Download Contemporary Logistics Research on the Marketing Strategy of Luxury Goods

Contemporary Logistics 15 (2014) 1838-739X
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Contemporary Logistics
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Research on the Marketing Strategy of Luxury Goods
Hong YAN1.2, Xiaojing QU1
1. School of Economics and Management, University of Xiaogan, Xiaogan 432000, Hubei, P.R.China
2. School of Economics and Management, China University of Geosciences, Wuhan 430074, Hubei, P.R.China
KEYWORDS
ABSTRACT
Luxury,
Luxury consumption,
Marketing strategy
Luxury is knowledge. The marketing of the luxury is different from the common goods. In
the mature markets such as Europe and the United States, luxury consumption has gone from
prosperity to ice time. However, though the luxury goods market has developed fast in
China. The China’s market of the luxury goods is new and immature. Even the luxury giants
has also encountered into a lot of problems, in the China’s market. This thesis begins with
the introduction of the luxury goods, has discussed four aspects from products, pricing,
marketing channels and promotion, so order to give some suggestion to China’s market and
those who want to enter into China’s market.
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1 Introduction
“Luxury” comes from the Latin word “Lexus”, meaning flashing things, such as diamonds, gold etc. From the day of its birth, luxury
is doomed to have different marketing methods. Firstly is in its uniqueness of the product itself. The value of luxury goods are
generally unable to assess with the value of standards; Secondly, the specialty of target consumer groups. You never expect a
billionaire on the street accept your consumption study, asking wither he watches television every day. Thirdly are the unique
marketing methods. Simple and crudely putting in the intensive advertising never create a luxury brand. This paper has discussed
four aspects from the luxury products, price, place and promotion.
2 Product Strategies
Enterprises want to gain superiority in the market and achieve substantial economical benefits. The most fundamental method is the
introduction of products, which is competitive with good quality and continually improves or innovate the product, research and draw
up product strategy. Specifically, there are the following two aspects:
2.1 The product line extensions
Every product has a specific strategy for each market. Such as: the car of “Lincoln” position in the luxury market. “Chevrolet”
position in the medium-class cars market. “Zebra” is defined as low-grade car market. There are specifically two ways for luxury
product line extension: upward and downward.
2.1.1 Downward extension
It increased low-grade products in the high-grade products; the implementation of the decision requires the following market
English edition copyright © ST. PLUM-BLOSSOM PRESS PTY LTD
DOI:10.5503/J.CL.2014.15.008
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conditions: the purpose of the enterprises entering the high-grade products market is to establish a luxury brand reputation at first,
and then enter the middle and lower ends of the market so as to expand market share and sales growth. Implementation of this
strategy has some risks. If not handled carefully, it will affect the domestic market, especially the luxury brand image. China now has
tens of thousands of higher income groups. It is a fashion to show status with product brand. In order to gain this highly potential
market, many business men position their own brands with “luxury”. However, it is very little adhered to the principle of “luxury”
position unswervingly. Many brand products get involved in the middle and lower ends of the market through an extension, and
some even directly involved in the competition of the middle and lower ends of the products. such as” Ice Road” has become public
brand, enterprises may be having very good reasons for this: to spread the risks and increase market shares and make full use of
production and market resources. But have a look, Haagen-Dazs’ winning marketing strategy; it is also worth beyond the reasonable
question.
2.1.2 Upward extension
It is increase high-grade product items in the original product line. Enterprises need to re-position its product line as some of the
luxury goods market have large potential growth rate and higher profitability and the improvement of technology and equipment and
strengthen of marketing capability. This strategy also bear certain degree of risk, it is very difficult to change the product in the minds
of customers. If handled carelessly, it will affect the reputation of the original products in the market. According to the study, 90
percent of the world’s luxury brands, out of business and increase profitability and of various other reasons, have a product line
extension of the brand or brand extension, which extends 90 percent failure. Prada fashion break their own brand promise which is
the most understanding woman in 1993, involved in clothing and shoes, and hats for men. This adventure lead the brand image
plummeted; Ferrari discovers its insolvency mystery, which is Red ladies and has become a comment brand of high-end sports car.
This brand specificity leads to the customer away from it. World Business Review called the inevitable outcome as impulsive
punishment. International experience shows that the brand stand high-end absolutely, or stood in the public side, or both, is depends
on the position and strategy.
2.2 Reduced product portfolio
The strategy of product portfolio is in accordance with market demand. The ability to compete on their own domestic situation and
the combination of the width, length, depth, and related degrees, during market boom period, longer and wider product portfolio will
bring more business opportunities for profit, but downturn in the market or the strategy of raw materials or energy supply, the
reduction of product line will increase the gross profit. The Station strategy of French Spring Group brings it lucky ones in the 10
percent. French fashion goods and retail giant Penult Pinetops Reroute (Prepares spring) sold its Pinetops chain store through bid. 17
stores, which include the flagship store in Paris, this action is known as the front contraction. The PPR Group, which is the Yves St,
Laurent and other high-end luxury brands owner, shows that its luxury sales had increased by 16 percent; the amount of profit growth
is as high as 30 percent in its 2005 annual report. Faced with this situation, the Paris Spring Group adjusts strategy decisively. They
spun off Pinetops department stores and focus more on higher profits in the high-end luxury sector. The Chairman and CEO of PPR
Group Francois-Henri Penult signed the statement with the Burette and RREET and said they will be mainly spent on the two core
areas: retail and luxury. This would ensure that the unique position and direction of development of the Group of the Paris Spring.
Some marketing experts said that it is a pity to abandon Pinetops department stores; however, it allowed the Group to maintain
above-average levels of growth and more lucrative returns in the market.
3 Pricing Strategy
3.1 Psychology pricing strategy
It is a pricing methodology depends on the prestige and the popularity of consumers turning to the famous store. It is generally set the
price as a integer or a higher price to take a Acura image, and basically do not affect sales. High price itself does not link up with
high sales revenues, profits, and other indicators. However, the high price is able to reflect the position of the enterprise necessarily
because of high price reflect Acura image. Mentioned neckties, people will think about Golden Lee; Mentioned hiking, people will
think about Adidas and Nike; the mention of clothes, Pierre Cardin. Therefore, the marketing of luxury goods cannot take a large
market share and desire for a short benefit; this may lead to the overall decline in taste. When the Ice Readily and Mengzi, Woofing
have also launched economic conference, marketing equipment to expand their market share, While Haagen-Dazs always adhere to
the high prices and let their own brand at the center of attention, and never discount. This price does not allow consumers
discouraged, but complementary with the image of Acura, only Haagen-Dazs is the supreme letter of the ice cream. Thus ensuring its
continued strategy, to support its high profit.
3.2 Product portfolio pricing strategy
Companies often sell products to provide customers with a range of activities that is the main products will be accompanied by a
number of alternative products or features.
This marketing strategy refers to bundling pricing. In luxury industry, Bundling has become one of commonly used marketing
strategies in recent years. For example, when you buy word-processing program, you must also buy electronic forms (Excel).
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Database (Access) and demonstration files (PowerPoint) and other procedures. Bundling is one of the important strategies to the
success of Microsoft. This has made Microsoft global office software, the market share up to 90 percent. The advantage of bundling
is obvious, not only attract the attention of consumers, but also increase the overall sales. Through portfolio of products, enterprise
can manipulate the price of the portfolio and gain greater profit. For example, by lowering the prices of basic goods to improve the
marketing of products tied; though portfolio investment in product advertising to reduce the cost of sales, and broaden sales channels
of related products. However, the implementation of related conditions is likely to restrict competition and harm the interests of
consumers.
3.3 Differential pricing strategy
The secret of luxury pricing is the type which it acts independently in their predicament and take advantage of the asymmetric
information to price the product. So as to draw the consumers’ attention and worship, then strengthen their top position in the
industry. To some luxury brands, a high price has become their burden. In order to expand the target population, they create more
gradient for the price through the extension and expansion of their brand to create a greater market demand. Armani expanded the
target consumer groups by the introduction of a series of sub-brand, and to cultivate a potential consumer groups for core brands.
Giorgio Armani and Emporia Armani are its core brands, and adopt high pricing strategy; Armani Jeans mad Armani Exchange
brands adopt a relatively low price.
3.4 The pricing strategy of region
It is obviously unfair for the firms to uniform the same price due to the different price level across the region. In particular, some
luxury items, we take the beans for example, if one product provided by the manufacture sales at a price in the supermarket all over
the country, then obviously in the east coast, it’s actual selling prices low due to the relatively high overall price level, but the sales
figures for these products in the eastern region is large, which results in the shrieked profits due to the high prices in gr eater sales
place. Meanwhile, though the western region has relatively higher prices, after all, it has the low sales. So, in all, this kind of the
same pricing in counting does not benefit the manufacturers. The final solution is to mark the limited regions and sell higher in high
price’s areas and visa versa.
4 Channels of Distribution
The objective of the established channels of distribution is to build a sales network. For enterprises, the network is a strategic
resource and the basic environment to form the ecological balance. It’s the drift-lily routs if there is no network, no matter how much
money and how strong management. In the current market, as special goods, luxury distribution channels generally have the
following three types:
4.1 Zero-channel strategy
This means that there is no middleman involved between manufacturers and consumers. Different luxury brands have different
investment strategies. Nowadays; it is obvious trend for luxury adopts direct operation of its own channels through recovery agent.
Some important luxury brand would take direct operation. Such as Levin addition to pay rental of premises, all shops were
transferred directly from the headquarters of the operation and management leadership, and this will contribute to the maintenance of
standards in management. Another example, ZEGNA, Italy’s top men’s luxury brand, the shops in the big city is done by themselves.
Only three-lane city is a deal. Cardiac co-operated with distributor while Cardiac company responsible for the management. Luxury
goods are very different from fast consume goods because of short channels, a limited number, and a single model, direct operation is
more easy for them, and the brand image, operating, marketing and distribution of goods are likely to be controlled, and avoided the
lack of investment by agent in the decoration, advertising and marketing.
4.2 One channel strategy
Luxury products could not act like an ordinary product to make comprehensive deal, which would reduce its status. Generally when
brand is entering the market, because of they do not understand the market, they need someone to help development and management
it. So choose one agent, to help them open up markets, build distribution network and logistics. It is conducive to sales of luxury
products for the participation of retailers between manufacturers and consumers. However, the agent must be chosen carefully. Such
as Pierre Cardin, it opens shops rapidly through the domestic agents, and uses a lot of advertising and discount prices as well as the
rapid increase in the supply of products so that they make the brand known to everyone and break up higher market to enter the
public channels. Although agents earn a lot of money, the consequence is that many years of brand image is damaged.
4.3 The limited coverage of channel structural strategy
The channel strategy of luxury goods is to maintain a sense of the limited coverage of the market. It is not to provided a large number
of products for consumers to chosen from, but not to make the channel has always maintained a non-saturation, effectively complete
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the target market coverage as far as possible, under the guidance of this strategy, the distribution structure of the persisting key
coverage, to ensure every link in the value chain has ample room for profit. Meanwhile, the combination of channels also have to
achieve effective coverage, and ensure retail outlets located in the place with the highest concentration of target customers in addition
to the fixed network, the exhibition for luxury good is also an important channel. Boutique brand’s flagship store generally
specializing in forefront cities and second-line cities, and the flagship stores are usually in the frontline town. Boutique, the luxury
brand’s flagship store occupies a very important position in the marketing system and is a key element to create a brand. PRADA
located in the largest concentrated place of brand-name in Tokyo, is a six-storey high building like a huge standing crystal, its design
of the wall is quite revolutionary, and hundreds of diamond lattice glass posed a very contemporary wall. Diamond Glass can
produce hallucinations through visual effects. People can not only appreciate the PRADA dress outside the shop through
window-display, but also enjoy the outside scenery in the shop. After it is set up in 2003, it become the well-known fashion
landscape of Tokyo, not only ordinary consumers, even many stars come to visit this famous flagship stores like pilgrims. This is the
latest fashion trends in the retail and art flagship store. The flagship store can be successful even in the minds of consumers through
creates the feeling of standing above the crowd, and people could not resist their worship. Department stores and a five-star hotel
boutique is lower in specification than boutique and is an effective supplementary to it, it can be used to embody the idea of limited
coverage. Of course, luxury is only cooperated with the top luxury department stores and hotels. Brand discount shops and airport
duty-free shops are only sales luxury goods like clothing and cosmetics. Which is more favorable in price, it is the main place to deal
with the seasonal products. Generally professional exhibition company organizes luxury exhibition or luxury private club, golf and
other organization .it strictly limited the consumer in the exhibition. International top personal goods exhibition (Top Marques) first
landed in Shanghai last year, it has been a real success, over more than 60 top brands, including Ferrari, Marybeth, Lamborghini, the
magnate of world’s top luxury goods. The exhibition is open to the regal level only, and the spot transaction has reached 250 million,
of which luxury cars are the biggest winners. Within a few days more than 20 top sports cars were sold. In addition, Rolls-Royce and
Bentley Motor are beginning with the astronomical price earn a name for herself. Of course, the high price of luxury cars has found a
buyer before the end of the car show.
5 Promotion Strategies
5.1 Pull marketing strategy
The marketing strategy for luxury products is different from the general product pursuing coverage, facilitate to buying for consumer.
Pull is the secret of luxury marketing. Luxury should limited in time and manual production. “Money can’t buy” is the greatest charm
for luxury, because luxury products should not convenient, on the contrary, it should be controlled the sales volume appropriately,
and control the consumers sensibly in the promotional activities so that the consumers have a shopping psychology that great deal of
money is difficult to buy. This “hunger marketing” is just the preservation of the scarce resources. Therefore, the luxury marketing
should not only consider its large market share and the short-term benefit to lower the overall grade of brand, it shouldn’t be the same
as the public use of advertising and promotion. We must always maintain a pull situation. In other words, it should stimulate their
own demand so as to stimulate sales of luxury items.
5.2 Choice of advertising media
Advertising is a visual communication strategy to luxury. Luxury brands should choose some specialized media publicity according
to different targeted visitors, such as golf publication, journals and other members of the high-grade cars. Its issue is not high, but it
has a lot of contact with the crowd of high consumption, it is aimed at senior consumers and the richest group. Luxury is not
normally choosing the mass media, such as television. If luxury products are advertised on television, its brand grade will be lowered
and brand image will be damaged. Advertisements must be put in the local style, the effort should be intensified in the best-sellers
region and in weak areas should have a seasonal adjustment.
5.3 Customer relationship strategy
Customers not only buy a certain luxury in a sense, but also extend the consumer groups. Therefore, enterprises should identify the
target consumer group, to collect information on clients, and summed up the characteristics of target consumer group, then marketing
according to these features. The enterprises can timely deliver the published new products and new activities to the customer directly,
enterprises can also hold fashion party irregularly and listen to the opinions of consumers, to complete Two-way communication,
meanwhile, establish the clients document, keep long time communication to improve the turn round rate of customer.
5.4 Combined marketing strategy
Today, luxury brand combined marketing trend is becoming increasingly obvious. A support of one luxury brand may be the other
types of luxury consumers. Marketing together can expand their consumer groups, massive luxury products organized a number of
activities together, which can lead to greater influence. For example Hugo boss, Prada, Burberry, Gucci, Marmora and Escudo have
embarked on the united way.
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6 Conclusion
Overall, in extravagant era, people consume culture and honorable. So luxury brands should pay attention to psychological res earch
of the consumers, analysis the consume behavior and habits of target clients, distinguish the public brands with luxury brands, use the
unique features of luxury and then implement effective marketing activities. This is the key to success for the luxury products in
China. At the same time, we must apply integrated luxury products, price, place and promotion strategies in the process of the luxury
marketing, and then we can truly open luxury market.
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