OMD Sense latest findings
In the 1980s, small luxury goods producers in Italy and France began to realise the power of branding. Names like Gucci and Louis Vuitton had been around for decades, doing the same thing well and expensively for tiny markets.
To capitalise on the power of their names, many of these producers swiftly expanded. Nourished by the demand of the 1980s consumer boom, the brands developed “diffusion” lines to give less wealthy consumers access to their glamour.
In the process, selling non-luxury products with luxury branding gave birth to the idea of “affordable luxury”. This phase of branding has petered out – and luxury is now being reinvented.
Almost a century earlier, the American economist Thorstein Veblen wrote "The Theory of the Leisure Class,“ in which the phrase "conspicuous consumption“ was born.
By this he meant that spending lavishly on expensive but inessential goods and services was "evidence of wealth" and that "failure to consume in due quantity and quality [had become] a mark of inferiority and demerit." Conspicuous consumption culminated in the so-called “bling” culture of mass ostentation.
The success of diffusion lines and the development of mass affluence led trends to coincide. The low-volume, high-margin luxury brands descended into the middle market, e.g. the notorious Burberry hat.
High volume, minuscule-margin brands ascended into the middle space. A good example of this is the evolution of supermarket own-brand lines with luxury components, luxury branding, packaging and higher pricing, e.g. the Tesco Finest range.
The growth of mass affluence, credit-enriched wallets and an aspirational culture joined the high-end and the low so that we got to the point where everyday shoppers had regal tastes. Champagne sales have rocketed by 30+% in the past 3 years.
Luxury as consumers now recognise it began and was defined by the luxury brands. For the mass affluent, “affordable luxury” has now become a cliché, almost something to be expected unless they’re economising.
But affordable luxury is a contradiction in terms. As is diffusion of luxury. Luxury cannot be diffused or affordable without ceasing to be luxurious. Amongst other connotations, luxury implies rarity, expense, limited-ness, elitism, as well as more adaptable values like heritage, quality and authenticity.
Now the luxury goods business is having an existential crisis. Luxury brands – producers and retailers -- find themselves in a situation where the word luxury has lost its meaning.
They don’t know what they’re selling. Given the mass-marketing of luxury in the past generation, what the high-end brands decide to do now will have a serious impact on the mainstream
Those brands are now trying to redefine luxury, and themselves. François-Henri Pinault, head of the French luxury goods conglomerate PPR, suggests that a return to incredibly limited production runs will restore meaning and long-term viability to the luxury business. This kind of tactic has been called “planned scarcity.”
Another example – BMW are developing a new retail program. BMW Welt, the world’s best BMW dealership, is being built near Munich. BMW Marketing Director Michael Ganal said “Our dealers are like local churches, while BMW Welt is St Peter’s Cathedral.”
For c. £400, you can collect your Beemer at the cathedral. Concepts such as “soft” luxury (diffusion-style) and “hard” luxury (inaccessibly expensive) have also begun to appear.
“Uber”-luxury brands (without heritage) such as Vertu mobile phones have been introduced, using expensive materials and with prices too high for the mass affluent. Uber- and hard luxury will cater for the High Net Worth Individuals.
So what does this all mean for mass affluent brands?
With diffusion, the luxury brands reinvented themselves as mass brands selling the idea of “luxury”, but to most consumers those inverted commas were invisible.
This is how those brands exploded, and will continue to do so in markets with emerging middle classes.
In mature markets such as the UK, one quality unites all those attempted redefinitions and attempts to restore the shine to luxury offerings – you could call it rarity or elitism or shortage.
When luxury becomes affordable, good taste becomes important for more people – knowing rather than affording what’s “good” is how people start showing off.
In simple economic terms, “luxury” goods (jeans, lighters, sunglasses) and their originators (shoes, handbags) have been subject to over-supply and are a devalued currency.
Aspirational culture will change and it will become more and more important for brands currently using “luxury” as part of their message to present themselves as carriers of taste and discernment – these values will supplant luxury as the currency in short supply.
Comments/Feedback? Please contact: Michael.Tully@omduk.com
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