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The Luxury Strategy
—Building a strong brand that can sell, even at premium prices

Shinya Nagasawa
Professor, Faculty of Commerce, Waseda University

The Luxury Strategy that Defies Conventional Marketing Theories and Brand Strategies

The Luxury Strategy: Break the Rules of Marketing to Build Luxury Brands, co-authored by Jean-Noel Kapferer and Vincent Bastien, translated by Shinya Nagasawa, Toyo Keizai Shinposha, forthcoming
Front cover

It is in times of economic stagnation and recession that the brand strength of companies is put to the test. This is because companies must avoid engaging in price wars, and instead take advantage of their strong brand identities at the brand engagement level and their creativity to release unique products—products which cannot be imitated by competitors—to set themselves apart from the competition with their own values, their own distribution channels, and their own style of promotion. I want to emphasize that luxury brands such as Louis Vuitton and Chanel have traditionally employed the strategy of avoiding price wars and taking advantage of their own creativity and brand identity, which is what makes them a cut above.

As described in the table, the strategy of luxury brands basically runs counter to conventional marketing theories and brand theories—in short, the abundant advertising, promotion, and distribution of quality products at low prices through wide distribution channels which constitute the conventional and standard rules of advertising. But when we consider how luxury brands are marketed, we find that it is quite the opposite—distributing instead high-quality products, which have history, at premium prices and through narrow distribution channels, with almost no promotion or advertising. This luxury strategy, where such anti-laws of marketing have been systematized, is fundamentally different from the brand strategy that is applied when distributing conventional commodities. It is also different from strategies such as the premium strategy and simple fashion strategy, which are often confused with the luxury strategy (The Luxury Strategy, by Jean-Noel Kapferer and Vincent Bastien, translated by myself, forthcoming).

Item Standard Marketing Rules The Luxury Strategy
PRODUCT - Adequate quality (conformance quality; extraordinary quality is not attained)
- Relative quality
- F&B (functions and benefits, suitability for use, conformance to demands)
- Excellent quality (impeccable quality, products that have history)
- Absolute quality
- Perceived quality (experiential value)
PRICE - Low prices
- Relative value
- Premium prices (appropriate prices)
- Absolute value
PLACE Broad channels (increased numbers of shops, mail orders, mass retailers, etc.) Limited channels (distribution is controlled; uncontrollable channels are not used)
PROMOTION Abundant advertisement (TV ads, etc.) Focus on publicity (media attention)
BRAND Conventional marketing theories, brand theories, etc. (brand equity, brand ranking, etc.) Anti-laws of conventional marketing theories, brand theories, etc.

Table: Summary of luxury strategy (from my edited and co-authored book, Chanel Strategy, Toyo Keizai Shinposha)

Left: Why Louis Vuitton thrives even in hard times, by Shinya Nagasawa, Kodansha, 2009
Front cover
Right: Chanel Strategy - Management of the Ultimate Luxury Brand, co-authored with Kana Sugimoto and edited by Shinya Nagasawa, Toyo Keizai Shinposha, 2010
Front cover

If strong brand engagement is established and consumers won't have any other brand, the products become priceless and can be sold at a premium. Taking bags for example, if function were the only concern, then a tote bag that goes for 500 or 1,000 yen would suffice in terms of yen value. Louis Vuitton bags, however, are products of superior quality, products of impeccable quality, and furthermore, they are products that have history. And while relative quality is ordinarily important in marketing, Louis Vuitton bags provide an absolute quality which is beyond comparison with other manufacturers. This is why Louis Vuitton bags go for 100,000 to 300,000 yen, Chanel bags for 300,000 yen to 500,000 yen, and Hermes bags for 700,000 yen and more. Analysis and management of luxury brands with conventional marketing concepts, therefore, is limited. It is precisely in times of adversity like these that we examine the strategies of luxury goods manufacturers such as Louis Vuitton, Chanel, and Hermes, as detailed in my books: Why Louis Vuitton thrives even in hard times; my edited books, The Principle of Louis Vuitton; and Chanel Strategy, Creating Customer Experience in Established Brand Companies [Shinise Burando Kigyo No Keiken Kachi Sozo]).

Active Avoidance in Order to Maintain and Improve the Image

We have many brand names and books on management related to books that cover companies including Coca Cola, McDonald's, and Sony, but these brand names are just tools for mass marketing. Furthermore, concepts like brand extension theories are being expressed here and typical examples can be seen with brands including fashion brands such as famous French and Japanese brands, which are being expanded with licenses on items reaching out to as far as bath towels and bathroom slippers, but their brand images are falling. Meanwhile, Louis Vuitton has their rules on prohibiting licenses. There is a lot to learn from Louis Vuitton, as they apply anti-laws on most conventional marketing theories, brand theories, and the like in this way.

License deployment can be profitable in the short term, but in the long term, such deployment reduces brand value. That is why sensible luxury brands do not adopt them.

Chanel also avoids the common practice of leasing licenses through second lines and casual lines, which many luxury brands tend to follow. One characteristic of the company is how they expand their customer base through strategic and low-key business activities that include diligent development of new products and schemes, and maintaining control of mass and limited products. In other words, it is their policy not to resort to easy money-making tactics such as bargain offers, mass production, and mass marketing.

Similarities with Japanese Long-Established Companies

This year marks Chanel's 100th anniversary, Louis Vuitton's 156th anniversary, and Hermes' 173rd anniversary. These are all long-established quintessential French companies, but in terms of the number companies and of years in business, Japan has more by a wide margin. With that, I have researched the time-honored companies of Japan and found many things that they have in common with European luxury brands (written by me - Tradition and Innovation at Long Standing Brand "Toraya" [Shinise Burando "Toraya" No Dento To Kakushin], written and edited by me - Creating Customer Experience in Long-standing Brand Companies [Shinise Burando Kigyo No Keiken Kachi Sozo] and Premium Strategy of Local and Traditional Industries of Japan [Jiba/Dento Sangyo No Puremiamu Burando Senryaku]).

Chanel has its own flower gardens in Grasse, southern France, in order to secure the roses and the like which are used as ingredients in their famous perfume, "No. 5." They have also established a watch factory in Switzerland in order to make a full-scale entry into the watch industry with their "J12" watches, a laboratory in Funabashi City, Chiba Prefecture to develop basic skin care products for Japanese women, and so on, and they are dedicating themselves to raw materials and technology as much as Japan's long-established companies have been doing.

Shinya Nagasawa
Professor, Faculty of Commerce, Waseda University

[Profile]
1978: Bachelor of Engineering in Industrial Engineering, School of Science and Engineering (currently the Department of Industrial and Management Systems Engineering), Waseda University
1980: Master of Engineering in Industrial Engineering, Waseda University
1995: Professor, College and Graduate School of Business Administration, Ritsumeikan University
2003 to Present: Special Program Professor, Management of Technology (MOT), Waseda Business School (International Management Major, Professional Degree Program, Graduate School of Asia-Pacific Studies. Business Major, Professional Degree Program, Graduate School of Commerce due to reorganization of 2007), Professor of Specialized Marketing and International Business, Doctorate Program, Graduate School of Commerce, Waseda University in 2008 (jointly appointed). 2004: Director, Strategic Design Management Institute, Waseda University (Jointly appointed. Until 2008)
2008: Visiting Professor, ESSEC (テ営ole Supテゥrieure des Sciences テ営onomiques et Commerciales, France) Business School (jointly appointed)
Field of Specialization: Design and Brand Innovation Management
Author of seventy-five books (sixty-four in Japanese, four in Chinese, four in Korean, two in English, and one in Thai)
Published twelve books in 2009