Luxury goods carry dreams and lead century-old classics
1.1 Underlying logic: Scarcity and socio-cultural symbols
Artistry is an important element of luxury goods, which can meet people's high-level aesthetic needs. Luxury goods provide consumers with an emotional world, conveying a kind of dream and emotion, so that consumers forget economic considerations. As aesthetic objects, luxury brands and luxury goods cannot be separated from the additional meaning of creative design and the aesthetic experience of consumers.
Together with legends, creating classics and leading the trend, luxury goods are rare, fashionable and classic works of art, and social and cultural symbols of wealth and economic status. 1) Scarcity: Luxury goods are scarce in the supply side of raw materials. Secondly, brands will intentionally control the supply and demand relationship. For example, Hermes maintains an annual production increase of 6%-7%; 2) Social: Luxury goods have the dual attributes of social value and individual value. In terms of social value, luxury goods, as a social label, can satisfy emotional value and identity and highlight social status; In terms of personality value, luxury goods can satisfy individuals' pursuit of high-quality life, highlight their fashion taste, and self-identity brought by the brand spirit in their hearts. 3) From an economic point of view, luxury is a Veblen commodity, that is, the demand is proportional to the price.
Brand power comes from historical heritage and brand story, "dream" is the biggest feature of luxury goods. Luxury goods can generate a high premium to a certain extent related to historical factors, the head of luxury brands have a hundred years of history, and the expanding brand influence builds a moat. Luxury "dream" mainly through the following ways: 1) a hundred years of brand history: the origin of the brand or the founder of the dream, can make consumers yearn, such as Cartier emphasized is the emperor's jeweler, indicating their noble blood; 2) Top workmanship and quality: for example, when Hermes advertised the value of its own products in the early days, it mainly highlighted the fine selection of package materials, the cost of manpower and time; 3) Legendary stories embellished: for example, Hermes' best-selling Kelly bag, emphasizing that it was used by Grace Kelly, Princess of Monaco, thus highlighting the prominent and desirable product image.
1.2 Historical recovery: from the powerful to the popular, never fading fashion classic
The first stage: From the 17th century to the first half of the 19th century, luxury goods mostly served the aristocracy and were a symbol of power. At the beginning of the 17th century, the Renaissance movement died, the Enlightenment movement rose, Louis XIV in order to improve the prestige of the kingdom and promote luxury goods, the Palace of Versailles built its luxury exhibition hall. Guerlain, Hermes, Cartier, Louis Vuitton and other designated suppliers of the European royal family, for the nobility to provide bags, clothing, perfume, jewelry, watches and other products. Hermes, for example, was founded in 1837 as a manufacturer and distributor of harness equipment. LVMH was born in 1854, and the founder revolutionized the creation of flat-top leather suitcases, which quickly became the first choice for aristocrats to travel in the French upper society.
The second stage: from the second half of the 19th century to the beginning of the 20th century, the industrial revolution brought the rise of the middle class, luxury goods from the powerful to the common people, luxury goods really entered the brand development. The Industrial Revolution in the 19th century promoted the development of the upper echelon of industry, which was the first stage of the democratization of luxury goods. Luxury craftsmen were exposed to more customers and promoted the development of luxury stores. Europe began to decline economically and politically 100 years ago, but its cultural and artistic influence continued to rise in the 20th century with the emergence of art nouveau movements such as Cubism, Dada, and Surrealism, and its dominance in the luxury sector continued to grow.
The third stage: from the Second World War to the 1970s, the rise of Western economies ushered in a second peak in the birth of luxury brands. After the war, Western economies experienced rapid economic growth, and the progress of transportation and industrial technology promoted large-scale production and global trade. A large number of luxury brands began to enter the American market. Under the influence of the rapid growth of demand in the United States and textile industry technology, luxury brands in addition to haute couture clothing, also launched relatively civilian and mass-produced advanced garments. The prosperity of the industry from the 1940s to the 1970s gave birth to a large number of designer brands, such as Dior, Givenchy, Balmain and so on.
The fourth stage: In the 1980s and 1990s, with the global integration and acquisition of the Big Three, luxury goods moved toward industrialization, and luxury goods gradually became products for personal display or privatization. The rapid growth of the Japanese luxury market has prompted brands to start global expansion. In the process of globalization, family-run brands in the past faced pressure from capital and management structure, and luxury brands entered the peak period of mergers and acquisitions and listing. From 1987 to 1993, LVMH, Kering Group and Richemont Group went public successively and established their leading positions in the industry.
The fifth stage: After the 1990s, emerging economies such as China became the new growth engine of the luxury industry. The rapid growth of Chinese consumer demand has driven the whole industry into a new round of growth cycle, and the head luxury brands have also taken China as a key market expansion, Hermes, Gucci, Chanel and other brands have entered China in the late 1990s, opening the first store in Beijing Wangfu Hotel. China's market share is growing rapidly, taking LVMH as an example, the share of revenue in Asia (excluding Japan) in 2021 is 35%, an increase of 23pct from 2002.
1.3 Consumer group: High net worth users contribute the main revenue
As emerging economies prospered and the middle class in developing countries expanded, global wealth concentrated at the head. After World War II, the economy of the United States and Japan took off, and the proportion of wealth held by the high-income class increased, and the proportion of luxury consumption expenditure accounted for the total expenditure increased. According to the Credit Suisse Research Institute, the number of people with personal wealth between $10,000 and $100,000 will reach 1.7 billion in 2020, a more than threefold increase from 2000. The total wealth of high net worth individuals (personal wealth > $1 million) will reach $191.6 trillion in 2020, an increase of nearly four times since 2000, and their share of global wealth will increase by 11pct to 46%. During the pandemic, the inequality of global wealth distribution has increased, and the Gini coefficient of countries has increased to varying degrees in the past 20 years.
High net worth individuals with annual spending of more than 5k euros are the main buyers of luxury goods, and the top 4% of the customer base will contribute 39% of the sales revenue in 2020. Under the impact of the epidemic in 2020, the model of the customer group with an annual consumption scale of more than 5,000 euros is relatively stable, and the consumption level is steadily improving, while the mass luxury consumer group with an annual consumption level of less than 5,000 euros will restrain the optional consumption expectation due to the weak macro economy and the decline in personal income level. Overall consumption in 2020 fell by 47.1% to €355 billion.
1.4 Product features: strict price discipline, brand value brings high premium
The product system of luxury goods usually consists of entry-level and high-end products, following strict supply and price discipline. Take Hermes bag as an example, the classic Birkin and Kelly are both flow products and high-end products, with a distribution mechanism to control the total supply, such as a store to purchase 100 goods, Birkin and Kelly quota is 5, consumers need to match other goods, after reaching a certain amount of purchase. To be eligible to buy.
Luxury goods have the properties of investment preservation, and stable price increases every year to maintain the scarcity and high-end of the brand. Luxury goods have certain investment and preservation properties, and stable growth can reduce the risk of brand value dilution to a certain extent, so as to achieve the purpose of maintaining the image of luxury brands. The head brand implements the strategy of resolutely not disoffering. Vincent Bastien, former head of LV, mentioned in his book Luxury Management that "Luxury is a kind of earned goods, and the greater the resistance, the stronger people's desire to get it". The price increase of the brand conveys a psychological suggestion to the buyer's market that consumers are investing in financial products. In 2021, the brand value of LV, Chanel, Dior and Hermes ranked 26th, 33rd, 43rd and 66th respectively. From the perspective of cost, the epidemic has led to unstable supply chains, increased international logistics costs, and inflation caused by overissuing currencies. Moderate price increases can help protect profit margins. From May 2019 to November 2021, the price of Chanel CF, Chanel 2.55 and LV Multi Pochette Accessories increased by 64.6%, 64.6% and 54.0%, respectively.
One of the basis for the price increase of the brand is "customer willingness to pay", the head brand has the market initiative, and the popular classic model has the largest increase. To some extent, the price increase of products is reflected in the popularity of the market, if the brand attraction is weakened, and the price increase exceeds consumer expectations, the driving effect on the performance is not only uncertain, and even will damage the brand value.
Brand awareness and brand perception bring brand premium. Luxury goods are in line with aesthetic characteristics, and hold high-end exhibitions and fashion shows every year to lead the global fashion trend, maintain their top brand image, and look for Ming star, film and television resources consistent with their own brand tone to increase brand exposure. From the point of view of price, luxury brands will not cut prices for the purpose of maintaining brand image, which is also the reason why luxury goods can maintain high prices.
Luxury goods carry dreams, and brand value lies in the gap between visibility and availability. The brand value of luxury goods includes the brand spirit and personality, cultural connotation, historical inheritance, leading the social trend and exclusivity of customer experience. Dreams can be measured by the dream equation (Dubois and Paternault, 1995) : Dreams =-8.6+0.58 x fame -0.59 x purchase behavior. Dreams are determined by brand awareness and ownership, and are ultimately defined by class division (including division of social class, quality, product excellence and price). The higher the brand awareness, the stronger the symbolism, the more it can stimulate people's desire. Therefore, the higher the availability, the too many buyers, the luxury will lose its unique characteristics, lose the role of dividing social class and arousing the desire to buy, so only narrow the sales scope, set up barriers for the purchase of luxury goods, can improve its dream value.
The key to the luxury business model is to enhance consumers' perception of luxury quality and brand culture, and to ensure the exclusivity of the experience through the discipline of quantity and price, thereby increasing the value of brand equity. Vigneron and Johnson put forward five dimensions, including uniqueness, quality, pleasure and self-expression, to measure the brand strength of luxury brands. According to Luxury Brand Management: The luxury brand equity measurement model constructed in "Methods and Practices" is based on the characteristics of luxury products themselves (high price, scarcity, aesthetics, artisan art, historical heritage and design style). After observing five perceived values that affect consumers (namely, conspicuous value, unique value, pleasurable value, quality assurance and self-expression value), five dimensions of brand equity are proposed, namely, brand awareness, desire, loyalty, perceived quality and perceived brand culture.
1.5 Channel structure: direct marketing, online layout is accelerated
The head brand has a strong control over all aspects of design, production and sales, and the proportion of direct channels is constantly expanding. By model, it is divided into direct retail, authorized distribution and licensing. Authorized distribution and licensing usually occur in the early stage of a brand's entry into an emerging market, and as the luxury market matures, the franchising model will gradually weaken due to the strong control of the self-owned channel over the terminal, which is conducive to maintaining the brand image. In 2021, the global personal luxury retail channels accounted for 49%, an increase of 9pct compared with 19 years ago, while for heavy luxury brands, the retail proportion is higher, in 2021 Kering Group retail channels accounted for 81%, and its brand Gucci's direct revenue accounted for 91%. The licensing model still widely exists in the beauty and eyewear categories. Take beauty as an example, luxury brands cooperate with famous cosmetics groups, such as L 'Oreal, Estee Lauder, Procter & Gamble, Coty, etc. for the purpose of reducing risks, relying on their mature R&D, supply chain and channel capabilities. For example, L 'Oreal currently has beauty business lines for YSL, Armani and Valentino. Luxury groups charge a fixed percentage of brand licensing fees to licensees each year, generally around 7%.
The epidemic has driven channel changes in the luxury industry, and online channels have become a new position for brand marketing, bringing incremental new customers. Luxury e-commerce has made great progress in the past two years, according to Bain and BCG, it is expected that the global online share will increase from 12% in 2019 to 22% in 2021, while China's online penetration rate is as high as 39%, far higher than 13% in 2019. From the perspective of competitive pattern, wechat ecology (including small programs and enterprise wechat) benefits from the advantages of customized services, precision marketing, marketing ecology (public number, video number), and has become the main sales channel, accounting for 40%-50%, and its consumers' average consumption amount is the highest, about 170,000 yuan/year. The official website channels and e-commerce platforms account for about 20%-30% each, of which the e-commerce platform is mainly divided into brand-operated Tmall luxury goods, wholesale model and franchise model. The advantages of online channels are as follows: 1) Online channels provide a marketing platform for brands and consumers, which can help the Group increase brand and product exposure; 2) At present, the brand mainly invests in non-core categories online, such as fragrance and makeup, etc., which has low requirements for supporting services of products and is suitable for online sales; 3) Digitalization can help brands better manage customer information, thereby improving the offline store experience. The epidemic has cultivated consumers' habit of buying online, but luxury goods, as an industry that focuses on product and service experience, will still be the main purchase channel offline in the future.
