The Marketing of Luxury Goods in an Age of Austerity - Essay Example

The Marketing of Luxury Goods in an Age of Austerity: What Switching Costs are Acceptable to Those Looking to Trade Up and for Luxury Brands Looking to Attract New Customers? Introduction This proposal and pilot study aims to set out the basis for a dissertation situated within the areas of marketing and consumer behaviour that considers the marketing of luxury goods in times of economic hardship and how luxury brands attract new customers, using changes to their switching costs to achieve this. The first part of the report is a project proposal that include a brief overview of the project, project’s objectives and rationale, and research methodology. In the study, current literature was reviewed to establish the context of the research findings. Finally, the conclusion gives a detailed analysis and inferences on the research findings according to the pilot study. Brief Overview and Research Rationale In the increasingly dim economic view of the UK, luxury brands must still earn their keep. This will increasingly require smarter marketing, potentially including some reduction in switching costs to allow those who would not normally be able to afford the luxury brand, to be able to join the ranks of those who can. However, any changes to the marketing mix must be made with care such that the brand is not devalued in any way. Failure to retain the brand’s inspirational qualities will reduce the brand’s value, undoing all the hard work that has created the brand in the first place. To establish the relationship between the demand for luxury goods and consumer’s purchasing power, both qualitative and quantitative research methods will be applied creating a necessity for a cross-sectional design (Bryman, 2008, p.44). The necessary data will be obtained from suppliers of luxury goods as well as consumers of the goods. The main objective of the study will be to establish strategies applied by manufactures to sustain the demand for their products and attract new customers. Such a design would require a clear definition of “luxury” as it is a relative concept. Another may perceive something considered by one person to be a luxury, as a normal purchase. In addition, some brands cover a wide range of price points (assuming luxury involves the payment of a premium), with bargain ranges and luxury ranges within the brand itself. Further, some brands are considered luxury items because of their association with an idea or a person, such as a celebrity endorsement. Thus, determining what luxury is a key point for the study. Methodology In the survey questioners will be the main data collection tool, the study will require two types of questionnaire for different correspondents required in the study. For the purposes of this study, the student body of the university will serve as prospective consumers. Survey research involves large samples and therefore online questionnaires will be the most convenient. Although online questionnaire will provide us with data from varying sources, the method is inappropriate for people who do not have internet access. This problem however will not have much effect on the study due to the availability of computer and internet in the university. The online questionnaire will be a self-completion questionnaire where the student will be provided with a link that will enable them to find the required questionnaire (ibid, p.215). For the manufacturers and suppliers of the luxury goods, both a paper-based and an internet-based questionnaire can be used, to provide the most convenient ways for the questionnaires to be completed and encouraging manufacturers and suppliers to take part. Once the data have been collected, different experiments can be set up using the information provided, to determine whether consumers really would purchase the luxury brand under the circumstances they have identified, or whether it would take still further adjustments to the switching costs before the purchase takes place. A small-scale pilot was run with the questionnaires as they were devised in the first instance, with a view to improving response rates to the actual research instrument. Literature Review Marketing is “the process by which companies creates value for customers and build strong customer relationships in order to capture value from customers in return” (Kotler and Armstrong, 2012, p.29). The marketing process has five steps: Figure One: A Simple Model of the Marketing Process (Kotler and Armstrong, 2012, p.29) Luxury goods require a specialty approach, based on specific marketing considerations: Marketing Considerations Type of Consumer Product: Specialty Customer Buying Behaviour Strong brand preference and loyalty; special purchase effort, little comparison of brands, low price sensitivity Price High price Distribution Exclusive distribution in only one or a few outlets per market area Promotion More carefully targeted promotion by both the producer and resellers Examples Luxury goods, such as Rolex watches or fine crystal Table One: Marketing Considerations for Consumer Products (adapted from Kotler and Armstrong, 2012, p.251) An extremely important idea in the marketing of luxury goods is branding. A brand is “a name, term, sign, symbol, design or a combination of these, that identified the products or services of one seller or group of sellers and differentiates them from those of the competitors” (ibid, p.255). Creating the right brand experience is essential when dealing with luxury goods (Sinha, 2011, p.85), and is a particular issue if the brand is taken online, as there is no window-shopping, thus no opportunity to build up the desirability of the item concerned. Many individuals see products through shop windows and aspire to own those goods at some point. If the shop window no longer exists, then the ability to build up the inspirational nature of the brand disappears. This indicates that the idea of brand equity is essential when positioning and marketing luxury brands. Brand equity is “the differential effects that knowing the brand name has on customer response to the product or its marketing” (Kotler and Armstrong, 2012, p.267). Sinha (2011, p.86) believes that the retail outlet is “the biggest brand builder of any product,” indicating a limited role for both internet and social media marketing. Hader (2008, p.27) identifies “a flawlessly engaging and emotional experience with every interaction” when marketing luxury goods, again, linking back to the brand’s image and equity. Brand building becomes an important activity: Figure Two: Major Brand Strategy Decisions (Kotler and Armstrong, 2012, p.268) Both buyer extrinsic and intrinsic motivation play a part in whether a luxury brand is purchased. Extrinsic aspirations “are more strongly related to conspicuous consumption,” while intrinsic aspirations “are much more strongly related to self-directed pleasure and quality search” (Truong, 2010, p.653), meaning marketing efforts must take both into account to capture both types of customer. Taking the watch industry as an example, different brands can be plotted in different ways: Figure Three: The Watches Industry Structure (Based on Black Book, 2011, p.33) Here it can be seen that different watch brands can be classified based on the degree of luxury and whether or not they are established brands or new entrants. Luxury brands have a battle on their hands to retain their market share and luxury status. Luxury goods consumers have “become more diversified by region, class and age”, luxury brand companies have adopted “professional management structures” and brand managers “are approaching their marketing and brand strategies in a more systematic way” to help fight the effects of the recession (Choi, 2009, p.108). Choi has put together a diagrammatic analysis of the situation, which can be used to identify and assess different switching strategies as the world enters a more cautious economic outlook: Figure Four: Keywords of Consumption in Luxury Market and the Economic Downturn (Choi, 2009, p.108) On this basis, there appear to be several ways of framing the proposed research, which will be situated in the luxury watch market, as there is a direct comparator for the results obtained from the research. Pilot Study Findings With the current economic hardship, demand for luxury goods was expected to fall drastically. According to the findings of the pilot study, demand for luxury goods remains as a constant even though there are economic constraints. With the on-going economic difficulties, manufactures of luxury goods are also concerned with sustainability of their businesses. The manufactures also need to establish the degree to which an average consumer considers their products to be luxury goods. Qualitative data collected from manufacturers of luxury watches proved that most manufactures of luxury goods do not consider their goods as luxury. The pilot study also showed that manufactures apply all available sales promotion method to ensure that their goods compete favourably with basic goods. Qualitative studies confirmed that most manufacturers depend on the strength of their brand to secure their niche in the competitive market (Truong, 2010, p.613). In addition, most manufacturers apply other value added measures such as designs and fashion trends to ensure that their goods remain competitive. Although manufacturers of luxury goods apply several measures to influence customers into buying their goods, brands remains the main means of competition. Data collected from luxury watches manufacturers indicates that majority of luxury goods manufactures strive to establish their brands in the competitive market. Manufacturers are also aware of the differences of their brands according to the customer’s specifications. In their attempt to establish the competitiveness of their brands, most manufactures try to ensure that their brands attain a super-brand status. An analysis on data collected from the student population indicates that majority of the students continued to buy luxury goods constantly. From the research findings, it was established that the price of luxury goods is not the main determinant of their demand. Qualitative data collected from the student population indicates that demand for luxury goods is driven by other factors such as design, celebrity endorsement, and fashion (Truong, 2010, p.53). Majority of the customers affirm that they would constantly buy luxury goods irrespective of their price. Both the online questionnaires and paper-based questionnaires indicate that customers would continuously buy luxury goods irrespective of the current economic constraints. This generally agrees with the ideologies presented in various literatures that were reviewed. The pilot study therefore acts as a precursor to a more elaborate and profound investigation into this topic. Word Count: 1,611 words (excludes diagrams and reference list) References Black Book (2011) ‘Marketing Dynamics in Watches: Product Innovation and Pricing’ European Luxury Goods: Hard Luxury – Markets, Players and Opportunities March, Bernstein Analysis pp.33-51 Bryman, A. (2008) Social Research Methods (3rd edn.) Oxford University Press, Oxford Choi, S-H. (2009) ‘Global Luxury Brands’ Strategies to Fight Recession’ SERI Quarterly Vol. 2 No. 4 pp.108-111 Hader, S. (2008) ‘Wooing Luxury Customers’ Marketing Management Vol. 17 No. 4 pp.27-31 Kotler, P. and Armstrong, G. (2012) Principles of Marketing (Global Edition) (14th edn.) Pearson Education, Harlow Sinha, P. (2011) ‘Luxury Retail: Creating Brand Experience’ Vikalpa: The Journal for Decision-Makers Vol. 36 No. 1 pp.85-86 Truong, Y. (2010) ‘Personal Aspirations and the Consumption of Luxury Goods’ International Journal of Market Research Vol. 52 No. 5 pp.653-671 Read More