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Is the Digital World a real Eldorado for Luxury Brands?

Master's Thesis 2013 60 Pages

Business economics - Offline Marketing and Online Marketing

Excerpt

Table of Contents

Introduction.

1. Luxury and Internet: from paradox to opportunity
1.1 Definitions
1.1.1 Luxury
1.1.2 Luxury good
1.1.3 Luxury brand
1.1.4 Branding luxury products
1.1.5 Internet and digital communication
1.2 Luxury and Internet.
1.2.1 Two worlds in apparent opposition
1.2.2 Going online: an unavoidable market trend
1.3 Online Branding: a real opportunity for luxury brands
1.3.1 A powerful communication channel
1.3.2 An interactive tool.
1.3.3 A means to reinforce the brand’s core values
1.3.4 Uses and Gratification Approach - Maximizing the Value of Media Usage

2. The institutional website: from brand identity to user experience.
2.1 Building the brand’s e-equity on the institutional website.
2.2 To each brand image its website strategy.
2.3 Institutional websites aim at increasing brand desirability.
2.4 Assessing the performance of an institutional website
2.4.1 from the brand’s perspective.
2.4.2 from a user’s perspective
2.4.3 An unsolvable dichotomy?
2.5 Characteristics of an efficient luxury website

3. Are social media allies for luxury brands?
3.1 Overview
3.1.1 The rise of social media.
3.1.2 Typology
3.2 Virtual brand and anti-brand communities: from audience to potential allies.
3.3 Generating positive feedbacks online
3.4 Social media, consumer’s perception and purchase intentions

4. The e-commerce dilemma
4.1 Luxury retail and brand experience
4.2 Luxury products and e-commerce
4.2.1 Are luxury goods adapted to online selling?
4.2.2 Recreating a qualitative shopping experience online is difficult
4.2.3 The ROPO phenomenon
4.3 How can luxury brands capitalize on the appetite of existing and potential customers for e- commerce?
4.3.1 The potential of e-commerce
4.3.2 Luxury e-commerce clients consume all kinds of goods online
4.3.3 Enhancing the customer’s online shopping experience

Conclusion

References.

ABSTRACT

Recent research has highlighted issues suggesting that Internet and Luxury would be incompatible. It argues that luxury goods have nothing to do online as they are not suitable to the online environment. Others have tried to demonstrate that the Web is exclusively a communication tool and that luxury brands would make a mistake if they decided to go online to sell their products. Most papers thus present Internet as a dilemma or as a tool which stands both as a threat and an opportunity for luxury brands.

The question of how to implement successful digital strategies, however, remains largely unexplored. First, this research aims at filling this gap by giving a broad understanding on how luxury brands should behave online to avoid damaging their brand value. As Internet is today fully integrated into our daily lives, it has become an unavoidable branding tool that luxury companies cannot ignore anymore and must even learn to master in order to become successful online. Second, this paper highlights the necessity of having an integrated approach of all Internet tools because the institutional website, social media and e-commerce all participate in the construction of a brand’s online equity. It also highlights the fact that each medium has different audiences and different characteristics, meaning that all media are not able to broadcast the same messages. Yet, this research suggests that all channels should be orchestrated in such a way that they transmit a uniform brand perception, meaning not only that online equity should be in line with offline equity but also that there should be no manifest distinction between them two. Third, this paper aims at showing that the Web can be an appropriate tool both for communicating with Internet users interested in a brand and for selling goods to potential and existing luxury goods customers who have an appetite for e- commerce. Last, this research demonstrates that taking into account the user’s needs is an essential parameter to build a successful digital strategy: it is only by combining a coherent brand image throughout all channels with a qualitative user experience that luxury brands will achieve online efficiency.

Abstract

In the first chapter, definitions of the concepts of luxury, luxury good, luxury brand and digital communication will be given. Then the study will dig deeper into the paradox luxury versus Internet. After having shown that going online is an unavoidable market trend, it will be explained why having strong brand equity is essential in the luxury industry and why online branding represents such a big opportunity for luxury brands.

The second chapter will be devoted to giving the main goals of an institutional website, explaining how they enable brands to build a positive online image and to increase their desirability. Using the AIPD model (Attraction, Information, Position and Delivery; Simeon, 1999), it will then be shown that, as their goals are different, brands and users do not assess the performance of a website the same way. Still, it will be proved that, to be efficient, an institutional website must be constructed with user experience in mind.

The third part will focus on social media. After having given a brief overview of the topic and a typology of social media, it will be shown that luxury brands need to transform their virtual communities into allies in order to generate positive feedbacks online. It will also be explained that, sometimes, huge discrepancies exist between the activities of a brand in social media and the brand perception on the consumer’s side. Thus being active on social media does not necessarily enhance brand perception nor does it enhance the consumer’s purchase intention for luxury products.

The last chapter will start by giving the characteristics of luxury retail, showing that if accessibility is essential, brand experience is again what makes the difference for the customer. It will then be explained that at first sight luxury and e-commerce do not seem compatible. Yet, it will be demonstrated that when the e-commerce function is mastered and when the right customers are targeted, offering online purchase can become an asset for luxury brands. Last, it will attempt to give the characteristics of an efficient e-commerce platform.

Keywords: Digital Marketing, Luxury Goods, Customer Experience, Branding, E-Commerce

Introduction

The roots of the paradox

The development of Internet is certainly one of the most striking economic events of the last decade. Indeed, this new medium has broken the rules of traditional marketing, finding its audience amongst a population bored with ageing commercial techniques. While organizations which sell fast moving goods immediately showed a lot of enthusiasm with regards to the perspective of adopting the Internet and saw the potential of such a new medium, the luxury industry remained a lot more hesitant in the beginning.

The main reason for this is that Luxury brands and Internet seem to be contrary and conflicting at first sight. Indeed, we have on the one hand a mass medium which is totally unselective, and, on the other hand, luxury brands which need to build or at least constantly defend an image of exclusivity and rarity. As the virtual environment is a place where images, videos and opinions circulate regardless of brand ownership, brands were scared that going online might be synonymous with damaging their brand image.

Reason for topic selection

The aim of this paper is thus to show that although the worlds of Internet and Luxury seemed antithetic at first sight, Internet, when used correctly, represents a real opportunity for luxury brands. Indeed, online branding can be a powerful mean to reinforce brands’ core values and to strengthen the link that exists with their customers. Thanks to the new capabilities offered by Web 2.0, brands can now promote internationally a positive brand image throughout huge brand communities of users, interact with them on a regular basis but also promote their values on their institutional websites. Still, Internet should not be considered exclusively as a communication tool. Indeed, the web can also be used efficiently as an e-commerce platform for the selling of products.

Practical value

The most important practical input of this research is that it gives a broad understanding on how luxury brands should behave online to avoid damaging their brand value. Being present on the web is an unavoidable market trend but managers still lack some of the best practices enabling them to implement efficient digital strategies. In many luxury brands, benchmarking is the rule. Yet, managers need to be aware of the fact that each brand is unique, hence it makes no sense to copy the digital strategy of the competitors because what might be efficient for one may not be for the other.

This research also highlights the necessity of having an integrated approach of all internet tools because each medium has different audiences and different characteristics, meaning that all media are not able to broadcast the same messages. Still, whatever the medium, all messages need to remain consistent both offline and online in order to align brand equity and e-equity.

Methodology

As this research is supposed to have a practical value for managers, it was decided to focus the attention on the levers on which organizations have an influence, thus excluding consciously fake websites or Facebook pages that a brand does not own. Three of those levers will be analyzed in detail: the institutional website, the e-commerce function and social media. The goal is first to give the essential characteristics of these elements (typology, general objectives and results). Because those do not depend on the nature of the luxury brand, this study can provide managers with an interesting insight on what are the theoretical goals of the tools they implement. As it is also a goal to show each organization has a different brand image and thus needs to adopt a unique digital communication strategy, the goal of the case studies is to show which techniques have worked for some companies in particular but not to provide directly best practices to the other market players. The method is generally inductive as it is from the study of multiple luxury brands that the general propositions have been derived. This work is also based on qualitative academic research and thus does not rely exclusively on quantitative empirical data.

Structure of the work

This work will be divided in four different parts, all aiming at answering the following problem: “Is the digital world a real Eldorado for luxury brands?” In the first chapter, it will start by giving definitions of the concepts of luxury, luxury good, luxury brand and digital communication. Then the study will dig deeper into the paradox luxury versus Internet. After having shown that going online is an unavoidable market trend, it will be explained why having strong brand equity is essential in the luxury industry and why online branding represents such a big opportunity for luxury brands.

The second chapter will be devoted to giving the main goals of an institutional website, explaining how they enable brands to build a positive online image and to increase their desirability. Using the AIPD model (Attraction, Information, Position and Delivery; Simeon, 1999), it will then be shown that, as their goals are different, brands and users do not assess the performance of a website the same way. Still, it will be proved that, to be efficient, an institutional website must be constructed with user experience in mind.

The third part will focus on social media. After having given a brief overview of the topic and a typology of social media, it will be shown that luxury brands need to transform their virtual communities into allies in order to generate positive feedbacks online. It will also be explained that, sometimes, huge discrepancies exist between the activities of a brand in social media and the brand perception on the consumer’s side. Thus being active on social media does not necessarily enhance brand perception nor does it enhance the consumer’s purchase intention for luxury products.

The last chapter will start by giving the characteristics of luxury retail, showing that if accessibility is essential, brand experience is again what makes the difference for the customer. It will then be explained that at first sight luxury and e-commerce do not seem compatible. Yet, it will be demonstrated that when the e-commerce function is mastered and when the right customers are targeted, offering online purchase can become an asset for luxury brands. Last, it will attempt to give the characteristics of an efficient e-commerce platform.

1. Luxury and Internet: from paradox to opportunity

This first chapter will start by giving definitions of the concepts of luxury, luxury good, luxury brand and digital communication. Then, the study will dig deeper into the paradox luxury versus Internet. After having shown that going online is an unavoidable market trend, it will be explained why having strong brand equity is essential in the luxury industry and why online branding represents such a big opportunity for luxury brands.

1.1 Definitions

1.1.1 Luxury

Luxury has always been considered as a societal phenomenon. Its original function is rooted in the social classes of the past civilizations and societies which have given birth to signs, objects, lifestyles and consuming behaviors appropriate to the people belonging to the ruling class. Kings and aristocrats for instance used ostentatious consumption to stamp their superiority and maintain their distance from the lesser privileged. Although the concept of luxury cannot be reduced to signs, differentiation phenomena or means of social elevation, it is very difficult to give it a clear and unanimous definition. According to Kapferer and Bastien (2009), everyone understands luxury but no one agrees on what it exactly means, what are its contours, its borders, and its members. In today’s fragmented societies, the luxury of one is not the luxury of the others, meaning that the definition of luxury will be different depending on the person giving it.

In 2009, Okonkwo also tried to define luxury, coming up with the following definition: “luxury is neither a product, an object, a service nor is it a concept or a lifestyle. It is an identity, a philosophy and a culture”. Okonkwo identifies one major characteristic for luxury that has remained stable through time: it works as a pointer for defining the codes of social distinction. Indeed, whatever the economic situation and the culture, humans always need to show their distinction, be admired, recognized, appreciated and respected. Luxury thus has both a very important material component and an essential symbolic component.

As suggested in the earlier paragraph, luxury products may fulfill the function of gaining respect by others and gaining the feeling of being wealthy. Related to this reference, Sheldon et al. carried out research on basic human needs in the year 2001. The researchers asked people about the most satisfying events in their life and then were asked to rate these events according to their feelings and thoughts. The goal was to identify contents and characteristics that make people happy and thus qualify as psychological needs. Interpreting positive and negative affect, they came up with a Top 10 list of human needs - Luxury being one of them. They define luxury, revolving around human needs, as:

“Feeling that you have plenty of money to buy most of what you want rather than feeling like a poor person who has no nice possessions.”

While this definition is foremost aiming at the monetary aspect of luxury, the recognition aspect is captured by two other human needs: Self-Esteem and Influence- Popularity. Self-Esteem relates to feeling “you are a worthy person […] rather than feeling like a looser” and influence-popularity to “feeling that you are liked, respected and have influence over others, rather than feeling like a person […] nobody is interested in” (Sheldon et al 2001). These two definitions show a clear link to luxury goods and the functions luxury fulfills. Hence, luxury goods act as a way to fulfill 3 out of 10 basic human needs and are thus very successful over the course of time, instead of being a trend-phenomenon.

1.1.2 Luxury good

The lack of consensus regarding the definition of the concept of luxury can also be applied to the definition of luxury goods products. Many efforts have been made by researchers to attempt to classify products into various categories - convenience goods, shopping goods, specialty goods and preference goods - but there are relatively few classifications relating specifically to luxury goods products.

According to Veblen (1899), products cannot be sorted into simple categories of luxury and non-luxury by appearance or intrinsic qualities of the goods themselves but have to be put into their socio-economic context. Works based on psychology also show that the way one defines a luxury good depends on one’s definition of what is necessary and what is not. But the most widely accepted typologies have in common the idea that luxury goods products are modifications of a base product that involves satisfying consumer needs.

In economics, “luxury goods” are goods for which demand increases more as income rises. They are opposed to “necessity goods” for which demand increases less than income. The demand for luxury products is elastic but not constant with respect to income. That is to say, a luxury good may become a normal good or even an inferior good at different income levels: buying the classic Birkin handbag might be a dream for many young women, but for Hermès most important female clients, a Birkin in leather is just a normal product (they might even possess the same model in different colors). For these extremely wealthy clients, real luxury would be to own a personalized Birkin in exotic leather embedded with gemstones.

illustration not visible in this excerpt

Figure 1: Luxury good perception varies with income: from normal good to luxury good Source: Own Illustration, according to www.hermes.com

Luxury products can also be defined as symbols of personal and social identity. As per Nia and Zaikowsky (2000), they are “goods for which the mere use or display of a particular branded product brings prestige on the owner, apart from any functional utility”. Luxury goods are expensive in relative and absolute terms, and they are recognized and admired by others. As a result, many consumers purchase luxury goods primarily for symbolic meanings (Dubois and Duquesne, 1993). Recent research went further, stating a definition of their nature and characteristics. First, luxury goods are exclusive, meaning that even though they are desired by many, they will only be available to a few. Their premium price is justified because they are rare, unique and enjoy limited accessibility. They also are high quality products which are able to call out the imaginary of the customer. Last, they are poly-sensual goods, which benefit from an ancestral heritage and a strong personal history (Alleres 1997; Kapferer and Bastien 2009; Okonkwo 2009).

1.1.3 Luxury brand

While consumers appear to be capable to identify luxury brands, differentiating easily Chanel or Cartier from H&M, it seems more difficult for them to identify what constitutes the essence of a luxury brand. As explained by Kapferer, “a certain vagueness still remains over the concept of luxury and the luxury brand”.

According to McKinsey, luxury brands are those, which are able to justify a higher price than products with comparable functions. But this economic-centered definition is a bit reductive as it does not take into account the pluralistic and emotional nature of luxury goods. Indeed, thanks to their cultural and emotional complexity, luxury brands intend to provide much more than a simple means from wealthy consumers to signify status to the less affluent that are not one of them (Bourdieu, 1984).

Phau and Prendergast give them a wider definition, stating that luxury brands are those which “evoke exclusivity, have a well-known brand identity, enjoy high brand awareness and perceived quality, and retain sales levels and customer loyalty”. Luxury brands thus embody a symbol, a personality and an implicit value proposition, promising performance in return for the trust put in them. To remain exclusive and avoid any erosion of its prestige, a luxury brand needs to follow carefully the rarity principle. Indeed, “luxury brands must be desired by all, [but should be] consumed only by the happy few” (Kapferer, 1996). In terms of management, this leads to a paradox: to maximize its profit, they can neither sell nor standardize too much (Roux and Floch, 1996). Still, luxury brands must always deliver the best products to more and more demanding customers.

1.1.4 Branding luxury products

The Marketing Science Institute defines brand equity as the set of associations and behaviors of customers that enable branded products to achieve more important volumes and margins that the ones they would achieve without the name of the brand, thus having a strong and distinct advantage compared to competitors. In the luxury sector, brand equity is more essential than in any other sector. Indeed, it is the value added by the brand which creates the myth around the products, thus justifying their price premium and generating the desire to purchase. But how do luxury brands build these myths up?

First, they all benefit from a famous name rooted in a long history. When one evokes Chanel, Cartier or Dior, one immediately associates these names to certain values, traditions and “know-how”.

Second, thanks to their notoriety, a simple image, logo, color or typography will be sufficient to evoke them in the minds of people. As seen in the example below, many luxury brand elements are easily recognizable: the brown Monogram canvas of Louis Vuitton,

Chanel’s iconic interlocking Cs logo, the typography used by Rolex or the famous Hermès orange. All of them are essential and distinctive characteristics of the brands.

illustration not visible in this excerpt

Source: www.logo.com

In few cases, a character might be used to emphasize a symbolic value that a luxury brand is willing to convey. While for normal products, brands usually both give their characters human features and try to create a strong connection between the design of the character and the product itself (e.g.: Michelin’s Bibendum), for luxury goods, brands prefer to call on animals. Their role is to embody one or multiple characteristics that are dear to the brand and important for its identity. For Hermès, the horse both symbolizes freedom and is a reminder of the company’s original core business. The jaguar is a ferocious, rare and nocturnal animal which perfectly embodies the identity of Jaguar. Indeed, the automobile company is famous for its luxury cars and its sportive models.

A fourth key element of luxury products’ branding is of course design. When one evokes Cartier or Dior, one may think of some of the iconic products of these brands (e.g.: the Trinity ring and the Lady Dior).

Brand equity is thus a key issue for luxury brands. As normal brands, they use names, images, logos, colors, typographies, characters and design to create favorable, strong and unique associations in the minds of consumers. But their goal is more complex as they not only want to create an emotional connection with their customers but try to create myths and have an aspirational value.

1.1.5 Internet and digital communication

As per the definition given by Peterson et al., Internet refers to “a type of global information infrastructure consisting of computer hardware and software”. It is general as it is compatible with any kind of services and democratic as all specifications required to use it are publicly available. Internet is a marketing channel, which has the following characteristics:

1. it is able to inexpensively store vast amounts of information at different virtual locations.
2. it is a powerful and relatively inexpensive means of searching, organizing and disseminating such information.
3. it is interactive and able to provide information on demand.
4. it provides perceptual experiences that are far superior to printed catalogs.
5. it can serve as a transaction medium but also, in some cases, as a physical distribution medium (e.g.: booking a room in a five stars hotel).
6. it has relatively low entry and establishment costs for sellers.

According to Nyeck (2004), the Internet is a complementary tool in communication strategies. Its triple objective is to inform, remind and persuade. It is an interesting tool as it enables brands to establish a dual interaction with their consumers. Indeed, individuals can both receive information from companies and interact with them through multiple channels (e.g.: social media), thus becoming co-producers of value. The digital environment is also very powerful as it offers brands the opportunity to reach billions of people internationally.

1.2 Luxury and Internet

1.2.1 Two worlds in apparent opposition

Internet’s central features are at first sight the total opposite of the core values that the luxury industry tries to convey. Indeed, as seen previously, Internet is a mass medium which is available to anyone from anywhere and at any time. On the web, all products and services are at global reach, being only one click away from each other, thus having a very low switching cost. Potential customers have no physical contact with the goods they are looking at, nor are they in contact with salespeople who could advise them in their purchases. Sales are thus much less powerful as it is not difficult to say “No!” to a computer or to switch to the website of a competitor. Being also the realm of price comparison and impersonal service, Internet used to be judged as an ill-adapted tool to communicating and selling luxury goods.

The principles of democracy and accessibility that are the DNA of the Internet are contrary to the core characteristics of luxury which are exclusivity and rarity. Being a mass medium, Internet has a mass consumer base which is very far away from the niche consumer base that luxury brands have always tried to target. Moreover, luxury goods are regarded as sensory in nature. Because all human senses are required to sell them, it might be very difficult to digitalize the sales. Another issue is linked to the lack of personalized service that one can find online. Luxury brands have always been really proud of the level of service offered in their physical retail outlets. Good clients usually have a dedicated sales associate who knows their tastes and the history of their purchases, thus being able to give advice on the new collections, showing the client only products that he or she might like. The store atmosphere, which is also central as it aims at enabling clients to feel comfortable while buying a luxury product, may also be difficult to reproduce online.

1.2.2 Going online: an unavoidable market trend

Tackling the issue of combining luxury and Internet of the 1990s and early 2000s was not an easy task. Indeed, these two notions seemed to lead to an ineluctable opposition: prestigious brands with demanding customers, a strong history and an ancestral know-how faced a recent, constantly evolving and highly accessible medium. These two worlds seemed at first sight totally incompatible because they shared opposite structures. As explained by Okonkwo (2009), the unique relationship that luxury has with its clients was mistakenly placed in the past decades in the context of Internet “where the consumer is in total control and expects to be looked up to”. Because this scheme was widespread throughout all luxury brands, the perspective of adopting Internet led at first to “resistance, apprehension and anxiety from the top” as brands expected their consumers to be confused and disappointed by the poor experience that the new medium would enable them to have.

However, following the Internet phenomenon progressively became a major stake for luxury brands: thanks to this medium, consumption trends evolved, customer bases expanded and internationalization speeded up. As they could not refuse to follow this new market trend, French luxury brands shyly started to build their online presence up, creating fixed websites which did not really provide their users with a stunning experience.

These first sketches enabled companies to take a position in the market, at least for a certain amount of time, without however answering more “practical” needs: gaining access to the core business of these luxury brands and to their collections. The only vocation of these showcase websites was by the time to encourage visitors to go to physical retail outlets, thus maintaining the mystery by avoiding revealing too much what would be happen there to clients. According to Thibaut Cornet, the role of these websites was to battle against “the door-step phobia” of occasional customers who would frequently come close entering physical luxury retail outlets, but refuse to do so last second due to fear (Marketing Magazine, May 2008). Internet was thus perceived as a solution which met the needs of a renewed clientele.

But as the environment kept evolving, luxury brands had to integrate and face new challenges. Clients now have multiple profiles: companies need to cope both with the traditional Russian and American billionaires, and with new clients coming from emerging countries who are looking for nonstandard, exceptional products, whatever the price or the distribution network. They also need to take into account demographic and sociologic factors such as the population’s ageing or the worship of the uniqueness, which both participate in the emergence of new consumption trends that are more virtual and freed from psychological or logistical barriers.

1.3 Online Branding: a real opportunity for luxury brands

1.3.1 A powerful communication channel

Peterson et al. (1997) consider that, for luxury goods, the Internet is more effective as a communication channel than as a transaction channel. This is because a majority of luxury goods are experience goods, meaning that the information given about the good’s features online may not be sufficient for a consumer to engage in an Internet-based transaction. Indeed, when a consumer wants to experience the good before buying it, “Internet-based marketing would seem to be a poor substitute for traditional transaction channels, where the good is available for inspection”. But thanks to the rapid evolution of the technology, which enables companies to provide their customers with perceptual experiences, the Internet can be an excellent communication channel. It works as a facilitator for the brand experience consumers may have.

1.3.2 An interactive tool

If Internet has progressively become a key in the branding and communication strategies of organizations, it is also because of its interactivity potential (Deighton, 1996). Whereas traditional media are predominantly push media, meaning that companies broadcast marketing messages to customers without dialoguing with them online, the customer has the ability to initiate the contact as he is the one seeking for information.

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Details

Pages
60
Year
2013
ISBN (eBook)
9783656517351
File size
797 KB
Language
English
Catalog Number
v262829
Institution / College
Tongji University
Tags
digital world eldorado luxury brands

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Title: Is the Digital World a real Eldorado for Luxury Brands?