Trading Up - Page 7
Extend your brand both
8 Practices 5 8 Practices
up-market and down-market.
Many new-luxury companies extend their brand at both ends of
the price spectrum simultaneously. It’s not unusual for there to
be a fivefold to tenfold difference between the highest and lowest
price points offered by a new-luxury vendor. This contrasts with
normal commercial practice where a company’s most expensive
product is usually only three or four times the price of its cheapest
product offering.
By having products positioned at both ends of the price
spectrum, new-luxury players create aspirational demand while
simultaneously making their products more accessible and
competitive. They pull this off by creating and maintaining a
distinct character for each product at every price level. The brand
essence which all products share is then articulated and made
obvious.
For example, both Mercedes-Benz’s high end Maybach 62
which sells at $350,000 and its C230 sports coupe at $26,000
share the Mercedes brand theme – advanced engineering,
quality manufacture, flawless performance, solidity, safety and
luxurious comfort. Each model interprets those themes in its own
characteristic and genuine way.
Customize your value chain to
8 Practices 6
deliver the ladder of benefits.
New-luxury creators always find ways to work outside the
established industry value chains in order to achieve economies
of scale at small volumes. Typically, this involves placing more of
an emphasis on control and less on ownership of the value chain.
In other words, new-luxury vendors tend to become masters of
the value chain.
For example, the Boston Beer Company makes Samuel Adams
Boston Lager with the objective of making the best beer in
America. The company is now the largest specialty brewer with
sales of $250 million in 2002. Samuel Adams sells at price
premiums of roughly 100-percent over Budweiser, Miller Lite and
Coors. Yet Boston Beer only controls what it identifies as the
most important elements of the value chain and contracts out
everything else. Boston Beer doesn’t attempt to grow its own
hops. Nor does the company build its own expensive production
facilities, but works with selected brewers to use a specified
process which combines aspects of 19th-century brewing with
20th-century quality control methods. Boston Beer then handles
labeling, packaging and distribution so that the beer can be in the
consumer’s hands within one month of it being made in order to
deliver peak flavor. Boston Beer was the first company in its
industry to mark its product with a sell-by date that consumers
can read and understand.
Most new-luxury companies are very accomplished at
orchestrating and controlling their value chains. This provides
them with the confidence to be able to go up against the market
leaders and win. It also allows them to command a pricing
premium, and to back up those claims with more than mere
marketing hype. Every new-luxury vendor holds true to
standards of quality and detail which are uncommon in their
industries. They become almost fanatical about being
demonstrably different and better. That, more than anything
else, is the hallmark of a new-luxury company.
Use influence marketing
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and brand evangelists.
In most new-luxury product categories, there are a small core of
customers who generate a large proportion of sales and profits
through their repeat purchases. For example, Victoria’s Secret
has found the top 10-percent of customers generate half its sales
and profits. New-luxury companies focus intensively on these
core customers.
As a result, most new-luxury products are launched differently
from mass consumer products. Instead of an advertising blitz,
many of these products involve carefully managed sales efforts
to specific groups in specific venues. Word-of-mouth is then
enlisted to build buzz about the product. For example, when
Calloway Golf released its Big Bertha driver, the company used
endorsements from Jack Welch and Bill Gates as a way to
influence recreational golfers.
By continuing to focus intensively on these core customers and
ideally turn them into fans of the brand, new-luxury companies
also get early warning signals when the market is shifting. That
provides ideas and hints for next-generation variants, features
and products.
Continually attack the
8 Practices 8
category like an outsider.
New-luxury companies are always on the outlook for the next
breakthrough. They don’t think like industry incumbents,
by-and-large, because many new-luxury vendors are outsiders
themselves. Therefore, they continually look beyond their own
categories for emerging trends and patterns.
Where do new-luxury companies draw their inspiration? From
old luxury products or services, from innovations from overseas
(especially Europe or Asia), from advice provided by the experts
or professionals or by importing ideas which have worked in
other product categories. It’s not unusual for new-luxury
companies to have people carrying out worldwide scouting
expeditions for new ideas, and to form alliances with eclectic
groups and organizations to instil some new thinking and original
ideas into the mix.
Actually, the hard part comes when a new-luxury company
becomes highly successful. It then becomes easy for the
company’s ideas and philosophy to become the new
conventional wisdom for that industry. Many others will then try to
follow the same business model. New-luxury companies know
this is dangerous, and force themselves to keep thinking and
acting like mavericks
For example, Pleasant Rowland founded American Girl to make
dolls for girls, even though she had no experience whatsoever in
the industry. She decided to make premium dolls that would sell
at $84 each, $60 more than the typical Barbie doll. American Doll
also uses a different design and construction process so its dolls
last longer and generate an emotional engagement with girls.
Within four years of the company being founded in 1986,
American Girl had grown to over $77 million in sales. American
Girl has succeeded because it sees itself as providing girls with
an engaging and entertaining experience rather than simply as a
doll maker and seller. The company has continued to grow by
offering a continuous stream of new products supported by
add-ons that build on the original product idea – something
nobody else in this industry has done.