The Eternal Principles for Creating Luxury Brands

Attracting wealthy customers is potentially very profitable. In order to be successful, it requires different approaches than the regular marketing strategy. Dr. Dan Herman, our guest author, states that this …

… involves a deep understanding of their psychological need, of their lifestyle, of the role of brands in their world and in their relationships as well as of their purchasing behavior and spending patterns. Some of these are truly counter-intuitive and surprising.

In this article, he writes about the time proven principles for creating luxury brands.

“The dream is not to own a crown. It is to be a king”
Gian Luigi Longinotti Buitoni.

Several years ago, during a project of designing an exclusive VIP service for a large bank, I came up with an unusual way to attract affluent customers and more importantly, hold them for the long run. The basis for the new service concept was an insight into a major covert expectation of most of the bank’s wealthy consumers: that rules and regulation be bent in their favor.

After dozens of in-depth interviews it became increasingly percipient that the attractiveness of the special benefits they had received was important but actually secondary. An improved standard of service would have been welcomed, but would not constitute a decisive factor in assuring their loyalty to the bank. What these consumers really wanted was a very high level of informality. For instance, they wanted the branch to be opened especially for them at unconventional hours, if the need arises. They wanted urgently required documents to be delivered to their home during the weekend. They wanted procedures to be circumvented. They wanted direct access to high rank executives. And so forth.

Analyzing their motivations I could see that these consumers wished to use banking services as a means to feel elevated from the ordinary. The psychological and social instrumentality took precedence over the financial one. Following my advice, the bank extended a very secret permission to branch managers ‘to deviate from the rules, with great apprehension and severe remorse’. This policy proved to have an enormous influence on feelings of association and on loyalty.

This article is about the time proven principles for creating luxury brands in order to attract affluents. Attracting wealthy customers is potentially very profitable. After all, they have more money to spend, that can turn into your income. However, succeeding in this task involves a deep understanding of their psychological need, of their lifestyle, of the role of brands in their world and in their relationships as well as of their purchasing behavior and spending patterns. Some of these are truly counter-intuitive and surprising.

But first, let’s define what we are talking about and then let’s discuss to what extent and in what manner the rules of this game has changed, as so many authorities claim in recent years.

Defining luxury

By definition, a luxury brand is an outstanding brand, justifiably priced highly and destined, at least primarily, to a select group of the social-economic elite. Luxury is not about unattainability though. After all, you cannot profit from consumers that cannot buy your brand. However, luxury is about the consumer outstretching herself a bit to buy something extraordinary but rather expensive for her financial ability.

When you are used to flying business class it is no longer a luxury for you, although you might be pleasantly aware that it is for many. Alternatively, paying $5,000 to fly EOS’ 48 passengers only, all premium business class (every person receives lumbar support seating, in a 21 sq. feet / 6 sq. meter of personal “suite” for a combined work / rest / dining area), round trip between New York’s JFK Airport and London’s Stansted Airport – will probably be more of luxury to you.

Two facts about luxury

Before entering a deeper discussion of luxury I think it will be good to acknowledge two basic facts:

1. Luxury is relative. One man’s luxury is often another’s (usually richer) everyday lifestyle.
2. The standard of luxury is mutable. Today’s luxury is often tomorrow’s commonly expected standard. Luxury brands are under a constant pressure from non-luxury brands trying to offer a similar value for less, thus eroding the status of luxury.
   Even not-so-wealthy people now feel deserving of a taste of luxury. Thanks to technology, design and global competition, the standard is rising continually. There is a huge trend of offering the mid-market “popular” versions of products and services that were once the exclusive domain of the affluents. These include: flights, cellular phoned, laptop computers, vacation resorts, casinos, ski / golf / tennis clubs, home cinemas, plastic surgery, professional-level audio/video editing equipment, 4X4 cars, … and many other products and services.

Catergories of luxury brands

There are five broad categories of luxury brands:

1. Sumptuous products (Cars, Jewelry & Watches, Fashion & Accessories, Cosmetics Makeup & Fragrances, Food & Beverages, Cigars & Cigarettes, Furniture, Magazines, Home ware & Electronics, …)
2. Exclusive services (Banking, Financial services, Insurance, Cellular, Airlines, Clinics, Consulting, …)
3. Luscious retail spaces (Stores, Chains, Shopping centers, Malls, …)
4. Illustrious Places (Restaurants, Bars, Clubs, Hotels, Resorts, Housing projects, Offices/commercial complexes, …)
5. Prestigious organizations (Brotherhoods, selective membership,…).

The changing nature of luxury

Much has been said lately about the changing nature of luxury these days. While some of the proclaimed changes are no more than the result of historical myopia, certain developments are worth noting.

There are now more layers of luxury than ever before to match new levels of affluence. Generally speaking, buying power in the developed economies as well as in the emerging economies has been on the rise. We have more strata of wealth and more people in each one of them. More billionaires, more multi-millionaires, more millionaires, more super affluents (annual income over $150K), affluents (annual income over $100K), and near affluents (annual income over $75K). A Toyota Camry (around $25K) is considered a luxury car at some level of affluence, at a higher level it’s BMW 7 Series (around $115K), at yet a higher one it’s Maybach 62 (around $375K). Rolex is considered a luxury watch brand by many. Not by buyers of Vacheron Constantin or Blancpain or Girard-Perregaux or Roger Dubuis or Patek Philippe for prices that normally range between $20K and over $2M.

Every luxury brand must position itself vis-à-vis a certain layer of wealth or several ones. Sony felt the need to create Qualia, a more prestigious brand, in order to cover well the new various strata. Nissan created Infinity, Nokia created Vertu and there are plenty of other examples of such changes in brand architecture.

It is a widespread view that luxury brands achieve their status by being the dream of many but only affordable for a few. This is indeed how it works for numerous luxury brands. Nevertheless, other luxury brands derive their status from being esoteric, i.e. known to only a selected few. Not many (alas, now more) know the gioielleria attolio Condognato at the San Marco square in Venice that has a cult-like following of celebrities and other moneyed mortals who travel the world to visit it and purchase its superb jewellery. Being discerning and in-the-know often defines an inner circle of sophisticated luxury buyers, thusly differentiated from more coarse others of similar affluence.

Some of the luxury buyers are now somewhat less interested in purchasing uniform symbols of status / identity and they opt for developing an individual style and expressing themselves in original ways. Therefore, luxury has evolved and became more diverse and more creative. The tension between the traditional (more safely genuine luxury) and the innovative has always burgeoned forth luxury. Currently, luxury leans more towards the innovative than the traditional.

There are more “out of class” purchases now, both upwards and downwards. This trend is not unrelated to the previous one. The wealthy feel no obligation to always buy expansive (actually, affluents typically look for the best deal on whatever they want to buy, no matter how extravagant). The result is that we often see combinations of luxury (a Bvlgary necklace) and non-luxury (Diesel jeans). The no so wealthy have also developed an appetite for luxury when and where they can afford it. So they buy Mizensir scented candles for $60 or make a great effort to buy that pair of Manolo Blahnik shoes they’ve been dreaming about for $800 for that special party.

There’s a trend towards spending more on luxury experiences rather than goods, at least amongst wealthy Americans. Experiences include entertainment (theater, concerts and shows, casinos, etc’), social events, winning and dining, travel, SPA / massage / beauty treatment. This trend is stronger among seasoned affluents who already know that the attraction of objects wears out while cherished experiences just get better with time as they are remembered, told and re-told.

This trend also includes the purchase of goods that provide experiences for the long run, e.g. home theaters. There’s also the experiential value added value to goods that please the sense besides performing their function. Finally, the pleasure derived from the purchase experience becomes almost as important as the pleasure derived from purchased product itself and certainly a major motivator for retail preferences.

There are more luxury hits now and fewer classics. Luxury used to be defined in the tradition-driven past by classics. The novelty-driven present, that is evident in the non-luxury sectors as well, turns the success of luxury brands of the day into sweet but short-lived. Take the revolutionary Stokke Xplory (around $750) – the coolest ever piece of outdoor children’s equipment. It’s a baby buggy, a stroller and a high chair in restaurants ingeniously designed to keep kids away from car smoke. It’s great. It was a big success. Then rolled in the Bugaboo Cameleon (with a price tag of $879). It has all-terrain wheels and shock absorbers to help navigate and it morphs into a car seat, a two-wheeled beach walker, or a pram that lets babies lie flat. See what I mean?

The unchanging nature of luxury

Despite all these significant developments, the nature of luxury has remained unchanged in essence.

Why people buy luxury brands

There are sixteen usages that consumers have for luxury brands, a stable set of benefits that motivate us to buy. People buy luxury brands in order to:

1. Feel special and apart from the crowd.
2. Feel superior and privileged.
3. Feel of value and importance.
4. Exercise ability and freedom (“I can afford it”, “I can do that”).
5. Reward themselves for efforts and achievements.
6. Console one and recuperate from a setback or misfortune.
7. Signal status and command acknowledgement and respect.
8. Demonstrate refinement, connoisseurship and /or perfectionism.
9. Delight the senses, experience pleasant sensations and feelings or create an infrastructure for future favorable experiences.
10. Participate in a certain group and lifestyle.
11. Signal affiliation and belonging.
12. Remind oneself of one’s “real” (aspired?) identity.
13. Enflame hope and mobilize motivation and energy.
14. Indulge and pamper oneself, take care of oneself.
15. Feel loved, taken care of and even spoiled.
16. Show feelings of gratitude, admiration or great affection.

Luxury brands are specifically designated to serve as means for consumers to fulfill one ore more of these tasks.

Three levels of luxury brands

We can distinguish between three lasting levels of luxury. Most luxury brands exist in only one or two of them, but certain brands manage to co-exist in all (thus maximizing potentials for profit). This is not a trivial accomplishment. The levels are:

• Signature brands – These are the most expensive brands in their category. They are personal creations, one of a kind, signed by a highly acclaimed authority or by an artist of supreme status (an outfit created by Tom Ford, a home designed by Frank Gehry, a consulting project by Dan HermanJ).
• Supreme brands – These are products that are produced in limited series, often hand crafted (a Rolls Royce Phantom 101EX car, the service at Tiffany & Co., or a night at the Ritz Hotel in Paris).
• High End brands – High quality mass production (from a BeoCenter2 music system by Bang & Olufsen to G Collection chocolate pieces by Godiva).

Three defining factors of luxury

There are three defining factors of luxury:

1. Luxury is nonessential. You don’t need a Montegrappa fountain pen to write. You can do without it, but you don’t want to. Luxury is desired, not needed. In luxury you are at your best. It makes you life richer and more worth living.
2. Luxury is “hard to get”. Its availability is restricted by high price, by small series, by exclusiveness. If you are allowed at all to try and get it, it demands an effort, a sacrifice. You cannot ask for the Amex Centurion black card which attests that your credit is absolutely limitless. You have to be invited.
3. Luxury is superb, inspiring feelings of wonder and excitement. Just visit the exquisite Prada store in Tokyo. It represents an outstanding achievement, it is a divine experience. You cannot but admire the people that created it. You are so charged up that you must share your experience with other.

The eternal principles of managing luxory brands

Finally, here are the ten eternal principles for developing and managing a luxury brand:

1. A luxury brand is first and foremost a product and/or service of superior quality (a quality gap from competitors is recommended but not mandatory).
2. The products and services are not designed and planned according to consumer tastes and expectations, even though they appeal and cater to sometimes-hidden deep-routed desires. A luxury brand sets its own standards and does not adhere to fashions. There is an air of leadership to it; it is exceptional, unique, original, artistic-creative, surprising, and novel (but never peculiar in a ridiculous or potentially repelling manner). It challenges its consumers (not too harshly) for their discerning taste, sophistication, refinement and dare.
3. A luxury brand’s most important value lies beyond the core product function or practicality.
4. Luxury brands have something extravagant / excessive / redundant and overly generous about them. Something that is clearly not necessary: the use of unjustifiably expensive materials, performance that is far beyond all needs and requirements, an exaggerated level of service, …
5. A luxury brand always expresses zealousness for quality, highly held values or even an ideology, a distinctive culture, together with sense of hedonism, passion for life, and a free spirit. It does that in all the facets of its being including products / services, management practices, marketing communications, …
6. A luxury brand will always be linked with the circle of those who “run the world” at that certain period of time – and with the success symbols of the time.
7. Behind a luxury brand there are often legends of eccentric genius creators, mysterious production processes, secret formulas, exceptional preparations etc’. Stories like these create mystery. A luxury brand treats itself very seriously.
8. A luxury brand is never managed in a democratic way, but rather with authority or even with dictatorship, by a genius creator or by an inspired leader who demonstrates, inside and out, a strong passion for the product and pedantry for every small detail.
9. A luxury brand must be rare or difficult to reach in some way. The awareness to the brand and the desire for it sometimes wide-ranged (while the numbers of buyers has to be limited) and other times restricted to a few that are in-the-know. Even the buyers themselves, must not be inclined / capable to purchase the luxury brand too often. It is important to remember that the dream feeds the desire. We can never dream about the accessible.
10. Luxury brand consumers expect to be distinguished from all others, and to be protected from them (the No-Mix principle). At the same time, they expect a special intimacy between them and the company and its managers, as well as flexibility regarding rules that are afflicted on others.

Dr. Dan Herman builds luxury brands worldwide. He also leads training workshops in which he teaches the principles and methods for creating luxury brands, as well as mission focused marathons in which the participants create such brands in a methodical and guided process.

For further information go to: www.danherman.com, and to contact us write to: consult@danherman.com.