A product is everything a consumer receives from a company in exchange for a cost. These include physical goods and services. A product has two dimensions: the tangible features that we can see, touch, smell, hear or taste; and the intangible features that we feel and experience. Using this brief definition, it is clear that the luxury goods sector is highly product specific. The meticulously crafted luxury goods that consumers purchase are tangible objects to treasure, while the intangible benefits constitute of the brand dimensions, the retail atmosphere, the customer services and the guarantees.
Products are designed to satisfy consumer needs. These needs could be functional such as the need for a pair of glasses to aid eyesight; or the needs could have intangible dimensions such as the need to wear a pair of glasses with the Prada logo, in order to make a statement of status to oneself and to others. The first level of need satisfaction can be found among the categories of goods that serve purely practical purposes such as consumer goods; while the second level of need satisfaction is found among products that have very strong branding concepts such as luxury goods. This is because luxury products provide much more than functional benefits to consumers. They are products that consumers use to project an image of themselves to the public as an expression of their true selves or their ideal selves. They are status symbol tools that show prestige, good taste and affluence. These factors indicate a symbolic role linked to the emotional, social and psychological benefits that are derived from purchasing and using luxury products. As a consequence, strategies behind the development of luxury products place a strong emphasis on branding elements. This is because luxury goods are evaluated by consumers on an abstract level with a focus on non-product-related associations, unlike non-luxury goods, which are evaluated on a concrete, product-related and functional level.
In the product development of conventional consumer goods such as basic toiletries, several factors are taken into consideration. They consist of the ease of product use and customer requirements. In the development of luxury products, however, there are certain features that cannot be compromised. They comprise the following:
1 Innovative, creative and appealing product designs and packaging.
2 Classic and timeless products.
3 Extremely high-quality materials.
4 Meticulous craftsmanship.
5 Manufacturing precision.
Other luxury industry-specific product features include: creative and emotion-evoking product names such as Christian Dior's J'adore' and 'Dior Addict' fragrances; Gucci's 'Envy Me' perfume; André Ross' 'Champs Elyseés' bag and Chanel's 'La Ligne Cambon' product range. Creativity also extends to packaging design such as the bottle designs of Givenchy's 'Organza' perfume, Jean-Paul Gaultier's 'Male' and 'Female' signature fragrances, Nina Ricci's 'Eau de Temps' and Paco Robanne's 'Ultra Voilet' perfumes.
The luxury goods product division has five major traditional dimensions. These include Apparel, Leather Goods, Perfumes & Cosmetics, Eyewear and Watches & Jewellery. However, this traditional product range has been expanded through the recent trend of product and brand extension. Luxury goods now include completely new categories like restaurants, hotels and spas, and multi-category required products like iPod cases. Figure 5.5 shows the main luxury fashion product groups.
Several marketing experts have identified the conventional product as having four concentric levels represented through what is known as The Anatomy of the Product. This model can be applied in the development of luxury products with the four levels as follows:
1 The Core Product, which constitutes the major features and benefits of the product. This comprises the tools that are used to differentiate the core product, such as design specifications and packaging. For example, the Dior Saddle bag and the Vuitton Speedy bag both have distinctive signature designs. The André Ross bag comes with 23k gold-plated hardware and Hermès has a characteristic packaging in orange. These are all aspects of the core product.
2 The Basic Product is the functional attributes of the product from which consumers derive their tangible benefits. These include the time-keeping
function of a wristwatch and the ability of a business portfolio to contain folders, a laptop computer and other business tools.
3 The Augmented Product, which comprises the unexpected extra features that improve the attractiveness of the product. These include extra services, guarantees and, in the case of luxury goods, free repairs, exchanges and lifetime warranties.
4 The Potential Product is what the product should and could be in future. It gives an indication of how many different directions the product could be stretched to in order to give it leverage and attractiveness.
New product development (NPD)
Luxury brands are constantly faced with market pressure to launch new and desirable products in short life cycles. This means that as a product is launched, new products are already in the design process. This factor calls for a clear strategic direction in product development. In order to achieve an articulate direction, the following steps are necessary:
1 Generation of new ideas. This is where designers are inspired by different elements ranging from travel and art to culture, literature, an era and even space. It is also at this stage that the services of trend-watchers, researchers and venture teams who track consumer behaviour are required. For example, for the autumn/winter 2005 collection of Burberry Prorsum, the brand's Creative Director Christopher Bailey took inspiration from the strength of character and cultural revolution of the 1960s, triggered by Twiggy.
2 Screening of ideas involving a study of what is acceptable in the marketplace. This is an important aspect of product development and could lead to a negative impact if overlooked. For example, Chanel made a faux pas during its fashion show for the summer of 1985 where models showed dresses with design imprints of verses from the Muslim Koran. This prompted protests from the Muslim world and an apology and discontinuation of the design by Chanel.
3 Testing concepts and their feasibility. For example, the use of specific materials that are both appealing and acceptable, for products manufacture. This is a key aspect of product development as the wrong choices could lead to a negative impact. An example is the use of animal fur which sometimes provokes protests from consumers.
4 Business analysis to ensure that the product has the potential for generating profits. For example, the Louis Vuitton Murakami leather goods line was a huge success when it was launched in 2002/2003 because the brand had evaluated its success potential.
5 Development of the product through design prototypes. This provides a first-hand look of the final product and an opportunity for modifications.
6 Test-marketing involving the complete or partial launch of products in a specific market. This is practised by luxury brands that avoid launching certain products uniformly in all the markets where they operate.
7 Launching and retailing of the product.
Creating new products is only the beginning of the Product Manager's job. Products need to be managed so that they can remain relevant and appealing. The product management system that a brand adopts depends on the range of the product portfolio. For example, brands with a mono-product range such as Manolo Blahnik who designs and manufactures purely footwear could handle product management through a single product-planning division. Other brands with a multi-product range such as Celine, which has bags, shoes and apparel in its product range, would have a broader product management system. Yet other brands that have diversified their range to include products and services with sub-brands such as Armani, which has a multi-brand portfolio ranging from Emporio Armani to Armani Exchange and Armani Casa, among others, would have a more extensive product management system. Another category comprises of a brand like Louis Vuitton, which has maintained a single-brand approach while extending its product range and introducing services such as an art exhibition centre.
In order to clearly craft an effective product management strategy, it is important to first understand the structure of the products in a brand's range. The product structure comprises of the length of the product, which indicates how many types of major product groups are in the brand's complete range. The second component is the breadth of the product, which indicates how many different sub-products are within each major product group. The third is the depth of the product, which shows yet how many types of products are within these sub-product groups.
To clarify this structure, let's take a look at the product range of a typical luxury brand. The examples of products shown are divided into broad product and sub-product categories, to act as a basis for a general overview of luxury products and are not definite in nature. The information in Figure 5.6
Figure 5.6 The luxury fashion product classification
Figure 5.6 The luxury fashion product classification uses the product portfolio of Jimmy Choo, which is a mono-product (leather-goods) brand to illustrate the relationship between the product length, product breadth and product depth.
An additional approach to the assessment of luxury products according to their categories and functions is through dividing them into groups and subgroups, as shown in the following section.
Major product groups
The following are examples of goods that can be found in the major product groups:
1 Leather goods: bags, shoes, belts, small leather-goods, luggage and accessories.
2 Apparel: haute couture, prêt-à-porter, sportswear.
3 Eyewear: sunglasses and prescription glasses.
6 Children's clothing and accessories.
7 Animal accessories.
8 Furniture & home decoration.
9 Services: hotels, cafes, clubs.
The products below are examples of goods that can be found in the sub-product categories among the major product groups:
1 Bags: day bags, shoulder bags, clutches, evening bags, bridal bags, sports bags, briefcases, and so on.
2 Shoes: evening shoes, day shoes, sandals, and so on.
3 Accessories: hairpieces, key rings, mobile phone straps, iPod cases, animal accessories, and so on.
In order to effectively manage luxury products, it is also important to categorize them according to the commercial role they play for the companies that own the brands. This can be done using the well-known product management model developed by the Boston Consulting Group, known popularly as the BCG Matrix. This model aids in product portfolio planning and management. The BCG Matrix features a cube that comprises a four-boxed dimension of products that are labelled: Dogs, Cash Cows, Stars and Problem Child. These are further measured against two major market elements: Relative Market Share and Market Growth Potential.
Dogs are products with a small share of a slow-growth market. Products in this group do not generate cash for the company but tend to absorb it and therefore might need to be removed from the product portfolio. In the luxury goods sector, these would include haute couture, which several brands have gradually removed from their portfolio.
Cash cows are products with a high share of a slow-growth market. The products in this group generate high sales and profitability for their owners; more than the investment made in them. It is therefore important to keep them in the product portfolio. An example is jewellery.
Stars are the products that have a high share in high-growth markets. They also generate huge income and contribute substantially to the profitability of the brands. The stars are the key products of brands and should be kept and rejuvenated at all costs.
Problem child products are those with a low share of a high-growth market. They consume high capital resources and generate few sales and profits in return. They also need huge investments of time, money and effort in order to increase their market share. These include products like timepieces.
In balancing the role of products within the portfolio, there should be equilibrium in investments and management time. This means the removal of the Dogs, the maintenance of Cash Cows, and the boosting of the Stars. Usually, the funds from Cash Cows are invested in Problem Child products to turn them into Cash Cows or Stars. If, however, the Problem Child product potentially becomes a Dog, then it ought to be removed from the product portfolio.
The BCG Matrix is also useful as a platform for performance measurement for luxury companies with multiple brands in their portfolio, as shown in Figure 5.7.
The next major task after defining and charting out the product range of a brand is to actually manage the products. The decisions that are made regarding product management consist of product naming, product classification, product extension, product alignment to the brand image, marketing research, trend tracking and analysis of the consumer response to the product offerings
Market growth rate
Market growth rate
Figure 5.7 The Luxury Fashion Product Classification using the BCG Matrix
Figure 5.7 The Luxury Fashion Product Classification using the BCG Matrix of the brand. Other decisions are related to customer relationship management and sales response.
In several luxury companies with a wide product portfolio, the function of product management is often divided according to the particular product group or sub-brand group. This is where product category managers have the role of coordinating the mix of diverse product ranges and lines within the general product portfolio and also evaluating new product additions. In this setting, there are also brand managers who manage the different brands within a single or multi-product category. Their responsibility also includes coordinating the extensive marketing mix and aligning them to the overall brand strategy.
There are two significant decisions that are made in product management of luxury goods. They are luxury product naming and luxury product and brand extension.
Luxury product naming
Every fashion season, consumers are introduced to new products from luxury brands. These products include apparel and accessories like bags, shoes, eyewear and timepieces. Others are fragrances, make-up and cosmetics. A number of these products, notably the leather goods, usually come with product names. Some of the names are remarkable because they have a 'background story' while others are forgotten by the next season when new products are launched with yet more names. Examples of luxury product names include Alexander McQueen's debut Novak bag; Ralph Lauren's Ricky bag launched in the 2006 spring/summer collection; Jimmy Choo's Tulita and Theola bags and Louis Vuitton's Speedy and Musette bags that are often re-launched with different materials. Other brands with product names include Furla, which has names for almost all the leather goods in its collection. Among them are the Patricia, Susy, Greta, Phoenix, Lutetia, Hope, Penelope, Norma, Nicole, New Divide and a host of others. In addition, Tom Ford's recently launched eyewear range have products named after film and fashion icons such as Farrah Fawcett and Ryan O'Neil and also after people personally close to him such as the De Sole, the Buckley and the Whitney glasses.
Product naming is an aspect of product management that should be approached from a strategic perspective. Although this practice is not new in the luxury goods sector, its current rampant application raises several questions. These questions are related to the motive behind naming the products and the objective these might serve for the brands and consumers. On the surface level, products could be used by brands to tell 'a story' and give some meaning to consumers regarding the particular product. However in most cases, this objective of product naming is unmet due to poor execution. In other instances, the aim of product naming is to replace product references. This strategy however doesn't provide an optimum positive impact as consumers are left confused and overwhelmed by the numerous product names.
Product naming of luxury goods needs to be credible to consumers. This means that there should be a reason behind the product name, which should be communicated to and understood by consumers. Several luxury brands seem to have caught the 'product-naming bug' and are rampantly naming products in order not to be left behind by the competition. Some of these product names also seem to have no tactical purpose and therefore are meaningless to consumers. Product naming should be approached tactically, whether the names are for fragrances, which require naming for their existence, or leather-goods, wristwatches, and sunglasses, which can exist without names.
While product naming is an excellent strategy for selling luxury, the product itself should be distinctive, innovative and highly appealing. When a catchy and meaningful name is added to an appealing product, it acts like a complement and contributes to the staying power of the product in the market. For example, the Hermès Birkin bag is named after famed actress Jane Birkin while the brand's Kelly bag is named after Grace Kelly. These bags that were created several decades ago have remained sustainable and continuously generate long purchase waiting lists due to their appealing and classic nature. Also, Mulberry's Roxanne bag, which contributed significantly to the brand's return to the luxury arena, has been highly successful as a result of its innovative and enchanting design and name. Yet other products with potential lasting power include the Chloé Paddington bag, named after London's Paddington district, the André Ross Champs Elysées bag, named after Paris' Avenue des Champs Elysées and the Gucci Jackie bag, named after US former first lady Jackie Kennedy.
Figures 5.8-5.13 show some of the signature bags of luxury brands that have been strategically named or connected with specific associations, which have turned them into iconic items.
Figure 5.11 The Mulberry signature Roxanne bag
Figure 5.13 The Gucci Jackie bag, the original version of which was named after US former first lady Jackie Kennedy
Although product naming is important albeit not imperative in the luxury marketing and branding strategy development, when adopted, it should be approached with tactical objectives and implemented with caution. Above all, the consumer audience should understand what the name stands for and associate the product with its name.
Product and brand extension
The news of luxury product and brand extension is everywhere in the fashion press with numerous examples. Roberto Cavalli is now into hotels and cafés and has also launched branded Vodka. Giorgio Armani has added the ownership of several restaurants, cafés and a nightclub to his fashion empire. This also includes a recent venture with EMAAR Hotels & Resorts to build seven hotels and resorts within the next decade. Missoni also plans to build a hotel chain across the world. Salvatore Ferragamo owns luxury Hotel Lungarno in Florence and Bvlgari has hotels in Milan and Capri. Versace has also added hotel services to its range with the Palazzo Versace in Australia and a second hotel slated to open in Dubai in 2008 with six more hotels planned in Asia, North America and Europe. Nicole Farhi's offerings also range from fashion goods to restaurants, furnishings and home accessories. Pierre Cardin owns the highly successful Maxims hotel, restaurant, bar and club in Paris, Monte Carlo, New York, Mexico, Shanghai and Peking. The list of examples could go on for several pages.
Other luxury brands, from Gucci to Bottega Veneta, Ralph Lauren, Nino Cerruti and Paul Smith have all extended their product ranges to include home decoration, furnishings and more. Yet other product extensions include Prada and Nicole Farhi's debut fragrance launch in 2005 and Missoni's 2006 fragrance range launch. Gucci and Louis Vuitton have also included writing materials in their offerings and Tod's plans to launch its first ready-to-wear range in 2006. Also crystal brand Swarovski and jewellery brand Cartier have added leather goods such as handbags to their product portfolios. In addition, several luxury brands have included iPod covers in their product ranges as a response to the new MP3 player market.
Product and brand extension has brought a new dimension to luxury branding. New product and service categories that include a total lifestyle concept make up the new business arena that luxury fashion is being stretched into. Consumers now have the possibility to dress their homes with luxury products from brands like Versace and Armani; to grab a drink at Just Cavalli café in Milan; to have lunch or dinner at Nicole Farhi's restaurant in London or New York while shopping in the unique concept store; not to forget getting down to some dancing at Armani's nightclub in Milan. Product and brand extension has provided an avenue for luxury brands to offer a complete 360° lifestyle provision for consumers.
This diversification strategy of product and brand extension is an important means to extend the luxury brand from 'fashion' to 'lifestyle' through offering home furnishing and hospitality services to complement fashion and accessories. While diversification breeds growth, it is imperative to infuse a strategic approach in the diversification process of luxury goods. This means that for product extension to be successful, there should be an equal blending of solid managerial ability with artistic skill and an understanding of customer needs. Although several luxury brands have achieved success through this approach, the sector still lacks adequate streamlining and clear positioning of the diverse products and services offerings.
The creative talents of the designers at luxury brands are a part of the core make-up of the brands but must be complemented with business proficiency especially in the management of product extensions such as hotels and restaurants, which require a completely different set of skills. For example, the atmosphere and service level at Pierre Cardin's restaurant in Paris, Maxims, is the epitome of opulence, distinction and exceptionally high standards. This description doesn't exactly fit the brand's products like the licensed perfumes sold at several Parisian supermarkets.
Every luxury brand has the creative capability to turn out desirable extended products and services but not every brand has the capacity to effectively extend its product range. Before product extension can be successful for a luxury brand, the brand should have achieved a clear and concrete positioning in the market and most importantly in the consumer's mind. There should also be an apparent consumer following through a loyal consumer base. For example, consumers that are most likely to stay at the Palazzo Versace hotel are those that have an affinity with the Versace brand and are attracted to what the brand represents. In the same way, home furnishings designed by Missoni are likely to be purchased by consumers that also buy Missoni fashion or are attracted to the brand.
The implication of product and brand extension for luxury brands is that this strategy creates opportunities for growth and also for a broader level of brand experience and a deeper level of brand affiliation. The risk factor of brand extension is also high and rests with the company's capabilities and resources. Product and brand extension provides a channel for growth but should only be adopted if a possibility of competitive advantage is envisaged.
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