The “New Luxury”: Stefan Paul Jaworski

 

Epilogue: SXTC's Stefan Paul Jaworski predicts "Mass Luxury" branding’s Failure three years before it occurs--how, why, and where it would happen. Global Brand Consulting at its best... Here below is the original article.

"Stefan. Good thoughts about the New Luxury concept.  One of the most important conceptual issues is timing. Sometimes a downscale move works in the short term, but not in the long term."

-Al Ries, Legendary Marking Guru and inventor of "Positioning"

 

The “New Luxury”—Bringing the Myth to the Flame

(Sept 2006) For Marketers, a vital component and reality of their job is to keep abreast of new happenings in both the market and in Marketing as a field in general. From brand building to advertising changes, to new consumer groups on the rise, to demographic changes (current and future) and trends (taste, style, cultural, emotional), to marketing ideation, professional marketers are finding it ever more important to “keep their ear to the ground and their eyes open.” Yet, such activity is “vital” to ensure that they stay ahead of the pack. One such trendy “happening” involving a hypothesis concept that is getting very much attention and “buzz” lately is that of “The New Luxury.”

Indeed, companies and consultants like the management consulting firm Boston Consulting Group (BCG) and major ad agencies have propagated the New Luxury idea in articles, papers, and seminars. All play to an eager audience wanting a constant “heads up” in terms of what’s going on in the market and future trends. The popular, accepted definition of the New Luxury concept is, “as mass consumers become increasingly affluent, more sophisticated, better educated, and brand-oriented, their purchases are becoming increasingly upscale (price-point and brand wise).” This is a very simple concept, straightforward in thought, and yet DANGEROUSLY wrong in my opinion.

For a year or so, as word has spread about the “New Luxury” concept, some companies have been creating strategies, brands, products, and architectures (line extensions) to take advantage of the myth of a so called major new luxury segment. Billions have been reinvested and re-directed in gearing up for a concept that is simply more misguided myth than reality. First, let us look at the assumption that there is a huge, new wealthy population (outside of Asia) that is able to afford large amounts of new luxury products (let us call them “natural customers”).  From economic research, the New Luxury concept does not stand up because over the last several years incomes have risen slowly, debt levels of consumers have reached record highs, their savings are at record lows, and unemployment is at a decade high. The economic picture of the U.S. and many Western nations clearly has not been good for the past four years, even seeing such upscale brands as Lincoln, Calvin Klein, The Gap, and Guess having trouble. Hence, the claim that a “New Luxury” class and market are exploding is open for questioning and debate (except for possibly new high-growth markets like China and India).  

From my perspective, I see another side of the New Luxury claim—one based on brand mistakes that have created a false perception and not a new, upscale-mass category as claimed by non-brand strategy firms like BCG. What has confused and misguided firms like BCG into thinking a new luxury class has evolved is the ”surface purchasing” and “increasing presence” of luxury brand names and their products. Today, it seems everywhere one looks once exclusive and rarely seen luxury brands and their products are much more visible— to the point of being ubiquitous.  Fifteen years ago, how many BMW’s, Gucci watches, and Lexus cars could be readily seen in your local area or shopping mall? Not many. In fact, not nearly as many as today. To see a Gucci watch at a local shopping mall in the mid 1980’s could take a few days. The same is true for Lexus sightings. But, attempt the same scouting task today and the result would be far different. Gucci watches, Armani suits, BMW’s and Lexus cars are everywhere, now in the possession of the brands’ new “non traditional/natural customers,” as opposed to the original wealthy clientele. Does this mean that wealthy populations have skyrocketed over the last 15 years? Have disposable incomes gone through the roof? Of course not. Statistics tell us just the opposite—incomes are polarizing, mostly with the middle class going downward.

So, what has happened to dramatically increase the preponderance of “exclusive” brand names and their products over the last decade-and-a-half? Simple, downward line extensions by luxury brand names. To be more precise, the literal flooding of the middle “mass” market with downward line extensions by many luxury brands. Indeed, with less and less income coming from top end sales that have often been sluggish, combined with greed, exclusive brand makers have been eyeing the much larger and thus possibly more lucrative middle market into which their brands could be extended downward. Hence, the fallacy of the New Luxury concept. BMW launched the 3, and later, M economy series. Now, possibly a further step down is being taken with the 1 series. Mercedes did the same with its 190 series. Lincoln launched the “baby Lincoln,” and Cadillac the CTS. All of these luxury brands are dropping products into ever-lower price points and increasingly larger markets all artificially buoyed by credit. Thus, each is artificially expanding the proliferation of their brand names and branded products, creating the “appearance” of what seems to be the rise of luxury brand dominance— in turn establishing the so- called “New Luxury” concept. Brand-wise, this constant downward movement by luxury brands via line extensions is a dangerous occurrence as there are numerous long-term negative consequences, despite the perceived short term success and benefits.

An excellent example is that of Lexus, whose recent foray into the mid market (via downward line extensions) has increased visibility, sales, and accessibility for the brand. It has also caused dilution of the luxury brand identity built up over years, as well being a brand architecture nightmare. Lexus has overlapped its Toyota brand in terms of price and market segment targeted. Indeed, both Lexus (at the low end) and Toyota (at its high end) are now sharing an overlapping client base. Finally, the reality of “de-focusing” is a result of this trend downward for Lexus and many other luxury brands. Such brands simply get caught up in the problematic cycle of being pulled away from their original focused clientele and path to trying to be different things to multiple audiences (in other words becoming de-focused). Indeed, a common scenario involves a luxury brand that after going “down” finds its brand identity and efforts now split between “original premium” and “low premium/mediocre.” The result is that the entire brand identity gets pulled downward, and the original/natural, high-end customers go elsewhere in search of “uncommon” premium-ness.  If you purposely want to de-focus and bring down a luxury brand, losing the original premium/natural clients, simply release line extensions downward towards mid-market values and wait. Let us not forget that as luxury brands become more common and adopted by the masses as a result of this stretching down, their original/natural wealthy clients abandon them in search of more expensive and elitist replacements which verify their own personal “justified” status. In other words, as luxury brands go down the wealthy go up—or, better yet, elsewhere.

“Affordable Luxury”

One of the most dangerous, misguided and simply erroneous aspects of the New Luxury fad that has evolved is that of prestige brands “down pricing” and thus “downgrading” their products. In my opinion, the proud “machination” of ad agency guided claims of “Affordable Luxury” is probably the single, greatest catastrophe that awaits to fully play out a devastating result for many if not most prestige brands. Despite all we have witnessed and learned from history and case study analysis regarding price cutting in any way or shape, it astounds me to see the process alive and well in disguised forms with euphemistic names such as “Affordable Luxury” and “New Luxury.” But, this is exactly what has happened, and is currently happening, to many once leading prestige brands—they simply abandoned their natural client bases and focus and followed the blind into price cutting oblivion usually via downward line extensions. A good example is that of Cross pens once known as “the pen to have if you could afford it”; the Cross pen is now nothing more than an expensive “Bic” with its reach down into the fourteen dollar ($14) market. The once exclusive Cross can now be seen everywhere from Office Depot to Staples to mall key chain kiosks, leading to the reality of: “I want a prestige pen, but not Cross as even my mailman carries one. Mont Blanc, please!” The same with Seiko—once the Japanese prestige watch to have. But, after cutting price levels with a vengeance, selling product in every big box discount retailer for under sixty dollars ($60), lacking in innovation, and failing to engage in any serious prestige brand building activities, Seiko is no longer the prestige brand it was. In fact, it is far from it and its brand identity and price points have never recovered.

Probably the most damaged brand I have seen has been that of Lincoln: a malnourished, mismanaged, and eager victim of “Affordable Luxury” as there is. And a luxury flagship brand of Ford, no less! Of course, Ford’s dedication to Mazda has been no help to Lincoln, but the greatest damage has been from following the likes of BMW into the quagmire of “Affordable Luxury” via its LS. The results have been disastrous to the point that Lincoln’s very future may be in doubt. Indeed, the downward LS line has many asking the Al Ries-like question of “what’s a Lincoln? The answer being: a less expensive, big, small, American, Euro, boxy, low end luxury, BMW copy car!!!” As the saying goes “what’s definite about Lincoln is its indefiniteness!” Or, in other words, Lincoln is defocused but with a tangent downwards (price and image wise). Indeed, within two (2) generations, Lincoln has gone from being the super American prestige car moniker the world over to being a cheap luxury knock off of Euro and Asian downward line extensions (a cheap copy of foreign “bottom of the barrel” luxury offerings). All of this from significant brand mismanagement—most of which is “New Luxury” based with “Affordable Luxury” thinking and doing.

In reality, “New Luxury” and “Affordable Luxury” thinking are simply the death blow to many prestige brands if they decide to wrongly follow their straight and wide path downward (literally with line extensions). All of the pretty pictures, ads, and tricks of those that over-promote these misguided and erroneous fads will never begin to repair the damage they have done already, and are yet to wreak, on many of the world’s most valuable tangible and intangible assets: the true luxury brands. New Luxury? Beware!

Stefan Paul Jaworski, Masters Degree Marketing

Stefan Paul Jaworski, Masters Degree Marketing, is Partner and Director of North America with Studio X Branding-Temporal Global Brand Consulting—a 20 year old, leading global/multinational Brand Marketing Consultancy. Clients have included Coca-Cola, Anheuser-Busch(Budweiser), Motorola, Panasonic, Kao Cosmetics, Intel, TDK, The Hard Rock Café, Hewlett Packard, Apple Computers, Bosch, Exxon, and Microsoft, as well as governments including New Zealand, The UK, China, Malaysia, and Dubai. The firm is responsible for industry-leading articles, cases, white papers, and 16 of the Marketing world’s most respected brand strategy books.

www.sxtcbrand.com

(Sept 2006) For Marketers, a vital component and reality of their job is to keep abreast of new happenings in both the market and in Marketing as a field in general. From brand building to advertising changes, to new consumer groups on the rise, to demographic changes (current and future) and trends (taste, style, cultural, emotional), to marketing ideation, professional marketers are finding it ever more important to “keep their ear to the ground and their eyes open.” Yet, such activity is “vital” to ensure that they stay ahead of the pack. One such trendy “happening” involving a hypothesis concept that is getting very much attention and “buzz” lately is that of “The New Luxury.”

Indeed, companies and consultants like the management consulting firm Boston Consulting Group (BCG) and major ad agencies have propagated the New Luxury idea in articles, papers, and seminars. All play to an eager audience wanting a constant “heads up” in terms of what’s going on in the market and future trends. The popular, accepted definition of the New Luxury concept is, “as mass consumers become increasingly affluent, more sophisticated, better educated, and brand-oriented, their purchases are becoming increasingly upscale (price-point and brand wise).” This is a very simple concept, straightforward in thought, and yet DANGEROUSLY wrong in my opinion.

For a year or so, as word has spread about the “New Luxury” concept, some companies have been creating strategies, brands, products, and architectures (line extensions) to take advantage of the myth of a so called major new luxury segment. Billions have been reinvested and re-directed in gearing up for a concept that is simply more misguided myth than reality. First, let us look at the assumption that there is a huge, new wealthy population (outside of Asia) that is able to afford large amounts of new luxury products (let us call them “natural customers”).  From economic research, the New Luxury concept does not stand up because over the last several years incomes have risen slowly, debt levels of consumers have reached record highs, their savings are at record lows, and unemployment is at a decade high. The economic picture of the U.S. and many Western nations clearly has not been good for the past four years, even seeing such upscale brands as Lincoln, Calvin Klein, The Gap, and Guess having trouble. Hence, the claim that a “New Luxury” class and market are exploding is open for questioning and debate (except for possibly new high-growth markets like China and India).  

From my perspective, I see another side of the New Luxury claim—one based on brand mistakes that have created a false perception and not a new, upscale-mass category as claimed by non-brand strategy firms like BCG. What has confused and misguided firms like BCG into thinking a new luxury class has evolved is the ”surface purchasing” and “increasing presence” of luxury brand names and their products. Today, it seems everywhere one looks once exclusive and rarely seen luxury brands and their products are much more visible— to the point of being ubiquitous.  Fifteen years ago, how many BMW’s, Gucci watches, and Lexus cars could be readily seen in your local area or shopping mall? Not many. In fact, not nearly as many as today. To see a Gucci watch at a local shopping mall in the mid 1980’s could take a few days. The same is true for Lexus sightings. But, attempt the same scouting task today and the result would be far different. Gucci watches, Armani suits, BMW’s and Lexus cars are everywhere, now in the possession of the brands’ new “non traditional/natural customers,” as opposed to the original wealthy clientele. Does this mean that wealthy populations have skyrocketed over the last 15 years? Have disposable incomes gone through the roof? Of course not. Statistics tell us just the opposite—incomes are polarizing, mostly with the middle class going downward.

So, what has happened to dramatically increase the preponderance of “exclusive” brand names and their products over the last decade-and-a-half? Simple, downward line extensions by luxury brand names. To be more precise, the literal flooding of the middle “mass” market with downward line extensions by many luxury brands. Indeed, with less and less income coming from top end sales that have often been sluggish, combined with greed, exclusive brand makers have been eyeing the much larger and thus possibly more lucrative middle market into which their brands could be extended downward. Hence, the fallacy of the New Luxury concept. BMW launched the 3, and later, M economy series. Now, possibly a further step down is being taken with the 1 series. Mercedes did the same with its 190 series. Lincoln launched the “baby Lincoln,” and Cadillac the CTS. All of these luxury brands are dropping products into ever-lower price points and increasingly larger markets all artificially buoyed by credit. Thus, each is artificially expanding the proliferation of their brand names and branded products, creating the “appearance” of what seems to be the rise of luxury brand dominance— in turn establishing the so- called “New Luxury” concept. Brand-wise, this constant downward movement by luxury brands via line extensions is a dangerous occurrence as there are numerous long-term negative consequences, despite the perceived short term success and benefits.

An excellent example is that of Lexus, whose recent foray into the mid market (via downward line extensions) has increased visibility, sales, and accessibility for the brand. It has also caused dilution of the luxury brand identity built up over years, as well being a brand architecture nightmare. Lexus has overlapped its Toyota brand in terms of price and market segment targeted. Indeed, both Lexus (at the low end) and Toyota (at its high end) are now sharing an overlapping client base. Finally, the reality of “de-focusing” is a result of this trend downward for Lexus and many other luxury brands. Such brands simply get caught up in the problematic cycle of being pulled away from their original focused clientele and path to trying to be different things to multiple audiences (in other words becoming de-focused). Indeed, a common scenario involves a luxury brand that after going “down” finds its brand identity and efforts now split between “original premium” and “low premium/mediocre.” The result is that the entire brand identity gets pulled downward, and the original/natural, high-end customers go elsewhere in search of “uncommon” premium-ness.  If you purposely want to de-focus and bring down a luxury brand, losing the original premium/natural clients, simply release line extensions downward towards mid-market values and wait. Let us not forget that as luxury brands become more common and adopted by the masses as a result of this stretching down, their original/natural wealthy clients abandon them in search of more expensive and elitist replacements which verify their own personal “justified” status. In other words, as luxury brands go down the wealthy go up—or, better yet, elsewhere.

“Affordable Luxury”

One of the most dangerous, misguided and simply erroneous aspects of the New Luxury fad that has evolved is that of prestige brands “down pricing” and thus “downgrading” their products. In my opinion, the proud “machination” of ad agency guided claims of “Affordable Luxury” is probably the single, greatest catastrophe that awaits to fully play out a devastating result for many if not most prestige brands. Despite all we have witnessed and learned from history and case study analysis regarding price cutting in any way or shape, it astounds me to see the process alive and well in disguised forms with euphemistic names such as “Affordable Luxury” and “New Luxury.” But, this is exactly what has happened, and is currently happening, to many once leading prestige brands—they simply abandoned their natural client bases and focus and followed the blind into price cutting oblivion usually via downward line extensions. A good example is that of Cross pens once known as “the pen to have if you could afford it”; the Cross pen is now nothing more than an expensive “Bic” with its reach down into the fourteen dollar ($14) market. The once exclusive Cross can now be seen everywhere from Office Depot to Staples to mall key chain kiosks, leading to the reality of: “I want a prestige pen, but not Cross as even my mailman carries one. Mont Blanc, please!” The same with Seiko—once the Japanese prestige watch to have. But, after cutting price levels with a vengeance, selling product in every big box discount retailer for under sixty dollars ($60), lacking in innovation, and failing to engage in any serious prestige brand building activities, Seiko is no longer the prestige brand it was. In fact, it is far from it and its brand identity and price points have never recovered.

Probably the most damaged brand I have seen has been that of Lincoln: a malnourished, mismanaged, and eager victim of “Affordable Luxury” as there is. And a luxury flagship brand of Ford, no less! Of course, Ford’s dedication to Mazda has been no help to Lincoln, but the greatest damage has been from following the likes of BMW into the quagmire of “Affordable Luxury” via its LS. The results have been disastrous to the point that Lincoln’s very future may be in doubt. Indeed, the downward LS line has many asking the Al Ries-like question of “what’s a Lincoln? The answer being: a less expensive, big, small, American, Euro, boxy, low end luxury, BMW copy car!!!” As the saying goes “what’s definite about Lincoln is its indefiniteness!” Or, in other words, Lincoln is defocused but with a tangent downwards (price and image wise). Indeed, within two (2) generations, Lincoln has gone from being the super American prestige car moniker the world over to being a cheap luxury knock off of Euro and Asian downward line extensions (a cheap copy of foreign “bottom of the barrel” luxury offerings). All of this from significant brand mismanagement—most of which is “New Luxury” based with “Affordable Luxury” thinking and doing.

In reality, “New Luxury” and “Affordable Luxury” thinking are simply the death blow to many prestige brands if they decide to wrongly follow their straight and wide path downward (literally with line extensions). All of the pretty pictures, ads, and tricks of those that over-promote these misguided and erroneous fads will never begin to repair the damage they have done already, and are yet to wreak, on many of the world’s most valuable tangible and intangible assets: the true luxury brands. New Luxury? Beware!

Stefan Paul Jaworski, Masters Degree Marketing

Stefan Paul Jaworski, Masters Degree Marketing, is Partner and Director of North America with Studio X Branding-Temporal Global Brand Consulting—a 20 year old, leading global/multinational Brand Marketing Consultancy. Clients have included Coca-Cola, Anheuser-Busch(Budweiser), Motorola, Panasonic, Kao Cosmetics, Intel, TDK, The Hard Rock Café, Hewlett Packard, Apple Computers, Bosch, Exxon, and Microsoft, as well as governments including New Zealand, The UK, China, Malaysia, and Dubai. The firm is responsible for industry-leading articles, cases, white papers, and 16 of the Marketing world’s most respected brand strategy books.

www.sxtcbrand.com

Comments

[Chris P.]

This article is 3 years ahead of its time. with Prada, Chanel and nearly every luxury brand on the ropes with serious dilution problems by chasing after the "mass luxury market." London'd City Am tells of the imp0ending disaster facing Luxury brand from their bad practices... this article not only predicted it and gave warning of what to do 3 years of before it happened. Well done! Too bad the luxu brands did not listen.