Episode 36      26 min 02 sec
Marketing Luxury Brands

Assoc Prof Mark Ritson of the Melbourne Business School talks to Up Close host Amanda Tattam about the changing nature of the global luxury goods market. Amanda also speaks to Andrew Wu, head of luxury giant LVMH's China operations, about selling luxury in Asia.

"If you look at the Asian region ... all great luxury trends, all great brands have found success first in Japan." - Assoc Prof Mark Ritson




           



Mark Ritson
Mark Ritson

Mark Ritson is Associate Professor at the Melbourne Business School. Mark's research focuses on marketing communication and branding.

He also works extensively as a consultant on branding and marketing for some of the world's leading organisations. His clients include McKinsey, Roche, HSBC, Zenith Optimedia, adidas, Ogilvy, 3M, Bacardi Martini, Deutsche Bank, LVMH in Paris and London.

Mark is a recognised business writer and commentator. His contributions have appeared in the Financial Times, The Economist, Herald Tribune, New York Times, and The Age. Since 2002 he has written a weekly column on branding for Marketing, the UK’s leading trade magazine.

Andrew Wu
Andrew Wu

Andrew Wu is the LVMH Group's Director for China.

Andrew studied in Canada, and has been at the forefront of China’s economic boom since returning to China in 1993.

In 1993, Andrew was recruited to spearhead LVMH’s entrée into China, establishing the Christian Dior brand there.

LVMH includes some of the world’s best known brands - Louis Vuitton, Fendi, Celine, Givenchy, Kenzo Hennessy, Dom Pérignon, Moët & Chandon, Cloudy Bay, Parfums Christian Dior, Guerlain, TAG Heuer, … among many others.

Credits

Special thanks to Meredith Hinze and Asialink for their assistance.

Host: Amanda Tattam
Producers: Kelvin Param, Eric van Bemmel and Amanda Tattam
Audio Engineer: Craig McArthur
Theme Music performed by Sergio Ercole. Mr Ercole is represented by the Musicians' Agency, Faculty of Music
Voiceover: Paul Richiardi

Series Creators: Eric van Bemmel and Kelvin Param

Melbourne University Up Close is brought to you by the Marketing and Communications Division in association with Asia Institute.

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Marketing Luxury Brands


VOICEOVER
Welcome to Melbourne University Up Close, a fortnightly podcast of research, personalities, and cultural offerings of the University of Melbourne, Australia. Up Close is available on the web at upclose.unimelb.edu.au. That’s upclose.u-n-i-m-e-l-b.edu.au.

AMANDA TATTAM
Hello and welcome to Up Close, the audio show brought to you from the University of Melbourne, Australia. I’m Amanda Tattam. In this episode, we’ll be taking a look at the trends and ideas behind the worldwide marketing of luxury goods. In particular, the spectacular growth of markets in Asia. The strategies used to promote elite brands are as sophisticated as the many niche and evolving consumer markets that are rushing to buy luxury goods. The massive growth of luxury goods has now extended deeply into China, India and other markets. Estimates vary, but some say the luxury market is worth between 60 billion and 20 trillion US dollars, including consumers who are trading up. That is, the increasingly wealthy middle classes, who 30 years ago, would have thought it luxurious to have two TVs in a household. Later in the program we will be speaking to Andrew Wu, Group Director for Louis Vuitton Moët Hennessy, for China. But first, in the studio, with me now is Mark Ritson, Associate Professor of Marketing, for Melbourne Business School, part of the University of Melbourne. Professor Ritson, can you explain how luxury brand or product distinguishes itself from other brands?

MARK RITSON
The question today of what makes a luxury brand a luxury brand and how do we distinguish it is very hard to answer. The standard business response is to say, ‘they are more exclusive’. And we get exclusivity by having high price and relatively small amounts of the product available. The reality, however, of luxury brands is that they are sold in their millions, and in some cases, are not priced that much higher than the standard output. The only way I can really answer your question is to say, it is all relative. As you said in your introduction, it wasn’t that long ago in Australia that we would have considered two televisions to be a luxury, or even further back, one colour television. And you can make a strong argument, for example, that Starbucks in China, right now, is a luxury purchase – because of its cost, because of how frequently it is purchased by many people. So, I think the long answer is a complicated one, but the answer is, it depends who you talk to. I think in the business community what we would say, is that there is a small cluster of ‘more expensive brands’ which have a distinct strategy that we would identify as being ‘luxury brands’ and they start with the Rolls Royces and the Tiffanys and the Louis Vuittons of the world. And, I think that tends to be how we see them.

AMANDA TATTAM
Okay. So, what is the difference between ‘old’ and ‘new’ luxury for example?

MARK RITSON
It is an interesting one. It isn’t actually related to the age of the brands. So, two of the new classic luxury brands would be Coach, which is more than 60 years old, and in many cases would refer to Burberry, as using new luxury strategies. And Burberry is 151 years old. So, it isn’t their actual age. The term, ‘new luxury’ refers to a different approach to marketing luxury brands. A different approach in the sense that there is more focus on customers, greater production of the numbers. So, they might still have higher prices, but if you look at the typical Coach handbag, which is a well-known brand Japan, China and America, Coach would be making significantly more of it than the ‘classic’ old luxury brands like Gucci or Prada. And the final limit of new luxury which is of, I think, great distinction, is the new luxury brands have embraced production in China, far more so than the older luxury brands that continue to make most of their products, in some cases, in the traditional European artisan centres.

AMANDA TATTAM
Okay. When you market a luxury brand, what instincts and desires are you really appealing to and has that changed over time, do you think?

MARK RITSON
Clearly, when you are marketing luxury brands, you are selling more than the functional product itself. No one buys a Louis Vuitton bag for four or five thousand American dollars, simply because they want a bag. And, indeed, if you look at luxury watches, we spend, in many cases, tens of thousands of dollars for these items. Clearly we don’t need that, because our phone tells us the time. There is usually a clock in the room. We could buy a one-dollar watch, which would do an equally good job. So, beyond the function there is something else, and it is clearly the symbolic. Clearly, it is the identity, which the brand confers upon the owner. You might see that as being a sense of superiority, perhaps. But we don’t think so within luxury brands. We like to think – and I think it is true of most of the customers that we bring into luxury brands that the real attraction has always been a link to ‘something special’. A link to a story, or a founder, or a creator or a time, that is something a little bit special. And I think it is that ‘authenticity’. When one buys a Dior handbag, there is a strong line of authenticity, going all the way back to Christian Dior, 1947, this incredible moment of fashion. So, I think what we are really appealing to in a world where most people feel dislocated from any sense of authenticity, here is something which is ‘pure’, here is something which has a ‘specialness’ to it and you can be a part of that.

AMANDA TATTAM
You’re listening to Melbourne University Up Close and today we are talking to Professor Mark Ritson, from the Melbourne Business School about the marketing of luxury brands.

You’ve noticed that there is a proliferation of these cheaper imitations, the fakes, especially with jewellery and shoes and handbags and so forth, this doesn’t seem to damage the genuine article, though, why is this so?

MARK RITSON
It is a very complex picture. And, I think, before we get onto these counterfeits and talk about why they don’t damage them, let’s also be clear that it isn’t a legal practice and certainly it is true that all the luxury brands have worked together with various different countries and law forces to attempt to reduce them. Now, having said that, from a business point of view, counterfeit goods have absolutely no impact whatsoever on the success of luxury brands. In fact, they may even work to their favour. The reason, first of all, why they don’t damage a luxury brand, is very simple, I don’t think that, in the history of Gucci, they’ve lost a single customer who bought a counterfeit rather than the genuine item. Now, do people buy the counterfeits? Absolutely, in their thousands. Would any of those people bought the genuine article? Absolutely not. If one is paying ten thousand dollars for a bag, it is certainly not because one is attracted to just the bag. It is the brand itself. And when one buys a counterfeit bag one is not buying the brand, and the consumer knows that. So, the first thing to say is that, I don’t think it cannibalises the sales. Now, other argument that is often used with counterfeits, is ‘yes, but it damages the brands exclusivity, to see all of these Louis Vuitton, Gucci, Prada bags walking around the streets’. Again, that may be true, but I’d offer an alternative explanation as well, which is: you’ll often see someone walking down the street and you might think in your own mind, ‘that’s not someone who should be carrying that beautiful Gucci bag. It must be a fake.’ In reality, perhaps it is not. And yet, that counterfeit mindset often allows us to offset, the ‘non-exclusive’ image of the brand. So, are counterfeits a problem? Yes. Do they cause a major impact on these brands? No. And in fact, many of the luxury brands use them very strongly to measure market demand. One of the reasons you know that a luxury brand is healthy, is when it has attracted a good deal of counterfeits. The black market is much quicker, much faster, much leaner, much more entrepreneurial. So, when they start to copy your bags in Canal Street or in the markets of Shanghai, it is because they’ve recognised that market demand for that brand is growing. But it is fair to say that we spend a lot more time in luxury brands worrying about what is called the ‘gray market’. The black market is when you sell fake or counterfeit or stolen goods. The gray market is when you sell genuine products but through non-affiliated or non-endorsed channels. Everyone has bought luxury products through the gray market, they just don’t know it. It is a genuine watch, but it is sold to you through someone who isn’t one of the approved sellers. And he has bought that watch, from either a wholesaler from another country, he has got them in a cheap job lot, and he is selling them to you in a discount price in a non-appropriate way, in a non-appropriate place to a non-appropriate customer. These are the people that damage our brands. Because, over time what happens is, the prestige and exclusiveness of these brands is damaged when they are sold at discounts in the wrong places to the wrong people.

AMANDA TATTAM
You touched then about fashion and so forth, how does gender influence things, are there different ways that you market to men and to women and what about in different parts of the world, do Asian women respond differently to advertising, than say, western women, I know we’re using very broad terms here, ‘Asia’, ‘west’, but – and also the other demographics, age and race – I know there are some big topics there, but-

MARK RITSON
Gender is not as important as we might think. Luxury has always been a predominantly a female market; age is incredibly important. And it has become more important in the last five to ten years. We see a group of – to use the common phrase, Baby Boomers – but, essentially this demographic group that we see across the world, these people are now in their 60s and beyond. They have a large amount of money. They have limited amounts of time. Still, they like to travel and they know they are not going to be around forever. These people are discerning. You know, if you’re going to buy a bottle of wine and I’m 65 years old and I’ve 250,000 dollars in the bank, you know what? It is going to be a good bottle of wine. The final issue of race is an intriguing one, particularly in North America. I personally believe that the face of luxury in America is ‘black’. The group that leads luxury is not this WASP community of very well off middle aged Americans – who do buy their luxury brands – but the people who lead that market, are, for me, for the most part, African American. It would be a mistake to see, for example, the hip-hop community as being not consistent with the luxury brands. If anyone has grasped the true meaning and heritage of luxury brands, it is that African American community. So, I think there, race plays an interesting role to.

AMANDA TATTAM
Sure. So, in Asia, what brands or products do customers identify more strongly with?

MARK RITSON
It is interesting and I think if you look at the Asian region, there are a couple of different stories playing out. The first and the one we shouldn’t forget is the story of Japan. Japan has, for at least the last forty years, been the leading market for all things luxury. It is a generalisation, but it holds true almost every time, that all great luxury trends, all great brands have found success first in Japan. Very simply because the Japanese are probably the most discerning and tasteful customer on the planet. They love heritage. They appreciate the finer things in life. And it is very hard to find any example of a luxury brand that has not first had success in Japan.

AMANDA TATTAM
Even in good times and bad?

MARK RITSON
Especially in bad times. So, one of the intriguing things about luxury brands and Japan is a notable example, they’ve had a very tricky ten or fifteen years, only now really have they come through what has been one of their worst times in their postwar economy. And yet, during this time we have seen sales of most luxury items, whether it be luxury wine, watches, jewellery, leather goods, fashion, all of these products have sold spectacularly well. So yeah, even in good times and bad. Look, aside from Japan within Asia, clearly the other story is the story of China. And we are seeing in China a remarkable revolution in luxury. All the research that has been done, all the indicators we have so far, suggest that the Chinese consumer, is as, if not more interested in luxury brands than the Japanese consumer. So, once you do the maths on that one, it becomes pretty obvious where the future of luxury will be. And of course, one of the things that is feeding into that is that when, a new economy, like the Chinese economy, really gets going, it begins with luxury. It doesn’t start with small, domestic brands. It trickles down from the top. We saw that in Eastern Europe 15 years ago. The first stores to open in East Germany, for example, were the Versaces of the world. So, in that sense, I think there are two stories. The oldest story in the world, that is, of Japanese discretion and the story of Chinese growth. And yet, both I think represent the two, most important poles of the luxury consumption.

AMANDA TATTAM
So, you’ve talked about these demographics, what kind of market research and methodologies are used before you decide how money should be spent in a marketing campaign?

MARK RITSON
There are many so-called ‘old luxury brands’ that would perceive research to be the wrong thing. And will have a long, 200 year old history of being very successful and doing absolutely no research of any kind at any time on anyone. They would believe that their brands are about creativity, about fashion, and the definition of fashion is not about giving people what they want, it is about changing things. The creative directors make the decisions and the consumers will follow them. It is fair to say, however, that in the last five years, we’ve seen a revolution – and I don’t use that word lightly – from some of the brands who have used extensive market research. Similar to the kinds that we would see in the consumer goods: focus groups, surveys, the analysis of sales data. So, it isn’t the most advanced research. But there is a growing focus on doing it. And I think that is probably the biggest question mark right now for most luxury brands: to what degree should we ask the consumer what they want?

AMANDA TATTAM
You’re listening to Melbourne University Up Close and we’re talking about the marketing of luxury brands with Professor Mark Ritson from Melbourne Business School.

So, as high-end consumers become more discerning and ethically driven with their purchasing, how does the luxury industry handle concerns for example, the use of sweatshop labour or sustainability issues?

MARK RITSON
It is an interesting one and for once it is not that relevant to luxury brands. And I say that because, the luxury brands have never had a problem with sustainability or with sweatshop labour. They’ve been playing a very sustainable game for a very long time. The idea of using sweatshop labour would be literally impossible for a luxury brand. Not because of any ethically driven decision making, but simply because of the quality and the huge necessity to produce the very best clothing or products – you simply wouldn’t use people who weren’t artisans, that weren’t very heavily remunerated, that spent a lifetime working for you. I think on the environmental issues again, there are some key questions. Specifically, I think in the areas of fur and in the way that animals are treated and in animal testing. But again, with those to one side, you can again argue if you look at the way that premium wines are grown and the way in which the land is respected, if you look at the relatively small amounts of product that are used, in a very sustainable way because they’re very expensive products, actually the luxury brand industry, I think, has something to teach the consumer goods industry on sustainable business practices too. Again, not because there has been any ethical orientation within these companies, simplyMark Ritson: because when the raw materials are so expensive and the need to produce quality is so paramount, a sustainable approach tends to be the one that is adopted.

AMANDA TATTAM
Finally, I would like to ask you about the expansion or contraction of the market for luxury goods, does making luxury goods more affordable to more people actually diminish their value – because, a lot of people want to buy them because they know only a small number of people have them, aren’t they always going to be by their very nature, exclusive and only available to a very small group?

MARK RITSON
It is absolutely true that in the original histories of most luxury brands, there was a natural limitation on the number of products that were available. So, exclusivity originally was, in the case of Champagne, for example – Champagne is an area, it is not a grape – there weren’t that many fields in Champagne, and the original manufacturer of champagne was a problem, because many of the bottles, almost 40% in some years, would explode. Because, in the early days, they hadn’t worked out the correct manner of storing the champagne. This is way champagne became a luxury wine. Because there wasn’t that much of it. There was natural exclusiveness. In the global world we live in today, we certainly sell a very large amount of these so-called exclusive brands. So, if it was purely being based on the number being sold, it would be very hard to claim that a brand like Bollinger, for example, is exclusive when it is selling two hundred or three hundred thousand cases of champagne a year. So, the trick is to get as many sales as possible, but while maintaining a very high level of quality and also using price to maintain that exclusiveness. So, if we were to begin to lower the prices of these luxury brands, combined with their large sales, it perhaps would begin to tarnish their images and that is where, I think, you will see luxury brands in trouble, when they begin to sell – not just a lot of these things, but at lower prices, not monitoring the quality carefully enough. The reality for most luxury brands is their shareholders these days, or their families demand enormous global sales. So, while they are certainly more available than they once were, in terms of where you can buy them and in what numbers, price prevents you from going out and drinking a bottle of Bollinger everyday. Simply because one cannot afford to do it. So, in that sense it is a balancing act. The numbers sold these days are extraordinary, of course, but the price, the quality, the creativity, if they remain leading and in the appropriate place, then, as we have learned over the last fifteen years, a luxury brand can sell extraordinary large numbers and still be seen as extraordinarily exclusive.

AMANDA TATTAM
Thanks for your time today, Mark.

You’re listening to Melbourne University Up Close and we’ve been talking to Mark Ritson, Professor of Marketing at Melbourne Business School. To add another dimension to our discussion about the marketing of luxury brands, we caught up with Andrew Wu, who is visiting Australia as a guest of Asialink, a department of the University. Andrew is Group Director for China, for Louis Vuitton Moët Hennessy; the world’s largest, luxury brand group. Welcome, Andrew.

ANDREW WU
Thank you very much.

AMANDA TATTAM
When did luxury brands enter China? And what is driving the growth of luxury in China?

ANDREW WU
Well, actually, it is a process. It is not that everybody is everybody suddenly discovering China. China – in fact, this year is the 30th anniversary of China’s economic reform. So, since ’79, China opened up to the world. At the beginning, it was little noticed, but in the last ten to fifteen years, things started to be visible. In the last seven years, things start to be very visible. So, for most of the luxury brands that we are talking about, a lot of them have already started looking at China, doing business in China, as early as early 1990s. In our group as well, many of our brands have started going into China in the late 80s and in the early 90s as well. So, it is not a sudden discovery – it is a process.

AMANDA TATTAM
Sure. So, can you give us some idea of the scale of the market for luxury goods in China?

ANDREW WU
Well, it is based on the economic development of China and China getting more wealthy. And, what driving all that, obviously, is the consumer market in China. People probably don’t realise, the Chinese retail market, for instance, had doubled its size in value since 2002. So, in the last six years it doubled. More than doubled. It will probably be even quicker in the next doubling, so, when you are talking about luxury consumption, it is just the tip of the iceberg. The tip of the pagoda, if you will.

AMANDA TATTAM
Is it mainly very, very wealthy people that are buying luxury, or is it – you know, what we are seeing in the west is, a lot of people, who are trading up?

ANDREW WU
I think it is a combination of a lot of things. It is tempting to say, ‘it is the wealthy people’, which is true – there is a lot of new wealth being created in China. Especially in the last ten years. If you look closely, obviously there is a lot of millionaires and billionaires, if you will, being created. According to the Forbes rich list of China, for instance, from 2006 to 2007, you move from something like 16 billionaires in US dollars, to 40 billionaires in US dollars. Even just by tracking the publicly trackable wealth. So, the super rich is obviously growing in number. But, still, it is a very small percentage. So, yes, I think it is also true that the general population is trading up. You have a generation of young consumers moving into the market, you have a lot of activities, that are driving the average person’s economic well-being upwards as well. So, the whole country is really fast growing GDP personal income, etc etc. So, it is really not just the super rich.

AMANDA TATTAM
You were instrumental in establishing the Christian Dior brand in China, what lessons are there there? Because, you were educated in Canada, you’ve brought, perhaps, some lessons from there, is there anything about the Christian Dior story that you could share with us that is specific to China?

ANDREW WU
I was very fortunate to be associated with the beginning of Christian Dior cosmetics development in China for instance, in the mid-1990s, but that was a very different environment. I think today, even if it was the same me, I don’t think, I would be qualified to do that job.

AMANDA TATTAM
Why is that?

ANDREW WU
Because it is a different environment. There is a huge generational change, that is happening in China. Back then, for instance, if I may quote some very interesting observations by one of the famous local entrepreneurs, one of the very successful ones, who captured the development in China in the following way: in the 80s, he said, people made money because of connections, because you had connections, maybe your parents, maybe your family, whatever. So, it was a connection based, trading business.

AMANDA TATTAM
That’s very Chinese…

ANDREW WU
That was very Chinese, yeah. In the 90s, it was people making money with guts. You cannot be faint hearted. Because it was, in a way, chaos of transition, from old system to the new. But now, in this decade, it is obviously not the case anymore. It is people who are executing really smart strategies. Because in many, many ways, you look at China, China is very competitive – the whole world is competing in China, it is not just the Chinese competing among Chinese. And the local companies are learning very fast, as well. So, it is a continuous learning process for anyone who is doing business. Of course, you need to know where China comes from, but it doesn’t mean that you can just look at it by referencing what you did – let’s say, 10 or 15 years ago. Everybody is evolving very, very fast. So, you cannot really go back to rely on what someone did, a few years ago, 10 years ago, etc.

AMANDA TATTAM
Is there a bit of a danger in treating China as a kind of homogenous place?

ANDREW WU
It is. I think people who have been doing business in China all know much better than that. China is not a one-market country, at all. In fact, it is a lot bigger than even Europe, for instance, collectively. And most of the markets in Asia, are one-city market. You look at Hong Kong, you look at Singapore, it is precisely one city. You look at Taiwan, it is almost one city, plus some other minor cities. But China, from day one, is multi-centred. You have dialects, you have different tastes, northern Chinese are different from southern Chinese. And people, in China, politically, culturally, have always been multi-centred. Tastes, cuisines, food, is a good reflection. And also, in China, most people culturally, are rooted in their own provinces. So, really, I would caution against jumping to conclusions, or coming withAmanda Tattam: too much categorical observations because it is really different.

AMANDA TATTAM
So, what do you think is on the agenda in your area of work over the next 12 months to two years?

ANDREW WU
Well, it is just a fast moving country. It is a fast moving market. Fast moving, fast changing market. It is a challenge to keep up with the change. It is a challenge to stay current, it is a challenge to cope with all the elements that are changing in the environment: political, cultural. It is a large market. In fact, for many of our brands, even, let’s say, a country like China, you have a head office, how many days in a year can you be in your office, when you are covering a country as big and bigger than any other place in the world? In fact, if China had time zones, it would probably have seven time zones. But it doesn’t. It has one. So, it is very deceiving to think of China as a place. Once you go there and try to operate any business – it is not just luxury business – people realise it is actually a very, very challenging coverage.

AMANDA TATTAM
That was Andrew Wu, group director for China for Louis Vuitton Moët Hennessy, one of the world’s largest luxury brand groups. And, you’re listening to Melbourne University Up Close, which is brought to you by the Marketing and Communications Division in association with the Asia Institute, the University of Melbourne, Australia. Relevant links, a full transcript, and more information on this episode, can be found on our website at upclose.unimelb.edu.au. We also invite you to leave your comments or feedback on this or any other episode of Up Close, simply click on the add comment link at the bottom of the episode page. This episode was produced by Kelvin Param, Eric van Bemmel and myself, Amanda Tattam, we’d also like to thank Asialink for their contribution to this program. Audio recording by Craig McArthur. Theme music performed by Sergio Ercole. Melbourne University Up Close is created by Eric van Bemmel and Kelvin Param. Until next time, goodbye.

VOICEOVER
You’ve been listening to Melbourne University Up Close, a fortnightly podcast of research, personalities and cultural offerings of the University of Melbourne, Australia. Up Close is available on the web at upclose.unimelb.edu.au, that’s upclose.u-n-i-m-e-l-b.edu.au. Copyright 2008 University of Melbourne.


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