INSIGHTS ON MARKETING

I recently read an article about the new Mercedes CLA sedan and its affordability as being a part of Mercedes plans to  become more accessible to a  lower economic status, which got me thinking about how luxury brands, in general, have become more visible and seemingly accessible over the past few years. Either I am either making more money than I used to, or luxury brands have begun to move towards offering versions of their brand at a lower price point to capture more sales volume – and my bank statement suggest it’s the latter. So the question then is, why are luxury brands doing this, and more importantly is it a good idea?

Why move from riches to rags?

The Luxury good category has gone through a bit of an upheaval over the last few years, as more people are accumulating wealth from new parts of the world.  In addition, non-traditional luxury consumers are entering this marketplace, looking to mix and match their non-luxury goods with a statement piece to differentiate themselves (i.e. the 40 year old guy living in a bungalow with his parents who also happens to drive a Ferrari).  The traditional luxury goods customer strives to be unique, opulent, and exclusive; and the mere thought of commoners owning the same goods disgusts them.  In an effort to satisfy their core customers, while at the same time attracting the nouveau riche and the mix and match customer, luxury brands have extended their lines into lower ends and created new super high ends in an effort to satisfy this growing demand, without simultaneously alienating their core customers. [i]

Different strokes for different folks

Social Media and The Web, spaces where much of the communication between brands and consumers takes place nowadays, have also played a large role in shaping the luxury goods segment, as these mediums have invariably increased accessibility and transparency of products however that is precisely what luxury brands typically try to avoid.[ii] As a result, the need to communicate with luxury customers has opened the floodgates, where everyone now knows about the brands, and it becomes increasingly difficult to provide exclusivity for those traditional luxury goods customers. As a result, luxury brands have developed accessible luxury goods in order to provide precisely what the masses want (access to their products), while at the same time providing an opportunity to develop a supreme luxury segment (and charge even more!) to those who are squeamish of even being remotely associated with the common folk.

How available do you want to be?

So it seems as though luxury brands have in a way been forced to adapt to an evolving audience and the medium required for speaking to them; however, is extending these luxury brands to a wider audience a good idea? Well, the answer to that lies in terms of how this strategy is executed. The risk of extending the brand downstream is that it can erode the aura of exclusivity and caché that the brand has painstainkingly built. Coach, the handbag manufacturer, was hurt by this strategy when they decided to lower its average handbag price by 10% in 2008[iii]. As a result, they lost their higher end customer base and were subsequently attacked in their new segment by Michael Kors and saw a decline in revenues in the North American market for a few years. While the attack by Michael Kors was unfortunate, they would not have had to sacrifice their core audience if they had set up a brand architecture for different sub-brands to serve different customer groups. In contrast, Giorgio Armani has had consistently strong growth for over 20 years: a part of his strategy has involved the launch of sub brands in order to attract new audiences while preserving his core customer base. At one end of the spectrum is the Armani Privé line that services supreme luxury customers, while the Armani Exchange line at the other end of the spectrum services the masses.

Returning to Mercedes’ strategy of launching a lower priced vehicle in order to become more accessible, – I have mixed feelings about this move. On one hand, Mercedes is a strong and clearly defined brand that represents luxury and fine craftsmanship.The ability to offer those attributes to a larger demographic that could not normally afford a Mercedes vehicle will definitely attract growth to customers in this segment. On the other hand, I find that while the Mercedes brand is very recognizable, I cannot off the top of my head distinguish which Mercedes models are more or less expensive, nor who their intended audience is, since their naming conventions are too similar and confusing (C class, CL class, CLA class, CLS class, etc.).  As a result, I see that if Mercedes is not careful, the CLA model may run the risk of eroding the aura of its other similarly named models, and therefore, potentially the Mercedes brand as a whole, to its traditional luxury customers.

The move to attract a new audience can be difficult to manoeuvre if one does not have strong brand recognition and an architecture in place to segment their various audiences, but is a risk that many Luxury brands seem to be willing to take in order to expand their growth opportunities in a largely stagnant western market. The rewards however may prove to be very fruitful if executed properly.