Lies designers tell 2 -the luxury edition

Posted by Kathleen Fasanella on Mar 10, 2011 at 5:05 pm / Newbies, Quality, Sales and Marketing / Trackback

Forgive the title, couldn’t think of a better one; maybe this could be better described as lies designers tell themselves about luxury or even, top tier brands they aspire to compete with. Specifically, many entrepreneurs think that if they can source the same trappings and quality of the world’s leading luxury brands -you know, the pretty custom hardware, custom fabrics loomed with one’s trademarked logo down to fancy hand stitching- they can charge equivalent or slightly less than Vuitton, Versaci or whomever and laugh all the way to the bank. I would guess there are more people who believe this is true than there are people who don’t.

I get it, you’re not seeing what you envision in the marketplace so you think the problem is that it doesn’t exist. The problem is not that there isn’t product for retailers to buy. The problem is that you’re shopping in the wrong place. Contrary to all opinion, buyers have an enormous variety of products to choose from. The stark reality is that buyers buy what will sell for them. If you’re not seeing product to fill what you perceive to be a hole in a retailer’s merchandising mix, it’s because they can’t support it. It doesn’t move for them. If anything, retailers have so many quality products to choose from that it is difficult to decide which to buy. Amid the uncertainty and constraints of cash flow, they select known branded merchandise with a track record of sell through. Miracle wrote previously:

Now if you’re a DE who feels like a retailer is missing out by not buying your line, you better have a high sell-through to back it up. If you have a great product but it moves slowly, the retailer’s dollar is tied up in it (low turnover) so you’re missing the point. One of the challenges that many retailers face is that the greatest product is often not the best selling product. Likewise, what sells the best is not the product they would have preferred to push but it sells so that’s where their money goes. As a retailer, one of the biggest heartbreaks is a wonderful brand that you can’t get people to buy at full retail.


Because competition for the buyer’s dollar is so strong, it will take more than a 5, 10 or 15 percent reduction from the market leader’s price to move an aspiring luxury or top tier product line. If you think price is the make or break decision, you don’t understand the luxury market. Luxury buyers like everyone else, buy value. Rich people didn’t get rich by paying top dollar for everything in the store. If price isn’t the only motivator for luxury consumers, it also holds true for luxury retailers; price is only one facet of the purchasing decision. Some other conditions are (for all markets):

  1. terms and conditions of sale
  2. sell through guarantees
  3. exclusivity
  4. brand management, marketing
  5. merchandising displays & promotions
  6. delivery
  7. enforcing price points

A strong understanding of the above can dramatically increase the likelihood of a sale in any market but the limitation is that it can take quite a bit of sophistication and experience on the part of all but a few aspiring entrepreneurs. However, the luxury market is all that and a whole other story. Alison explained it like so [and included a link to a radio segment about luxury marketing (26 minutes) from The Age of Persuasion]:

You can make Louis Vuitton quality, but you are going to have to invest heavily in marketing to be able to charge Louis Vuitton prices. In the conspicuous consumption segment of the luxury market, people pay for the reputation of the brand. Everyone knows how expensive it is, everyone knows what kind of lifestyle it represents. When you buy an LV bag you buy into that. Of course it has to be a really good bag, otherwise all the marketing in the world won’t make people buy it. But the goodness of the bag isn’t what people are paying those prices for.

Luxury is a whole other animal. For one thing, the value of the brand is only as good as it is policed. To launch a true luxury brand, you’ll need dedicated intellectual property enforcement. By way of example is this excerpt from Countering Counterfeits: How Luxury Brands Are Challenging The Knock-Off Culture:

Prestige brands continue their epochal battle against piracy and counterfeiting in hopes of stemming both lost revenue and tarnished brand equity.Louis Vuitton, Tiffany & Co. and Fendi are just a few of the brands in wars against those selling – or permitting the sale of – knock-off items that look like luxury goods. The results of such counterfeits are damaging to luxury brands, both in terms of sales and brand equity.”The biggest risk is certainly the concern of reputational damage,” said Milton Pedraza, CEO of the Luxury Institute, New York. “People will see a knock-off that looks a lot like a luxury item, and they’ll be put off by the fact that it’s not great quality, or the craftsmanship is poor.”

So other than that a retailer is going to expect the strength of your marketing and brand management to get customers in their doors and that you’ll be able to enforce your price points etc, their purchase is even riskier if you don’t have the wherewithal to go up against counterfeiters. Meaning, they will only be confident if you have deep pockets. “Start up” and “deep pockets” are usually mutually exclusive. The ones that aren’t won’t be reading this because they would have hired world class talent instead of reading about it on some blog.

Returning to the premise I opened with, that entrepreneurs mislead themselves about the factors contributing to the market positions of luxury or top tier brands they aspire to compete with, quality per se is also not the only mitigating factor so all those trappings of lovely hardware, great fabrications and beautiful websites aren’t the solution either. The reason is because many otherwise rational people fall prey to the IKEA Effect. I’m mentioned it before, here’s a quote to explain it:

The archetypal example is a horrible looking mug sitting on someone’s shelf.  Do they just have bad taste?  Why is that ugly mug there? A lot of people have ugly things lying around because they made them themselves; they went to some pottery class when they were 23 and made a vase that is lopsided and hideous and no one would ever buy it. But people hold on to these possessions like they are worth a million dollars.

Indirectly, the HBR article closes with an interesting point about throwing good money after bad; that the IKEA Effect is a mechanism sucking resources. The thinking goes that managers entrepreneurs continue to devote resources to projects in which they have invested their labor (the ugly mug), and ignore good ideas found or developed elsewhere (like in this post) because it contradicts internally developed ideas they wish to make true. You have been warned.

I don’t know anything about the luxury market other than that it takes more research and reading than I have time for. There are several highly rated luxury market books but couldn’t venture to guess which are best. There’s also Luxury Daily which I linked to previously but can only imagine the good stuff is tucked behind a pay wall. If you know anything about the luxury market, I’d love to hear it.

Related:
Lies designers tell 1
Top ten lies of designers.

3 Responses to “Lies designers tell 2 -the luxury edition”

Comments RSS feed

Clarisse
March 11th, 2011
10:43 AM

Great article, Kathleen. I wish you were one of my professors at b-school.

I wonder what percentage of consumers in the luxury market actually have money to burn, and what percentage are more of the aspiring variety, in which purchasing a luxury item is a stretch cash-wise, but want part of that cachet for themselves at whatever the cost. I would guess that that group of consumers want to buy an established label; a well-made, high quality item with a less recognizable label is just a well-made, high-quality knock-off, in their eyes.

At least in the alcohol industry, there have been examples of new entrants that have successfully established themselves as a premium product. Grey Goose vodka comes to mind (although it is now owned and manufactured by Bacardi, so I’m not sure if it still has the cachet that it once had). Perhaps that’s where the deep-pocketed hiring of world-class marketing talent is involved.

Theresa in Tucson
March 11th, 2011
6:32 PM

Clarisse, have you ever read “The Millionaire Next Door? I think the purchasers of most branded luxury items are in the “aspiring” variety. “Old” money normally doesn’t advertise it and self made millionaires don’t either so it’s the guy or gal with a high paying job (or not-so-high paying) keeping up appearances who purchase the highest percentage of luxury goods. Families of self-made millionaires don’t often retain their parents hard earned wealth. If they do and manage to pass it on to their offspring and their offspring’s offspring they start resembling “old” money. It’s all about attitude.

[...] either (I certainly don’t) and think a premium product is a combination of high pricing and the IKEA effect (it must be good since you made it) which is really no different from the mainland Chinese mall [...]

Leave a Reply

Current ye@r *

Archives

Categories

The Entrepreneur's Guide to Sewn Product Manufacturing

Often described as the garment industry “blue book”, the most highly rated book in the business is guaranteed to get you off to a solid start or your money back. Many service providers require you read this before they’ll work with you. Learn more »

Subscription Options

RSS Feed Google Reader My Yahoo My MSN Technorati

Subscribe by email: