Consequences of selling online for prestige type of brands in luxury goods industry in the beginning of 21st century.
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
Consequences of selling online for prestige
type of brands in luxury goods industry in
the beginning of 21st century.
A dissertation
presented to faculty in partial
fulfilment of the requirements for
the degree: Bachelor of Arts in Business & Design
Management
By: Margaryta Pugach
September 2, 2016
I
Table of Contents
Executive Summary .............................................................. Error! Bookmark not defined.
Chapter 1. Introduction ................................................................................................... 1
1.1 Relevance of the topic .......................................................................................................... 1
1.2 Research aims and objectives ............................................................................................... 2
Chapter 2. Literature Review........................................................................................... 3
2.1 Background .......................................................................................................................... 3
Concept of luxury and classifications ............................................................................................ 3
Characteristics of the luxury brand ............................................................................................... 5
Luxury industry specificities .......................................................................................................... 6
Prestige VS Masstige ................................................................................................................... 10
Luxury consumer ......................................................................................................................... 11
The brand equity ......................................................................................................................... 14
E-commerce ................................................................................................................................ 14
2.2 Luxury management in a digital era.................................................................................... 18
Benefits of digital selling ............................................................................................................. 18
Importance of online presence ................................................................................................... 19
Danger of web-selling ................................................................................................................. 21
Brand equity in the digital era .................................................................................................... 21
Creation of masstige ................................................................................................................... 22
2.3 Gaps in knowledge ............................................................................................................. 22
2.4 Scope of the Dissertation ................................................................................................... 23
2.5 Research Questions ............................................................................................................ 24
Chapter 3. Research Design and Methodology .............................................................. 24
Chapter 4. Data Analysis and Recommendations .......................................................... 25
4.1 Data Collection ................................................................................................................... 25
First research: customers’ perception of the brands with and without online sales.................. 27
Second research: luxury brands go online .................................................................................. 33
4.2 Findings ............................................................................................................................. 38
4.3 Recommendations ............................................................................................................. 40
Chapter 5. Discussions ................................................................................................... 41
Chapter 6. Conclusion .................................................................................................... 42
II
Bibliography ................................................................................................................... 44
Appendix ........................................................................................................................ 49
List of Figures ........................................................................................................................... 49
Figure 1. The pyramid brand and business model in the luxury market. ................................... 49
Figure 2. Fashion Cycle for a Fall Winter Collection.................................................................... 49
Figure 3. Example of a masstige strategy. .................................................................................. 50
Figure 4. Signal Preferences and Taxonomy Based on Wealth and Need for Status. ................. 50
Figure 5. Customer Satisfaction VS Excess Capacity. .................................................................. 51
Figure 6. Porter’s 5 Forces. ......................................................................................................... 51
Figure 7. Online selling penetration in different categories (estimated figures for the U.S. in
2012). .......................................................................................................................................... 52
Figure 8. Percentage of researched items online before purchasing. ........................................ 52
Figure 9. Luxury brands groups with common characteristics. .................................................. 53
Figure 10. Online Selling Contribution and Prestige Index. ........................................................ 54
Figure 11. Net revenues of Prada Group in 2009, 2010, 2011.................................................... 54
Figure 12. Net Sales of Prada brand by product line in 2010 and 2011. ..................................... 54
Figure 13. Net Sales of Prada brand by product line in 2009 and 2010. ..................................... 55
Questionnaire for Kurt Kupper, CEO at Reuge. ......................................................................... 55
The interview with Kurt Kupper, CEO at Reuge. ....................................................................... 57
III
Chapter 1. Introduction
1.1 Relevance of the topic
Luxury goods were always an attractive way to spend money not only for upper class
members but for middle class as well. Even many centuries ago people always wanted to
have a luxury item, they wished something excessive, and something they did not actually
need. This industry will stay relevant unless people change their characters and stop being
ostentatious, flashy, and boastful as well as will stop raising their self-esteem through
expensive material objects.
Luxury goods marketing is an art which has many nuances comparing to mass market goods
marketing. An example could be a simple formula “higher price – lower demand” which does
not work in this industry. This is why this industry should be studied and examined
separately.
Only real luxury connoisseurs can easily distinguish different types of brands in this industry.
They will never mix up “premium”, “masstige” and “prestige” brands.
Every luxury brand works hard in order to develop desirable brand image which may be
simply described as customers’ perception of this company. Sometimes companies sacrifice
sales volumes in order to maintain certain brand image. One of the examples is rigorous
selection of physical boutique location which leads to limitation of sales growth. In other
words, companies prefer to lose potential sales than to open a store in a location which can
change the image of the brand or harm it. The brand image plays an important role in
determining a luxury brand type.
E-commerce has changed the rules of marketing in all the industries: growing amount of
local and foreign competitors, prices are displayed and thereby may be compared, margins
are lower, and selling is tougher. In luxury world the appearance of online selling may lead to
a change in perception of luxury item. High prices are not only justified by distinctive
quality, but also by hard-to-reach, almost inaccessibility of the luxury item for the majority of
people. E-commerce makes every product more available for public, more reachable and
thereby less exclusive.
1
Nowadays, luxury is not the same as it was in the twentieth century, prior global
digitalisation. This industry had to adopt to the changing trends, and the brands started using
e-commerce as their distribution channel. This lead to the emerging of a concept called New
Luxury. The adoption of online selling has made some changes to the characteristics of
luxury brands, but can we call them luxury? Does it mean that those companies stayed
prestige?
This research paper investigates different types of luxury brands and examines an influence
of digital selling for a prestige luxury types of brands. The analysis is made through the
critical evaluation of customers’ perception of luxury brands, both with and without online
selling activities. All the characteristics of old prestige luxury and new luxury are analysed
and examined in order to understand does e-commerce make prestige brands more
democratised for masses (masstige brands), or digital selling has no influence on brand’s
level of prestige.
1.2 Research aims and objectives
The aim of this study is to critically analyse the outcomes of e-commerce for prestige luxury
brands. Prestige brands will be regarded as a unique type with individual characteristics
which are specific for this type of luxury brands. This is the reason why this type should be
examined separately. Both positive and negative effects may occur which may lead to the
change of the brand’s type.
The objectives of these study are:
• To critically analyse characteristics of different types of luxury;
• To critically evaluate customers’ perception of the brand which have and have
not introduce online selling process;
• To analyse sales volumes, marketing strategies and price policies of specific
brands before and after they started selling online.
In this research the author asserts that each type of luxury brands should be examined
separately and online selling can be used as one of determinant factors of prestige or masstige
category.
2
Chapter 2. Literature Review
2.1 Background
Concept of luxury and classifications
The word “luxury” comes from the Latin “luxus”, which can be translated as “excess”. This
shows that originally the word luxury was understood as something deflected, it did not bring
any positive meaning (Chevalier & Mazzalovo, 2012). Here are several definitions from the
Le trésor de la langue française dictionary from different centuries:
1607: Way of living with heavy expenditures in order to display refinement and elegance.
1797: Expensive and excessive item, pleasure.
1801: Excessive quantity, a luxury of vegetation (Française, 1985).
Over the time, negative superfluous connotation disappears, ideas of distinctive elegance and
refinement strengthen, and this term has acquired other meanings.
Nowadays, Business Dictionary describes luxury goods as items which are not crucial for
living or survival but make lives more pleasant for their owners who have higher income than
the average. (Anon., n.d.) Michel Chevalier characterises luxury as a very exclusive product
that can be presented as a symbol of sophistication, scarcity and a good taste because of its
uniqueness in the brand category (Chevalier & Mazzalovo, 2012).
Although SKEMA Business School distinguishes only tree global sectors of the industry –
personal luxury, luxury transportation, experiential luxury – many more narrow segments
may be identified, for example, ready-to-wear, perfumes and cosmetics, wines and spirits,
watch and jewellery, vehicles, hospitality, etc. (Anon., n.d.).
Classification inside luxury industry may become a little confusing if taking into
consideration most of existing definitions. Luxury brands may be divided into Old Luxury,
New Luxury, Prestige Luxury, Masstige, Mass luxury, True Luxury, Inaccessible Luxury,
Intermediary Luxury, Accessible Luxury, Premium Brands, and the Griffe. Each term has its
own individual definition, but at the same time many of them overlap or mean similar things.
New luxury was firstly well described by Neil Fiske in 2003 when he published Trading Up:
The New American Luxury.
3New luxury brands are those which can generate high sales volumes, despite their high
prices due to growing middle class (Silverstein & Fiske, 2003). Unlike them, old luxury
(often called true luxury) products are produced in low volumes, generate higher margins at
high prices and aim for the wealthiest ones (Ritson, 2008).
Prestige brands have the highest quality as produced mostly by hand. They bring a certain
prestige status to their owners as come with a great history and heritage. Those brands do not
follow market trends and require loyalty from the customers. It all comes with a high price of
course (Genier, 2014).
Masstige brands (or mass luxury, also considered as new luxury) can be simply defined as
prestige for the masses. Those brands bring an element of prestige to their owners, and are
associated with a brand name product with lower price. Masstige strategy is a
democratisation of luxury goods (Genier, 2014).
Danielle Alleres was the first one to divide luxury market into three levels: inaccessible
luxury, intermediary luxury and accessible luxury (Chevalier & Mazzalovo, 2012).
Inaccessible luxury is the supreme level of exclusive models, could even be made in single
copy. The product is highly expensive and available only for few. The level of creativity and
craftsmanship is the highest.
Intermediary luxury also corresponds to an exclusive items which are available for a
limited amount of people, but are more accessible and can be described as expensive replicas
to individual inaccessible luxury products. Easier accessibility is provided through bigger
amount of distribution channels and lower prices than inaccessible luxury.
Accessible luxury is a third level which corresponds to reachable prestige products. Products
from this category are made in larger scale in factories. Despite mass production, accessible
luxury items still bring luxury experience and emotions to their consumers (Alleres, 1992).
Premium brands are not luxury brands, but are usually perceived as luxury by many
consumers. Products from this category are mass produced, but have higher price and quality
comparing to other mass market brands (Messina, 2013).
Griffe is a category of luxury products which are produced in a single unique work. Jean-
Noël Kapferer describes griffe in his book as pure creation, materialised perfection on the top
of pyramid brand in the luxury market. Griffe existence depends on the financing coming
from the lower levels of brand pyramid, the third level is the only means to make huge
investments for the griffe design (Kapferer, 2008). The Figure 1 shows that glow of Aura and
Money investments from between the levels.
4Figure 1. The pyramid brand and business model in the luxury market (Kapferer, 2008).
Characteristics of the luxury brand
According to James H. Gilmore and B. Joseph Pine, each brand, as well as luxury ones, has
five sources of authenticity:
The Natural – the choice of company to use natural product and ecological materials, often
used by luxury company (vicuña, cashmere, silk, etc.).
The Original – being new and different from everything produced in the past and
transferring this uniqueness to all the brand manifestations.
The Exceptional – implemented mostly on the service activities such as extraordinary hotels,
but may also be used in all the arts and crafts of luxury brand.
The Referential – associating the brand with aristocrats, the golden age, international divas
helps to create a connection between the brand and an element of luxury.
The Authority – it can be explained as an ability to influence others on the basis of
humanism (Gilmore & Pine, 2007).
From these sources brands receive their credibility, the capability to be recognised as unique
and exclusive.
Since five sources above may be related to any brand, luxury brands have more specific
aspects. Beau Fraser described eight characteristics of luxury products.
Rarity. Luxury is limited and rare by its definition. Luxury companies purposely restrict
sales volumes and distribution channels to be more exclusive.
Excellence. The quality is never compromised in luxury business.
5Expensiveness. Sky-high prices are explained by rarity and the highest quality what makes
expensiveness one of the characteristics.
Timelessness. Great craftsmanship and design allow every luxury product to stay topical, in
addition, luxury items bring history and the heritage for decades or even centuries.
Honest. The design is unique and cannot be copied, the materials are pure and natural, and
the craftsmanship is honest and pure.
Tailored. Not every brand produces tailored products, but even if they are not bespoke, they
feel like they are.
Pleasurable. Luxury is always pleasurable: while purchasing, while using. Owning luxury
item gives personal satisfaction and status.
Experience. Purchasing luxury object is always different from normal purchasing routine.
The boutique is always chic and stylish, service is the best, the packaging is beautiful, the
delivery is careful, after-purchase service is (Fraser, 2014).
Luxury industry specificities
With all those characteristics it should be obvious that Luxury Industry is operating
differently from all other industries, and thus should be described individually. The book
Luxury Brand Management: a world of privilege highlights tree main specificities of the
Luxury industry.
Company size
For a non-luxury industry, size is one of the most important figures to compare different
companies, but in luxury industry size may not matter, brand awareness is what matters. An
example could be two French brands: Dior Fashion, which makes $1 billion of sales per year,
and Peugeot Group with $56 billion annual sales. If non-French consumer would start
naming French brands, Dior will certainly be before Peugeot. The conclusion is that any
luxury brand would rather have strong brand awareness than large size.
It is not easy to compare sales figures within luxury industry. The reason is that when a
company declares a target of $50 million of sales, it is not clear what exactly it means: total
sales or retail sales volume, it makes a huge difference. Also, reported sales may mean retail
6sales through boutiques, sales through outlet stores, export, plus earnings from given licenses,
etc., making it quite painful to compare.
Size of the company is not only expressed in sales volumes, but also in number of employees
the majority of which are sales assistants. The reason is the fact that many luxury companies
may only limit themselves by employing only the design team, and all other activities are
outsourced. Another quite big portion of employees goes to a legal department, which is
responsible for preparing contracts with company’s partners. This is explained by a specific
tendency of luxury brands to subcontract their manufacturing (Chevalier & Mazzalovo,
2012).
Financial side
Every non-luxury company will bankruptcy, will be eliminated or merged with its competitor
if it starts losing money, as for the majority of firms making profit is the reason of living.
Fortunately, luxury business is unique and some of its members face different consequences
in case of losing money. There are many brands which were having negative profit for years,
but were still held on the market. There are two reasons why executives were excepting this.
The brand value is the first reason – unprofitable companies still remain attractive for the
public, and this worth more than money. The second reason is that a luxury brand may
become profitable enough to be able to compensate all past years of losing money. Every
luxury brand believes that it has a potential to become a lifestyle brand like Chanel.
Another financial characteristic of luxury industry is a very high break-even point. Every
luxury company, even the smallest one, should pretend that it is highly luxurious, very rich
and it is doing well, this pretence costs a lot for the company. Everything should have high
quality starting from the manufacturing to the boutiques. The packaging including a silk
pouch, carton box, carton bag with leather handles and a printed catalogue with the last trends
of the brand – it all needs to have the highest quality, and cutting costs in this area can be
remarkably dangerous, as the sense of luxury may be lost.
Another way of spending money is all the fashion shows held twice a year, for which all the
décor and products should be designed separately. Brands are not even expecting their shows
7to be recovered, as expensive models from the runway probably will never be sold. Again
luxury brands do something what harms their financial statements, but benefit their brand
image.
Good times for the luxury companies come after they reach their break-even: this industry
usually has high margins which become company’s profit. Subcontracting allows to avoid
spending on the new machines, factories and specialists. Another problematic for the most
companies’ financial term “accounts receivable” is not so problematic for the luxury
company: most of the products are sold via company’s boutiques and are paid by cash or by
credit card.
One more financial characteristic to bear in mind is that luxury fashion items are not modern
in the end of the season and should be quickly sold with a discount or to be returned. Large
well-known brands usually have up to 85% of the items sold at full price, but smaller brands
may face problems getting rid of the collection. To convince their distributors to repurchase
the next collection, small fashion luxury brands are forced to give discounts (Scholz, 2014).
Timing
Every luxury item requires big investment of time and money. Taking a perfume launch as an
example, we can see that it takes several months to develop all product line including shower
gel, eau de toilette and the perfume itself. After this, the glass and plastic packaging should
be designed. Then, the company has to make sure that their new product will be available
through the majority of distribution channels, thus big quantity of the product should be
manufactured and shipped. Plus, large amount of money will be spent on advertisement, and
this will make the company to start making profit in 4 or 5 years after the launch of the
perfume line (Chevalier & Mazzalovo, 2012).
The table below shows the timing of a fashion luxury brand operations, starting from fabric
selection and ending with bargain sales.
8Figure 2. Fashion Cycle for a Fall Winter Collection.
The table displays the reason why the fashion cycle takes eighteen months. These
circumstances force luxury brands to think a long time before the customers will finally be
able to purchase the collection. Here comes a problem of copying the designs. There is a
huge gap in time after a particular brand shows its collection, and before this collection is
available in stores. This gap is used by mass market brands which are able to launch
“fashion” collections even before luxury fashion brands (Gustafson, 2016).
Luxury brands are valuable due to their customers’ perception. It takes years, if not decades,
to build a particular image of the brand in the heads of customers, and it also takes years to
change it in case the brand is not doing well. It is not possible for a luxury brand to change
overnight and be highly innovative; customers would feel that there is no history and heritage
behind new items, the brand is not the one they loved yesterday, and the brand image will be
ruined. Thereby, it takes time for a feminine brand to launch new product line such as men
ready-to-wear, as it has to build an image of a brand for both men and women, slowly
introducing little portions of men products in its collections (Carcano & Ceppi, 2011).
Klaus Heine beautifully described all luxury brands’ dilemma:
“Luxury brands also strive to grow their business, but increasing sales volumes reduces
rarity, therewith also the luxury image and as a consequence also the sales numbers, which
means that the successes of luxury brands jeopardise their future successes” (Heine, 2012).
9Prestige VS Masstige
Michael J. Silverstein and Neil Fiske popularised the term masstige in their book “Trading
Up Why Consumers Want New Luxury Goods – and How Companies Create Them”. They
well explained the position of masstige brands in the market – “between mass and class”.
New Luxury goods appear in many product categories, have variety of price ranges, but they
all have specific characteristics which make them so different from the old luxury and
premium products. Goods from this category, including masstige, always have an emotional
impact on the consumers even if the price is relatively low. Premium and mass market brands
are bought because of price VS functionality ratio, and old luxury goods are usually
purchased in order to maintain a certain class or status and to show exclusivity, not because
of some emotional engagement. Another characteristic of new luxury brand is presence of all
three levels of benefits from a “ladder of benefits”. Starting with the performance of a
particular product, it should have no defects. Moreover, it should have some visible
differences in technology or design. The second level of the ladder requires masstige
products to be superior in performing its functions. And for the final level it is necessary to
combine brand values, technical and functional benefits in order to create an emotional
connection between the product and the user (Silverstein & Fiske, 1991).
The figure below visually describes a masstige strategy of any New Luxury brand.
Figure 3. Example of a masstige strategy.
10A study conducted by members of ESC Rennes School of Business shows an analysis of a
masstige strategy adopted by new luxury brands. The study has proved that new luxury
brands are perceived by the consumers as very close to the old traditional luxury brands
because of the perceived prestige, rather than to the mass market brands. On the contrary, the
masstige pricing model is requiring consumers to pay a lot less than for the prestige products.
It makes masstige products affordability closer to mass market (Truong, et al., 2009).
Michael Dart and Drew Klein are highlighting one more characteristic of a masstige brand –
it is easy to find. Unlike prestige products, masstige products are available through a variety
of distribution channels to make it more accessible (Dart & Klein, 2013).
Middle class is growing as well as masstige category of the brand. One of the reasons of a
masstige rapid growth is a digital marketing platform. Many online bloggers tend to write
about innovative, different and interesting brands which they discovered. This provides a free
advertising for masstige brands (Anon., 2010).
Jackie DeLise highlights two main characteristics of Masstige brands: the goods are
considered luxurious and prestige, and the prices can fill the gap between mass market and
luxury market. Liquor and spirits category of premium brands are adding new unique
flavours to their product line; this helps the brand to enhance brand’s positioning of
exclusivity, heritage and perceived value (Delise, 2010).
Luxury consumer
There are many researches conducted to calculate the amount of the richest people, the elite.
One of them showed that there were about 7 million with net worth of assets above $1
million in 2002 (RSCG, 2002).Indeed, having a million dollars is helpful to be a luxury
goods consumer, but not necessary at all. According to Don Ziccardi, there are four types of
consumers in luxury industry:
Millennium Money – relatively young generation who became rich during the change of
millennium, examples are pop and sport stars, Internet businessmen, etc.
Old Money – owners of inherited money, who may work or run a business they did not have
to build themselves.
11New Money – people who managed to make a fortune themselves with a great effort during
their lifetime. Their wealth did not come as easy as to millennium category, and thus New
Money know the value of it. They are careful spenders.
Middle Money – reasonable and very careful spenders, members from upper-middle class.
The income is usually fixed and comes from the salaries (Ziccardi, 2001).
On the one side, mass consumers are willing to buy affordable but high quality products,
sometimes even prestige or luxury ones. On the other side, regular consumers of prestige
goods are happy to get a great bargain on a product for which they would usually pay more.
Both categories are moving towards the masstige direction (Carcano & Ceppi, 2011).
Luxury products consumers can also be divided into four segments by their wealth and
motivations for buying luxury. The model was presented by Young Jee Han, Joseph C.
Nunes, & Xavier Drèze in 2010 (Carabine, 2016).
According to this model, all luxury customers are categorised into four groups: Patrician,
Parvenu, Poseur, and Proletarian. The authors of the model give clear definitions for each
segment and provide life examples:
Patricians – High Wealth/Don't Lust Status – they are representatives of a true wealthy elite.
They want to associate themselves only with other Patricians using quite signals. Thus they
are not using defiant luxury goods to signal everyone about their wealth and status, but want
to show their good taste by choosing niche boutiques.
Parvenus – High Wealth/Lust Status – they have an opportunity to purchase expensive
luxury items, and use this opportunity to show everyone their wealth. Parvenus use loud
signals, big brand names on their luxury items to associate them with other wealthy parvenus
and patricians.
Poseurs – Low Wealth/Lust Status – they have a desire for luxury goods, but cannot afford
them. They want to belong to the wealthy segments, so they are using very heavy signalling.
Since this segment is not wealthy, it is most prone to purchase counterfeits.
Proletarians – Low Wealth/ Don't Lust Status – they have no need to purchase luxury goods,
as are not wealthy enough and do not have a high status to maintain. Luxury industry simply
does not interest them. Also they have no desire to associate nor dissociate themselves with
any other segment (Han, et al., 2010).
12Figure 4. Signal Preferences and Taxonomy Based on Wealth and Need for Status.
For centuries, true luxury items were only available for the richest elite. Nowadays, the
meaning of luxury is blurred; luxury brands are targeting middle class as well as the elite.
Young and less wealthy consumers are still willing to save money for a luxury purchase,
while before the main reason for buying luxury was maintaining a certain status (Hennigs, et
al., 2013).
To explain and somehow justify luxury goods customers, it is crucial to understand the
difference between needs and desires. A pan is a need if there is a task to fill in some paper
forms, but golden Cartier pen in a desire. We have to remember that the needs are more
morally justified by society, while desires usually involve excessive items. However, desires
13evoke much more emotions, therefore customers have stronger emotional connection with
desired luxury goods (Berry, 1994).
The brand equity
The brand equity is of the utmost importance for all companies, especially the ones from the
luxury industry; in the 80s this collocation was just gaining its significance. In 1991, David
Aaker gave a detailed definition of brand equity as a set of assets and liabilities linked to a
brand name. These assets or liabilities can both increase or reduce the value of a product.
According to Aaker, there are four dimensions of a brand equity which benefit the brand -
brand awareness, brand loyalty, perceived quality and brand associations (Aaker, 1991).
David Aaker, the author of the book “Managing Brand Equity” outlines the values added by
the dimension. Brand loyalty from the customers’ side is a repeatable purchase of a product
from one company because of perception as being better product than its substitutes
(Grimsley, n.d.). Brand loyalty helps company to save on marketing costs, to hold present
customers for a longer time in case of new competition arrival and attract new consumers.
Brand awareness creates an attachment between the company and the consumer through
familiarity and visibility. Finally, perceived quality as a part of brand associations allows to
differentiate the brand as well as communicate positive attitude and information such as
brand position and reason to buy (Aaker, 2013).
E-commerce
E-commerce – may also be called online selling, digital selling, electronic commerce – is a
process of selling goods or services thorough the Internet, or other types of electronic
network (Rouse, 2016).
Internet provides numerous benefits for a business: it is cost-efficient, it is available for
consumers any time and may reduce customer service operators’ costs significantly due to
FAQ and other informative sections (less phone calls, less emails, less personnel). The
accessibility of online services leads to the growth of customer satisfaction, as in a modern
rhythm of life customers want quick answers. The figure below illustrates how e - commerce
helps dealing with changing amount of inquiries per day.
14Figure 5. Customer Satisfaction VS Excess Capacity (Vacca & Loshin, 2002).
An example could be a seasonal product the popularity of which is not equable every day.
Without online platforms, the management would have to hire more seasonal personnel to
correspond a product demand.
One more benefit of online selling which can be sometimes forgotten is an increase in
employees’ productivity. There are many repetitive requests from customers which make
staffs responsibilities too monotonous; with the help of digital selling, employees may focus
only on unusual cases which really require human attention (Vacca & Loshin, 2002).
According to Michael E. Porter, strategic management involves 5 forces which reinforce
competition in an industry (Porter, 1979).
15Figure 6. Porter’s 5 Forces (Prince, 2016).
The company which adopts e-commerce as part of its strategy may benefit from competitive
advantages such as share of market, scale and scope (el-Mashari, 2002).
Customers are benefiting e-commerce as well. The emergence of a new distribution channel
increased goods availability in different ways. First, customers are no longer restricted by
working hours of physical shops. Second, price display lead to the reduction of price
dispersion for a variety of goods making them accessible for larger market segment.
Moreover, the price search is quicker and easier (Christopher, 2011).
Despite all the benefits of online purchasing, some consumers still feel an anxiety linked to
internet transactions, because of feeling insecure while disclosing their personal data
(Yazdanifard & Samuel, 2012)
Most of consumer goods companies are willing to increase customers’ experience though the
Omni-channel strategy. This strategy requires to supply the products through all existing
distribution channels including physical shops, catalogue selling, phone ordering, online
selling through a desktop computer, a tablet or a smartphone, etc. It is important to have a
complete integration between all channels in order to have smooth transaction. Examples of
well integrated channels include ability to check the availability of a certain item in a
physical store using online platform, or to order online and pick up a product from the store,
16or to have all your data about previous purchases in any channel (Rouse, 2014). E-commerce
is becoming more and more important element of Omni-channel strategy. Appearance of
online selling platforms transformed many industries such as apparel and consumer
electronics. The change was made not only to companies’ day-to-day operations, but also to
customers, especially consumer behaviour. There is no clear line between just browsing and
purchasing online anymore, as it became so easy and instant due to smartphones and tablets.
The place is no longer important either thanks to high-speed Internet. The United States
market may be an example of a growing importance of e-commerce for personal goods
industries (Egol, et al., 2012).
Figure 7. Online selling penetration in different categories (estimated figures for the U.S. in
2012) (Stanley, 2012).
Isaac Cheah and others explored how brand eminence/prominence influences willingness to
purchase products from a specific brand. The authors have found that customers have more
intentions to buy prominent luxury brands. Moreover, the fame associated with a brand
comes from social influence, which increases brand success, popularity and customers’
willingness to purchase from the brand (Cheah, et al., 2015).
Another change happened to the market and retail business is a switch from low-type
businesses to the high-type ones. Due to this changes and adoption of online purchasing
many companies (Goldmanis, et al., 2008).
While there is a need in e-commerce for mass produced goods, luxury fashion industry also a
demand for digital platforms. Social media and online forums are great tools for building and
supporting brands of any sizes. Plus the interaction is reported and is collectible (Parrott, et
al., 2015).
17Various studies have proven that adoption of e-commerce have boosted sales of firm.
Although there are many success stories linked to digital selling, a vast amount of research
suggest that not every business benefits from this change in the industry. Large reputable
companies have less e-commerce adoption barriers than small to medium size businesses. It
is concerned many industries including luxury industry. Here are several examples of barriers
that may prevent small to medium size businesses from adopting e-commerce (MacGregor &
Kartiwi, 2009):
• Implementation of e-commerce is too complicated;
• Within the company there is not enouth technical knowledge;
• Firms have no time for e-commerce inplementation;
• There no funds to invest into e-commerce, etc.
Most of the barriers are linked to the scarce financial resources, experts and time of a firm.
Taking into consideration the fact that the costs for digital support is similar for any business
size, small to medium size business may not be able to find as much resources for digital
selling implementation as large companies.
It is known that the amount of small to medium size businesses exceeds number of large
companies by several times, thus they are important element of economic growth by
contribution to the GDP and creating employment opportunities (MacGregor & Kartiwi,
2009). In spite of their importance, they are contributing less and less to national GDP during
past several years (Abernethy, 2002).
2.2 Luxury management in a digital era
Benefits of digital selling
According to Meng-Shan Sharon Wu marketing of luxury brands is one of the most active
growing industries considering its value. Purchasing of luxury items is supposed to bring a
special experience and bring a feeling of being prestigious. Yet not every brand is able to
provide this exclusive experience and fails to meet customers’ expectations. For this reason,
some individuals prefer to give up buying from luxury boutiques in favour of online
shopping. Luxury industry is one of the last ones to adapt this selling channel, with the
example of Prada brand which started using the benefits of online selling only in 2007. Some
18luxury brands still use Internet only as a communication channel with their customers. One of
the most important roles of a brand manager is to make sure that online presence of the
luxury brand is building and establishing trust. It is difficult to build an emotional connection
with your customers through a computer screen without any help of smiling shop assistants
(Wu, et al., 2013).
“Luxury shopping in the digital age” article claims that e-commerce is a great opportunity for
luxury business, as a belief that luxury consumers are only willing to purchase exclusive
items with customised experience provided only through boutiques is not confirmed. An
example could be the success of Net-A-Porter – large online retailer of luxury fashion goods.
Digital Luxury Experience 2013 research shows that in 2013 sales of luxury goods grew by
2% while online sales of luxury goods grew by 20%. This figures prove that some online
customers could substitute luxury boutique experience with purchasing from the website
(Dauriz, et al., 2014).
Importance of online presence
The diagram below displaces how important online presence is for a company: before
purchasing a luxury item, customers tend to research more information about this particular
product.
Figure 8. Percentage of researched items online before purchasing.
19In 2018 online sales of women’s luxury goods are expected to raise from current 3% to 17%.
The reasoning for this is an ability to reach time poor consumers and rural individuals for
who it is not easy to get to urban shopping stores (Schmidt, 2015).
One of the modern trends – web selling – can cause complications for luxury brands
according to Jean-Noël Kapferer and Vincent Bastien. If the brand is not selling online, this
strategy will lead to its disappearance. Fortunately for luxury industry, online selling is a
“must” only for mass market brands, and luxury brands may not follow this global trend if it
does not correspond its essence. This does not change the fact that modern society cannot be
imagined without Internet. Thus online presence is mandatory for every brand, even luxury.
Even if luxury industry became a part of digital world, there are many distinctions between
nature of digital and luxury. “The Luxury Strategy: Break the Rules of Marketing to Build
Luxury Brands” book explains well that digital is about noise, crowd, availability, good deals
and automation. On the other hand, luxury is about quiet, heritage, rarity, creation and human
relations (Kapferer & Bastien, 2012).
Roxanne Genier asserts that luxury brands should sell online. Keeping an image of a unique
and rare brand is meritoriously, but without adopting e-commerce companies will be losing
many customers. Wealthy people cannot always drive to the boutique somewhere is Cannes.
Luxury brands understand that it is not just a product they are selling, it is the whole
experience, and the brands want their customers to experience real buying in boutiques with
some Champaign, perfumes and beautiful carpets. Nevertheless, Roxanne Genier claims that
online stores may also be beautiful. There is a way to adopt e-commerce without losing the
brand image. Social media cannot be ignored either. It serves as a connection between the
brand and the potential customers. Building online marketplace is not about raising sales
volumes, but about the future where everything is available online (Genier, 2015).
Digital was the hottest trend for luxury industry in 2015. According to the researches made
by McKinsey & Company, the amount of luxury online purchases is constantly growing, and
3 out of 4 luxury purchases are somehow influenced by digital experience such as social
media posts. Luxury customers are becoming more digitalised and this change is creating
higher standards from outside the luxury industry. The Digital Inside report describes the
current luxury customers. Almost everyone has a smartphone, the majority uses social media
20on a monthly basis. These personal devices create an opportunity to be aware of new trends
every minute. Because of those characteristics, luxury customers have very high
expectations, unfortunately, not every brand can meet (Remy, et al., 2015).
Danger of web-selling
E-commerce is highly dangerous for luxury brand, because it can easily destroy the value of
the brand by making its products accessible to non-qualified people. Non-competent
customers may understand online selling as a signal of affordability and consider this brand
as non-luxury one. There are more reasons why many customers are not inclined to online
purchasing of luxury brands. Since digital world is anonymous, there are no personal
connection between the brand and the customer which is so important in luxury marketing.
This world is also too open and transparent for luxury brands. The simplest example is price
display. It is not possible to hide prices on the website as sophisticated as it is done in the
boutique. Another reason is a fulminant rhythm of online selling comparing with luxury store
selling. A product is no longer considered as a luxury product if it is placed online for selling.
A luxury brand sells online items — either to get rid of this items in stock or to attract more
clients – for a reason to remove them from the luxury world (Kapferer & Bastien, 2012).
Brand equity in the digital era
“The Luxury Strategy” book additionally talks about brand equity in luxury industry in the
digital era. In the first place, the management should think about what is good for a luxury
brand in a long run and then decide whether to launch online selling or not. One of the rules
of luxury strategy is “never hire consultants”. They always use best practices for a business
growth which are extremely different for luxury and non-luxury brands. For example, luxury
brand should never indulge the whims of customers, they do not know what is actually good
for the brand. Also, luxury brand should not be forced to change pricing strategy in order to
attract more clientele – it would slowly push the whole brand out of luxury industry.
Luxury brands should keep the gap between them and mass market brands: in the physical
world it is easy to do using their boutiques, but in the digital world large mass market brands
may invest huge amounts of money to develop high quality content (Kapferer & Bastien,
2012). In addition to this, customers from the millennial generation are creating more
challenges for luxury industry: they are not excepting just a product, they wish new
21experiences. Since this generation is gaining more income, they have more and more
influence on this industry (Aroche, 2015).
Creation of masstige
Middle class is rapidly growing and members of this class are able and are willing to
purchase cool products that would bring them prestige. Previously luxury could not be
associated with mass production as it is defined as rare, difficult to obtain item. However,
since popular brands such as Apple began to produce status products in large quantities, the
term “masstige” appeared. Masstige brands produce items which are considered as prestige
by their consumers, but they are mass-produced. The core idea of masstige nature is
something what makes them special and prestige, but it is not scarcity and price – old
characteristics of luxury. This means that brands should work well on the brand image in
order to make it masstige. According to the article “MASSTIGE AND THE DIGITAL AGE:
TRENDS FROM AUSTRALIA”, there are two ways to create a masstige: to create
something innovative which brings “coolness” to the consumer, or to create a fashionable
“must-have” product carrying an element of prestige. An example of must-have dynamic
could be Apple which was competing with PC in the 90s. Mac used to have much fewer
customers, but this is exactly what has given a prestige to this brand. Chris Riddell claims
that digital promotion is the best way to create masstige. Social media is an easy, quick and
low cost way to communicate with customers. It helps to create a desire while seeing friends,
celebrities or other people use a specific product, the desire of being in trend (Riddell, 2014).
2.3 Gaps in knowledge
Several studies have been done about effects of online selling on luxury brands as a whole.
For example, an article “Selling luxury goods online: effects of online accessibility and price
display” by Philipp Nikolaus Kluge was written to examine the appearance of e-commerce
and selling platforms on Internet as distribution channels in the Luxury Industry. The author
talks about exclusiveness and uniqueness of the brands in this particular industry guessing
that those characteristics are not compatible with the largest distribution channel – Internet –
which implies a reduction of luxury goods scarcity. The author aimed to examine customers’
perception of the online accessible brands. Three studies were conducted involving upper
class individuals, industry insiders and experts. The results of the examinations show that the
22online accessibility of luxury goods together with price displays does not affect consumer-
perceived scarcity, thereby brand desirability is not decreased (Kluge & Fassnacht, 2015).
However, Kluge does not differentiate the categories of luxury brands. Thereby while a
specific luxury brand stays luxurious even after starting online selling, it may change its type
inside the luxury industry category. In accordance with the authors of “Selling luxury goods
online: effects of online accessibility and price display” article, it was the first study to
explore the influence of e-commerce on luxury brands.
According to “Consumer Behaviour, Organisational Development, and Electronic
Commerce” book, many small to medium size businesses are not adopting e-commerce due
to their scarce resources (MacGregor & Kartiwi, 2009). Since the authors are not
differentiating between different industries, they are not taking into consideration financial
specificities of the luxury industry, meaning that firms from the luxury industry are not facing
the same barriers as firms from other industries while launching online selling. Thereby, the
decision whether to start online selling or not does not depend on financial aspects of luxury
brand. In other words, if a firm considers adopting e-commerce to be a right decision,
negative profits would not be a hindrance.
This research is describing the level of e-commerce influence on the prestige category of
luxury brands specifically. It was proved that the brands stay luxurious not depending on the
presence or absence of e-commerce, but the level of prestige of these brands may vary. There
were no researches about how the customers perceive and compare luxury companies with
and without online selling.
The trend of masstige was analysed in several researches, but there was no proof of strong
correlation between the launch of digital selling and being masstige. Finally, this research is
filling the gap in knowledge about e-commerce being an indication of masstige.
2.4 Scope of the Dissertation
The framework of this study is limited by theoretical determining of various luxury types
using their characteristic in a context of digital sales influence in 21st century. This research
does not cover any other industries except Luxury Industry, as it differs from others by
financial and management strategies (detailed explanation in Chapter 2).
23This research also does not indicate which type of luxury is better or worth, and is it
beneficial or harmful for a company to move from one luxury type to another. This paper
only answer a question of can e-commerce be one of determinants of masstige luxury
company, or can it have an influence on prestige luxury company and have an impact on its
transition to a masstige luxury company.
This research does not include examining brand’s all online activities and digital advertising,
it only covers company’s sales through digital platforms.
2.5 Research Questions
Several research questions were composed based on the review of literature:
Does online selling influence customer perception of the brand’s prestige level?
Do prestige brands move forward masstige category when launch online selling?
Can usage of e-commerce be one of the determinants of masstige company?
Chapter 3. Research Design and Methodology
The overall methodological approach for investigating is mixed - the combination of
qualitative and quantitative methods. Qualitative method is needed to analyse non numerical
information such as interview. An interview was conducted with a luxury industry insider,
who is managing a luxury company and has a deep knowledge in marketing. The questions
were designed in order to understand what changes were made to the prestige company
which has started online selling. A data collected during the interview also helps to
understand the point of view of a luxury company which has adopted e-commerce.
Additionally, this interview provides an explanation of the nature of marketing management
in Luxury Industry. Qualitative research of secondary data helped to analyse the luxury
industry characteristics and to give a scope of the research. Secondary sources of information
such as books and articles gave a great foundation for the understanding of what was already
researched and what are the gaps in knowledge.
24Quantitative approach is required to analyse a statistical information. An example is a
primary research of luxury brands prestige level. A questionnaire was designed for a purpose
to understand the link between level of prestige and e-commerce presence in the luxury
industry. 14 responders were required to place luxury brands in order starting with the most
prestige one and finishing with the least prestige one according to their subjective opinion.
After this, every brand has received an index of prestige level which was calculated using the
answers of responders. This data helps to answer the question does online selling influence
customer perception of the brand’s prestige level. This research also uses secondary
quantitative data. Some data was taken from annual reports of luxury brands in order to
analyse changes in financial statement prior and after the launch of online sales. All the
responders were carefully selected according to specific criteria which is described below in
this paper; 14 participants can be a sample for a full population and in this way the research is
considered to provide a true data.
Secondary research provides general information about specific brands as well as financial
data, price strategy and other company’s operations. It helped to reach an objective of
critically analysing characteristics of different types of luxury. The data is collected from
companies’ annual reports, published articles, etc. The data collected from the secondary
research helps to understand whether prestige brands move forward masstige category when
launch online selling or not. After all the researches are analysed and the findings are
concluded it is possible to answer the question whether the usage of e-commerce can be one
of the determinants of masstige company or not.
Chapter 4. Data Analysis and Recommendations
4.1 Data Collection
An analyses of all the types of luxury brands and their definitions gave a possibility to divide
all of them into two larger groups with similar characteristics. The table below displays the
two groups.
25Classifications Old Luxury, True Luxury, Prestige New Luxury, Intermediary Luxury,
Luxury, Griffe, Inaccessible Luxury Masstige, Mass Luxury, Democratised
Luxury
Common • Very high prices - they are justified by • Intermediate to high prices - this price
the finest quality of a final product and range is not low at all, but is still
Characteristics
its uniqueness, this also allows to considered as being affordable for
discard people unable to afford highly middle class;
expensive products; • Provides status and prestige to the
• Provides status and prestige to the consumer - masstige luxury is
consumer - the client is aware that the considered luxurious by Parvenues and
product will mean something more than Poseurs types of luxury consumers only
just a product by maintaining or (see “Luxury Consumer” section, but
upraising the client’s status or position still give a certain level of prestige to
in society. Luxury goods serve as a the consumer;
symbols of success for other people; • High quality of products both
• Highest quality of handmade handmade and mass produced in the
craftsmanship - prestige luxury goods factories - masstige brands produce
production always requires the best high-end items, but many of them are
expertise in order to produce a high-end made in factories, what does not
product and prevent all the possible exclude a chance of possible defects;
defects; • Trendy/fashion products - not all the
• Exclusivity and uniqueness of masstige brands are unique and
products - customers are paying sky- exclusive, they may just follow the
high prices to own an exclusive item trends and produce fashion items which
which is not accessible for others, will interest the customers but will not
moreover, the design of prestige luxury require large design investments;
good is always unique and recognisable; • May embrace personal contact, but
• Personal contact and authorisation not necessary - customer databases
during purchases - clients want to feel exist for the majority of masstige
recognised and accepted to a segment of brands, but establishment of personal
luxury consumers, and personal contact contact may sometimes be neglected;
inside the boutique is highly important • Variety of distribution channels
for this; loyalty cards and customers’ which are available for high and
accounts in the luxury brands’ databases middle class - unlike prestige brands,
allow to track the purchases and make mass luxury allows distribution through
the next purchase more personalised; more kinds of channels such as
• Very selective distribution channels shopping malls, etc.;
strategy - all the prestige brands are • More available for masses - affordable
limiting the supply on purpose in order price range and larger amounts of
to create a scarcity which produces a distribution point make masstige more
higher desire to own an item. Prestige is available for masses.
more concerned about brand image than
brand's profitability;
• Unavailability for masses - price levels
and limited distribution make it less
available and more attractive.
Figure 9. Luxury brands groups with common characteristics.
According to the literature review, there are specific characteristics of prestige luxury brands.
26You can also read
