Accessible vs Exclusive Luxury: A Tale of Two Brands

Louis Vuitton is hurting because its ubiquitous logos have made it appear to be accessible luxury – which is probably an oxymoron because luxury by definition must be largely exclusive.

As Roberto Ferdman writes on Quartz,

It’s been a perplexing year for the high end retail company, whose shares have risen only marginally higher since the start of 2013, while competitors like Cartier, Richemont, Burberry and Gucci parent company Kering have all seen their shares jump by more than 20%. For two decades, the Louis Vuitton brand, which accounts for roughly 50% of the company’s sales, has been able to all but pencil in sales growth above 10% (though sometimes nearer to 20%), but for 2013 the expectation is currently somewhere between 5% to 6% growth, which itself may even be overly optimistic.

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 What gives? Louis Vuitton may be flaunting its famous monogram a bit too much.

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The classic logo that it used to quickly establish itself in emerging markets around the world appears to have run its course. The company’s handbags and other leather goods are so ubiquitous today that they have begun to symbolize “accessible luxury” rather than “exclusive” luxury. The problem, however, is that Louis Vuitton doesn’t sell like an accessible, or affordable luxury brand; its handbags, for one, are far more expensive than the likes of Coach or Michael Kors. “Accessible luxury for more money” isn’t exactly the sort of slogan a company wants to swing around.

He may be on to something there. 

Consider what Angela Ahrendts, recently of Burberry fame and now of Apple retail fame, said about the challenges she faced after becoming Burberry’s CEO in 2006 (my emphasis, below):

It was a sign of the challenges we faced. Even in a burgeoning global market, Burberry was growing at only 2% a year. The company had an excellent foundation, but it had lost its focus in the process of global expansion. We had 23 licensees around the world, each doing something different. We were selling products such as dog cover-ups and leashes. One of our highest-profile stores, on Bond Street in London, had a whole section of kilts. There’s nothing wrong with any of those products individually, but together they added up to just a lot of stuff—something for everybody, but not much of it exclusive or compelling.

In luxury, ubiquity will kill you—it means you’re not really luxury anymore. And we were becoming ubiquitous. Burberry needed to be more than a beloved old British company. It had to develop into a great global luxury brand while competing against much larger rivals. Among luxury players, Louis Vuitton Moët Hennessy (LVMH) had almost 12 times—and Pinault-Printemps-Redoute (PPR) more than 16 times—Burberry’s revenue. We wanted a share of the disposable income of the world’s most elite buyers—and to win it, we’d have to fight for prime real estate in the world’s most rapidly growing consumer markets. In many ways, it felt like a David-and-Goliath battle.

Ironic that, at least in 2006, Burberry looked at the world of luxury and saw Louis Vuitton (the company, not just the luggage division) as an inspiration.

Undifferentiated Product or Service? No Problem.

Differentiation as a source of competitive advantage is over-rated, argues Freek Vermeulen, a Professor at the London Business School, and uses McKinsey vs Bain vs BCG as an example to talk about how companies use other “things” to get a leg up in the race to revenues and profits:

The trick is that when there is uncertainty about the quality of a product or service, firms do not have to rely on differentiation in order to obtain a competitive advantage. Whether you’re a law firm or a hairdresser, people will find it difficult – at least beforehand – to assess how good you really are. But customers, nonetheless, have to pick one.  McKinsey, of course, offers the most uncertain product of all: Strategy advice. When you hire them – or any other consulting firm – you cannot foretell the quality of what they are going to do and deliver. In fact, even when you have the advice in your hands (in the form of a report or, more likely, a powerpoint “deck”), you can still not quite assess its quality. Worse, even years after you might have implemented it, you cannot really say if it was any good, because lots of factors influence firm performance, and whether the advice helped or hampered will forever remain opaque.

Research in Organizational Sociology shows that when there is such uncertainty, buyers rely on other signals to decide whether to purchase, such as the seller’s status, its social network ties, and prior relationships. And that is what McKinsey does so well. They carefully foster their status by claiming to always hire the brightest people and work for the best companies. They also actively nurture their immense network by making sure former employees become “alumni” who then not infrequently end up hiring McKinsey. And they make sure to carefully manage their existing client relationships, so that no less than 85 percent of their business now comes from existing customers.

I think the three things he highlights, “status, social ties and relationships” are important but apply a lot more to consulting and accounting firms than to, say, soap and toothpaste sellers. 

And for the latter category, which consists almost wholly of undifferentiated commodity products, marketing (which raises the “B” in “B minus C”) becomes the route to revenues and profits. Which is why Coke, P&G, Unilever et al are fundamentally fearsome marketing juggernauts. 

Differentiation In The Baby Aisle

Nearly everything one buys these days is a commodity.

So what makes a shopper (for cars, coffee or custard) choose Brand X vs Brand Y?

To help answer that question, the makers of goods strive very hard to achieve some level of differentiation in consumers’ minds (and, in that process, raise the “B” in “B minus C“) so they can (a) gain/keep marketshare, (b) gain pricing power or ideally, both. 

An interesting piece by Adam Davidson in The NYT talks about the importance of differentiation in the baby aisle:

The baby market is essentially a commodity market. And because it is extremely difficult to make money in a highly competitive commodity market, manufacturers look for ways to justify higher profit margins. There isn’t much profit in corn, but a company that produces a popular organic blue-corn tortilla chip can make serious money. In the baby business, the challenge is persuading parents that a product has a unique feature worthy of a price premium. A glance at the shelves indicates just how narrowly baby-product companies have divided parents into subgroups. Some will pay extra for conveniences like a light, easy-to-fold stroller; others want aesthetic luxuries, like leather trim. Many respond to fear. (Is my child safer in Baby Trend’s Inertia car seat for $179.99 or with Safety 1st’s Air Protect+ system, which costs $189.99? Or should I just buy a cheap one for $50?) Others are willing to spend an extra $250 or so for an organic-cotton car-seat cover to minimize baby’s contact with artificial fabric.

Emily Oster, an economist at the University of Chicago and the mother of Penelope, 2, told me that the baby business is “a classic example of a perfectly competitive industry.” Nearly every product we buy — from coffee and cereal to hotel rooms and cars — is a commodity dressed up in premium packaging, Oster pointed out. But with baby products, the process is intensified. Kellogg’s, Ford and Starbucks can spend years tempting a consumer, but baby companies have a short window — often just the few weeks before a due date — to capture expecting parents’ attention. These campaigns often try to simultaneously scare and reassure. One dominant marketing strategy is to list all the features a product has (and, by implication, the competitors don’t) that will guarantee a healthy and happy a child. My favorite is the ubiquitous announcement that a product is phthalate-free because 1.) most people don’t know what phthalates are; and 2.) U.S. law regulates the use of phthalates — a plastic softener associated with birth defects in rats — in certain children’s products. (That said, I was reassured that my son’s sippy cup has no phthalates whatsoever.)

The full article is worth a read.

[And in case you don’t already follow Adam or the also eminently readable Prof Oster, you know what to do!]

On Yahoo and Marissa Mayer

I continue to be fascinated by Yahoo’s turnaround (“renaissance”, if you ask their marketing chief) efforts under Marissa Mayer. 

So I read, with great interest, a summary of the different things (by Brad Stone, in Businessweek) that Ms Mayer is doing at Yahoo including a (renewed) focus on mobile, investment in Apps and interestingly, attention to search:

One place where these hard-core researchers might focus their attention is search. Although Google dominates the space and Yahoo has had Microsoft (MSFT) power its search engine for the last three years, Mayer still believes Yahoo can find new ways to present search results. “Search is far from over,” she says. “It’s physics in the 1600s or biology in the 1800s. There’s miles to go before you get to quantum physics or even a microscope. There’s a lot of that you can do once you have mobile, and we are going to be very focused on the user experience.”

Again, and admittedly, there are many challenges…but I continue to wish them well not just because every turnaround effort deserves it but also because I have a bit of nostalgia for Yahoo. I signed up for my Yahoo ID in 1997. 

Oh, and before we go, here’s another excerpt from the piece, this time about Ms Mayer getting the “call” for the top job:

Mayer had pursued the position in total secrecy. She had to say the code words “project cardinal” to a limo driver waiting outside her Palo Alto home, who then drove her to a Silicon Valley law firm for a meeting with Yahoo’s board. The board was supposed to call with its decision by 8 p.m. When the hour arrived, she and her husband, investor Zachary Bogue, were at a dinner party, and Mayer was battling the urge to keep checking her phone. “I saw such an opportunity here,” she says, “and felt like I had so many ideas.” She also felt that after 10-plus years at Google, it was time to leave.

At 9:45 p.m., Mayer’s phone was still silent. She was crestfallen and making frantic hand gestures to Bogue that she wanted to leave the party. (Bogue, enjoying his seat next to former San Francisco 49ers quarterback Joe Montana, wanted to stay.) Finally, as they were saying their goodbyes, Mayer got a call from Jim Citrin, a partner at Yahoo’s executive recruitment firm, Spencer Stuart. Propriety demanded she let it go to voice mail. A year later in the Yahoo cafeteria, she taps her iPhone screen and plays it: “Marissa … you should be smiling,” Citrin is saying. “We’re smiling. Call me ASAP.”

 

Differentiation In The Toy Aisle: Melissa and Doug

It’s always nice to read about companies that are successful while being very different from most others in their category.

Melissa and Doug (on whose toys we’ve also likely spent a pirate’s ransom in the last 4 years) is one such company. There are no batteries, no electronics, touch screens or apps. Instead, it’s all wooden blocks, puzzles and such. 

Matt Richtel writes, on The NYT:

They do little public relations and don’t advertise in magazines, or on radio and television. They don’t put coupons in Sunday newspaper inserts. They don’t rely on big hits, industry analysts say, just a steady stream of variations on classic toys mostly for children up to the age of 5. Nonetheless, their business has grown by double digits every year, to an estimated $325 million in revenue this year from $100 million in 2008 (and to 650 employees from 200), according to a toy company executive familiar with the company’s operations. Such figures make theirs a midsize toy business, of which analysts say there are fewer and fewer these days. In this industry, three huge players — Mattel, Hasbro and Lego — account for around $14 billion in sales, or about a third of global toy company revenue.

The rest of the article also makes for an interesting read and talks about the company’s history, growth trajectory and the threats (a shrinking category and kid behavior, not necessarily specific competitors) it faces. 

How To Compete On Price: Lessons from American Paintbrush Makers

As they say, competing on price in commodotized markets is a race to the bottom. Scale and distribution are the only two things that can save you there. 

But what if you’re neither a behemoth nor do you have Amazon or FedEx’s distribution expertise?

You can do one of two things, as illustrated by Adam Davidson in his NYT piece on American brush-makers and Chinese competition:

1. Compete on quality

(Bronx Paintbrush Factory Owner: Israel) Kirschner hasn’t changed a thing. He makes brushes the very same way, employing many of the same machines, that his father did 50 years ago. He told me that he sticks with the old ways because, unlike with toys and T-shirts, a big chunk of the brush business caters to professionals who aren’t merely shopping for price but rather for quality. Michael Wolf, who runs the Greco Brush Company, a supplier to professional house painters, told me that his customers need to know before each job that every single bristle on every single brush will be attached properly. One loose fiber left on a wall can damage a painter’s reputation, which in turn can hurt Wolf’s too. Wolf said that he can buy brushes for between a quarter and a dollar cheaper in China, but he is never sure exactly what he’ll get. Some orders are shoddy; others never arrive. So Greco sticks with the company he knows. “My father did business with his father back in the ’50s,” Wolf told me. “We’re keeping it going, the two of us.”

2. Compete with non-stop innovation

At the other end of the business is Lance Cheney, 53, the fourth-generation president of Braun Brush, who told me that he would close his company rather than make the same kind of brush, the same way, for 50 years. He is constantly creating innovative brushes so that he never has any competition. Cheney makes a beaver-hair brush that’s solely for putting a sheen on chocolate. He sells an industrial croissant-buttering brush and a heat-resistant brush that can clean hot deep fryers. His clients, he said, now include General Mills (he made a brush for their cereal-manufacturing line) and the energy industry (a line of expensive brushes for cleaning pipes in nuclear reactors). He even developed Brush Tile, fuzzy panels used in artistic wall hangings. He said his proudest creation is a tiny brush that helped Mars rovers dust debris from drilling sites. When Cheney sees other firms making one of his brushes, he often drops the product rather than enter a price war. Braun Brush, he said, has grown at 15 to 20 percent annually for the past five years.

PS: Of course, not every industry has conditions that allow for (1). If the primary users of paint-brushes were amateurs who didn’t care for quality, that strategy wouldn’t fly. And if this category didn’t support or need innovation (for example, if this was about can openers…), (2) wouldn’t work. Another reason why competitive strategies can’t be indiscriminately used without understanding customer needs. But then again, you already knew that…

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