12 minute read
Data collection
Figure 30: Dallas apartement, El Atelier, 2021 Figure 31: Revolution glasswear, Fferrone Design, 2011 Figure 32: Speciality food, Festival International de la Photographie Culinaire, 2021
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The aim for this section is to compose a recollection of secondary research in order to prove the objectives and research questions that where proposed in this dissertation. This part will be represented by the findings of various tutors showcasing the application and evolution of the FLBM and some successes of the winery industry, jewelry industry and food industry that adopted the FLBM but also supporting evidence showcasing recent statistics of each industry.
The scientific research studies results from Matzler et al. 2013 will be exposed as a certain breakthrough to showcase the evolution of the luxury industry and the new industry entrants in order to deduct and corroborate the optimization of the FLBM. Foremost, there will be exposed findings and analysis of a few cases studies by Blancheton et al., 2020, Pereira et al., 2018 and Milanesi et al., 2020 showcasing the successes of three industries that adopted the FLBM and how they implemented it, concluding with the future challenges of the FLBM.
FLBM application from other industries
In this part, there will be exposed the applications from the FLBM that brands are adopting in order to create strong and flexible profitable businesses. The exploration of this business model is an attempt to reveal the specific variables that benefit and reconcile the status strategy. As an example, the student will display the study case of Nespresso adopting the FLBM with scientific research study results from Kapferer, 2010, Giacosa, 2018 and Matzler et al., 2013.
As mentioned before, the FLBM core characteristics are the value creation, value capture and value proposition referring how the company format and process their activities (Teece, 2010), but also including more superficial characteristics such as the product and service, the profit formula and marketing/sales that create the brands positioning (Matzler et al., 2013). Furthermore, Nespresso has proven to be successful innovating into the FLBM, growing by 30% each year since 2000.
Positioning
Customization as Nespresso created a system where they sell individual portions of coffee capsules with different tastes to their customers giving them the experience value of preparing their own espressos according to their preferences depending on the Nespresso machine and the capsules they buy, Mixing personalization with convenience at the same time.
Components of the FLBM
Product and service
More than 16 different tastes are offered which are individually vacuum packed in order to preserve the coffee’s quality focusing on the individual personal experience and enhancing exclusivity by marketing limited edition coffee.
Marketing and sales
Nespresso based their product from traditional retail distribution to internet sales which they call Nespresso Club, creating the individual to create a sense of ownership or institutionalization. They also provide experience based exclusive boutiques and flagship stores.
Profit formula
They sale high quality personalized coffee-machines at economic prices. Nespresso does not profit by selling this machines but by selling their coffee capsules at premium prices which is an example of luxury democratization.
Core characteristics of the FLBM
Value creation
Production and marketing of democratized speciality food ensuring quality, exclusivity and sustainability (Nespresso founded a Sustainable quality program that ensures the reutilization of their coffee capsules).
Value capture
In 2015, Nespresso owned 24.5% of the market share in the coffee capsule market (Statista, 2015) and exports from Europe to 64 countries worldwide (Nespresso, 2022).
Value proposition
Uniqueness and exclusiveness of product that brings the individual and hedonistic sensorial valuable experience in the art of making quality coffee at home with lower prices.
Before and after the FLBM
Furthermore, there will be exposed the shifts Nespresso has built from a traditional coffee seller to a speciality coffee seller. Having the characteristics and components of the FLBM, The author will express a comparison from the before and after the company applied the FLBM.
Before the FLBM
The traditional coffee industry concerns B2B practices considering that consumer used to consider coffee as a pantry or supermarket product therefore the primary selling point where supermarkets, basing their positioning in quality at low prices as a key factor differentiation (Kapferer, 2010). Their product and service was simple: Branded ground coffee bought from wholesalers provided mostly from Brazil (Lundy, 2009). Their profit formula was based in applying low cost with less profit margins but selling in masses but also as a marketing practice, implementing B2B relationship between coffee company and wholesaler but also minimal B2C relationships like mass advertisements or shelf positioning.
This business model value creation involves commonly the provenance of the product but also a low pricing strategy and their value proposition is based on the characteristics of the product and its effectiveness.
After the FLBM
By acknowledging the adaptation of Nespresso previously, We can say by including the FLBM, their profit margin has increased positively. From 2021, Nespresso has increased their sales up to 7% as the highest in six years with 3.6% of organic growth with revenues for over $4 Billion as Nestlé company most profitable brand of 85% of the share (Statista, 2020) (Nestlé business report, 2020).
Key ideas from Nespresso’s FLBM
1. Nespresso shifted from a B2B approach to a more closer relationship to the consumer (B2C).
2. They turned a transactional business into their own direct channels with recurring revenues and bigger profit margins.
3. They changed their strategy with an innovative product that gives the consumer an experience and ritualistic approach.
Key components and roles of the FLBM
Additionally, The management studies of Giacosa, 2018 are essential to clarify the components and roles that the FLBM has as the results from her study into the FLBM, dictate a collection of aspects that are key for other industries adaptations into the business model.
Innovativeness
In order to adapt to the FLBM, innovation is crucial, strict quality control of the business model including the distribution is essential to optimize its success. Introduction of new tools aimed to catch the consumers attention such as experiential values to ensure competitive advantage in order to introduce a innovative product that creates an aspirational emotion from the individual but also invites businesses to apply unconventional and new terms that can be interpreted as an example: the contemporary unconventional luxury.
Long term vision in the investments approach
Lack of companies long term vision can make the FLBM arduous as a creation of a luxury company has to constitute a long-lasting process in order to have a perspective of the companies activities continuation. Shareholder have as a priority the company’s social influence and symbolism assets (icons) to ensure or maximize its survival but also enhancing the companies prestige.
The company’s assets
The company has to own prestige or a consistent story-telling to ensure the authenticity of the brand as a long term vision, this should be coherent with its values and philosophy in order to retain loyal customers and impose institutionalization. Another factor is its price policy that depends on availability of luxury goods as the reduction of a price can disinterest consumers, companies applying the unconventional luxury can use the high/low policy (keeping prices high in profitable seasons but reducing prices when sale season start). The innovativeness of the company has to be coherent with the company’s identity in order to be practical.
Other study cases
Case study: Winery industry
Nouvelle-Aquitaine’s cognac business is based in a group union of small local suppliers from this region which conformed their business model based in the three ground components of the FLBM (value proposition, the value creation additional to the delivery system and the value capture system (Teece, 2010)). This business value proposition is based in the uniqueness of their product as their brandy is produced from grapes originated from the area where the soil and temperature are of a certain quality which therefore creates the exclusive product that brings experiential value to the consumer by showcasing heritage and craftsmanship along with associating their product with “elegance, power and close proximity to art and creation” perceiving a creation of a social factor or value therefore the application of the art of conspicuousness. Their value creation is admissible through the French culture of winery through thousands of years that allows them to have a unique production as the modest manufacturing of their cognac has been of tradition and specific knowhow in that area creating the perception of high levels of expertise and perceived heritage or storytelling that enhances the authenticity of their business therefore their value capture system is guaranteed by their exports which include 97% of the cognac exported, due to internationalization, the foreign marketers have the capacity to sell at high prices with large profit margins. Nowadays Nouvelle-Aquitaine’s luxury brandy business has reached the 64.6 billion dollars but also expecting an increase of growth 5.97% from 2022 to 2025 (Statista, 2022).
Figure 36: Cognac cocktails, A couple cooks, 2020
Figure 37: worldwide French liquor exportation market share, Statista, 2020
Figure 38: Global Cognac market 2021-2025, Technavio, 2021
Figure 39: Larry jewelry ring, Larry jewelry, 2020
Figure 40: Global luxury jewelry market prediction, by value (USD Billion), Blueweave consulting, 2021
Figure 41: Luxury jewelry market size, Grand view research, 2021
Case study: Jewelry industry
Larry Jewelry company has escalated into one of the most prominent luxury jewelers in the Chinese and Singaporean market basing their value proposition into the experiential and agentic characteristics of the unconventional FLBM. This company relies on the influence of manufacturing quality jewelry and gems (Pereira et al., 2018) with a developing market that assures constant growth and innovation by having a rich heritage, building their CLP by their importance of culture, excellence perceptions, elegance and “grandeur” aspirations. Caric Horn, the CEO of the company, shares that their success (by adopting the FLBM) is from their authentic traditions of craftsmanship in the Asia Pacific region but also their intrinsic adaptability to create customized items for every customer creating long term connections between brand and individual, Horn explained, “much of the pieces that we design is based on the costumer’s body type. In our field, we are aware that matching a piece of jewelry to the costumer’s body type would increase… levels of comfort, while wearing them. Nothing is created in bulk anymore. It takes skill to deliver the ultimate experience”. Larry jewelry makes their product consumption meaningful for the individual by impelling culture and spiritual aspects in their products as for example creating special collections directed towards the Chinese cultural gift market. In 2021 they represented a 58.6% increase in revenue compared to the last year (Larry Jewelry annual report, 2021) and their first expansion into the Australian market.
Figure 42: Fresh whole summer truffles, Truffle Plantin, 2021
Case study: Food industry
Alpha is an Italian based company located in the Umbria region with a huge historical heritage by operating the truffle industry, sharing a global market of almost 70% by being the primary leaders of this industry and being the first ones to advertise this mushroom as a “speciality food” or “luxury food” (Heide et al., 2018) featuring the CLP of quality of product and exclusivity, as truffles are considered a local tradition product. This company used the FLBM as an example of showcasing the self directed pleasure and experiential value that the truffle brings in a ritualistic approach, as this mushroom requires explicit environmental conditions in order to develop in the soil offering the aftereffect of the scarcity perception. Alpha has also created a touristic cultural experience ensuing the attraction of tourists to the region in order to take their possible/current consumers through the process of hunting and harvest ing of truffles as well as demonstrating the companies culture and heritage establishing a relationship of a gastronomic institutional brand. Recently they have expanded their experiences into the U.S. market by creating flagship stores throughout the country as a target to spread the companies storytelling and truffle culture. Currently the truffle market has increased 8.9% compared to 2021 and comprehends a market value of $202 million.
Figure 44: Global luxury food market revenue growth prediction from 2020 to 2027, Credence research, 2021
Figure 43: Black sliced truffles in oil, Calamillor Miami, 2022
Future challenges of the FLBM
Furthermore, the results from a study from Kapferer, 2018 describe effectively the future challenges that the FLBM will confront in the forthcoming, such as the difficulties that a new unconventional FLBM can bring.
1. High technology. Luxury inclination to embrace technology and thus far have relevance.
2. Luxury accessibility to the masses. App services that bring easy accessibility.
3. Amazon as the top luxury retailer. Threatens the CLP of exclusivity, conspicuousness and selectiveness.
4. The internet opens the individual’s accessibility to brands. Enhaces the importance of institutionalization inside the FLBM.
5. Sociological shifts in CLP. Differentiations of luxury between the new digital natives and the past generations.
Figure 46: Gen z influencer, Pinterest, 2022
Figure 47: Cartier watch, Tere Lozano, 2022 Figure 48: Vintage gym decor, Pinterest, 2021 Figure 49: Bowers and Wilkins speaker, Fnac, 2022
Data Results
