Critical analysis of affected of economic crisis on the luxury brand market Essay

Custom Student Mr. Teacher ENG 1001-04 17 February 2017

Critical analysis of affected of economic crisis on the luxury brand market

I- Introduction Luxury Market has been important parts of the global retail market as well an important part of the global economy. Bain & Company (2011) estimate the value of traditional luxury market including fashion, jewellery and Dinnerware line represents approximately € 150 billion to € 200 billion in 2010 which is an dramatic increase from estimate that the global luxury market was worth about $ 86 billion in 1990 (McKinsey & Co, 1990). Since the 1980s, the luxury market has been growing at ten per cent per year.

The growth rate of luxury is much higher than the growth rate of the global economy, which makes the luxury industry, relevant and important economic factor in the economy McKinsey (2011). Larousse (2005 p. 762) states: “Sophistication, which makes the splendour and comfort in the ways to live” The consummation of luxury by customers is due to the motivation to buy specific brands with quality products. The use of its products and consumer motivation are the result of consumption (Ahuvia & Wong, 1998).

Uncertainties are present in the current economic climate but Bain & Company (2011) estimates that the luxury market is going to grow in the coming years at about five to six per cent per year around the world and in Asia with more than a ten percent growth rate. As mass market manufacturing increases, companies want to increase the quality of their luxury products in order to retain their customers (Heine, 2011). A better understanding of the effect of the economic crisis on the luxury fashion brands will be identified and understood for the purposes of understanding the effect of the economic crisis on the luxury product industry.

Kapferer, (2009) argues that without clear-cut specification of luxury it is impossible to distinguish the luxury consumer or luxury brand, from others who are not. In this thesis the author will start by explaining the aims and how the author intends to achieve his aims. Then a literature review will be undertaken to try and determine and define what luxury is and define various factors, which make a product luxury. The author will also try and generate a better understanding of why are luxury products important and the different target markets who they is important for.

The author will discuss the methods used to complete the study. The Author will then present various factors, which affect the Luxury fashion brands in the economic downturn. Finally the author will provide his findings and conclude discussing the effects of the economic downturn on the luxury fashion market 1. 1 Rational The author has chosen to approach and better understand the world of luxury because of a personal interest at an academic level. In addition, the author being a student of luxury for more than 5 years want to deeper understand how big luxury brand adapted to the economic crisis. 1.

2 Aims & Objectives The objective of this thesis is to study and analyse the luxury market and the threats that surround it. The aim of this study is to examine to what extent the economic crisis affects the luxury market. The objective is to understand the concepts implemented by the luxury market during this period of financial crisis. This thesis will be useful for understanding and analysing the luxury market and understand the various tools marketing used. 1. 3 Research question -Understand the luxury market and its operation. -Understanding the economic crisis on the financial market of luxury and magnitude.

-Assess the extent to which marketing tools are used during the economic crisis. -Include the importance of consumer and luxury image in marketing. -Evaluate the various threats of the luxury market. 1. 4 Theoretical framework II- Methodology The methodology chapter will allow the researcher to understand and describe the different methods that can be used to successfully complete the objectives of this research project and move towards the aim of the research. Gillham (2000) explained that some methods are more appropriate depending on the subject and objectives. It is necessary to adapt the methodology on the project.

Gillham (2000) also argues that research is about creating new knowledge, in a multitude of disciplines such as medicine, history or social works, by using evidence in the form of quantitative and qualitative data. The definition of methodology, according to Hart (2007, p. 28) is: “A system of methods and rules to facilitate the collection and analysis of data. It provides the starting point of choosing an approach made up of theories, ideas, concepts and definitions of the topic; therefore the basics of a critical activity consisting of making choices about the nature and characters of the social world (assumptions).

This should not be confused with techniques of research, the application of methodology. ” In this section the researcher highlights, discusses and assesses the methods used for the collection and evaluation of data. The researcher will focus on secondary research for the purpose of this research; the methodology will include the reasoning and justification for the choice of research design, construction method and also the sample of literature to be used to demonstrate a thorough understanding of the aims and objectives of the research. 2.

1 Choice of the research design Research is defined by Saunders et al. (2003, p. 488) as “the systematic collection and interpretation of information with a clear purpose. ” The goal is to collect and analyse information to get a clear and established goal. The most appropriate method for this study is secondary research. It was selected by the author with the aim of examining the luxury market and the various threats that surround it as the crisis. The goal is to achieve a critical analysis of the current market situation for luxury brands.

In addition Cottrell (2005) argues that many reliable sources are now available online. Secondary research via the Internet can provide data of better quality than the result of primary research. In performing secondary research, the author has made a very wide collection of information from the literature. Reading books, newspapers and articles online, acquired a clear and comprehensive knowledge of the subject. Considered safe by Saunders et al. (2003, p. 52) and it is recommended that. “They are evaluated by peers before publication to assess their quality and convenience.

” To ensure that the collection of information, theory and model’s necessary and relevant; the author also conducted secondary research in the sources of the luxury market. The press releases and video from website such as Vogue, Fashion TV, Word of Fashion has allowed to deepen the knowledge. Stewart and Kami (1993) explain that the use of secondary data sources is an advantage. In addition, the authors point out that it allows the researcher to make a comparative analysis between the new collected data and previous data. 2. 2 Construction of design

“You need to maintain a critical perspective, the evaluation of the study on its own merits and in comparison with other studies on the same or similar problem. ” According to Saunders and al. (2003 p. 483) Saunders et al. (2003 p. 488) explains also the research: “The systematic collection and interpretation of information with a clear purpose” The objective of the systematic collection and interpretation of information is to analyse and criticize the effects of economic crisis on the market of luxury brands. The research plan established for this research project is the collection of qualitative information in a secondary search.

During the construction and implementation of secondary research, it did not just say to read the previous literature, as explained Rudestam and Newtown (2001, p. 60) Critical evaluation is an integral party of process research and allows the completion of the secondary research. According to Cottrell (2005) Critical thinking is a complex function of deliberation that provides the skills and attitudes. Human nature is not the same for everyone. Some people are suspicious and the other is in trust. But in critical thinking that is different. This is not a character trait but a system of methodology used to analyse.

According to Stewart (1993) and Saunders (2003) that secondary research is better suited for this research. In this thesis, the researcher collected data only secondary, secondary research allows access to reliable information and theories that are related to branding. Stewart and Karmins (1993, p. 3) argues that secondary research differs from primary research so that secondary research is based on reliable as primary research based on the analysis of the author information. The data required for completion of the aim and objectives is readily available from various secondary research resources.

Primary research could have helped to provide the researcher with a first hand insight into the industry but the lack of accessibility to the key stakeholders and also time constraints to the research made primary research not feasible. 2. 3 Scope of research The luxury market is a vast market. It includes many products such as clothing, jewellery and cars; And also many services such as travel and hotels. As the luxury market is the researcher will focus on a particular sector of the luxury product industry for the purposes of a targeted and viable research.

This will help the researcher to look at factors affecting the specific area of luxury in detail. As Bain&Co (2010) suggest Fashion is now the luxury sector expanding. The current craze for the fashion industry propels the luxury clothing first. The researcher is studying the field of luxury clothing. For the purposes of this research brands such as Louis Vuitton, Hermes, Dior and Chanel will be quoted at example to understand the current luxury market status. III- Literature Review A review of the literature is very important for any research and is an essential part of it (Webster and Watson, 2002).

With the support of a literature review, the knowledge that is already prevalent on the topic in question may be determined (Hart, 1999). An incomplete comprehension the current literature might lead to misunderstandings on the subject. Hart (1999) defines a literature review that the widespread use of literature to support an approach to a topic the establishment of a methodology which can be used and the importance of new functionality that could potentially be supported by further research. It is also said “…to quality means the width and the appropriate depth, rigor and consistency, clarity and conciseness, analysis and efficient synthesis “(Hart, 1999, p. 1).

Webster and Watson (2002) define an effective review of the literature to be based on in-depth knowledge, and give us an understanding of where more research is needed. Cottrell (2005, p. 127) explains that when looking for evidence to support an argument that has been spoken on the subject in the literature should be considered, where relevant information can be found and understanding of the leading authorities on the subject.

From the definitions, it is clear that it can be derived from a review of the literature effective (Levy and Ellis, 2006) 3. 1 What is luxury? 3. 1. 1 Definition Luxury brands looking to be desired and known by all, but consumed only by the happy few to keep their prestige explains Kapeferer (2002) This summarizes the overall strategy of luxury brands, however, some inconsistencies persist in the clear explanation of the definition of luxury. Gutzats (1996) expresses luxury with exhaustive definition “Luxury two levels of representation. The first level is important.

It includes product and brand (its history, its unique expertise and talent) second level is psychological, it is performance that our social environment and our brands influence us. ” Luxury is a product with multiple objective characteristics that make it unique and rare, but also subjective characteristics with experience because of the importance that has consumers during the purchase process. The rarity factor of a product is essential to the concept of luxury. Explained by Dubois (2001), the prestige of a luxury brand can lose value if too many people own it.

The distribution of a luxury product is very important; it must be selective to maintain the scarcity of the product. However, according to Kapferer (2002), the luxury market is in perpetual change. Several factors explain why the brand luxuries change their relationship with the principle of scarcity and become more accessible to a wider audience. Diversification of luxury brands with the creation of range of accessories and cosmetic product for the consumer access to the general public. Partnerships with general public brands, the Masstige contraction of Mass and prestige, or prestige for the masses.

Is concept allows enlargement of the luxury market. (Kapferer, 2009) 3. 1. 2 Relativity The vision of what is necessary and desirable is relative. It depends on the perspective and perception of the consumer. Depending on the consumer perception of luxury is not universal. Buttner and al (2006) argues that relativity of luxury is divided into several categories. The economic relativity, cultural, regional, temporal and situational. 1. 3. 1. 2. 1 Economic relativity Kisabaka (2001) suggests economic relativity is expressed by the difference in perception of luxury depending on the economic situation of the consumer.

For example, a pair of jeans ? 70 will be considered by a category of consumer as usual while for another it could be a luxury item. From a perspective of another consumer group a pair of jeans worth ? 2000 might not be considered a luxury product. The perception of price and its relativity to luxury can be argued to be relative to the consumer. 2. 3. 1. 2. 2 Cultural relativity Kemp (1998) suggests cultural relativity can be expressed as a function of the consumer culture. Whatever the consumer culture, luxury is a product, which is not trivial and necessary in everyday life.

Kemp (1998) But cultural relativity has no reference to the availability of the product but the product vision based on the culture. A product can be considered luxury or not, based on the culture. Kisabaka, (2001) argues in some cultures a product can be ordinary and undesirable while for another it will be indispensable to belong to the culture of his country. For example, alcohol can be seen as a luxury product in European countries, while in Islamic countries there will be a product that very few people consume. (Berthon and al. , 2009) However, Mortelmans (2005, p. 497) argues:

“Every social group can be said to have its own luxury” Reith & Meyer (2003) suggests every culture has its symbols and social distinctions. The consumer of the same culture can be part of different socio-professional category. For example, the hip-hop culture embraces gold teeth and considers it a luxury while it might not be desirable for a different cultural group. Kemp (1998) also argues cultural values ?? express different preferences of luxury; they differ depending on age, sex, and education. It is important to differentiate the perception of luxury based on knowledge of the symbols of luxury.

But also different perceptions in different cultural groups. 3. 3. 1. 2. 3 Regional relativity Reith & Meyer (2003) express regional relativity in terms of availability of the product. A product mass distribution in a country will not have the luxury status. However, a product, which is rare in a country, takes of value because of its rarity and exclusive distribution. For example, a sunny day at the beach can be considered as a luxury for the countries of Europe. But in the Caribbean this represents the daily weather. 4. 3. 1. 2. 4 The Temporal relativity.

Matsuyama (2002) defines temporal relativity by changes in perceptions of luxury over the years. The reasons for these changes in perceptions are societal trends and the development of technology. (Schiereck & Koenigs, 2006) Technological advances for consumer products can change their perspective of luxury For example, Reith & Meyer (2003) the television was created in the 1930s when it was considered a luxury, since the progression of technology televisions are present widely in his homes which has led to a change in the perception of luxury.

This product has become common in homes is no longer a luxury product. However Koschel (2005) argues that the process can be expressed in the opposite direction. Natural resources such as clean air, water became scarce in some countries. Kapferer (2008) suggests temporal relativity is a specific factor of luxury because it is not stable and steady and could change readily. (Jackel & Kochhan, 2000) Luxury is not universal and adapts as a function of some factor. It is important for companies to understand these factors and adapt ait’s marketing to influence different groups to sell its products.

3. 2 Luxury customer Gilles Lipovetsky (2009), philosopher suggests: “Do not have faith in a future that is mechanically better and fairer, there are still people in the hope of a better life, the feast of the senses, the beauty to expect that we leave the monotony of everyday life. Luxury is no longer the accursed share, but “dreams, excellence and superlative, this human need. ” It can be inferred from the above statement that luxury for a consumer is an achievement of itself. A luxury consumer wants to show his wealth and property, luxury goods are a reflection of the wealth.

The motivation of pleasure today became the first luxury purchase motivation to its traditional buyers. (Gilles Lipovetsky, 2009) According to Okonkwo (2007) a purchaser of luxury products cannot be considered as a mere client of luxury, but as an individual part of a network of the brand. It is by sharing with him the ritual and the traditions of the bard, which they have purchased, by teaching the consumer these details about the brand itself the sense of community and attachment towards a brand is built. It can be inferred that unlike mass-market brands, the luxury brand should tell a story and to give the customer want to be a part.

Gilles Lipovetsky (2009) explains luxury Consumption Consuming is both a product, a legend / myth, tradition, knowledge and ritual use. 3. 2. 1 Customer behaviour Kapferer (2004) suggests that there are several categorize consumers of luxury brands into different groups. Lombard (1989) argues that customers can be differentiated on the basis of their purchasing power. A customer with the financial resources has the capacity to buy products from all the different categories of luxury products (see section 3. 4. 3).

These elite customers not only form the key user base of the product but also are a great advertisement for the luxury status of the product. Customers of the elite are the generators of the turnover of luxury brands. They are loyal and hold the financial resources to consume luxury goods when it desires. This type of customer only buys clothes from luxury brands. Occasional customers have the financial resources necessary to consume luxury products but are not addicted. They consume luxury when the mood or the occasion arises. They are not faithful because they can change the luxury brand in the trend.

(Bain&co, 2008) The low-income customers who consume when their financial situation allows them. This type of customer consumes the occasional high-priced products for exceptional period (Christmas, birthday). However this type of client is the target of entry-level luxury products. Low-income customers consume perfumes and cosmetics in large quantities. This allows them to detain a part of the brand without spending an extravagant amount.

According to Berry (1994), three levels of luxury can be presented: the unattainable luxury reserved for extremely rich people, luxury means restricted to middle class high and affordable luxury reserved for the middle class. Each level corresponds to a totally different type of marketing because the target is not the same, the brand must adapt depending on the area they choose. Consumer’s behaviour while buying luxury products can be affected by three different effects. (Leibenstein, 1950) 5. 3. 2. 1. 1 The Veblen Effect One can distinguish consumption to be under the Veblen effect, conspicuous consumption. Leibenstein, (1950) suggests the consumer buys the luxury product due to its high price.

The work of Bourne (1957) explains the influence of peer groups on consumers in their purchases of luxury goods. Vigneron and Johnson (1999) also argue that a positive relationship is observed between conspicuous consumption and peer groups. In addition, Bearden and Etzel (1982) also explain that to buy the product in public is a sign of Veblen because the customer wants to be seen buying a valuable product. The consumer wants to show their wealth, status and power (Veblen, 1899). The price of the products is considered important in the minds of consumers, it represents the quality.

(Vigneron and Johnson, 1999) Erickson and Johansson (1995) conducted a study showing that the price can judge the quality of a luxury item. It is also agued the customer who consumes with effect Veblen is attentive to the quality of the product. 6. 3. 2. 1. 2 The effect of Snob According to Leibenstein (1950), the effect of snob is a complex concept. A consumer with the snob effect takes into account the emotional and personal desires which Influences the behaviour of others is also a factor that pushes the purchase of products of luxury brands.

For example, the launch of a new product, create exclusivity, snob effect causes the immediate purchase. Few clients have this product at the launch, the customer will feel different and above other consumer, it is preferred. A luxury item in limited sale has a great value while a readily available product will be less demand and will not have a high value; unusual item brings respect and prestige. (Solomon, 1994) However, after some time, the general public and the mass consumers consume the product, the snob consumers reject the product. The unique product, popular and expensive does not stay long.

Demand is growing rapidly and the product loses value. (Verhallen and Robben, 1994) 7. 3. 2. 1. 3 The Bandwagon Effect Bandwagon effect is a different concept of the two previous. In this effect, the product is consumed by the mass market, its demand in the market is important. Consumers are buying this type of product in order to have a luxury product and belong to a group. The luxury product is the similarity between the members of the group. (Leibenstein, 1950) For example, a consumer group buying the same mass-produced luxury feel they belong to the same social class.

The product is generally in the current trend and at affordable price. Berry (1994) argues Bandwagon consumers buy the product to look like other consumer and access a different social class a different group. 3. 2. 2 Price McKinsey (1990) suggests that the price is the first characteristic, withheld to qualify luxury goods. It is evaluated as the criterion most objectives and most quantifiable to measure the quality of luxury. . Dubois and Duquesne (1993) also suggest that luxury product must be at a high price to be credible; it is an essential criterion for the qualification of the same as a luxury.

Kapferer (2001) argues although the price is a very important criterion for the luxury product it is not the whole product. It can be found on the market for very expensive products that are not necessarily luxury items due to lack of quality and luxury marketing. The brand positioning reflects its class. In addition, Kapferer and Bastien (2009) also argue that the consumer looking for a luxury product is ready to pay the price but he also wants. Indeed, the consumer wants to own an expensive product because it provides the purchaser with recognition, which is valuable.

The researched can infer that price is price is an important guideline of a luxury product. In addition, Danielle ALLERES (1997) states: The fair price for a luxury product based on a perfect correlation between the level in the world of luxury, rarity and its brand reputation. According to Julian Levy and Jacques Lendrevie (2009) a policy of skimming or price skimming is a pricing policy, which consists of a high price (often partially disconnected from the cost) that customers can choose, the price can directly target customers.

It also maintains the image of luxury brand and reputation. (Julian Levy and Jacques Lendrevie, 2009) also argue that luxury product cannot be sold at a discount price. It may lose its value and caused the damage to the brand. 3. 2. 3 Exclusivity Kisabaka (2001) suggests scarcity of a product is also an important part of making it luxury. A luxury consumer wants exclusivity and differentiation. For example, a customer who purchases a product from a luxury brand would expect it to be exclusive and would not like it for it to be a mass-market product.

(Catry, 2003) also points out luxury brand must ensure the rarity of its products by limiting the production and individualization of products. 3. 4 Luxury brand A brand can be expressed as the identity of the company and the consumers it targets. The brand must represent a clear image in the minds of target consumers. (Esch, 2011) The luxury brand is associated with its flagship products and basic products on the basis of which consumers assimilate the product image. (Kapferer, 2008) For example, the little black jacket from Chanel is the flagship product for years and is constantly equated with the image of Chanel.

(http://thelittleblackjacket. chanel. com) Meffert and Lasslop (2003) suggest that different definitions of luxury represent the association of product characteristics and brand. A luxury brand is associated with an image that is ubiquitous in the consumer’s mind, which is itself associated with a luxury product: high price, perfect quality esthetical, the scarcity of the product and the product exceptional characters. 3. 4. 1 Relationship Product/Brand A luxury brand must not only offer luxury products but also offer ranges of products more accessible products to maintain the brand status.

The goal would be to reach a wider target customer. (Kapferer and Bastien, 2009) For example, luxury brands such as Chanel and Dior, offer ranges available such as key rings or jewellery phone products. This allows consumers to enter and feel to be a part of brand, with an affordable price. In addition, brands offer masstiges products; this concept is the combination of a luxury brand with a current and accessible brand to the public. For example, H & M has many partnerships with luxury brands and top designer. (Kapferer, 2008) Collections are distributed in H & M stores at affordable prices to the general public.

This marketing tactic provides high visibility for luxury brands to the mass market. In contrast, non-luxury brands try to portray themselves to be offering a range of products, which include a touch of luxury for another customer segment. For example, as Lufthansa airlines offer flights with luxury service at an additional cost such as offering extra-large seats, bigger entertainment systems and meals cooked to order. This demonstrates the relationship between a product and brand is important. It can also be inferred that a luxury brands have to offer luxury products to maintain its brand image.

Furthermore the quality and status of a product will only remain one that of a luxurious item if the brand is rated as a luxury brand. 3. 4. 2 Type of luxury brand Luxury brands can be categorised using various different factors, which affect a brand. 8. 3. 4. 2. 1 Luxury brand level Esteve and Hieu-Dess (2005) argues level of brand can be differentiated on the basis of the levels of luxuries performed. It is therefore important to distinguish luxury brands based on a category. The entry-level: products of entry-level correspond to the product seen above in relation brand / product.

Its products are part of the range luxury brand but with affordable prices. In its entry-level, there are the masstiges and the products of luxury brands at affordable prices. Example: Hugo Boss Fragrance Luxury product middle level: These products are part of the luxury range, but they are not maximum level. Its products are accessible while maintaining their entities luxury. Example: Marc Jacobs, Moschino. Luxury goods of high level: These products represented luxury in pure state. These ranges of products are of high quality and high price. Example: Hermes

Produces luxury level of the elite: This product is the top of the ladder. This segment is the most luxury products. Its quality and marketing must be irreproachable, they represent the brand. To reference the type of product is Chanel, Dior. According to the relativity of luxury explained above, the established classification can be modified over time. A brand can go from middle level to level for elite customer. It may be noted its changes based on trends, seasons and different cultures. (Phan and al. ,2011) Conversely, certain brand may lose their luxury positioning if it does not fit depending on relativity.

For example, Christian Lacroix, who lost his rank High Fashion due to improper adaptation of its marketing and its collections. (Bain&co, 2009) 9. 3. 4. 2. 2 Luxury brand awareness The leading products and notorieties are very important in the management of the brand and in its differentiation. A luxury brand should differentiate itself from others with its marketing strategy and advertising. The knowledgeable consumer expects certain notoriety, it must be found in the marketing strategy. The luxury brand needs to focus its marketing and marketing in a niche.

If a brand decides to sell luggage, clothing, jewellery and does not fit its marketing it will no longer be identified as specialize and thus not as a luxury brand. (Meffert and Lasslop 2003) Awareness of the brand in the minds of the public is essential. The flagship products create the brand awareness; even if its products are for purchase only certain category of customer it represents the brand. Previously the author explained the importance of quality and marketing for the range of customer connoisseur but this process is also important for the client who never will buy the product.

Its customers will be interested in the brand and will position as a luxury brand (Kapferer, 2009) The primary objective of the luxury brand is to become known around the world to demonstrate its performance and quality. (Phan and al, 2011) In addition, for a customer of the elite luxury product group buys a flagship product is a sign of wealth, it is important that the product meets this demand (Kapferer & Bastien, 2009). 3. 4. 3 Marketing technique If the marketing of mass consumption appeared after World War II during the post-war boom, the first luxury marketing techniques already existed in the seventeenth century.

Berry (1994) The companies in the luxury sector can manage the time by recalling the history of their homes through codes. For example, Chanel, two legendary fragrance: N ° 5 – first perfume by Gabrielle Chanel launched in 1921 and still one of the best global industry sales – is the lucky number of Coco, and No. 19 is reference to the date of birth of the Creator August 19, 1883, this history is an important part of the marketing strategy of the companies these days as they entice buyers by presenting a history and tradition of the product.

Each of the luxury goods is modernized, redesigned while respecting the history of the house, called in luxury marketing an incremental leap technique. (Kapferer 2009) Thus, the customer discovers and buys without hesitation a new version of a mythical product that meets the codes of the house, allowing sales to continue to grow. The success of these products is only possible through the transfer of know-how of artisans and small hands working in the workshops. Embroiderers, milliners, dressmakers, all these businesses demonstrate a thorough knowledge and quality that are transmitted in time while upgrading.

This concept allows the luxury home to restart their old products maintaining the brand image. A new advertising campaign is designed and the product is restarted. During a period of crisis, this concept is used by numerous brands. (Meffert & Lasslop 2003) Luxury brands must carefully control its distribution channels. (Esch 2011) the industry knows how to stage each of its products in places specific distribution channels for each target group. Thus, it is imposs.

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