Why Luxury brands aim non-core sectors?

by Alvaro HIDALGO

If in previous entries this blog covered the question of what do brands bring to real estate developments (Do brands really add value to real estate developments? –see http://bit.ly/n8XRj2 and  http://bit.ly/pO0pIn ) this one will cover the other side of the coin: Why Luxury brands would be willing to extend and enter other non-core sectors.

Indeed, global Luxury goods sales (that is, not including hospitality services,  luxury toys -cars, boats and planes-  transportation or property) have continued 2010’s double-digit growth path and will see an increase of 10%, up to €191 billion in 2011.

With such figures and growth outlook, markets expanding rapidly in Asia, then why do they need to extend to other fields? 

Let us not forget that the luxury industry has acquired the status of a driving economic sector not more than 35 years ago. Before that date, they were just a collection of small firms and ateliers....and they had achieved these results by extending the brands.

Indeed, the economic growth resulting from the stable political and economic framework  ensuing  WWII, provided a scenario capable of generating an unprecedented increase in wealth, which started to materialize in the 1960s. The first luxury bubble was to some degree burst by the oil crisis and only the factors allowing the steady growth of this sector came into place in the late 1970s.

Luxury industry which until then was used to sell to a very reduced number of people saw how: (i) Economic growth and increasing wealth enlarged their market base (ii) Travel and Tourism extended the influence to other countries; and (iii) Change in social uses broadened the market potential allowing the introduction of lines of products, some of them accessible to further social strata.

Simultaneously, societies became less and less formal. This resulted in a significant shift in the dressing codes welcoming once common pieces of clothing, even typical of the working class, like jeans.

Nevertheless - or precisely due to this- the need to establish status was still there –as it will always be-, and the natural solution was to add a couple of Luxury complements and apparels to any basic clothing.  This is when the terms “Casual"  and "Chic” came into play together in full force.

All the above changed the landscape of the luxury industry, a whole new market with new rules was born, and the first problem to solve was how to communicate with it. 

Indeed,  the traditional communication method of “Bouche à Oreille” between the well to do was exclusive by nature, but it became rapidly obsolete to attract the rapidly growing affluent.

This change induced decision-makers to face for the first time the dilemma that now represents the cornerstone of the luxury industry:

If to expand clients' base one needs communication and advertising, how is exclusivity maintained when using mass communication channels?  (a question now more present than ever with Internet).

Aside from the careful choice of the communication channel(s), the first step taken was to strip the communication of Luxury of any link to the end product.  The adage in Luxury: “heighten anticipation and maximize desire” was subtly reinterpreted:

If Luxury can be afforded only by those with a certain Lifestyle, then by communicating Lifestyle – instead of focusing on the product- Luxury retains the exclusivity.

This scheme opened the door to mass communication and advertising of Luxury goods and succeeded in making them even more appealing.  Everyone could see then what Lifestlyle is, and could buy a piece of it.

As an example of this de-materialization, if Luxury is Lifestyle, then it is difficult to better showcase this concept  than with the combination of sports , culture, adventure and excellence chosen by Rolex, succeeding to represent each activity and expression by its embodiment through individuals, events and venues (see http://bit.ly/qCaaom). It clearly follows Mr. André Heiniger's, -the old Patron of Rolex- approach, who was once asked: “How’s the watch business?” to which he answered:  “I am not in the watch business, I am in the Luxury business”.

On a larger scale, Perfume makers and distributors understood the power of communication of the fashion industry. In fact, few haut couture houses –if any- can survive without economic support, so fashion became a lifestyle showcase through which the revenue generating activities -sales of perfumes, jewelry and fashion complements- were advertised.

Nevertheless, certain goods, assets -and to some extent, services - are Lifestyle and Luxury in themselves.  Indeed, luxury cars, boats, planes, jewelry, property and hospitality services do not need to evoke anything; they are just the epitome of luxury.....And since these goods or assets are exclusive by nature –and price-, then their communication should do little but show the product.

Is it so?...  maybe not any longer.

Luxury items are expected to provide a pleasure to our senses, are supposed to fulfill our aspirations and desires and must do so based on impeccable design and outstanding materials all wrapped up in superb craftsmanship.  When these elements are reunited, the end product becomes a luxury one, whether it is a watch, a certain wine, a car, a boat, a plane or a property.

Luxury brands know that their business consists in satisfying the most selective individuals in a very competitive sector requiring to maximize exposure.... and this maximization can seldom be achieved by reaching the customers with one field of expertise.

The answer is therefore to extend the brand capacity in as many fields as possible, to maximize the possibilities of satisfying clients’ needs and aspirations.  We already mentioned in previous blogs how this trend was initiated by the merger of LV -a leather atelier-, with MH -a champagne and cognac-, then taken over by Arnault, owner of Parfums Dior. http://bit.ly/pDkgoU .

In a different sector, and in a non conventional approach to brand extension, the traditional marriage between wineries & hospitality has been given a further twist with the “Marqués de Riscal” Spa, in which an excellent winery is married not only with a restaurant & hotel, but extends its scope to a wine focused spa (vinotherapie), all wrapped in stunning Frank Gerhy’s architecture and managed by Starwood Luxury collection…. And as well as being a good business in itself, it provides exposure and access to worldwide markets.

Hotel Marqués de Riscal

It is not by chance then why Luxury brands extend their brand to other fields. They understand the nature of the business, they bring the design and craftsmanship capabilities and they have spent thousands of person/hours not only developing their core-products, but also carrying holistic approach analyses on how to satisfy the most exclusive, selective individuals.

Regarding our specialty -real estate developments and residential tourism- we already covered what  do brands bring to real estate developments, which in a nutshell are the same elements that they bring to other products : Exclusivity, Uniqueness and all round Quality (see our blog entries http://bit.ly/n8XRj2 and  http://bit.ly/pO0pIn - ) and it is clear that brands, in their turn, expect to benefit from the further exposure that such projects provide.

But then, from all the brands available, many can bring Beauty, some will bring Character, but only one can bring  "Power, Beauty and Soul"

For more information please contact FIRSTLOGIC Consulting
http://www.first-logic.com

If Small is Beautiful..... Exclusive beats it.

by Alvaro HIDALGO

New destinations mushroomed

If the origin of mass international tourism can be placed in the 60s, one can situate the explosion of new destinations in the 80s, a moment in which major changes in the airline industry enabled access to new international and transcontinental locations at reasonable prices.

New destinations subsequently mushroomed, and the main focus of Destination Manager Organizations (DMO) was to increase the number of visitors as a measure of success.

As a tool to analyze this growth, the well known Tourist Area Life Cycle (TALC) concept was developed by Butler in 1980. Since then, it has survived three decades of constant scrutiny and verification studies, and it is considered now as a cornerstone in the analysis of tourism destination development and a milestone in Tourism academic literature.

Having entered into the second decade of the XXI century, the reactions to the model nowadays are mostly in the line of : .... ok, fine, but what’s news.

Nevertheless, TALC’s chart retains its validity by carrying a good reminder of the existence of – using an aerodynamic term- a “point of separation” beyond which specific measures should be taken to avoid the flow of tourists to become turbulent, resulting in the destination entering in a stall and declining.

Closely linked to the above, the “Carrying Capacity of a Tourist Area" concept started to be shaped. Carrying Capacity is defined by the WTO as "the maximum number of people that may visit a tourist destination at the same time, without causing destruction of the physical, economic, socio-cultural environment and an unacceptable decrease in the quality of visitors' satisfaction".

Maximum carrying capacity overflow

The Carrying Capacity must not be considered as a number resulting from a formula, but as a constantly ongoing process which overviews the destination to ensure that its quality and its capacity to attract tourists is maintained.

Indeed, if the first consequence of success is that it makes obsolete the tools and processes followed to attain it, we then need to constantly re-assess –with a fresh view- the new reality that resulted from the previous plans & actions, and make further plans for this new environment.

The concept evolved into the much broader “Sustainable Tourism” term which is now centering efforts of the industry and governments.

Resulting from this, DMOs are shifting their emphasis from Destination Marketing -focused just in bringing in more tourism-, to a Destination Management perspective centered in enhancing and maintaining the characteristics and attractions that made the destination what it is.

Some destinations are born to be directed to the mass tourism only, but in many others, the geography and/or configuration enables that several poles of activity with very different characteristics cohabit in a broad Tourist Area. Majorca and Costa del Sol are good examples of zones hosting both cheap mass-tourism sites and highly exclusive secluded locations.

The dilemma that any destination faces in the “point of separation”  is therefore the dreaded question: ".....what do we do now?". Being clear nowadays that sustainability must rule and lead, then the farsighted Schumacher’s statement “Small is Beautiful” is the automatic answer.

....But as the title of this entry states, “...Exclusivity beats it”.

Indeed, exclusive destinations are sustainable by their own nature and origin, and cannot overgrow beyond a certain point. Apart from some exceptions –there are always exceptions-, most of the exclusive tourism destinations remain as such after 50 or even 100 years of operation.

The price entry barrier not only keeps out most of the problems brought by excessive growth, but it also generates the revenue that will attract the levels of investment needed (i) to keep facilities, attractions and environment in good shape and (ii) to be updated recurrently. If the destination characteristics, configuration and/or name enable it, a destination facing the point of separation should always consider the "road to exclusivity" as the first alternative to be analyzed.

Luxury Brands are not only natural a path to exclusivity, but most importantly, they will shorten the transition time to attain the objective.

Indeed, Luxury Brands bring (i) the desired level of exclusivity and therefore sustainability (ii) a major worldwide marketing impact and (iii) a defined solution and a defined project. (See our previous entry on how do brands shape a destination http://bit.ly/r4mICb and http://bit.ly/pDkgoU )

The importance of point (iii) is generally overlooked. Indeed, when a new branded luxury project is announced for a Destination, its effects are apparent immediately. It creates a focal point that will drive its future development changing the investment and economic landscape of the overall destination on the spot.

By concentrating the efforts and resources into one clearly defined direction with an established timeline, the branded development begins to shape the destination and its perception from the day of the signature.

And thanks to their versatility, branded projects  provide its benefits to most types of destinations, whether it be a new tropical beach & golf resort, a new Marina or an old ski resort seeking rejuvenation.

Luxury Brands are the most direct vehicle to attain exclusivity and as a result, they assure sustainability.

But if it is true that the incorporation of any established luxury brand may result in the above benefits, only one can bring Power, Beauty and Soul…. the three qualities that most destinations seek to offer their visitors.

For more information please contact FIRSTLOGIC Consulting
http://www.first-logic.com
.

7 words and a logo: Does a brand shape a destination?

by Alvaro HIDALGO

Our two last blog entries were centred on anticipating the consequences derived from the now rapidly escalating financial turmoil. By turning this entry to academic issues, we wish to provide some respite to the now omnipresent “crisis talk”. Hence, it focuses on the subject above and brings some comments on the “Advances in Hospitality and Tourism Marketing and Management” Conference held in Istanbul June 19-24, 2011: Destination Development, Marketing & Management.

Destinations are far more multidimensional than consumer goods and other types of services. To be effective, positioning theory suggests that reaching the minds of busy consumers requires a succinct message focussing on one or a few brand associations. Nowhere is this challenge better highlighted than in the development of a seven word slogan that encapsulates a destination’s diverse and often eclectic range of natural resources, built attractions, culture, activities, amenities and accommodation. (1)

As it is, there is an overwhelming amount of choices available to satisfy any consumer’s need or dream and, in such a competitive marketplace, the viability of destinations depends on the ability to develop effective marketing and management strategies (2), among which differentiation is one crucial element to attract clients to a destination.(3)

Setting and developing marketing strategies and conveying such differentiation becomes an overpowering challenge to Destination Management Organizations.

DMOs’ difficult task is to be in both sides of the table. On the one hand they must set rules for a policy and business strategies by involving institutions and individuals. On the other they must draw support from the different stakeholders so that the brand will be both accepted and communicated through both official and unofficial publicity and products, resulting in a unique and consistent destination brand positioning (4).

So…. How to transmit the qualities of a destination, to attract the types of clients appealed by the different facets of what the destination is, “targeting a multiplicity of geographic markets to attract a wide range of segments”(1) … and all in less than 7 words and a logo?

There are countless studies on destination branding, brand equity assessment models, precise definitions and discussions on the difference between destination image and brand personality. But such analyses are not confined to lecture halls. On the contrary, their assessment will have implications in advertising, promotion and positioning of a city or destination (5).

 
Consistent positioning is of the utmost importance since, unless a place can come to stand for something, it will have little chance of being remembered long enough to compete for any of this precious attention. Indeed, most people spend no more than a few seconds each year thinking about a destination, a city or a country on the other side of the world or about. So, unless that city or destination always seems exactly like itself every time it crops up, there is little chance that those few seconds of attention will ever add up to a preference for its products, a desire to go and visit the place, an interest in its culture. (6) (7)

In this sense, the use of Celebrities has been a traditional way of creating awareness.

Indeed, we already knew that they create destinations -Prince Rainiero & Grace Kelly made what Monaco is now- and their successors -HRH Prince Albert- contribute to create awareness in recently established ones  http://bit.ly/qyUI6N

Now, we have empirical models to analyze Celebrities’ impact (8).

But if attracting customers is already difficult, to grab the attention of the most sought after “creative class” (9) becomes of paramount importance. They, as a group, create trends, build and enhance the characteristics of a city or a destination, and their power of influence lasts much longer than any advertising campaign. Bringing them in and being capable to retain them is a nonstop challenge, even more fierce in these days in which companies and full organisations can and are run remotely.

To retain these customers, destinations need to constantly defeat concurrent alternatives, updating themselves and proving they are in the pinnacle of the pyramid by -among other things- bringing the firms that prove and show their status. Only certain destinations and locations can receive and sustain certain brands and, by fostering their establishment, the destination crosses a threshold that separates it from the rest.

Thus,

Academics say: In this 21st century, cities and destinations compete on their brand and will develop in line with it. They are competing on the value that they provide in terms of physical and service offer, their heritage, their ambitions and their character (6).

In essence, they compete to offer “Power, Beauty and Soul”…

                        …in a way, only 4 words and a brand suffice to shape a destination.

For more information please contact FIRSTLOGIC Consulting
http://www.first-logic.com

References:

(1) TOURISM DESTINATION BRANDING COMPLEXITY
Dr Steven Pike. (2005). Tourism destination branding complexity. Journal of Product &Brand Management. 14(4): 258-9

(2) DESTINATION BRAND PERSONALITY AND BEHAVIORAL INTENTIONS: A COMPARISON OF FIRST-TIME AND REPEAT VISITORS
Ahmet Usakli , Nevsehir University , Turkey
Seyhmus Baloglu, University of Nevada, Las Vegas, USA

(3) LONG-TERM COMMUNICATION EFFECTS OF TOURISM MALAYSIA MARKETING COMMUNICATIONS ON THE AWARENESS AND PERCEIVED DESTINATION IMAGE DIMENSIONS AMONG POTENTIAL TOURISTS FROM THE GULF COUNTRIES (GC)
Ashraf Mohammad Teehi Alfandi and Azilah Kasim
Tourism and Hospitality , College of Arts and Sciences, Universiti Utara Malaysia Kedah, Malaysia

(4) DESTINATION GOVERNANCE AND INTERNAL BRANDING AS ANTECEDENTS OF DESTINATION BRAND DEVELOPMENT: AN EXPLORATORY STUDY ON EDINBURGH
Ilenia Bregoli, Università Cattolica del Sacro Cuore Milan, Italy
Giacomo Del Chiappa Università degli Studi di Sassari Sassari, Italy

(5) EXPLORING THE RELATIONSHIP BETWEEN DESTINATION IMAGE & BRAND PERSONALITY OF A TOURIST DESTINATION – AN APPLICATION OF PROJECTIVE TECHNIQUES
Girish Prayag Faculty of Law & Management, University of Mauritius

(6) CITY MARKETING AND PLACE BRANDING: THE CASE OF CAPPADOCIA
Elem Yalçın and Burçak Çebeci Perker
University Faculty of Economics and Administrative Sciences,Istanbul, Turkey

(7) PLACE BRANDING Some Important Distinctions in Place Branding. , Simon Anholt (2004)

(8) SELECTING THE ‘RIGHT’ CELEBRITY ENDORSER: LATENT MEAN STRUCTURE ANALYSIS
Robert van der Veen and Haiyan Song
The Hong Kong Polytechnic University,School of Hotel and Tourism Management,

(9) THE RISE OF THE CREATIVE CLASS. Richard Florida, 2002.