; Heine, K., The Concept of Luxury Brands., TU Berlin, www.conceptofluxurybrands.com.

Technische Universität Berlin Department of Marketing Professor Dr. V. Trommsdorff Klaus Heine – The Concept of Luxury Brands

Operationalization of Luxury Products

What do we have to do with that Chair to create a Luxury Product?

Heine, K., Phan, M., Trading-Up Mass-Market Goods to Luxury Products. Australasian Marketing Journal, Vol. 19, 2/2011, pp. 108-114.

Technische Universität Berlin Department of Marketing Professor Dr. V. Trommsdorff Klaus Heine – The Concept of Luxury Brands

Operationalization of Luxury Products

The Constitutive Characteristics of Luxury Products Major Characteristics

Manufacturing Characteristics

Price

Concrete Product Characteristics

Abstract Product Characteristics

Price Expertise of manufacturer Manufacturing complexity

Quality

Material & Components

Durability & Value

Construction & Function principle

Comfortability & Usability

Workmanship

Functionality & Performance

Features

Safety

Product size Service Aesthetics Rarity

Aesthetics Rarity

Extraordinariness

Symbolism

Heine, K., The Concept of Luxury Brands. In: Luxury Brand Management, No. 1, ISSN: 2193-1208, Technische Universität Berlin, www.conceptofluxurybrands.com.

Technische Universität Berlin Department of Marketing Professor Dr. V. Trommsdorff Klaus Heine – The Concept of Luxury Brands

Operationalization of Luxury Products

The Variety of possible Results

Heine, K., Phan, M., Trading-Up Mass-Market Goods to Luxury Products. Australasian Marketing Journal, Vol. 19, 2/2011, pp. 108-114.

Technische Universität Berlin Department of Marketing Professor Dr. V. Trommsdorff Klaus Heine – The Concept of Luxury Brands

Operationalization of Luxury Products

Influencing the Associations about the Luxury Brand Characteristics by Segment-specific Marketing-Mix Strategies Price

Quality

Rarity

Extraordinariness

Aesthetics

Symbolism

(brand personality)

Product policy

Price policy

Distribution policy

Communication policy

Quality leadership

Superlative pricing strategy

Selective distribution

Communication of the luxury brand personality

Iconic products

Regular price increases

Flagship stores

Catwalk shows

Memberships in recognized associations

Super-superlative priced products

Waiting lists

Celebrity endorsement

Heine, K., The Concept of Luxury Brands. In: Luxury Brand Management, No. 1, ISSN: 2193-1208, Technische Universität Berlin, www.conceptofluxurybrands.com.

Technische Universität Berlin Department of Marketing Professor Dr. V. Trommsdorff Klaus Heine – The Concept of Luxury Brands

Heine, K., The Concept of Luxury Brands. In: Luxury Brand Management, No. 1, ISSN: 2193-1208, Technische Universität Berlin, www.conceptofluxurybrands.com.

Technische Universität Berlin Department of Marketing Professor Dr. V. Trommsdorff Klaus Heine – The Concept of Luxury Brands

Definition of Luxury Products and Brands

The Definition of Luxury Products • The operationalization relies on a literature analysis and an empirical study (as outlined in the paper). The results suggest that consumers perceive that luxury products have six major characteristics including price, quality, aesthetics, rarity, extraordinariness and symbolism (as explained above). In that way, the operationalization helps to decide for most products if they are part of what is meant by the term "luxury product" (see also Kromrey 2009, p. 110). • The definition of luxury products can be summarized as follows:

Luxury products have more than necessary and ordinary characteristics compared to other products of their category, which include their relatively high level of price, quality, aesthetics, rarity, extraordinariness, and symbolic meaning.

Heine, K., The Concept of Luxury Brands. In: Luxury Brand Management, No. 1, ISSN: 2193-1208, Technische Universität Berlin, www.conceptofluxurybrands.com.

Technische Universität Berlin Department of Marketing Professor Dr. V. Trommsdorff Klaus Heine – The Concept of Luxury Brands

Definition of Luxury Products and Brands

The Definition of Luxury Brands • Luxury brands are highly associated with their core products. • This is reflected by the existing definitions of luxury brands, which define luxury brands by specific associations about product characteristics (e.g. Meffert and Lasslop 2003, p. 6; Büttner et al. 2006, p. 12; Valtin 2004, p. 30). • The essential characteristics of luxury products therefore correspond largely with those of luxury brands and lead to the following definition:

Luxury brands are regarded as images in the minds of consumers that comprise associations about a high level of price, quality, aesthetics, rarity and specialty.

Heine, K., The Concept of Luxury Brands. In: Luxury Brand Management, No. 1, ISSN: 2193-1208, Technische Universität Berlin, www.conceptofluxurybrands.com.

Technische Universität Berlin Department of Marketing Professor Dr. V. Trommsdorff Klaus Heine – The Concept of Luxury Brands

Heine, K., The Concept of Luxury Brands. In: Luxury Brand Management, No. 1, ISSN: 2193-1208, Technische Universität Berlin, www.conceptofluxurybrands.com.

Technische Universität Berlin Department of Marketing Professor Dr. V. Trommsdorff Klaus Heine – The Concept of Luxury Brands

Major Types of Luxury Products and Brands

The Relationships between Luxury Products and Brands Luxury Brands

Luxury-branded Products

Non-Luxurybranded Products

Luxury Products

Non-Luxury Products

Non-Luxury Brands, but (at least) Luxury Product Brands Heine, K., The Concept of Luxury Brands. In: Luxury Brand Management, No. 1, ISSN: 2193-1208, Technische Universität Berlin, www.conceptofluxurybrands.com.

Technische Universität Berlin Department of Marketing Professor Dr. V. Trommsdorff Klaus Heine – The Concept of Luxury Brands

Major Types of Luxury Products and Brands

The Relationships between Luxury Products and Brands Luxury Product Brands

Heine, K., The Concept of Luxury Brands. In: Luxury Brand Management, No. 1, ISSN: 2193-1208, Technische Universität Berlin, www.conceptofluxurybrands.com.

Technische Universität Berlin Department of Marketing Professor Dr. V. Trommsdorff Klaus Heine – The Concept of Luxury Brands

Major Types of Luxury Products and Brands

Types of Luxury Brands by Level of Luxury, Business Volume and Awareness By Level of Luxury

By Awareness

By Business Volume

Connoisseur brands

Elitelevel

Micro Small-scale brands

Top-level Luxury brand Star brands Medium-level Luxury brand

Medium-scale brands

Large-scale brands Entry-level luxury brand -

BIG player GIANT player

Heine, K., The Concept of Luxury Brands. In: Luxury Brand Management, No. 1, ISSN: 2193-1208, Technische Universität Berlin, www.conceptofluxurybrands.com.

Technische Universität Berlin Department of Marketing Professor Dr. V. Trommsdorff Klaus Heine – The Concept of Luxury Brands

Heine, K., The Concept of Luxury Brands. In: Luxury Brand Management, No. 1, ISSN: 2193-1208, Technische Universität Berlin, www.conceptofluxurybrands.com.

Technische Universität Berlin Department of Marketing Professor Dr. V. Trommsdorff Klaus Heine – The Concept of Luxury Brands

Distinguishing Luxury Brands from similar Concepts

Categories of Luxury Brands Price Setting

Luxury Manufacturer‘s Brand

Inter- and Intra-categorical

Premium Manufacturer‘s Brand Generic Manufacturer‘s Brand Premium Trade Brand

Trade Brand Risk reduction and information efficiency

Dominating Brand Benefit

Ideational Benefit

Source: According to Meffert/Backhaus/Becker (2003) Luxusmarkenstrategie, p. 6; Heine, K., The Concept of Luxury Brands., TU Berlin, www.conceptofluxurybrands.com.

Technische Universität Berlin Department of Marketing Professor Dr. V. Trommsdorff Klaus Heine – The Concept of Luxury Brands

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Distinguishing Luxury Brands from similar Concepts

Differentiation to Masstige („New Luxury“) Examples

Inter- and Intra-categorial

Intermediary Accessible

For the broader population:

Inaccessible

Price setting Luxury Manufacturer‘s Brand

Masstige

Premium Manufacturer‘s Brand Risk reduction and information efficiency

Dominating Brand Benefit

Ideational Benefit

Source: According to Meffert/Backhaus/Becker (2003) Luxusmarkenstrategie, p. 6; Heine, K., The Concept of Luxury Brands., TU Berlin, www.conceptofluxurybrands.com.

Technische Universität Berlin Department of Marketing Professor Dr. V. Trommsdorff Klaus Heine – The Concept of Luxury Brands

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Distinguishing Luxury Brands from similar Concepts

Luxury Brands vs. Masstige Brands vs. Premium Brands Product / Brand Characteristics

Prestige

top

Luxury brands

Masstige brands Premium brands Mediumlevel brands Prada

low

Price

Quality

Rarity

ExtraAesthetics ordinariness

Symbolism

Heine, K., The Concept of Luxury Brands. In: Luxury Brand Management, No. 1, ISSN: 2193-1208, Technische Universität Berlin, www.conceptofluxurybrands.com.

Technische Universität Berlin Department of Marketing Professor Dr. V. Trommsdorff Klaus Heine – The Concept of Luxury Brands

Distinguishing Luxury Brands from similar Concepts

Luxury vs. Premium Products and Brands – Mercedes vs. Lexus There is also an essential difference between these types of brands: while premium brands focus especially on functional characteristics, luxury brands put much more effort into creating symbolic meaning. For instance, Lexus entered the US market with the objective of growing by taking customers away from Mercedes, which was identified as its major competitor. Therefore, they took the Mercedes E Class as the model to overtake and developed a car with a similar design and even superior technical features that was only sold for about half of the price. Lexus generated high growth rates in the U.S. However, they still focused very much on functionality and even emphasized their car`s value-for-money, and also had no vision or story to tell – which clearly positions Lexus as a non-luxury brand (Kapferer and Bastien 2009b, p. 316).

Heine, K., The Concept of Luxury Brands. In: Luxury Brand Management, No. 1, ISSN: 2193-1208, Technische Universität Berlin, www.conceptofluxurybrands.com.

Technische Universität Berlin Department of Marketing Professor Dr. V. Trommsdorff Klaus Heine – The Concept of Luxury Brands

Heine, K., The Concept of Luxury Brands. In: Luxury Brand Management, No. 1, ISSN: 2193-1208, Technische Universität Berlin, www.conceptofluxurybrands.com.

Technische Universität Berlin Department of Marketing Professor Dr. V. Trommsdorff Klaus Heine – The Concept of Luxury Brands

The World Luxury Brand Directory

Intensional vs. Extensional Definition Intensional Definition

► Extensional Definition

by typical characteristics such as high price and superior quality

by identifying all luxury brands in a directory

Heine, K. (2011) The World Luxury Brand Directory, ISSN: 2193-5440, Technische Universität Berlin, www.worldluxurybranddirectory.com.

Technische Universität Berlin Department of Marketing Professor Dr. V. Trommsdorff Klaus Heine – The Concept of Luxury Brands

The World Luxury Brand Directory

Directory of Luxury Brands: www.WorldLuxuryBrandDirectory.com

The collection of luxury brands in a directory helps testing and enhancing the definitions of luxury products and brands. Heine, K. (2011) The World Luxury Brand Directory, ISSN: 2193-5440, Technische Universität Berlin, www.worldluxurybranddirectory.com.

Technische Universität Berlin Department of Marketing Professor Dr. V. Trommsdorff Klaus Heine – The Concept of Luxury Brands

Thank you! Questions? Klaus.Heine@conceptofluxurybrands.com

Klaus Heine, TU Berlin, Lehrstuhl Department Marketing, of Marketing, Steinplatz Steinplatz 2, 10623 2, 10623 Berlin,Berlin, Germany, Germany, Tel: +49.(0)30.314-29.922,, Tel: +49.(0)30.314-29.922,, Klaus.Heine@conceptofluxurybrands.com, Klaus.Heine@conceptofluxurybrands.com, www.marketing-trommsdorff.de www.marketing.tu-berlin.de

Technische Universit채t Berlin Department of Marketing Professor Dr. V. Trommsdorff