LIFESTYLE AND ASPIRATIONAL LUXURIES LET YOU LIVE THE LIFE OF THE RICH AND FAMOUS

We define the third and fourth sectors in the discretionary product matrix as lifestyle luxuries and aspirational luxuries. Lifestyle luxuries are those luxury goods that, while they are considered a luxury, also offer a practical usefulness or utility for the consumer. Luxury cars, watches, china, furniture, and designer clothes are all lifestyle luxuries that serve a practical purpose. By comparison, aspirational luxuries, rather than providing some practical use, give primarily emotional satisfaction. Aspirational luxuries include such purchases as original art, antiques and vintage collectibles, boats and yachts, and fine jewelry. But whether the consumer is purchasing a lifestyle or aspirational luxury product, the drives and motivations are the same: They are looking for the "ultimate" in the luxury product that they buy.

So what does "luxury good" really mean? The New Oxford American Dictionary defines luxury as:

The state of great comfort and extravagant living; an inessential, desirable item that is expensive or difficult to obtain.

A focus group respondent explained it this way: "A luxury is more than extra. It's more, more." The word luxury comes from the Latin "luxuria" which means "excess." Charles J. Reid, research associate in law and history at Emory University, defines luxury goods: "The operational definition of a luxury good is a good 95 percent of which is accessible to only 5 percent of the population." Jeremy Sampson, managing director of Interbrand Sampson, sees a luxury this way: "To some, it's an object of desire, sometimes aspirational, sometimes almost lust. It will be financially expensive, perhaps self-indulgent, and certainly not indispensable. It says: 'I've done it,' but that's crass. Sometimes it's a physical statement, as with a luxury car or an exquisite watch, pen, or piece of jewelery. Or as the Richemont annual report defines it: 'A luxury product is both an object and a catalyst for thought . . .the aim of a luxury brand is to awaken desire and pleasure.'"

While what is defined as a luxury good is fluid over time and may differ depending on the socioeconomic level, the best definition of a luxury good in contemporary America is "brand" and its positioning as the "best of the best." The brand identifies the product as a luxury.

Luxuries as Brands

The word luxury comes from the Latin "luxuria" which means "excess."

Women's Wear Daily recently reported its fifth annual consumer survey of luxury fashion brands. The survey measured consumers' familiarity with the brand, their perception of the brand as a "luxury" brand, their purchase incidence, and what luxury fashion brand they would buy if money were no object. The top five luxury fashion brands according to Women's Wear Daily are Rolex, Tiffany, Cartier, Versace, and Giorgio Armani. Lifestyle luxuries, those luxuries that offer some functional, practical use are almost always linked with a brand. In effect, the brand acts like the Good Housekeeping "Seal of Approval" telling us that this functionally practical product is elevated above its more ordinary competitors. A luxury Rolex watch tells time, as does a Timex, but it does it with much more style and cachet. The brand, Rolex, is the pedigree saying this watch—this brand—is better than all the rest.

Looking beyond the fashion arena, there are luxury brands in many different categories of discretionary purchases, although fashion is one of the fields where luxury brands predominate. In the decade of the 1990s, investing in luxury brands was good business, as consumers yearned for these visible status symbols that proclaimed their wealth, status, and good taste. From 1999 to 2000, the leading luxury brands averaged a growth rate reaching 17 percent (as shown in Figure 3.6), dynamic growth for any product category. After the 9/11 terrorist attack, luxury brand growth is settling down to more normal levels, as consumers shy away from purchases that are perceived as "too extravagant" in the new economy. But what is perceived as too extravagant varies from consumer to consumer, so we may well find the typical Rolex shopper trading down to a Movado, or the Louis Vuitton handbag buyer stepping back to Coach. They still are shopping in the luxury arena; they are just pulling back from the more extravagant examples.

	'00	% CHG '00-'99	'01	% CHG '01-'00	'02	% CHG '01-'02
Pinault-Printemps-Redoute	$23,308.0	22.4	$24,623.9	5.6	$22,727.9	-7.7
Christian Dior	11,174.0	26.7	11,131.8	-0.4	13,798.0	24.0
LVMH	10,909.0	27.0	10,900.0	-0.1	11,313.6	3.8
Richemont [**]	2,792.3		3,237.5	15.9	3,358.2	3.7
Swatch	2,563.3	12.5	2,419.5	-5.6	2,446.1	1.1
Luxottica Group	2,268.9	20.2	2,731.8	20.4	2,959.9	8.3
Gucci [*]	2,258.5	82.7	2,285.0	1.2	2,285.0	1.2
Polo Ralph Lauren[*]	1,982.4	1.7	2,363.7	19.2	2,439.3	3.2
Tommy Hilfiger[*]	1,880.9	4.9	1,876.7	-0.2	1,876.7	0.2
Tiffany & Co[*]	1,668.1	14.1	1,606.5	-3.7	1,706.6	6.2
Prada/I Pellettieri d'Italia[**]			1,553.6	1.4	1,635.0	6.7
Hermes	1,090.9	16.8	1,086.8	-0.4	1,100.9	1.3
Waterford Wedgwood	1,021.3	15.1	902.0	-11.7
Armani	973.6	11.6	1,126.7	15.7	1,362.5	21.0
Bulgari	636.6	17.9	678.6	6.6	810.9	19.0
Coach	548.9	8.1	616.1	12.2	719.4	16.8
Burberry Ltd.[**]			605.9		711.7	17.5
IT Holdings/Ittierre	432.9	12.9	466.5	7.8	580.8	24.5
Versace	425.5	1.5	450.0	5.8
Movado[*]	320.8	8.7	299.7	-6.6	300.1	1.0
Avg	3,680.9	17.9	3,548.1	4.4	4,007.4	8.4
[**]Previous year unavailable [*]Fiscal year ends early in year so sales reported represent sales year

Figure 3.6: Luxury Marketers Revenue 2000–2002 (in millions)

While luxury brands face new marketing challenges in the after-math of September 11, these brands are extremely hard to "kill off." Why? Because they have taken so many years to foster and build their reputation. Few luxury brands are created overnight. Rather, many brands go back more than a hundred years, like Cartier, founded in 1847, Tiffany dating from 1837, Rolex from 1908, Gucci from 1923. The closest we come to "instant" luxury brands is in the fashion arena. Contemporary designers, such as Donna Karan, Ralph Lauren, and Tommy Hilfiger to name a few, have crafted a luxury image through highly exclusive distribution, couture prices, fashion-forward but not jarring designs, and carefully selected licensing partnerships.

Owners of luxury brands must walk a tight line between extending their brand too far into too many product categories and controlling it so tightly that revenue and brand-building potential are too restricted.

Licensing and its role in propagating a brand image is one of those business secrets most companies would rather keep hidden from their consuming public. Licensing is a legal agreement that allows one company to "borrow" the brand name, its logos, its image, and its reputation, and put it on the borrowing company's products. Owners of luxury brands must walk a tight line between extending their brand too far into too many product categories and controlling it so tightly that revenue and brand-building potential are too restricted. On the surface, licensing looks like an easy way to cash in on the value of the brand without risking anything. After all, the licensor picks up the tab and pays royalties and minimums to boot.

Over the years, companies such as Christian Dior and Oscar de la Renta have discovered the hazards of extending their brands too far. Consequently, they responded by cutting way back on their licenses. Free use of licensing inevitably cheapens the brand and threatens its exclusivity. That is why Calvin Klein recently fought its jeans' licensee, Warnaco, so hard. Calvin Klein claimed Warnaco violated its licensing agreement by distributing the Calvin Klein jeans through discount outlets. For a luxury brand, that will never do! Yet, luxury brands are remarkably resilient. They do not die easily, especially those enduring brands whose identity has been crafted over many decades, even centuries. Thus, previously overlicensed brands such as Christian Dior can pick themselves up, dust themselves off, and continue moving on in the luxury arena, even after a brief foray into the mass market. On the other hand, the more instant luxury brands, such as contemporary fashion brands, are more vulnerable to losing their cachet because they haven't forged a solid reputation based upon many years of diligent brand management.

Consumers Choose Their Luxuries

One of the common definitions of a luxury good is a product or service that only the top 5 percent of U.S. households can afford. However, the luxury business has not chalked up double-digit growth throughout the past decade by selling only to the ultra-rich. After all, the numbers speak for themselves. There are a lot more moderately affluent Americans than super-rich ones. With household incomes of $145,000 and above, the top 5 percent of U.S. households by income number only 5.3 million, while 42.6 million households boast mid-to-upper incomes of $50,000 or more.

The real growth in the luxury market has come from the middle and upper-middle classes reaching up to buy luxury goods.

A new egalitarianism has taken over in today's luxury market. In America, luxury products can be bought by anyone up and down the economic ladder. While the nation's ultra-rich may well limit all their personal consumption to luxury brands, the real growth in the luxury market has come from the middle and upper-middle classes reaching up to buy luxury goods. Recognizing that everyone wants a piece of the "good life," luxury marketers have started to expand their product lines by offering lower-priced goods that carry the brand name. Like Mercedes-Benz, which introduced its new C-Class of "affordable" luxury cars, other luxury marketers have been working on strategies to move down the price-point scale. The challenge is how to keep the exclusivity and brand image at the upper tier, while offering lower-priced models that appeal to and can be afforded by the less than ultra-rich. Early evidence is that luxury marketers have had success moving downscale to capture market share from the mid-to-upper-income consumers, while maintaining the exclusive brand cachet that results from selling to the rich.

Along with a new egalitarianism in luxury goods comes consumers' ability to choose their luxuries. Today, consumers, armed with more information than ever before, can pick the aspects of their lives they wish to luxuriate, by buying luxury brands selectively. For everything else, there is the ordinary, everyday, and commonplace. For example, one consumer may buy only the top, luxury cookware brands for her kitchen, while buying more everyday brands for bed or bath. Another might express his enthusiasm for a wine tasting hobby by buying luxury brands of wine, wine glasses, and everything else that is involved with wine tasting, while sticking to more mundane brands in kitchen appliances, bedding, and clothes.

Faith Popcorn in her book, EVEolution, makes the point that women don't buy brands—they "join them." I believe this applies equally to men. In fact, the way the typical consumer thinks about and interacts with brands has undergone a sea change in the past 20 years. Inundated with hundreds of thousands of new products each year and endless media advertisements, consumers use brands as a way to sift out the trash from the treasure. A consumer is much more likely to notice a commercial message linked to a brand that the consumer has experienced before than one not so advantaged. We saw a real-life example of the concept of the consumers belonging to a brand when Coca-Cola tried to introduce its New Coke formula. Consumers were outraged that the company would dare to interfere with their favorite product. The marketplace spoke: "Coke belongs to us! You may be the company that makes it, but Coke is ours, so don't mess with it." The passing of the Oldsmobile brand resulted in no such consumer outcry. That brand had lost its market and its connection with consumers.

More than other everyday brands, luxury brands evoke a strong and lasting image in the consumer's heart and mind.

More than other everyday brands, luxury brands evoke a strong and lasting image in the consumer's heart and mind. Consumers buy these brands to belong to them, to make the brand a part of themselves and their identities. For the most involved consumers, the brand confers status on the owner, but it's more than that. It becomes part of these consumers' personal identities, who they are, and what their value systems are. The passionate way consumers interact with their favorite brands is almost spiritual in nature. It goes beyond logic and reason to the depths of one's personal identity.

This high level of involvement draws certain consumers, but it may well repel others, as it did for the respondent who strenuously objected to linking her name and identity with the Mercedes brand. "To me, luxury is all about your value system. It's about your beliefs, your religious system, your personality. I don't need a Mercedes. [Owning a Mercedes] is not an example we want to set. Even if I got a great deal on a Mercedes, I would not buy it. I don't need that kind of luxury. That brand is not me. I don't have that lifestyle." This consumer was adamant and highly emotional about not wanting to be linked to Mercedes and what that brand stands for. Even if she found a bargain on a used Mercedes, she would never buy that car because the brand repels her.

Luxury is to See and be Seen

In marketing luxury products, there is clearly an aspirational component at play. Logo marks on many luxury goods are standard. Through them, the owner proclaims to the world his or her good taste and sophistication. Some consumers belong to a brand and they want the world to know about it. Fashion, cars, handbags and briefcases, jewelry, and watches are all luxury goods where brand logos are displayed. On the other hand, many classes of luxury goods are used privately and not exposed to public scrutiny. For these purchases, such as home furnishings, major appliances, and bedding, the consumer is driven to the luxury brand for personal motivations, not to see and be seen.

Juliet Schor, senior lecturer and director of women's studies at Harvard University, has published a number of books that focus on the aspirational nature of consumption. To Schor, consuming is a competitive sport that people participate in with their coworkers, family, neighbors, and friends. My research sees the primary driver for discretionary spending as the inner life of consumers and their needs and desires. In contrast, Schor's research on cosmetic consumption illustrates that for certain people under certain circumstances, the need to see and be seen is important in their choice of luxury brands.

In The Overspent American, Schor gives a nod to the role of emotional gratification in cosmetic purchases:

But despite its dubious effectiveness [e.g., cosmetics that promise clinical effects], women keep on buying the stuff. They shell out hundreds, even thousands, for wrinkle cream, moisturizers, eye shadows and powders, lipsticks, and facial makeup. And why? One explanation is that they are looking for affordable luxury, the thrill of buying at the expensive department store, indulging in a fantasy of beauty and sexiness, buying "hope in a bottle." Cosmetics are an escape from an otherwise all-too-drab everyday existence.

To Schor however, the primary driver is status:

Even in cosmetics—which is hardly the first product line that comes to mind as a status symbol—there's a structure of one-up-womanship.

Getting It Right

BULGARI

Its name is synonymous with luxury.

Bulgari used to be a brand known only to the rich and famous, but today it is expanding its horizons and opening its doors to well-heeled customers worldwide. Bulgari Chief Executive Francesco Trapani has moved to diversify the company's offerings beyond its core business of jewelry and watches to a range of other luxury products and services. "Today, Bulgari has a diversified product portfolio that foresees jewels and watches as the core business of the company, but that also includes perfume, scarves, ties, eyewear, and home designs. Bulgari is a luxury brand that offers products with a very distinctive style, at high prices, of outstanding quality," Trapani says.

As the company expands its realm into other luxury goods, it remains firmly grounded in the jewelry business. "Bulgari is a diversified jeweler, meaning that our core business is jewels and watches among other luxury products, but we will always remain a jeweler. We are 'The Italian Contemporary Jewellers,'" Trapani explains. Founded by Sotirio Bulgari in 1879, Bulgari's shop in via dei Condotti was renovated in 1932 when sons Giorgio and Constantino Bulgari inherited the business. Today that same shop serves as Bulgari's flagship store.

International expansion began during the 1970s when Bulgari stores were opened in New York, Geneva, Monte Carlo, and Paris. Today Bulgari's empire extends to more than 150 stores worldwide, including those in London, Milan, Munich, and St. Moritz as well as Hong Kong, Singapore, Osaka, and Tokyo. In 2002, annual sales grew 19 percent to reach $810.9 million from $678.6 million in 2001. Geographically, 14 percent of revenues are generated in Italy, with 25 percent coming from other European markets. Japan captures 21 percent of company revenues, while other Far Eastern markets comprise 17 percent. In 2002 the Americas produced 15 percent of total revenues, and the Middle East and other regions generated 8 percent of revenues. In 2002, sales growth was off in several key geographic markets, including Europe, the Americas, and the Far East. Trapani explains: "This is a difficult moment, not only because of September 11, but during the summer of 2001 business was starting to slow down because of a general economic downturn especially in the United States."

Tracking along with international expansion is Bulgari's broadening luxury product offerings. Trapani explains the diversification strategy: "Today, one can walk into a Bulgari store and buy a tie, a pair of sun-glasses, or a perfume—products that cost much less than a jewel. Furthermore, there are some products within our core business, such as the B.zero1 jewelry collection or the Solotempo watch, that are entry-price products. It allows us to have a Bulgari product at an accessible price. We aim to reach all those who look for luxury products with a distinctive design of outstanding quality." In 2002, 38 percent of net revenues were derived from jewelry, with watches (38 percent), perfumes (17 percent), and accessories (5 percent) comprising the bulk of sales. The company also generates about 2 percent of sales in licensing royalties and revenues from agreements with Luxottica for eyeware and Rosenthal, part of Waterford Wedgwood PLC, in home designs.

Looking toward the future, the company foresees major opportunities from its Bulgari Hotels & Resorts joint venture with Marriott International's new Luxury Group. The plan is to open seven exclusive Bulgari five-star hotels, most of them located in big cities but also including one or two resorts. This is a category slated for significant growth as the hotels and resorts offer their clientele an opportunity to vicariously experience the Bulgari lifestyle. Trapani envisions the hotels as a key foundation for Bulgari's overall brand strategy. "The return on investment makes it a very interesting deal. While we are attracted to this joint venture for its significant investment potential, we also see huge cross-marketing possibilities between the Bulgari stores and the hotels. The client base of the stores is very similar to the hotels. For example, I think it is reasonable to assume that a couple would buy the engagement ring at Bulgari's, do the wedding party at a Bulgari hotel, and go to our resort during their honeymoon. Furthermore, we see those seven hotels as seven public relations 'machines' for the Bulgari brand. These hotels will become a reference point for the local community, meaning that the café and restaurant will also attract the local crowd."

On the future of luxury brands, Trapani anticipates changes on the horizon. "Given the present business landscape, I foresee that only the strongest, most solid brands in the luxury business, like Bulgari, will survive. We will probably see many of the smaller brands disappear. People, though, will always be interested in luxury products."

Schor explores the status component in cosmetics by looking at brand purchasing patterns for four different cosmetic products: lipstick, eye shadow, mascara, and facial cleanser. What distinguishes each product is its relative visibility to others. For example, facial cleanser is the least socially visible product because consumers use it in private, whereas lip-stick is the most visible because it is acceptable to touch up one's lipstick at the table and in public. Her research findings: Women are far more likely to buy expensive lipsticks than they are to buy expensive facial cleansers. Her research leads her to conclude that consumers buy top-end brands of visible products far more than high-quality invisible ones.

To see and be seen plays a role in the purchase of luxury products.

Luxury products and brands, just like all discretionary expenditures, exist on a sliding scale that is measured in the perceptions, values, and experiences of the individual consumer.

To see and be seen plays a role in the purchase of luxury products. How important it really is for each brand, each product, is highly individualistic to each consumer, but marketers are strongly advised to study the role that visibility plays in the purchasing behavior of their consumer markets. For the ultra-high-end fashion brands, the obvious display of a brand logo is considered gauche and "nouveau riche." For other brands, a visible label clearly conveys value to the consumer. How much inherent value does the Mercedes-Benz hood ornament carry in the total cost of the car? What is a Chanel bag worth without the CC? How much does the polo symbol add to the value of a Ralph Lauren oxford shirt?

Luxury is in the Eye of the Beholder

In the final analysis, the consumer defines luxury. For one consumer, at one income level, with a passion for some aspect of his or her life—fashion, gourmet cooking, wine tasting, entertaining, home decorating—a particular item, brand, or product might be considered a luxury that is prized. For another, the same thing might be a total waste, or it may not be luxurious enough. Luxury products and brands, just like all discretionary expenditures, exist on a sliding scale that is measured in the perceptions, values, and experiences of the individual consumer. Increasingly luxury marketers are testing how far their brands can extend both up and down this consumer-defined sliding scale of values. While luxury brands must exercise great caution at the low and middle ranges of any product category, there is ample room to move along from upper-end to extravagant to luxury products, without necessarily losing brand perception and exclusivity.