Consumers often use price as a measure of quality when choosing between different brands. In addition, consumers may use price as an indicator of status (Kotler, 2000). Table 2 describes the different categories of the luxury goods consumer. Veblenian consumers attach a greater importance to price as an indicator of prestige, because their primary objective is to impress others. Snob consumers perceive price as an indicator of exclusivity, and avoid using popular brands to experiment with inner-directed consumption. The snob is status sensitive consumers and will reject a particular product when it is seen to be consumed by the masses. (Mason 1981).
Bandwagon consumers attach less importance to price as an indicator of prestige, but will put a greater emphasis on the effect they make on others while consuming prestige brands. Hedonist consumers are more interested in their own thoughts and feelings, thus they will place less emphasis on price as an indicator of prestige. Perfectionist consumers rely on their own perception of the product’s quality, and may use the price cue as further evidence supporting the quality issue. Although most consumers may fall into one category, others may belong to more than one category. (Vigneron, Johnson 1999)
What pricing concepts does LVMH apply effectively? Through their premium pricing and exclusive distribution strategies, LVMH has created a luxury brand that has appeals to the Snob and (or) the Perfectionist consumer. Snob appeal implies that if the customer is concerned about the price they have no right to buy the goods. LMVH have micro-managed their brand image to ensure that their brand remains an ‘exclusive’ one. Likewise, what actions have LVMH taken that belie a different and less effective approach? How would you characterize the LVMH marketing strategy?
LVMH are the market leaders in luxury goods. However, consumers of luxury goods are fickle. Once snobs are aware that products are readily available to the masses, they will reject those products, and perceive devaluation in the brand image. LVMH have recently put their brand at risk of falling from snob favor by incorporating such labels as Hard Candy, Fresh and Urban Decay. These items are not luxury goods and are readily available (Hard Candy lipsticks sell online at www.hardcandy.com and www.sephora.com for less than $15 and are targeting a younger segment). LVMH must ensure that it does not lose its appeal for the valued snob consumer as it is these consumers that add value to their brand image. www.sephora features a link to the www.eluxury.com site. This too risks devaluing the LVMH brand image by lowering the consumer’s perceived value of the products.
LVMH has recently participated in brand extension and expansion by acquiring businesses such as Sephora and DFS. This will expose LVMH to fluctuations in markets that are not traditionally theirs (eg: tourism markets). This may confuse/compromise or diffuse their brand image and indicate that the LVMH may be moving away from what are seen as their ‘core competencies’ (Porter, 1985). Suggest possible changes that LVMH could make to its marketing strategy in the future. Assume that their objective is to develop new market segments for LVMH.
Consumer’s needs for appearances and materialism are increasing. There is an increasing demand for conspicuous and status products. The Sunday Telegraph reported a phenomenal increase in Australia’s imports of luxury goods, such as increases in demand for sales of diamonds (+27.5% change from 1995/96), mink furs (+1130.8% change from 1995/96), caviar and champagne jumped this year” (Rees 1997). The US economic recovery and the fast growing demand in Asia have also contributed to boost the growth of the luxury market in recent years (Echikson 1994), (Vigneron, Johnson 1999).
The purchase of Sephora heralds LVMH’s geographic segment expansion into the US. LMVH has extended their brand beyond their established position and now deal in products that are not considered ‘luxury goods’. Sephora, Hard Candy and Urban Decay are relatively approachable and affordable products for younger buyers of cosmetics. (http://www.eluxury.com/browse/savvy.jhtml?PageName=under_100&SectionID=5000 features a ‘Hot Picks’ under $100 section). A ‘sweet’ and ‘fresh’ appeal to the consumer of younger female cosmetics. Urban Decay (www.urbandecay.com)
An ‘earthy’ or ‘grungy chic’ appeal to the consumer of younger female cosmetics. (This month features a special on ‘goth’ makeup). LVMH have changed their product portfolio mix by moving into the accessibly priced, readily available, self-serve/online and other product categories. By doing this, they are at risk of compromising their luxury brand image and losing the valued snob customer baseline market. Snob consumers are extremely difficult to win back once lost (Kotler, 2000) LVMH must disassociate themselves from the positioning and strategies that are appropriate for lower priced brands. Rees’ figures suggest that there is no slowing of the luxury goods market and LVMH may well lose market share if their brand is devalued at a peak time for the industry.
In order to develop new market segments, it is recommended that LVMH do so under a separate brand image and corporate name. The new ventures must be completely disassociated with the LMVH. This way, the integrity of the LVMH brand image is maintained and the consumer image of the LVMH brand is not blighted. (Kotler, 2000) LVMH will continue to be perceived as the premium luxury goods company.
Echikson, William (1994), “The Return of Luxury,” Fortune, October 17, 18.
Kotler, P. Marketing Management the Millennium Edition Prentice-Hall New Jersey, 2000.
Mason, Roger S. (1981), Conspicuous Consumption, New York: St. Martin’s Press.
Porter, Michael E., “Competitive Advantage”. 1985, Ch. 1, pp 11-15. The Free Press. New York.
Rees, Peter (1997), “Shopping Binge on Luxury,” The Sunday Telegraph, September 21, 8.