American Accessible Luxury in the European Market. The Concept explained on the Basis of Four Case Studies


Master's Thesis, 2016

108 Pages, Grade: 2.1


Excerpt

Table of contents

1.0 Introduction
1.1 Background for choosing this topic
1.2 Problem discussion
1.3 Purpose
1.4 Research question
1.5 Delimitation
1.6 Disposition

2.0 Literature review
2.1 Luxury definition
2.2 Seven P’s
2.2.1 Product
2.2.2 Price
2.2.3 Place
2.2.4 Promotion
2.2.5 People
2.2.6 Process
2.2.7 Physical Evidence
2.3 Building a strong customer based brand equity
2.3.1 Brand equity
2.3.2 The Customer based brand equity model
2.3.3 ‘Lovemarks’ concept
2.4 Customer Profile and positioning
2.4.1 Luxury good consumption in Europe
2.4.2 Consumer behaviour
2.4.3 Luxury perception measurement tools
2.4.4 Focus on Chinese consumers
2.4.5 Brands segmentation and positioning
2.5 Strategic steps
2.5.1 Brand affirmation
2.5.2 Brand consolidation
2.5.3 Brand expansion

3.0 Methodology
3.1 Research Questions and Hypotheses
3.3 Research Approach
3.2 Research Philosophies
3.4 Research Purpose
3.5 Research Strategy
3.6 Methods
3.7 Timing

4.0 Data design
4.0.1 Focus group design
4.0.2 Online survey design
4.1 Validity and reliability
4.1.1 Focus group
4.1.2 Online survey
4.2 Data collection
4.2.1 Primary data
4.2.1.1 Focus group sampling
4.2.1.2 Online survey sampling
4.2.2 Secondary Data

5.0 Data analysis
5.1 Focus group
5.1.1 Descriptive statistics
5.1.2 Analysis of hypothesis
5.1.3 Discussion about the results
5.2 Online survey
5.2.1 Descriptive statistics
5.2.2 Analysis of hypothesis
5.2.3 Discussion about the results
5.2.4 Analysis of hypothesis
5.2.5 Discussion about the results
5.2.6 Analysis of hypothesis
5.2.7 Discussion about the results
5.2.8 Analysis of hypotheses 5a and b
5.2.9 Discussion about the results
5.2.10 Analysis of hypothesis
5.2.11 Discussion about the results

6.0 Generalisability of the results
6.1 Implications
6.2 Limits
6.3 Directions for future research

Sources

Appendix A

Appendix B

Appendix C

Appendix D

Appendix E

Appendix F

Appendix H

Abstract

The purpose of this research paper is to analyse the recent phenomenon of American luxury brands being accessible in Europe, e.g. Coach, Kate Spade, Michael Kors, and Tory Burch. As Coach, Kate Spade, Michael Kors, and Tory Burch are new accessible luxury brands in Europe, it is of interest to compare them to true luxury brands like Louis Vuitton or Hermès in order to precisely determine the concept of accessible luxury, as well as how this concept is perceived in the European market.

This paper investigates and contrasts these four brands as representatives of the accessible luxury. The goal is to identify the positioning of these brands in the European market and to understand customers’ and potential customers’ perception of these brands.

The research will be applied in the form of a cross-sectional design, in order to determine structures and relations between the actions taken by the different brands and their impact on both the potential and established, loyal customers. A focus group was conducted to determine whether customers perceive differences between these brands. A self-designed questionnaire was sent to and answered by 202 individuals from different countries, who were in Europe at least once. A pragmatic philosophical approach to this research was taken, as this thesis involves a mix of methods.

Using the answers obtained via the questionnaire, the positioning of the brands was established, as well as successful marketing strategies. It was also possible to draw conclusions regarding how loyal and potential customers perceive Coach, Kate Spade, Michael Kors, and Tory Burch. Additionally, cultural differences could be determined which might be important for future campaigning by the brands.

This investigation, which determines the brand positioning, gives guidelines and possible marketing best practices to managers. This might lead to an improved outcome as measured by the brand awareness and the brand desirability in Europe.

Keywords: America, accessible luxury brands, positioning, cultural differences, Europe

List of Figures

Figure 1 : Size of the bags area in 2012

Figure 2 : Coach codes and heritage

Figure 3 : Brand positioning

Figure 4 : Luxury brands assortments for individual cities

Figure 5 : The BCG total metroluxe index

Figure 6 : Coach flagship store in Paris in 2016

Figure 7 : Marketing expenditure comparisons

Figure 8 : Multi step approach

Figure 9 : A systems model of brand antecedents and consequences

Figure 10 : Customer based brand equity model

Figure 11 : Love and respect axis

Figure 12 : Michael Kors bags segmentation

Figure 13 : Tory Burch for Fitbit

Figure 14 : Disney for Coach

Figure 15 : Distribution mapping in

Figure 16 : The research onion

Figure 17 : Stimulus space of four brands

Figure 18 : Brand desirability in 2016

Figure 22 : Willingness to purchase online affordable luxury products in 2016

List of Tables

Table 1 : Brands and their product portfolios

Table 2 : Comparison of four research philosophies in management research

Table 3 : Independent and dependent variables

Table 4 : Alpha test on SPSS

Table 5 : Facebook Fans

Table 6 : Frequency of respondents according to their sex

Table 7 : Frequency of respondents according to their age

Table 8 : Criteria means

Table 9 : Brand extension categories

1.0 Introduction

In this chapter, I describe the background of the chosen subject as well as why this subject is of interest. Then, I present the problem discussion, purpose, research questions, and limitations of this thesis.

1.1 Background for choosing this topic

American accessible luxury in Europe is a very current topic as brands such as Coach, Kate Spade, Michael Kors, and Tory Burch appeared on the European market only ten years ago. These brands apply some of the same marketing strategies as luxury brands but differ in their positioning, raising the dilemma of being more affordable than traditional true luxury brands while still wanting to convey a desirable, luxury feel. Analysing the positioning of these brands will give some key information about the customers’ perception of these brands. The goal is to guide the management and marketing teams on how to create more brand value, in order to encourage the customer to buy these brands and remain loyal to them.

1.2 Problem discussion

The New York based fashion lifestyle brands Coach, Kate Spade, Michael Kors, and Tory Burch have been gaining more and more market share in Europe for ten years, becoming real competitors to some other, higher luxury brands (Soni, 2015). Their success is mostly due to their affordable price, the quality, and the regular new collections of products, which answer to current consumer needs. Although studies have been conducted about luxury and its economic impact, few of them focus on American accessible personal luxury goods. Most of the literature concerns luxury based on established, often European leaders, such as LVMH, Hermès, or Gucci, without taking the growth of new lifestyle American brands in Europe into account.

Therefore, I will try to fill this gap by analysing the situation of these accessible luxury lifestyle American brands in Europe from a marketing point of view. In addition, a qualitative and a quantitative study will be performed to highlight the best positioning strategy among those four accessible luxury brands.

1.3 Purpose

The purpose of this study is to understand the current status of these American brands in the mature market of Europe, their strategic mistakes and/or their successes, from a company and a customer point of view. The main objective of this thesis is to find the best way to grow in Europe by targeting the right customers.

1.4 Research question

These previous statements lead to the following research question: How do potential customers and/or loyal customers perceive these four American accessible luxury brands in the European market nowadays?

1.5 Delimitation

This study provides an in-depth understanding of the positioning of these brands in Europe. Europe is chosen as the geographical area to analyse. This includes the collection of data from European citizens, but also individuals from outside Europe having bought at least one product in Europe. Indeed, the European luxury market is composed of European customers, but also by tourists coming from all over the world.

Four brands are analysed in this study, as they share some common characteristics, and potentially the same customer profile. For reasons of time, it would have been difficult to analyse more than four brands, with more than one geographical area.

1.6 Disposition

This paper is organised into six chapters. The first chapter delivers an introduction of the topic, with the background, problems, and research questions. The second chapter presents a summary of relevant and recent literature in order to gain a more precise overview and understanding of the topic. The third chapter reveals the methodology and gathers the research question, hypotheses, philosophies, approach, purpose, strategy, methods, and timing of the study. After that, chapter four delivers data design, validity and reliability, and data collection. Chapter five consists of data analysis of the focus group and the online survey. Finally, chapter six gives management implications, limitations, and directions for future research.

2.0 Literature review

This chapter is constructed around the definition of luxury, what the product offer as relates to the 7 P’s, the demand for these products, and the international customer profile. Moreover, the consumer behaviour needs to be defined to answer the research question. After having described these previous points, market segmentation and positioning of these brands will be linked to the topic.

2.1 Luxury definition

The understanding of accessible luxury is rooted in the concept of luxury. Indeed, accessible luxury - also called affordable or intermediate luxury - uses the same codes as luxury brands, from the communication, to the creation and management of the brand (Chevalier & Mazzalovo, 2012). That is why, in order to develop the notion of accessible or affordable luxury, it is first necessary to understand the notion of luxury. Numerous authors agree on the difficulty of describing and defining luxury. There are even some disagreements concerning the etymology of the word. Luxury does not come from the word ‘lux’, which means light in Latin, but from ‘lug’ which in Indo- European, means ‘broken’. From this word, the adjective ‘luxus’ sprung up as a synonym of deviation, splendour, or excess (Sicard, 2010). If luxury is considered as a deviation or a gap, it can be observed through three directions: upward, sideways, and downward.

When luxury brands go upwards, they are associated with a religious and art-based vocabulary. For instance, journalists often consider the designer as ‘a genius’, and the flagship stores are described as ‘temple’. When luxury brands go to the side, their goal is to differentiate them from other brands, for example by creating unique pieces. Finally, luxury brands might go downwards, by provoking, shocking, and using prohibitively high prices (Sicard, 2010).

Dubois, Laurent, and Czellar (2001) identify six characteristics to define luxury: excellent product quality, high prices for luxury products compared to other low-priced products answering the same functional needs, the scarcity and the unique character of the product, an attractive aesthetic, a real heritage, and the superfluous character. In addition to these characteristics, Sicard (2010) adds the imaginative attribute, in which the main objective is meant to make the customers envision themselves as part of a special universe associated with and created by the brand. For example, Coach has very successfully developed a universe, which embodies modern American luxury lifestyle.

In parallel, the notion of luxury is also related to culture. In France, and more broadly in all of Europe, luxury is only legitimate if there is a real heritage and history behind it, e.g. a craft which has been done to the highest standard for centuries by one company. In France, luxury is strongly linked to the reign of Louis XIV and more generally to the past, whereas in the USA, luxury is perceived as discrete, simple, and turned to the future. Their respective objectives are slightly different. For classic European luxury, the main goal is to create, excel, and fill with wonder or astonish, whereas American contemporary luxury aims to impress more than astonish, and has the clear goal to sell and make profit (Sicard, 2010).

Even if intermediate or accessible luxury tends to mimic ‘true luxury brands’ in some ways, they are more obliged to deal with economic imperatives, mainly by offering affordable prices. Therefore, accessible luxury brands cannot ignore expenses, and work in opposition to a norm or convention like the true luxury brands (Chevalier & Mazzalovo, 2012). Indeed, the main differences between true luxury and accessible luxury are found in the pricing and positioning (Chitrakorn, 2015). Allérès (2005) expands upon this previous idea of luxury by adding the notion of social classes and by dividing luxury and classes in three categories. In fact, the upper, intermediary and middle classes have different motivations, life styles, consumption models, and therefore belong to different luxury categories. The upper class, which aims to distinguish itself from the other classes, makes use of its inherent privilege by buying scarce, traditional, and expensive products, but also new and highly original products. People belonging to the upper class are interested in unaffordable luxury. In comparison, the intermediary class is looking for a relative distinction, in order to fill the social gaps. This class generally imitates the upper class by buying traditional and limited edition products. In this case, luxury is intermediate or semi-accessible. Finally, the middle class is mainly driven by the aspiration to belong to the upper class, and consequently, often copies the actions of the upper class. People from the middle class therefore wish to access the same cultural heritage; they buy foremost serial products and represent the accessible luxury.

American accessible or semi-intermediary luxury is seen as a challenger to European companies in the luxury sector. Their marketing strategies are very different from the European companies, as they are positioning themselves at a lower price than the competitors, and choose to externalise their production in Asian countries with lower production costs (Delpal & Jacomet, 2014).

The brands Coach, Kate Spade, Michael Kors, and Tory Burch are very well established in the USA and in Asia, and are currently increasing market share in Europe. For example, Coach has 450 sales-points in the USA, 500 in Asia, and only 30 in Europe in 2015 (Szmydke, 2015). Brands like Coach define themselves as belonging to ‘Modern Luxury’, redefining luxury for the modern age, insisting on heritage, authentic values, luxury craftsmanship, and innovative design. Moreover, the origin of these brands (New York) is clearly highlighted from the products to the stores and website. New York has always been considered a highly desirable and highly creative city, attracting millions of visitors each year. Furthermore, Coach is a good illustration of what affordable luxury means, and is often presented as a pioneer in affordable luxury (Soni, 2015).

These accessible American luxury brands compete with big groups mostly created around one brand, like Louis Vuitton, whose main advantages are much greater economic power, greater power of negotiation, and better information when introducing new products on the market, due to their previous experiences(Delpal & Jacomet, 2014).

Nevertheless, these American brands are growing in the middle class consumer's mind. These consumers might choose those brands out of ‘their desire to associate with or resemble the typical brand user’ (Escalas & Bettman, 2005).

2.2 Seven P’s

In 2009, the Chartered Institute of Marketing or CIM, which is one of the biggest worldwide marketing associations, adopted seven variables to compose the marketing mix. They are: product, price, place, promotion, people, process, and physical evidence. They were changed from just product, promotion, price, and place in order to have a more global vision of marketing (CIM, 2015). As this definition of the relevant components to a marketing mix is more complete, it was selected here to understand the different aspects of accessible luxury more precisely.

2.2.1 Product

To give an accurate overview about what the four selected brands offer in Europe, I checked the websites. The crosses indicate the presence of the following product categories: bags, beauty, eyewear, home, jewellery, kid’s wear, men’s wear, women prêt-à-porter, shoes, sportswear, and watches.

Table 1 : Brands and their product portfolios

Abbildung in dieser Leseprobe nicht enthalten

Note: Own table, adapted from the official Coach, Michael Kors, Kate Spade and Tory Burch websites, 2016.

Table 1, consisting of the offers present on each company’s website in April 2016, shows that these brands use different strategies in terms of product portfolio, and have been doing so since their creation. On the one hand, Coach and Kate Spade began by launching bags, and then branched out into the other product categories. On the other hand, Michael Kors and Tory Burch directly launched prêt-à-porter collections, and then followed with other product categories. This table reflects the priority axes of each brand. Moreover, having this portfolio in mind can help the managers to shape the identity of the brand, and communicate it.

Here, handbags are the products taken as an example as, according to Thomas (2007), ‘handbags are the engine that drives luxury brands today’ (p. 168). To emphasize this statement, the figure below reveals the importance of the bags area in stores, which has evolved in the last decade, with leather good sales increasing by 7.5% each year.

Figure 1 : Size of the bags area in 2012

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Figure 1. Size of the bags area. Reprinted from Textil Wirtschaft, 2012.

A Textil Wirstchaft study (2012), conducted via in-depth interviews of 170 individuals in charge of purchasing, primarily in apparel and leather goods stores and large retailing organizations, confirms the importance of bags for the fashion retailer. Figure 1 shows the size of the bags area in 2012. Retail spaces with a separate in-store bags department allocate on average 112m2 and one quarter allocate more than 200m2 of area to this department alone. This highlights the strategic importance of the bags area nowadays.

Knowing that bags are one of the luxury drivers, it is relevant to select this product to illustrate Kotler’s product dimensions.

A product in itself is composed of three dimensions: the core, the actual, and the augmented product. The core product indicates the use of the product or service and its benefits. Then, the actual product refers to five tangible characteristics of a product which are the quality, the functionality, the design, the packaging, and the brand. Finally, the augmented product consists of intangible added values. These last ones can be the warranty, after-sales service, or delivery (Kotler et al., 2016).

The core product of a handbag is convenience, as you can carry many things easily and therefore access them at any point in time. The actual product is made of a good quality of leather. For example, Coach selects only 20% of all leathers proposed to create a bag. The functionality of the bag differs with the model, but is generally well proportioned for an everyday bag. The attractive design can, in some cases, be personalised. The packaging's main purpose is to protect the bag, and consists of another bag made of nylon, and a paper bag displaying the brand. These are more colourful or less colourful, depending on the individual brand. Finally, the product’s brand plays a considerable role, as products have to be immediately recognisable as belonging to that brand.

Bastien and Kapferer (2012) affirm that logos for luxury brands are decisive in the brand identity and in the individual identity, i.e. to go higher in the social hierarchy; ‘to go beyond your condition’ (p. 129). The two authors list nine systematic codes of luxury brands. These include the brand creator or designer, a very visual and catching logo, a visual symbol, a repeated visual sign, an obsession for details, an iconic brand colour, a favourite material, a constant hymn to handmade work, and a particular and recognisable know-how.

Jee Han et al. (2010) amplify this previous idea by underlining that brands have to be recognisable with or without their explicit logo or brand name. The term used in their study is a French word ‘griffe’, which implies a set of special identifications (p. 17). By this logic, brands have to educate the customers to recognise the griffe of a brand, without showing the logo. The same authors differentiate quiet and loud items. The first term describes items with a discrete branding, whereas the second term deals with conspicuous items. Conspicuous items can be linked directly with conspicuous consumption, which refers to the purchase of expensive specific goods in order to display one’s wealth. Thorsten Veblen (1889) was the first economist to describe this phenomenon in his book ‘The Theory of Leisure Class’.

Both of these types of items obviously target different customers. Jee Han et al. (2010) describe different behaviours of consumers, distinguishing ‘patricians’ and ‘parvenus’. Patricians, referring to the elites of the Roman Empire, are wealthy, ‘low in their need to consume for prestige’s sake, and keen to associate with other patricians’ (p. 17). For these reasons, they buy quiet items. In contrast, parvenus focus on associating themselves with other patricians and parvenus, and aim to differentiate themselves from the have-nots. As the need for status is very high, they tend to buy loud items, easily recognisable by everyone.

Overall, these authors advise mixing quiet and loud item to satisfy the different types of customers. As a matter of fact, the World’s Most Valuable Brands List by Forbes (2016) ranks Louis Vuitton and Gucci as leaders on the luxury market. It is worth noting that both of these brands use a mixture of quiet and loud items.

As with Louis Vuitton or Gucci, Coach also carries bags considered to be quiet and loud items. Many details have been introduced on the products, made in collaboration with different designers since the 1950s, to position the brand as a modern luxury brand with heritage. These signs are: the turn lock mechanism, the hanging tag, the horse and carriage symbol, the story patch, the signature ‘C’, the saddle brown colour, and the leather binding. Every single sign has a particular history. For example, the turnlock was introduced by the Creative Director Bonnie Cashin in 1964. She was inspired to create the distinctive closure by the metal toggles securing the roof of her sporty convertible car. The Coach turnlock is now a globally recognised icon (Coach documents, 2015).

Figure 2 : Coach codes and heritage

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Note: Extracted from Coach internal documents, 2016 .

In figure 2, from the left to the right, are: the turnlock, the hangtag, the carriage, the story patch, the ‘C’, and the type of leather that Coach uses.

More than simply recognisable codes, they transmit the idea of ‘heritage’. A logo can perfectly infuse this idea of heritage. In 2013, Stephanie Stahl, Vice President of Marketing and Strategy at Coach affirmed that ‘we let Coach free’ concerning the old logo. The old logo had depicted a carriage with horses, and the creation date of the brand 1941. The new logo has ‘New York’ instead of the founding year. In this way, it looks more timeless and fashionable, thus more similar to the qualities of true luxury brands, showing that Coach is becoming a global brand (WWD, 2013).

Overall, these tangible characteristics are very present in the communication of the brand, but also in shops, on the products, and on the packaging, facilitating brand recognition by the customers even without the name being written on the product. The tangible characteristics are complemented by intangible characteristics. A good illustration of an intangible characteristic would be the free monogram service for Coach bags, delivered in the flagship store in Paris, which allows the customers to personalise their bags with their initials (Coach website, 2016). However, even if the product diversification might attract more customers, some rules have to be remembered. According to Kotler (2005), when a company offers too many products, there is a risk of creating losses due to weak cross-selling. To avoid this, he recommends filtrating low profitable products by improving cross- and up selling. Thomas (2007) also insists on not diversifying the product portfolio too much, using one of the biggest leather goods companies, Louis Vuitton, as an example. Indeed, Louis Vuitton offers no perfumes for the simple reason that profit margins are much higher with bags than with perfume, up to 13 times the cost of the item (p. 165).

Furthermore, when customers buy luxury products, they expect a handmade product and want to have a piece of the culture of the country of origin (Bastien & Kapferer, 2012). For these authors, luxury products are synonymous with symbols, exchange, and work value. For instance, some Hermès products focus entirely on artisanal creation, i.e. bags are handmade by a single artisan. They contrast this with Louis Vuitton bags, which are mass-produced in assembly lines. Therefore, the work value of a Hermès bag will be much more appreciated by the customer than that of a Louis Vuitton bag.

After having fixed the product environment, passing by the codes of a product and the customer’s perception, the product line or group of products need to be determined. The product line is too short when the brand needs to add other products in the line to augment the total sales; it is too long when the suppression of products in the line leads to a decrease of total sales (Kotler et al., 2016).

Concerning the Coach, Michael Kors, Kate Spade, and Tory Burch product lines, they are short, i.e. they change very fast and offer new collections every month (Coach documents, 2016). According to Kotler et al. (2016), this previous observation would mean that these brands focus on short-term profits, and do not hesitate to take a product out of the product line, if it does not generate enough sales.

Three types of decisions can be taken concerning the product line development. Firstly, the product line can be extended either downward with cheaper products or upward with more expensive products. Secondly, the product line can be extended downward and upward at the same time. Finally, the product line can be extended to close the gaps (Kotler et al., 2016). The American brands discussed here, tend to extend the product line upward by introducing new products with a higher quality and therefore a higher price, with the exception of Michael Kors. This brand is actually divided into three different lines: Michael Kors, Kors Michael Kors, and Michael Michael Kors, with different target customer groups.

For Kotler et al. (2016) Coach, Kate Spade, Tory Burch, and Michael Kors bags are seen as premium products, as the bags are not produced in the USA but in Asia, and as they do not have the same work value as that of a Hermès bag. Wolters (2011) highlights the main characteristics of premium brands in comparison with luxury brands. According to the customers, premium brands possess these qualities: ‘less ostentatious, more accessible, more modern, more rational, best in class, sleeker in design, and precision in fabrication’ (p. 2).

In parallel, these brands see their products as ‘accessible or affordable luxury’. Thus, there is a gap in the perception between true luxury and affordable luxury. To reduce this gap, a good way to determine what is or what is not a luxury product, might be based on qualification by the customers themselves (Bastien & Kapferer, 2012).

2.2.2 Price

Parguel et al. (2016) reveal the importance of a price display on the perception of luxury, including brand uniqueness and conspicuousness. In their study conducted with a sample of 290 French respondents composed of 40% women with 52 as mean age, they argue that displaying prices does not damage the perceived quality, uniqueness or conspicuousness of a given product. A visible price can effectively help premium brands to position themselves in the luxury scale. Therefore, pricing plays an essential role in the customer’s perception and in the marketing mix of affordable luxury.

There are two ways of establishing a pricing strategy: the price can be costs- or value- based. The costs-based pricing is determined as follows: product development, then price fixation with costs as basis, and marketing strategies to convince the customers that the price is justified. In contrast, the value-based pricing is determined as follows: recognition of the customer’s needs, price fixation according to the customer’s value perception, then agreement about maximum product costs (variable and fixed costs), and finally, product development in agreement with the customer perception (Kotler et al., 2016).

The costs-based pricing corresponds more to a ‘true luxury strategy’ because the price is established after the product development without a priori recognition of the customers’ needs. The value-based pricing strategy corresponds more to the ‘affordable luxury strategy’. For instance, Coach adopts the value-based pricing strategy in order to ensure that they answer an existing demand. For this purpose, Coach conducts an annual consumer survey to define customers’ needs and price perception (Thomas, 2007).

At the same time, brands have to observe their competitors’ pricing (Kotler, 2005). After that, they can fix the price in an acceptable zone for the end customers. In figure 3, created by Michael Kors European marketing teams in 2012, price and fashion represent two axes, in which the brands are positioned.

Figure 3 : Brand positioning

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Note: Extracted from Michael Kors documents, 2012

Tory Burch is not represented in this figure, as this brand just started to grow on the European market in 2011-2012. However, if Tory Burch was represented, the brand would be positioned above the Coach and Kate Spade brands on the 'classic’ axis, as Tory Burch products are more expensive than Coach or Kate Spade products, but stay classic. Here, classic means timeless and fashion-oriented means responding to trends, changing with the season.

Moreover, the two lines of Michael Kors are represented, including Michael Kors and Michael Michael Kors, which deliver different product quality and prices. According to this figure, Michael Michael Kors products are cheaper and more fashion-oriented than Michael Kors products. Additionally, Coach and Kate Spade are considered more traditional brands than Michael Kors. Kate Spade products are also the most affordable in comparison to Coach and Michael Kors products.

More globally, these affordable American brands are still close to each other in terms of positioning - if the most expensive line of Michael Kors is excluded - and far from true luxury brands such as Hermès, Chanel, Louis Vuitton, Gucci, Chloé, and Prada, with respect to traditional to more fashion brands. However, it must be noted that this figure is obtained from the Michael Kors company and is likely to lack objectivity, which is why brand positioning is going to be tested later in this thesis.

Bastien and Kapferer (2012) highlight the fact that price strategy differs totally from traditional marketing concepts, as the strategy in the luxury market is to always put a higher price on the product. This previous price strategy is also known as the Veblen effect (1899), which shows that the more prices increase, the higher the consumer demand is. Indeed, in the luxury sector high prices are perceived as indicating high quality. Moreover, raising prices incrementally increases demand, and the resulting profits can be reinvested in communication or the product quality.

In direct conflict with this idea, Marc André Kamel, Associate of Bain & Company, warns about the effect of raising prices for luxury brands, as it can create a loss of credibility and trust in the eyes of the customer (Bain & Company, 2015). Kotler et al. (2016) reveal the importance of the psychological impact of pricing, confirming that if the quality of the product is high, the price plays only a secondary role in the buying decision, whereas if the product’s quality cannot be proven or some information is missing, the price plays a more important role. Furthermore, customers often use reference prices to compare offers with each other.

The credibility and trust of the customer can also be damaged by the production location, which plays a crucial role in the price fixation. Indeed, all four American brands insist on their origins and strongly link their products to the ‘Big Apple’, New York City, with strong marketing tools as discussed. However, customers can readily discover that these bags have not been produced in the USA since 2002, but rather in Asian countries like China, Vietnam, and the Philippines. The brands defend these strategies by explaining the numerous advantages of this decision, such as savings on labour costs, which permits re-investment in other product lines, and propose an affordable price with a regular control concerning the production (Thomas, 2007).

Sales or special offers can also affect credibility and trust for affordable luxury or luxury brands. For Bastien and Kapferer (2012), sales in the luxury industry have to be banned, as they represent the exact antithesis of luxury. Normally, luxury products appreciate in value with time, which is why there is no reason to greatly reduce prices as is typical during a sales event; a luxury product cannot become obsolete. Even for affordable luxury brands, this previous statement is less radical considering the fact that when a product does not generate enough sales, the company removes the product, rather than selling it at a low price (Coach documents, 2016), in order to preserve the brand image.

Overall, accessible luxury brands face numerous challenges. Accessible luxury brands need to adapt their strategy with respect to volatility on the currency market (Bain & Company, 2015). In addition to these criteria for establishing pricing, a BCG study (Willersdorf, 2013) highlights the price differentiation among geographical regions, and more precisely, in cities. The author of this study suggests a city-based pricing approach rather than a country-based approach, also including differentiation in the product assortment.

Figure 4 : Luxury brands assortments for individual cities

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Figure 4. Best-practice luxury brands customise assortments to individual cities. By the Boston Consulting Group, 2016

Figure 4 shows clearly that in New York City, two thirds of the assortment is priced between 300 and 1,000 USD with the remaining third priced at greater than 2,000 USD. In contrast, in Houston, the assortment is elaborated differently. Most of the products (81%) are priced between 300 and 1,000 USD, and only 14% of them are priced at greater than 2,000 USD, while 5% of the products are priced at lower than 100 USD. Therefore, in New York, the assortment is more luxury-oriented than in Houston.

Overall, the pricing strategy is very different among cities (Willersdorf, 2013). A good example of a brand using this method is Gucci. This brand offers the full range of products in locations where the brand is successful. When Gucci opens a new business, the leather goods and accessories are introduced incrementally, as consumers get to know the brand better. Gucci’s main business strategy is to optimise business in existing cities first, before expanding to a new location (Willersdorf, 2013).

2.2.3 Place

Place or distribution is one of the most strategic aspects for accessible luxury brands. The major goal is to stay consistent while being profitable.

The distribution strategy can be organised with a geographical plan. BCG (Willersdorf, 2013) recommends the ‘Metroluxe Index’ to evaluate the luxury growth potential in cities with high GDP. This index is constructed on three ideas: the prioritisation of cities with respect to their luxury goods and services, the optimisation of existing retail, and the favourite places where tourists purchase goods. This index helps the brands to establish their strategy on city- or on city cluster level.

BCG insists upon three recommendations for the retailers. Firstly, it is crucial to have a good understanding of the customers by conducting a deep market analysis for each city. Secondly, marketing measures have to impact not only tourists, but also the local citizens. Finally, as tourists are still the main customers for luxury brands in the European market, the retailers need to create a ‘tourist mix at a city level that creates brand awareness before tourists' journeys begin’ (Willersdorf, 2013).

Figure 5 : The BCG total metroluxe index

Abbildung in dieser Leseprobe nicht enthalten

Figure 5. The BCG total metroluxe index suggests many cities may be ‘over-stored’. By The Boston Consulting Group, 2016

When focusing only on European cities, the index shows that in 2017, Berlin and Milan will be cities with a high potential for additional luxury stores. Rome, Paris, and London will also have good potential for additional luxury stores, whereas Munich and Moscow will be over-stored in 2017.

Overall, brands have to develop themselves where the customer demand is higher than what existing shops can support. When brands have chosen the right city, they still need to identify the right locations and, most of the time; brands will place a new shop near equivalent brands. In this case, the complementarity factor plays an essential role (Bastien & Kapferer, 2012).

In 2015, Coach was present in eight European countries, with 54 points of sales divided between outlets, wholesalers, and retailers. It seems like every European country has its own role in the company's. Indeed, Coach counts two flagship stores in Europe. The first one was opened in 2011 in London on Bond street (Forbes, 2011), and the second one is located in Paris on Rue Saint Honoré (Shaw, 2015). Both of these locations are home to many true and affordable luxury brands and famous for high quality products. Both of these flagship stores have been respectively opened for the 70th and the 75th Coach Anniversary. In this way, Coach expects to target local customers, but also tourists (WWD, 2012). Nigel Darwin, Coach’s Europe President, confirmed that the opening of the Paris flagship store was a ‘pivotal moment’ for the expansion on the European market. Indeed, Paris plays a crucial role in the luxury sector, and is often described as a luxury capital.

The notion of Coach as a luxury brand is also reinforced (Szmydke, 2015). Nigel Darwin confirmed in an interview dated from 2012, that ‘Europe is becoming a significant part of the overall Coach business.’ Since flagship stores are undeniably a major element in the distribution of accessible luxury, Coach needs beautiful windows to display its products. More than an aesthetic piece of architecture, the flagship store provides a real sensory experience for the customers (Manlow & Nobbs, 2013). Doyle et al. (2008) add that the flagship store is a source of added value, which allows the brand to be completely understood. Indeed, in a flagship store, the universe of the designer is fully presented through all product lines and through a particular design fitting to the brand identity.

Figure 6 : Coach flagship store in Paris in 2016

Abbildung in dieser Leseprobe nicht enthalten

Note: own photos, taken in April 2016

The 600m2 Coach flagship store delivers an urban minimalist design inspired by the city of New York in a very elegant Parisian decor. The store also has a craftsmanship bar, where customers can personalise their limited-edition bags with monograms.

For accessible luxury brands, distribution is achieved via shops, exclusive distribution, and selective distribution. Shops are mostly in harmony with the luxury definition as they offer a privileged relationship between the brand, dedicated staff, and the customers. Moreover, the supply chain is perfectly controlled, as the shops can monitor their inventory in real time. The possible drawback for shops could be a lack of profitability. Indeed, products have to be sold in a sufficient volume in order to generate profits.

Exclusive distribution can be the optimal solution, as the relationship with the customer is maintained through a qualified sales team. This system has the main advantage of being less expensive than a shop. Indeed, with exclusive distribution, it is easier to open or close a sales point without damaging the brand image.

Selective distribution is also becoming very popular for these brands. In Europe, any point of sale can distribute the products if they respect the brand specifications. To decide for selective distribution might weaken the relationship between the customer and the brand. Furthermore, sales personnel are dedicated not only to a single brand, but rather dedicated to many. Indeed, the brand itself is not the reason customers come to the point of sale, leading to the ‘mass luxury’ effect (Bastien & Kapferer, 2012, p. 313).

In parallel, outlets and various websites represent formidable channels for accessible luxury brands. Outlets are the most controversial point of sale, as they represent the antithesis of luxury, according to Bastien and Kapferer (2012). By definition, outlets are points of sales, which deliver products at cheaper prices than in retail or wholesale. Coach and Michael Kors have some special collections dedicated solely for outlets, reserving different types and qualities of leather for this purpose (Coach documents, 2015). The risk of an outlet over-exposition can drive the intensification of the competition between the different channels and the erosion of the brand image if they become too popular (Lutz, 2015).

Indeed, brands can be victims of their own success, thereby saturating the market. For example, Michael Kors products in the USA generated around 40% growth in 2013, around 26% growth in 2014, and around 16% growth in 2013. This shows that Michael Kors products lost their exclusivity in three years, as the brand grew too fast at the beginning (Halzack, 2015). Later in this thesis, I will test whether the European market has reacted in the same way as the American market.

Brands can also mix these aforementioned strategies. Indeed, Coach has a mixed distribution, including wholesalers, retailers, outlets, and internet sales points. The margins realised through the production are distributed between the creation department and architectural investment or visual merchandising for the shops (Delpal & Jacomet, 2014, p. 94).

The internet should also be considered as part of the distribution strategy. Bastien and Kapferer (2012) consider this channel useful for small luxury brands. Once the brand becomes more popular, other physical channels would need to be defined. Some luxury brands sell products online but then remove these products out of the luxury sector. For example, Chanel prefers selling perfume online, but does not sell much more expensive watches, treating the website as a way to communicate luxury goods rather than sell them (Bastien & Kapferer, 2012). Okonkwo (2009) confirms that it might be challenging to create the same atmosphere and shopping experience of the physical shop in a virtual online shop, as not all five senses can be engaged.

Nonetheless, the online luxury market has seen strong growth in the last decade, increasing from 7% market share in 2005 to 17% in 2015 (Bain & Company, 2015). The internet channel attracts mostly the Z generation, i.e. the generation born after 2000. Cultures also react differently to the use of the internet channel. For instance, 45% of young Chinese under 16 years-old buy luxury products online at least once per week, 70% buy via social media and 81% share what they bought on social media (Darkplanneur Briones, 2016). Thomas (2007) points out that luxury brands have been sceptical towards online retailing, but that mass personalisation is the future. Today, Coach, Kate Spade, Michael Kors, and Tory Burch are all using and developing e- commerce strategies.

John D. Idol, CEO of Michael Kors, insists on the e-commerce strategy including the web but also smartphones (Lindner, 2016). In fact, the company’s net sales grew by 11% compared to the year before, increasing from $689 million in 2015 to $766 million in the fiscal third quarter in 2016. According to John D. Idol, this growth is mostly due to e-commerce. The conversion rates also increased compared to last year’s third quarter. The e-commerce conversion rate represents the percentage of visitors who go on the website and who buy a product. This conversation rate can depend on many factors, such as ‘the interest level of the visitor, the attractiveness of the offer, and the ease of process’ (The digital marketing reference, 2016). That is why the company intends to further expand its e-commerce presence in six European countries, if this experience is successful. So far, the company only has an e-commerce presence in the USA and in Canada.

With regard to Kate Spade, the e-commerce channel is performing at a high level. Two in ten sales are made online with very efficient customer service and next-day delivery (Loeb, 2013). Tory Burch is also developing its digital presence by launching apps like ToryDaily, and opening e-commerce websites in the UK and Germany in 2012, and in France and Italy in 2013.

Another distribution channel to analyse is the travel retail or duty free channel. With transport democratisation, travel retail represents a huge potential market for development. An interesting fact about this market is that growth has been created chiefly by the middle class travelling abroad (King, 2016). These travellers could be potential targets for these American accessible luxury brands. In 2015, perfume and cosmetics generated 31% of their worldwide business in duty free shops, whereas watches and jewellery accounted for 7% and clothing and leather goods for 6% of the total sales (Dufry, 2015). Overall, distribution of products is strongly linked to communication of the brand to its customers.

2.2.4 Promotion

Promotion deals with the communication of the main advantages of the product or service (Kotler et al., 2016). Promotion includes the activities of branding, advertising, public relations, corporate identity, social media outreach, sales management, special offers, and exhibitions.

Firstly, luxury brands rarely use a unique selling proposition. Compared to accessible luxury brands, they prefer to present their ‘universe’ (Bastien & Kapferer, 2012).

Bastien and Kapferer (2012) propose a pyramid of luxury communication where each step towards the top represents more effective communication. At the base of the pyramid, mass media publicity and in-store promotions are represented. After that, celebrities and advertising campaigns are on the third step of this pyramid. Websites are on the second step. At the top of this pyramid, there are fashion shows brand ambassadors, shops, foundations, private events, press, and public relationships. The authors strongly advise against television advertising or using celebrities for the promotion of the luxury product, but rather brand ambassadors in order for the public to be able to easily identify with the product. Armani perfectly illustrates this concept - they use brand ambassadors who are mostly B or C list movie stars to appear at events in Armani clothing (Thomas, 2007).

According to Bastien and Kapferer (2012), television advertisement targets too large of an audience; it is also contrary to the luxury principles of uniqueness and the select target group of the upper class. Al Ries and Laura Ries (2002) are much more outspoken in their criticism of the expenses of advertising campaigns, which do not create strong relationships with the consumer. The authors advise the use of public relations rather than advertising.

Jee Han et al. (2010) hold contrary opinions concerning advertising by luxury brands. They recommend targeting everybody to create a dissociative signal among the different groups of customers. The use of media is a very efficient promotion technique and has a real economic effect. According to a Cotton Incorporated Study conducted in 2004, 27% female shoppers between 20 and 24 years-old purchase clothes which are inspired by what celebrities have worn, whereas only 15% did so in 1994. This shows the growing role of the media in customers' purchasing choices (Thomas, 2007, p. 126). Furthermore, these authors suggest delivering an aspirational rather than a functional message when using mass-based promotion strategies to transfer some of the brand’s intangible values.

Storytelling is another important element in luxury promotion. Three types of storytelling can be expressed: the true story, the appropriation of historical elements for the brand, and the creation of urban legend (Bastien & Kapferer, 2012). For example, Coach is using the true story made by the first designers of Coach, like Bonnie Cashin to inform the customers about their craftsmanship and heritage (Coach documents, 2016). Tory Burch is also using the true story to promote her brand, using a lot of her own family story and her personal habits to interest the customers. Some of her products bear the name of her parents, Buddy and Reva (Chu, 2014). Michael Kors' storytelling is more based on urban legend, projecting the jet set world into Michael Kors products (Michael Kors documents, 2012). Kate Spade is also based on urban legend, creating bags for young women. The brand has been successful with the miss adventures campaign series in 2016, which related with humour the perfect weekend had by three women. The customers can purchase every category of product presented in this series (Arthur, 2016).

Promotion can also be digital in the luxury sector. Digital marketing refers to e- commerce, but also includes research engines, programmatic advertising, social media, and affiliate marketing, which consists of finding the right partnerships to generate a high Earnings per Click (EPC).

According to Okonkwo (2009), luxury brands have been increasing their online presence since 2005. New job offers reflect the interest in recruiting experts in this field. For example, Ian Rogers, previously employed at Apple, became the Digital Chief Officer for LVMH. A few key points to succeed with digital promotion were discussed by Darkplanneur Briones in 2016. Firstly, the brand has to create a singular culture of digital promotion. Secondly, the use of foresight and fascination is mandatory for a successful digitalisation.

However, it is essential to remember that digital marketing is perceived differently in various cultures. In a Mc Kinsey study, Schmidt et al. (2015) compared the use of digitalisation between the United Kingdom and the United States. What is relevant concerning the European market is that UK customers do not hesitate to buy online from multi-brand players such as Selfridges.com, attracting 65% of buyers or potential buyers. Furthermore, British customers are more willing to search for luxury items via a search engine than Americans are. The primary motivation for their research is the product’s exclusivity. Overall, this study demonstrates that e-commerce remains one of the biggest priorities for accessible luxury brands, with different online strategies to apply per country.

E-commerce is a growing segment, but inherently restricted by the target customers’ age. Many studies have pointed out that Millenials, i.e. people born between 1980 and 2004, are the driving force behind online sales (Dahlmanns, 2014). This goes in hand with the fact that they are much more receptive to online communication strategies - e.g. coupons, email updates, interactive websites - compared to older customers, chiefly because they are much more used to, and much more used to using digital media. It has also been pointed out that Millenials value low shipping rates, and a fair return policy more than customers of other age groups (Smith, 2012). Marketing teams can thus choose to positively engage these customers. It should be noted and careful thought should be given regarding how to a personalise experience and how to convey a ‘love’ for purchasing from a luxury brand which is easier to transfer in traditional settings.

Building an online community leads to greater fascination for luxury brands through strong communication. Justin O’Shea, Buying Director of Mytheresa.com, one of the world's leading online-stores for luxury fashion, points out the importance of loyal customers over a plurality customers (Darkplanneur Briones, 2016).

[...]

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Details

Title
American Accessible Luxury in the European Market. The Concept explained on the Basis of Four Case Studies
College
University of Applied Sciences Münster
Course
Marketing International
Grade
2.1
Author
Year
2016
Pages
108
Catalog Number
V995972
ISBN (eBook)
9783346376961
ISBN (Book)
9783346376978
Language
English
Keywords
American Luxury Europe, Coach Kate Spade Michael Kors, positioning- 4Ps-, cultural differences-, Chinese consumers, data -, consumer, behaviour
Quote paper
Cécile Menant (Author), 2016, American Accessible Luxury in the European Market. The Concept explained on the Basis of Four Case Studies, Munich, GRIN Verlag, https://www.grin.com/document/995972

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