Make It Mine - Customization as the Future of Luxury Essay Example for Free

Make It Mine Customization as the Future of Luxury Essay 1 â€Å"The things at Prada today are not well made, the fabrics are not as good, everything was much better in my time† Miuccia Prada I. Purpose of Research The changing landscape of the luxury industry challenges brands to find a new approach to reach out to their core costumers. Brands like Louis Vuitton, Gucci or Burberry are about to jeopardize their true customers and their image by overexposing themselves to a mass luxury clientele. Thus, a new approach must be found to bring back the feeling of true luxury, personal attention and to create a bond to their core customers. This paper’s purpose is to examine how luxury brands can adapt mass customization techniques in order to create a sustainable competitive advantage and bring back the notion of true luxury. Furthermore, it will be questioned if customization can harm a luxury brands image and status, taking into consideration the â€Å"anti-laws† of marketing, which propose to not pander to the customer’s wishes and to dominate the luxury client (Kapferer, Bastien, 2009, 64 f. ). The goal is to come up with a conclusion that provides luxury brands with a direction of how customization could be implemented and what benefits or challenges may come with it. II. From Class to Mass Looking at today’s luxury fashion market one does not have to be an expert like Miuccia Prada to see things have changed. While almost every established luxury brand started out as a small business with a tradition of unique craftsmanship, utmost quality, best service and limited quantities, those attributes are not necessarily true for many of today’s still existing luxury brands. Luxury brands have gone mass. This is often referred to as â€Å"the democratization of luxury†, which means 2 that luxury brands have opened themselves for a mass market. While back in the day luxury brands were the domain of the rich only available in selected stores or brand owned boutiques, brands today want to reach a wider customer range. According to Thomas, aggressive growth was not a priority until the eighties (Thomas, 2007, 238). However, growth quickly became the main objective and store expansions have experienced a boom in Japan, as well as the USA. The middle market customer was born. By expanding their assortment lines in department stores with lower-priced items, such as perfumes, small leather goods and cold-weather items, luxury brands became attainable. No longer were people intimidated to walk into a luxury boutique, they often became tourist attractions in capital cities. Luxury brands were intrigued by the sudden success. It just took a few logo-covered products, which were the middle class’s favorite item and sales and profits grew steadily. However, the rapid expansion also created one of the luxury brands biggest problems today. As banking analysts conclude, the greatest problem that luxury brands have created for themselves by going mass is financial instability. â€Å"Before its global expansion to the middle market, luxury was immune to economic cycles. The companies were small and catered to a limited old-money clientele [†¦] who shopped consistently and bought well. Luxury was a successful niche business. But when luxury changed its target audience to the cost-conscious middle market that shops when flush but stops cold when times get tough, it made itself dangerously vulnerable to recessions† (Thomas, 2007, 264). Another disadvantage from overexposing themselves is the loss of the traditional old money clientele, since their logos could be seen everywhere. Many brands jeopardized their exclusivity status along with their â€Å"well-crafted† message along the chase for higher profits, in order to keep the shareholders happy. The dilution of the luxury status peaked with the 3 introduction of e-commerce and outlet stores. In the first case it is very hard for a brand to create a luxury shopping experience, since the Internet is a generic and impersonal sales channel. In the case of outlet stores, brands are trying to sell their overstock, which has highly increased due to mass production. Not only is merchandise that was once available at a high-end boutique sold for a discount price, moreover some brands are producing some items solely for outlets (Edouard, 2006, 11). Assessing the six main facets of a luxury brand, which have been identified in a broad empirical study by Dubois/Laurent/Czellar and are considered to be global and most accurate, one can review the situation of the luxury market today. The six main facets are (Dubois/Laurent/Czellar, 2001, 8 ff. ): †¢ Very High Price (according to the absolute price (inter-categorical) as well as the price relative to other brands of the same category (intracategorical)). Excellent Quality (according to the processed materials as well as the assumed diligence of the manufacturing-process). Scarcity Uniqueness (expressed by a difficult accessibility and rarity). Aesthetics Polysensuality (creating through design, colors etc. a value experience that touches all senses). Ancestral Heritage Personal History (continuous branding in design, communications etc. ). Superfluousness (dominant perception of symbolic attributes †¢ †¢ †¢ †¢ †¢ compared to technical-functional ones). It is evident that at least two of the six facets, namely Excellent Quality and Scarcity and Uniqueness, are not fulfilled in many cases anymore. Industry experts suggest that the last true luxury brands that are living up to all the standards are Hermes and 4 Chanel (Thomas, 2007, 323). Hermes is the epitomization of luxury, which is highly due to the fact that the house is still making all its products by hand, sourcing the finest materials and using special design and production techniques that have been invented from the house’s founder over 150 years ago. However, there is another reason why Hermes is on top of other luxury brands: Customization. Unlike in most luxury boutiques, Hermes only receives a few handbags each season to sell them directly. However, this is the exception. The rule is that those handbags are just a display of options. The customer can choose the material (canvas, cowhide, reptile or ostrich), the color and the hardware and in case of the Kelly bag the seams (Thomas, 2007, 172). And then you wait for a product that is specifically tailored to your taste and needs. Obviously this is an experience that real customers highly value. The next chapter provides a brief overview about the luxury consumers today and examines the need to offer separate services for each customer type. III. The Luxury customer today â€Å"Today’s luxury consumer is different from the wealthy consumer of the past. † (Okonkwo, 2007, 65) As mentioned above, many luxury brands opened themselves for the middle-class customer. Silverstein and Fiske have extensively described the evolution and habits of these consumers in their book â€Å"Trading up† (2005). Amongst those â€Å"mass wealthy† consumers, the spending on luxury goods has increased tremendously due to a rise in real household income by 30 percent since 1970. Looking at the figures, four million American households had a net worth of more than $1 million by 2005 and the average spending increased up to 70% (Thomas, 2007, 239). Parallel to this the credit card debt reached its peak. What happened to all that money? Consumers 5 traded up and luxury brands catered to their new audience. While the old-money consumer had a deep appreciation for quality and craftsmanship, the new luxury consumer wanted to buy into the dream and show that they could. Logos came in fashion, and soon â€Å"It† bags with the brand’s logo plastered on them could be seen everywhere and on everyone. Interesting enough brands and designers seem to embrace this trend, as Marc Jacobs states: â€Å"When you look at Louis Vuitton, you see it is mass-produced luxury. Vuitton is a status symbol. It’s not about hiding the logo. It’s being about a bit of a show-off† (Thomas, 2007, 18). Although welcomed by the brands themselves, this is a development that does not please a lot of the old luxury consumers and luxury brands are about to jeopardize their core clientele. Besides the love for the logo there are other characteristics that come along with the new luxury consumers. These are a need for a quick trend turnaround, a disposable attitude and the experimenting and mixing of luxury brands with premium and fast fashion (Okonkwo, 2007, 66). Thus, these consumers are not loyal to one single brand but shop across the entire brand hierarchy, from Gucci to HM. And they are not recession proof. While in the past luxury catered to a limited old money clientele enough money whose spending habits have not been deeply affected by economic cycles, short-term stock market drops or the dependency of credit available, the new luxury customer is very sensitive to all those factors. The luxury market as we experience it today is an amalgam of mass production1, flashy branding, highly varying quality and heavy advertising. While this might work for the middle class market, educated, real luxury consumers cannot be captioned by such techniques. 1 E. g. all Gucci leather products are designed on a computer, by 2004 the entire Gucci group produced 3,5 million leather goods a year, with a production time of two to three hours for a basic bag. Louis Vuitton’s handbags are produced in an assembly line setting in China, where it takes two minutes to glue handles on two bags. As a comparison, an average size Birkin or Kelly bag takes up to sixteen hours, while a bigger one takes up to thirty hours (Thomas, 2007) (Purseleague, 2010). 6 This paper acknowledges the importance of these new customers for luxury brands in order to keep the shareholders satisfied and the need for luxury brands to grow and make profits. If brands would stop cater to this clientele, the losses would be tremendous, since the brands made themselves dependent on high volume sales. However, it must also be considered that such practices can and will jeopardize the old luxury consumers, the ones who support the brand even in tough economic times. Thus, this paper suggests an approach to return to older notions of luxury, namely superb quality, classic design, premium service and customization. In short, the ultimate luxury experience. IV. Back to the roots â€Å"Luxury fashion brands today are too available, everything is too uniform, and customer business is too pedestrian. † Tom Ford Looking back in the history of luxury, customization has been the starting point for many brands and has always played a vital role in the brand’s identity. Hermes started out as custom-made harness shop, catering only to the aristocracy. Likewise Gucci, which started as a saddlery shop in Florence and later specialized in small custom made leather goods and luggage, while Louis Vuitton started as a Malletier for French Royals. All had in common that made-to-order items were the focus of their businesses and they offered only a small product range. Another big part of the customization history of luxury and probably the embodiment of the ultimate luxury item is the haute couture dress. Fittings were done by the couturiers themselves and the garment was constructed for one’s own shape, height and comfort. When American society ladies could not make it to Paris, the Couture houses would sell their patterns to stores like Saks or I. Magnin and fittings were done in beautiful 7 private fitting rooms to convey the Paris atmosphere. Shopping in those department stores was an experience, an event, a pleasure and sales assistants were experts, advisors and friends. Customers chose their favorites, either at in-house fashion shows or during personal viewings, and an in-house seamstress would alter everything to make the customer happy and fit the garment perfectly. This was a long time ago. As Thomas, points out, luxury clothing shopping today is more an exercise of patience, with only a few pieces in the smallest sizes on the sales floor, mediocre service and long waiting times (Thomas, 2007, 5). Buying an $8000 dress directly from the rack is a relatively new phenomenon, evolving with the availability and democratization of luxury. Reviewing the history of customization in the luxury industry, the following points can be identified that cater to a true luxury experience: Craftsmanship, high quality material, luxury service and customization. Based on these findings, the following part of the paper will develop a framework of customization for luxury brands today. It should be emphasized that the approach of customization is not catering to the luxury mass clientele, but rather to the true luxury customer, to create brand loyalty and recreate the luxury experience in the current market setting. V. Customization in Today’s Luxury Market One’s striving for uniqueness and expressing their individuality has without a doubt reached a peak in the current society. Some businesses have recognized this development and reacted accordingly, such as Dell, Apple, Levis, BMW or even Ralph Lauren. Especially luxury consumers always had the need to feel the exclusivity attribute of a service or a product and require personal attention. Luxury customers today do not want to follow a dictate by a brand, they are independent in 8 their choices and want to be involved in the creative process. As one author correctly stated, the days of uniformity and sameness are over (Okonkwo, 2007, 249). While Okonkwo is advocating a â€Å"mass customization† approach, which means that customization for luxury brands is done in bulk and offered to everyone, this paper suggests an exclusive approach of customization. Although economies of scale still play a role with the exclusive approach, it is not promoted to produce customized products en masse. This again would take way from the notion of rarity and exclusivity and would not help luxury brands to recreate a luxury experience, which is the purpose of this paper. It must be mentioned that a few luxury brands currently offer customization as they call it, however this is not customization to a degree that satisfies a true luxury customer. Louis Vuitton for example offers a â€Å"customization/personalization† service on its website, where customers can choose different colors for stripes and their initials to be drawn on a brown canvas bag. The whole process is done online, which delivers no luxury atmosphere at all and the aesthetics are not living up to a luxury brand and neither the leather, nor the hardware or lining can be altered. â€Å"Real customization† is only available for travel pieces. According to Gilmore and Pine, two customization experts, there are four different approaches for customization and managers should evaluate each to offer best service to their customers. In some cases not every approach is possible. The following part of the paper examines each approach and the possibilities for a luxury brand to utilize it (Gilmore/Pine, 2000, 116). 9 1. Collaborative Customization In this approach a company is conducting a dialogue with customers, so that they can articulate their preferences and needs. The goal is to identify a precise offering in order to satisfy these needs and offer a tailored product. 2 2. Adaptive customization In this case a standard product is offered, that the customers can customize themselves after the purchase. An example would be a watch where one can change the wristbands, such as the Gucci â€Å"U-Play Interchangeable Lizard Watch†. Fig. 1 Gucci â€Å"U-Play Interchangeable Lizard Watch† 3. Cosmetic Customization 2 [†¦] on an Air France flight from Paris to London Jane Birkin pulled her Hermes datebook out of her bag and all her papers fell out. She groused about how the book needed a pocket. Besides her sat Jean-Louis Damas. He took her datebook and she got it back a few weeks later with a pocket stitched inside, which is still there today (Thomas, 2007, 189). 10 Cosmetic Customization is not about the product itself but more about the packaging, the advertisement of different attributes or benefits of the product. Thus, a standard product is packaged and presented differently for certain markets. This can become especially important a retail environment where customized packaging plays a big role. Personalization, like adding the customer’s name would be an example for a cosmetic customization. 4. Transparent Customization This approach is used when customers do not directly communicate their needs, but they are easily predictable or can be easily deduced. Customers are provided with goods or services tailored for them, without letting them know that they have been customized for them. This type of customization requires constant monitoring and a deep understanding of the customers needs. It challenges brands to come up with innovative methods of data collecting. Fig. 2 The Four Approaches to Customization 11 Besides the different approaches of customization it must be mentioned that customization can be applied throughout the value chain, but it implies a company open for innovative approaches and careful management. Customized? Development? Customized? Production? Customized? Retailing? Customized? Delivery? Fig. 3 Possible Value Chain of a Luxury Brand Since it would exceed the scope of this paper to discuss every possible customization process that could be applied by a luxury brand, the following part outlines a scenario of customizing a luxury handbag for exclusive customers, taking every step in the value chain into account. In the development stage of the product, the customer would make an appointment in a luxury boutique, or be offered to have a designated expert of the brand come by a place of the customer’s choice. It must be mentioned that customization should only take place in selected brand-owned boutiques, such as flagship stores and never on the internet or a non luxury shopping mall (e. g. Lenox). In the case of an instore appointment, there should be a private room or section that is solely reserved for customization customers, including catering of exquisite snacks and drinks to enhance the luxury atmosphere. Unlike customization that is offered online, the customer should actually have all the materials that she can choose from in front of her, so she can feel and smell the different kinds of leather, fabrics, linings, hardware etc. As mentioned above, polysensuality is an integral part of a luxury brand, thus all senses should be addressed. The brand should provide multiple options to choose from of materials, shapes and sizes. However, if a customer has a special wish, e. g. 12 a color that is not available in the presented selection or a special lining wish, the brand should be able to provide it. On top of that personalization should be offered. Customers should be able to have their name, a quote, writing etc. on the bag at every place they want it. Anya Hindmarch for example offers customers the opportunity to write a personal message in their own handwriting that is discreetly embossed on the handbag in silver or gold, prices range from $1300 $9. 500 (Okonkwo, 2007, 262). Unfortunately, this service is only offered online, thus customers can’t feel the materials and have definitely no luxury experience. When the customization process is finished, the brand should have special software to show the customer on a big screen a model of what the creation will look like, so that last changes can be made. The design must be sent to an atelier, preferably in the country of the brand’s origin, where skilled craftsman are working on the items. Each bag must be identified with a number, the craftsman who worked on it and the material it was made from. Naturally a customized piece has a longer delivery time, for a handbag approximately 6-16 weeks, depending on availability of materials etc. However, since a customized item is considered an investment piece, customers are willing to have a longer waiting time. After the item has arrived in the store, cosmetic customization can be made at the point of retail by the sales assistant. In case of a bag or travel item e. g. the brand could attach a charm or a customized name nametag in the bag’s color to surprise the customer and show special attention. The packaging of the customized item can also be tailored towards the taste of the customer (the in-store customization expert should be aware of customer’s preferences or be able to find out during the design process, referred to as transparent customization). Along with the customized item the customer should 13 receive a letter from the store manager, which addresses the customer directly and shows the brand’s appreciation. Having a personal delivery service that brings the item directly to the customer can customize the last part of the value chain. To create the ultimate luxury experience the brand could additionally send flowers, truffles or wine to show appreciation for the customer. The process of customization outlined above is not limited to bags and can be applied to almost every item, shoes, jewelry, travel items etc. Obviously customization is a laborious process, thus the question arises which advantages does it have for brand have and is all the effort worth it? The basic question â€Å"Do customized products bring additional value to the customer† was widely discussed in academic literature. The findings of the latest study by Franke, Keinz and Steger suggest that the higher the customer involvement with a product is, the more value customization adds (Franke, Keinz, Steger, 2009, 115). Assuming that a luxury product already requires a high consumer involvement, due to its high price and the â€Å"dream value†, it can be concluded that customized luxury goods are adding value to the customer’s purchase. Amongst all advantages the most important one is the closer contact and relationship to your core customers, and a personal identification with the brand. The customer serves as a co-designer and in-house consultant during the customization process. The brand can learn about their customers’ taste and tap into their intellectual property, which results in higher potential of future design success. Empowerment of the customer leads to a higher customer satisfaction, which results in repeated purchases, less comparative shopping and overall brand loyalty (Okonkwo, 2007, 252). Especially in a globalized luxury landscape brands can satisfy customers in different parts of the world and react to cultural taste differences. As a conclusion it can be said, that â€Å"benefits of 14 customization are contingent on characteristics of the customer, namely his or her level of insight into own preferences, ability to express those preferences, and product involvement† (Franke, Keinz, Steger, 116). Although the advantages overweigh, it must be noted that customization also imposes challenges on a brand, such as the integration of the customization process into already existing internal processes and the value chain. Operations must be changed, functional units for customization must be established and the brand must invest in human capital, in order to have experts on both the retail and manufacturing side. Many companies will have difficulties overcoming current practices, since most luxury brands are now owned by big conglomerates, where they face a wall of bureaucracy. Besides that the collection of personal data from customers is a highly sensitive area of customization. First, data collection and analysis are not a core competence of luxury brands and many companies just started to use special software. Thus, problems could arise organizing and interpreting the gathered information. Second, although it can help a lot with future shopping assistance and marketing, luxury brands should never store personal data without the explicit permission of the customers. VI. Marketing in an Age of Diversity It is a given that an exclusive offer like customization needs an exclusive marketing approach. Therefore, all common marketing practices, such as fashion magazine advertisement, blogs, online marketing etc. are not an option. Since this customization is a costly service, the right clientele must be targeted. Thus, this paper suggests three marketing approaches to reach the luxury core customer. The 15 first strategy is to approach luxury magazines that are not directly fashion related. The selected magazines would include, but are not limited to: †¢ †¢ †¢ †¢ †¢ †¢ †¢ †¢ †¢ †¢ FT- How to spend it Town and Country Palm Beach Illustrated3 Architectural Digest Robb Report Unique Homes Luxury Living Dolce Vita Elite Traveler Prestige Instead of placing bold ads in these magazines, the marketing strategy should focus on creating interest by subtle advertisement. This could include product placement in an editorial spread that has nothing to do with fashion, e. g. a bag could be placed on a designer table in Architectural Digest. Placing the product in a special section like â€Å"most exclusive picks of the month† would be another form of subtle advertisement. If the relations to a magazine are very good, the brand could have the magazine featuring a story about most exclusive luxury items and place the customization service in there. It is crucial that prices or places where the customization service is offered will not be communicated. The magazine should only provide a phone number that connects the customer to the customization department of the brand, where all information will be available. Furthermore â€Å"price upon request† is an effective tool to create interest and the notion that a product is in a top price range and only available for a few clients. 3 Palm Beach Illustrated Magazine is an award-winning regional luxury lifestyle magazine, appealing to the worlds most sophisticated and ultra-affluent audience. The magazines content reflects the many facets of sophistication that set the Palm Beach market apart and gives the community its unique brand of panache. Focusing on cutting-edge fashion, the social and philanthropic scenes, the celebrities and fascinating personalities, the exquisite estates and interiors, as well as the luxurious retail and travel opportunities available in this unique region. 16 The second marketing strategy would be an exclusive catalogue, in which the brand introduces its new service to selected clients. That this service is not available to the broad public must be clearly communicated. Naturally the catalogue must be printed on high quality paper and must feature only very creative pictures from one of the world’s best fashion photographer, such as Andrea Klarin, Raya or Steven Meisel. The catalogue should inform the customers about the customization process, as well as provide examples of customized bags. Since luxury customers today have strong values and principles, the catalogue should include where products such as leather and silk are sourced as well as the place of production. The catalogues would be sent to already existing top customers, whose addresses the luxury brand should have in their data storage. Magazines such as Prestige, which only have subscribers over a certain net worth (starting at $2 Mio. ) could provide additional addresses of future customers. The catalogue must convey a luxury feeling through materials and aesthetics, so it does become a decorative book more than a disposable item. The last part of the marketing strategy would be an invitation only event that can be held in the best hotels of strategically important cities. With approximately 150-200 guests, the brand would exclusively introduce the customization service to their most important clients and high-society people of the city in a glamorous atmosphere. The brand could show a video about their history and heritage, leading the consumer back in the days when customization was the starting point of the brand. Exquisite catering and entertainment must be a part of the event, as well as a small fashion show that shows the brand’s latest collection with some of the customized items. The brand should have a customization expert on site, so if guests have questions about the service there is a person helping them directly. 17 VII. Financial Analysis The attached excel sheet outline a one-year cash flow plan for setting up the customization service in a first tier city flagship store. The $500. 000 start capital are sponsored by corporate. Travel expenses include travels to other flagship stores, the manufacturing site or to customers, who are out of town. As mentioned before, customized products do not impose any inventory costs on the stores. It is assumed that corporate takes over most advertising costs, however stores must support local advertisement, which can be seen in the expenses. Income taxes are assumed to be 25 percent of the sales, based on the information that in the US income taxes range from 10-35 percent. The sales figures are derived from the following price points of merchandise: Between $9. 000 and $85. 000 for a customized bag, $800 $5000 for customized shoes and $15. 000 100. 000 for customized travel items. Prices depend on leather, hardware, other materials such as lining and complexity of production. The high price points are set deliberately, to keep away non-enthusiast and protect the exclusivity of the service. The predicted sales figures are more conservative at the introduction phase of the customization service but pick up by the end of the 12 months, leaving the store with a profit of $648,700. 000 at the end of the year. December is supposed to have the highest sales figures, due to holiday business. VIII. Conclusion: Does Customization Take Away a Brand’s Authority? One reason why many brands are reluctant to change their current practices when it comes to customization is their fear of losing brand authority. As Okonkwo put it correctly, it is argued that if brands provide their customers with the tools to customize their products, they might lose their superiority appeal (Okonkwo, 2007, 248). Marketing guru Kapferer advises luxury brands to â€Å"Not pander to their 18 customers’ wishes† and to â€Å"Dominate the client† (Kapferere/Bastien, 2009, 64 f. ). However, looking at the roots of most luxury brands, with customization as their starting point, this advice seems to be outdated and ignorant to the trends in current society. Due to the latest development in the luxury markets, which have extensively explained above in chapter II- IV, denying customization to the customer seems to be narrow-minded and can seriously damage the brand on the long run. Since customization as discussed in this paper is not a means to please the masses, but to gain back the true luxury consumer who seeks an exclusive experience, the argument that the brand loses its superiority status is not applicable. The purpose of research was to examine if luxury brands could use customization in order to win back core customers and regain a luxury status. It can be concluded that with the right marketing approaches as well as with a management that is open for innovation, customization can be a great tool to optimize customer satisfaction and add value at every part of the value chain. If customization is executed correctly, it can change the luxury landscape to a situation where not only Hermes, but other brands with a long tradition of craftsmanship can be considered true luxury again. 19 References M. Edouard (2006), Revamping Luxury: Mass Customization Applied to the Luxury Goods Market. MBA Thesis, Massachusetts Institute of Technology. N. Franke, P. Keinz, C. J. Steger (2009), Testing the Value of Customization: When Do Customers Really Prefer Products Tailored to Their Preferences? , Journal of Marketing Vol. 73 (Sept. 2009),103-121. J. Holusha (1996), Making the Shoe Fit, Perfectly; Companies Use Technology to Sell to a Market of One, The New York Times. J. N. Kapferer, V. Bastien (2009), The Luxury Strategy – Break the Rules of Marketing to Build Luxury Brands. London: Kogan Page. P. Zipkin (2001), The Limits of Mass Customization, MIT Sloan Management Review, Spring2001, Vol. 42 Issue 3, p81, 7p.