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MANAGEMENT
CASE STUDY: ABUNDANT RARITY:
THE KEY TO LUXURY GROWTH
SUBMITTED TO:
PROF. ANNAJI SARMA
F.M.S. DEPARTMENT
SUBMITTED BY:
ANKITA AGARWAL
M.F.M. SEM- 3
ROLL NO. 3
SEPTEMBER 8, 2016
CASE SUMMARY
As luxury items keep on penetrating the worldwide markets, the esteem of brands has not
declined by any means. This appears inconsistent with the idea of extravagance being
attached to irregularity and selectiveness. In this manner, so as to catch mounting requests,
from the phenomenal individuals, as well as from customary people, luxury brands establish
virtual irregularity strategies, build themselves as craftsmanship and embrace a design plan of
action while deemphasizing remarkable quality and nation of source. Uncommonness of
fixings or art has been supplanted by subjective irregularity. Further, the clique of the
fashioner is an intense apparatus in building enthusiastic associations with a limitless number
of customers. Today, marks in luxury segment are really offering typical and enchantment
energy to the masses. There exist a society hole amongst Asia and the West; in particular
Asian customers feel more secure purchasing prestigious Western brands with which people
around them are recognizable. The bits of knowledge offered thus give pieces of information
to business visionaries endeavouring to dispatch luxury brands.
publishes forecasts about luxury sales. How does Bain generate these forecasts? Its analysts
add up figures from companies that syndicated authorities consider being part of the luxury
sector.
Bains fore-casts do not encompass automobiles, five-star hotels, or resorts; rather, they
concentrate on luxury fashion, leather, watches, skincare products, fragrances, jewelry, and
shoes. In order to continuously grow and following LVMHthe worlds number one luxury
group with more than 50 luxury brands these companies have decided to democratize the
sector and capture part of the massive demand in emerging economies (e.g., BRICS,
CIVETS) in which the middle class is growing with an appetite for recognition, status, and
pleasure. To do so, many luxury brandsconsidered as such by the corporative syndicates
have moved away from the classical luxury business model in two major ways.
First, many luxury companies now base their profits on logo-typed accessories or second
lines produced on a larger scale and sold as fashion objects such that consumers feel the need
to buy new products each season as the fashion system dictates. For example, the notorious
It bag changes from season to season depending on trends and popularity.
Second, many luxury companies have abandoned a major obligation of the luxury business
model: no delocalization. For example, by making some of its products in China, Prada has
reduced its production costs and improved its gross margins thanks to low labor wages. In
addition, the company is even more appealing to Asian investors who can now buy the
companys shares on the Hong Kong stock exchange, and lower production costs also allow
brands to invest more in communication to build the dream consumers associate with them.
Communicate to non-targets
This luxury business model can be applied to companies in any sector. Thus, Apple, MINI,
and Nespresso are typical examples of companies that are not considered to be luxury, but
nevertheless follow the luxury business model. There are other business models among more
high-end labels, including the fashion business model and the premium business model. The
main characteristic of the fash-ion business model is that it delocalizes production in search
of low-cost labor forces. Unlike luxury, fashion does not sell timelessness. As soon as the
fashion season ends, sales and super-sales slashing margins are employed to eliminate
inventory. Fashion does not worship quality like luxury does.
As for pricing, in the luxury business model, average prices should always go up because
there are enough newly rich consumers to justify this strategy as long as they dream of the
brand. When this dream falters, many luxury companies prefer to expand downward, selling
to more people thanks to profitable accessories that have more accessible prices and can be
produced in larger quantities in countries with low labor costs. Such accessories can then be
bought repeatedly by consumers, a sign that the luxury brand has moved to a fashion business
model where originality and change are valued, not rarity and timelessness.
The premium or super-premium business model rests on a brands willingness to create the
objectively best product. Grey Goose super-premium vodka, for instance, advertises itself as
the worlds best-tasting vodka since it has received many awards from expert juries.
Unlike luxury, which refuses to bear any comparison, super-premium brands look for it and
build their fame through it.
The same process is now taking place in China, with millions of consumers eager to show
they are succeeding while they remain novices in terms of knowing what is or is not a luxury
product. Chinese consumers love leading brands. This is clearly an advantage for brands with
high brand awareness and a network of stores in all major capital cities, and now even
regional cities. For a local Chinese consumer, buying a luxury good is a way to participate in
the world of consumption. It is also egalitarian.
CURRENT HAPPENINGS:
Where Asia, particularly China, was the engine for luxury growth through the global
handbags and pens. Today, more than 60% of Chinese luxury goods are bought
outside of the country. It is a similar picture in Brazil and Russia, with countries now
actively wooing the wealthy elites to shop in their countries, which is particularly true
in the luxury real estate market.