the paradigm cut - a definitive model for luxury brands
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THEPAR
ADIGMCU
T
ADEFINIT
IVEMOD
ELFORLUXURY
BRANDS
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xury Branding is an agency that provides
nsulting, Creative and Communications
vices to the global luxury industry.
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The Paradigm CutA definitive model for luxury brands
By Piers D. Schmidt and Clifford J. Nichols II
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Introducti on 06
Inflection Point and Identity Crisis 10
The Absence of D efi niti ons and Mode ls 16
In Search of Richness We Found a Diamond 34
Desperately Seeking 24
From Rough to Cut: Preparing the Raw Material 42
The Luxury Brand Paradigm Cut 52
The 4 Cs of Luxu ry: How to Q uali fy a nd G rade Luxu ry B rand s 62
Conclusion 80
Appen dix 1 . Lux ury B rand Grad ing Sy stem Tables 82
Appe ndix 2. Gl ossar y of Terms 88
Appen dix 3 . Bib liogra phy 94
CONTENTS
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76
nor true luxury is immune from recession.
Many brands have had to resort to heavy
discounting to move distressed inventory
and, in the process, burst the illusory bubble
of their birthright price premiums. In parallel,
many consumers who are still free to spend
as they did before have come down with a
temporary bout of luxury shame, meaning
a market once synonymous with conspicuous
consumption is presenting the previously
much rarer symptom of stealth wealth.
Furthermore, luxury, as a distinguishing
term, has been hijacked by the mass market
to such an extent that it has been rendered
almost meaningless as a moniker. Applied
both loosely and liberally to diverse products
and services, the term all too frequently now
functions as a lazy shorthand, calculated
cheaply, to instill connotations of prestige
to a willingly gullible audience.
Finally, many of the corporations that own what
most of us would recognise as luxury brands
have mortgaged their brand equities in often
ill-judged attempts to satisfy the short-term
growth demands of global stock markets.
The net result is that the real meaning of
luxury and the identity of luxury brands is
in danger of becoming obfuscated and its
going to take something more substantive
than mere protestation or a collective
lets hope consumers have short memories
to set the record straight.
In all the present circumstances and given
the lack of an existing model, we believe that
now is the time to establish a framework and
propose a model that can help luxury brands
and their consumers alike to reposition the
'brand' of luxury brands.
WHAT THE MODEL DELIVERS
From a purely intellectual perspective, we
were excited by the challenge of constructing
a model that would enable users to precisely
describe and define what constitutes a luxury
brand. However, as practitioners in the field,
we were also aware of the need to develop
not just a blueprint but to create a tool that
would enable brand owners, managers and
commentators to qualify, grade, value, rank
and compare the constellation of singular
brands that populate the luxury firmament.
For the first time in the history of the luxury
brand industry, the Luxury Brand Paradigm
Cutwill provide professionals working in it with
a precise definition of theirmtier; a common
language for how their brands should be
described; a method of qualifying whether
or not brands are luxury and a transparent
technique for their evaluation in terms of
both momentum and status.
Piers D. Schmidt
Clifford J. Nichols II
LONDON 2009
INTRODUCTION
BACKGROUND
In mid 2009, our firm, Luxury Branding,
in conjunction with the Southern Africa
Luxury Association (SALA), embarked upon
a major qualitative research study into the
shape and nature of the market for luxury
brands in South Africa.
In a country that suffers from one of the
widest poverty gaps in the world, luxury as
a social construct resonates with a unique
tension. We recognised this dichotomy
and before designing the questionnaire and
commencing fieldwork, we wished to further
explore the origins and fundaments of luxury
itself to understand what role its brands can
play in such a fragmented society.
We also determined to limit our scope
to the application of the concept of luxury
to brands rather than to society as a whole.
This was because, despite evident differences
in the consumption of luxury brands between
developed and emerging economies,
our hypothesis subsequently confirmed
by the research itself was that across
cultures and race, there exists a basic
and shared human desire to mark progress
and reward success with the benefits
afforded by luxury brands.
In part these benefits indicate our status
and discernment; in part they help us to
self-actualise, making us feel more confident,
satisfied and fulfilled.
It may seem odd coming from an eponymous
team of consultants but our next step was
to question what actually is a luxury brand?
If we were going to research what luxury
brands mean in South Africa and why people
there desire them, we wanted to be certain
ourselves as to what they are. A lively but
ultimately inconclusive group discussion
prompted us to research the topic further
to inform our deeper deliberations, and we
fully expected to unearth a surplus of stimulus.
We were genuinely surprised, therefore,
to discover that whilst much has been written
about luxury, there is relatively little published on
the subject of luxury brands. There also exists
no universal basis from which to consider luxury
brands generally or to interrogate them as
a special example.
Having satisfied ourselves, from this initial
literature review, that there was no extant
model for luxury brands with which to work,
we resolved to embark on the development
of one, in parallel with our research.
WHY IS A MODEL FOR LUXURY
BRANDS REQUIRED?
We believe that, as we enter 2010, luxury
brands have reached an inflection point in
their development and that many are
suffering from a crisis of identity.
The phenomenon of trading up has created
a two-class category where old luxury lies
uneasily next to itsarrivistebedfellow new
luxury. The global credit crunch, brought to
public prominence by the collapse of Lehman
Brothers in September 2008, has debunked
the notion that neither the super-rich consumer
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BRAND PYRAMID
If the definition of luxuryis becoming subject to the
tastes and predi lect ions ofan increasingly complex setof consumers, how is the poormarketer to begin to createa cohesive definition of luxury?Has the luxury brand becomeso specialised and fragmentedthat i t can no longer be effectivein a mass market context?
PATRICIA GRAHAM AND MARCUS MATTHEWS
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The media is replete with gloomy commentary
on the $170 billion global luxury market today
and it is generally acknowledged, inside
and outside the sector, that luxury brands
are experiencing unprecedented upheaval.
In its12 Rules for the 21st century Luxury
Enterprise: Survive and Thrive in the Rugged
Luxury Landscape(July 2009), the Luxury
Institute suggests that this new landscape
demands a reinvention of massive proportions
and warns that senior luxury executives will
require a rewiring of their mental models
of the luxury world.
The 12 rules draw a thought-provoking
distinction between what the Luxury Institute
sees as the obsolete model, which it terms
Old World Luxury Co. and a new kind of
luxury entity, which they coin as the 21st
century Luxury Enterprise.
But what has precipitated such seemingly
tumultuous change and so quickly?
OLD LUXURY VS. NEW LUXURY
Until late 2008, the affordability and general
availability of luxury products increased
significantly, fuelled by steadily rising incomes,
spiralling home equity and the seemingly
endless supply of debt. Luxury producers
responded to newly unleashed consumer wants
and desires by making their products more
accessible to the masses, a trend often referred
to as the democratisation of luxury.Masstige,
the term originated by BCG consultants Michael
J. Silverstein and Neil Fiske in their article,
Luxury for the Masses(HBR, April 2003)
and expanded upon in their bookTrading Up:
Why Consumers Want New Luxury Goods
And How Companies Create Them, describes
the provision of prestige to the masses through
goods that occupy a sweet spot between mass
and class. The authors define new luxury as
products and services that possess higher
levels of quality, taste and aspiration than other
goods in the category but are not so expensive
as to be out of reach. In other words, while
commanding a premium over conventional
products, they are priced well below super
premium or old luxury goods.
CREDIT CRUNCH
What will become of brands that staked their
houses on the new luxury phenomenon now
that their consumers, who during the good
times would spend merrily on high-ticket items,
have taken such a financial battering? And it
isnt only their sales that are down. So too are
reputations. In their eagerness to capture the
consumer trading up, too many luxury brands
have tolerated an unhealthy marking down
in their standards.
Even super-luxury brands like carmakers
Bentley and Rolls-Royce, which had previously
seemed immune to the boom-and-bust cycles
that affected their mass-market counterparts,
have been hurt by the fallout from the credit
crisis and the economic slowdown. The wealthy
have shunned luxury cars during this recession
as their personal worth has plummeted in line
with collapsing financial markets and real estate
values. Bentleys US sales, for example, were
down 57 percent in the year to August 2009
and, according to industry tracking service
INFLECTION POINTAND IDENTITY CRISIS1
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from more brands, but from a permanently
more discerning consumer base: one that
demands legitimacy in all its goods, from history
to conception to manufacturing. His point, in
summary, is that old luxury was always rooted in
certain immutable product attributes and should
redefine itself in those terms now that the term
luxury has been so pillaged and devalued.
I prefer to think
of luxury as quality.Bernard Arnault, LVMH Mot Hennessy Louis Vuitton
IDENTITY CRISIS
Luxury brands may indeed have crossed
the proverbial Rubicon but behind all this
upheaval, change and transition resides
a more essential question.
We believe that the very identity of luxury
brands has been eroded or diluted and not
merely as a consequence of the economic
crisis but, even prior to that, by i ts relying too
heavily and complacently on two prior decades
of easy growth. During this period many luxury
brands prostituted themselves at the altar of
commercialisation and as ever, when entering
into a Faustian pact, the devil is bound to
come knocking for his dues eventually.
The result is that luxury brands are experiencing
something of an identity crisis. On the one hand,
consumers have plenty of reason to be confused
as to what a luxury brand is is it old luxury, true
luxury, new luxury, masstige, premium or what?
On the other, the brands themselves may well
be wondering who their real customers are?
In the first regard, its revealing to note how
different industries generate their own methods
of buttressing or bolstering the impotent luxury
descriptor. In hospitality, its no longer good
enough to be only five star. Luxury hotels
describe themselves as five star deluxe,
six star or even, in the case of Dubais iconic
Burj Al Arab, seven star!
The luxury automotive market has no fewer
than four luxury segments: entry-level luxury,
mid-luxury, high-end luxury and the ultra-
luxury segment. How much does it say that
the term luxury now requires the qualifier
ultra to be considered suitably descriptive
of Bentley or Rolls-Royce?
If the market for luxury brands is in flux, then
this is in no small measure down to the brands
themselves being unsure of whothey are, what
they do,howthey do it in a way that is different
and special, and where they are going the four
big little questions, the answers to which
mould a brands identity.
The model that we introduce in this paper will,
we hope, go some considerable way in helping
brands and their consumers to answer the first
three of these fundamentals. Naturally, where
a luxury brand is going is a matter for it alone
to determine so the role of our model in relation
to the whereis to help others evaluate its
direction and progress.
AutoData, the overall luxury segment, which
includes Lexus, BMW and others, was down
32 percent in the same period.
POP GOES THE PREMIUM!Old luxury didnt go On Sale and some
brands still refuse to discount. Versace never
holds sales and both Louis Vuitton and Chanel
actually raised prices i n 2008 and 2009.
However, many luxury brands, saddled with
high costs, had to engage in steep discounting
in order to shift large quantities of distressed
inventory, and this popped the premium pricing
bubble. Reminiscent of Hans Christian
Andersens fairy tale The Emperors New
Clothes, in this real world version of the tale,
the falsehood that both luxury brands and their
consumers were perpetuating was that
significant price premiums, previously
commanded by all luxury brands, were justified
by underpinning fundamentals such as
excellence, exclusivity and pedigree.
This Utopian idyll came to an abrupt end as
slashed prices exposed the naked truth that,
for too long, consumers had been paying too
much for too little.
LUXURY SHAME
Referred to variously as luxury shame,
stealth wealth or guilt downsizing, in these
recessionary times it can be considered plain
vulgar to flaunt your luxury lifestyle. If you are
still doing well, the pli ght of others has brought
new meaning to the phrase embarrassment
of riches. For those who used to spend with
impunity, stealth wealth is emerging as a new
mode of consumerism. Even High Net
Worths, for whom the crunch has been less
consequential, are frowning on conspicuous
consumption. Glamorous fashionistas are
remodelling themselves as recessionistas.
THE L WORD
The descriptor luxury is not only generally
misunderstood but is widely abused by
undiscriminating producers and service
providers who will plaster the label onto,
very often, ordinary offerings in a cynical
attempt to lift their image and therefore
the price that can be achieved.
As fashion writer Dana Thomas reported
in Deluxe: How Luxury Lost Its Lustre,
the L word is now so misused as to have
become almost meaningless.
And it isnt just that the luxury brand bar
has been lowered; its been literally fractured
with new variants splintering from the main
body with i ncreasing frequency. New terms
that can currently be found in the marketplace
to describe different tiers of luxury brand
include old luxury, true luxury, real luxury,
contemporary luxury and super luxury.
So tarnished has the L word become, that
Bernard Arnault, chairman of Mot Hennessy
Louis Vuitton, the largest luxury company in the
world, says he does not like the word luxury.
Interviewed in the Financial Timesin June 2009,
he is quoted as saying I prefer to think of it as
quality. The FTreports that Arnault envisages
up to a decade of approximately two per cent
growth in developed markets, meaning that the
luxury industry will f ace more competition, not
INFLECTION POINT AND IDENTITY CRISIS
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8180
In early 2009, prompted by the apparent
dichotomy of operating an international luxury
brand consulting firm from South Africa, we
set out to conduct primary research into
the local consumer market for luxury brands.
Through our due diligence for that study,
we were surprised to discover that, despite
many yards of copy being written each day
on the subject of luxury brands, there neither
exists a satisfactory description of what exactly
constitutes a luxury brand, nor a model that
could be used to define and describe ones
nuances and complexities.
Having identified this gap in thinking, we
embarked on the ambitious some might
say foolhardy process of developing both
a definition and model; to provide our
consultancy, and the luxury industry in general,
with a tool that is capable of both describing
and evaluating the enigma that is luxury brands.
Using our research study as a platform
to test hypotheses and extract insight, we
supplemented the primary data gathered with
an exhaustive literature review. It was when
trying to reconcile the rich and plural outputs
from this process to the constricting, singular
conventions of traditional brand models
that we had our epiphany. If l uxury brands
are defined by being multi-faceted, then
we required a model that was similarly
multi-dimensional to represent them.
The metaphor of a diamond, in addition to
its associations of rarity and preciousness,
immediately offered a generous and liberating
descriptive framework. From this basis, we
then attempted to construct a model that was
sensitive to the sophistication of luxury brands
yet could accommodate their complexity in
a structure that would allow critical evaluation
within and comparison between brands.
Mining the metaphor further enabled us to
arrive at a final model that, at once, celebrates
subtlety and enforces precision.
Publication of The Paradigm Cutis but a
first step and we expect the model itself and
the scope for its application to evolve further.
Nevertheless, we are already excited by
its promise to provide a common language
and definitive framework for all types
of luxury brand. Augmented with further
qualitative and quantitative inputs, we believe
The Paradigm Cuthas potential to be
adopted as the industry standard.
Over the coming months we will release the first
annual Luxury Brand Order of Merit, a global
rating of luxury brands from across all categories
based on theLuxury Brand Grading System.
For further information about
The Paradigm Cut, please contact
Piers Schmidt or Cliff Nichols
at Luxury Bra nding.
CONCLUSION
8
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We are enormously grateful to all of the
respondents who took part in our research
study during July and August 2009, and whose
organisations are listed in the companion
volume to this document,South Africa:a New Frontier for Luxury Brands?
The authors would also like to thank their
colleagues at Luxury Branding, notably
Matt Morley, David Cooper, Sarah Lovemore,
Gemma Burdett and Darius Meadon, for
their invaluable assistance with the research,
modelling, reading and challenging the
assumptions contained herein. Without their
help, completion of this exercise would not
have been possible. We would also like
to acknowledge Rob Burton of Platandia
for sharing with us his diamond expertise.
Creative direction and design by & SMITH
& SMITH is an independent graphic design
studio based in London. Passionate about
the craft and value of design, they work closely
with clients to achieve a full understandingof their business. This enables them to produce
work - across a range of media, that both
engages and inspires the intended audience.
& SMITH can be found online at
www.andsmithdesign.com
Printed by
Gavin Martin
www.gavinmartin.co.uk
Photography credits
Front tip in Lee Funnell
Page 9 Neil McKenzie
Page 15 Daniel Fells Photography
Page 61 Sean Kennedy Santo
Page 79 Teng Tan
Luxury Branding 2009
No part of this publication may be reproduced, stored
in a retrieval system, or transmitted in any form or by any
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Luxury Branding.
www.luxury-branding.com
Price: Euro 350
ISBN 978-1-85669-674-6
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