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Some Basic Insights On The Luxury Sector

Dec. 28, 2020 1:19 PM ET
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Firstly, the biggest luxury firms are mainly focused on defending their stronger brands and keep their strong position in the market. As consequence, they do not offer lots of discounts because this damages luxury brands' image, and they also choose watches, jewelry, and leather instead of others such as clothes in general, which indeed is the category with the hardest competition.

Referring to marketing tools, these luxury brands use them to build brand value over time. They embrace their image and reputation by embracing collaboration not only with other luxury firms but also by choosing the best talent, outside designers, top artists, and other well-known people whose image aligns with high quality and other values which align with the ones they want to Project to the public. Therefore, the barriers of entry are high due to outstanding costs and a challenging difficulty to implement these strategies.

Moreover, all these luxury firms share a common interest in art because this elevates the Brands. In fact, a lot of firms own museums, art galleries, plan public exhibitions, and hire architects for their store designs.

Following this, exclusivity also becomes a key factor for the success within the luxury industry. For this reason, these firms keep supply always lower than the demand so that prices go up while they keep inventories pretty low. This is a considerable challenge for publicly traded brands, especially if they want to keep as a leading firm in the industry because they Will need to be rather disciplined with this matter and keep at least one inventory rather low. They usually choose fashion because it is the riskiest one that is constantly changing over time while it is also very competitive compared to others such as luxury watches, which do not change that much.

Furthermore, there are many strategies the luxury firms can use to try to show this exclusivity or scarcity. First, they like limited editions whose offerings are sold rather quickly while customers also look at other firm offerings whose demand is not so competitive at that moment. In the limited edition case, customers Will have a lot of difficulties getting those same luxury ítems because there are only a few units in the world, and money maybe not enough to get them. Secondly, another strategy is a limited or sooner distribution in some cities to generate a lot of expectations on these releases. This is also used in other industries such as video games, which are sometimes released in some countries like Japan, China, or the United States before the rest of the world.

Regarding key differential factors for the future, there are some worthy to mention. First, product innovation will be determinant while respecting the “modernity - heritage” paradigm to attract both old and new customers while keeping their image. Secondly, the luxury firms Will compete on adapting to the new e-commerce expansion that Will expand more rapidly compared to the physical stores, whose purchase experience improvement Will continue being a key differentiating factor as well.

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