Strategic Management and Marketing for the Luxury Brand Bvlgari - Essay Example

Strategic management and marketing for the luxury brand: Bvlgari TABLE OF CONTENTS 0 Introduction.......................................................................................................... .. 2.0 Situational analysis.................................................................................................. 3.0 External analysis – PEST framework..................................................................... 4.0 Micro-level analysis – Porter’s Five Forces............................................................ 5.0 Marketing objectives............................................................................................... 6.0 Marketing strategy.................................................................................................. 7.0 Control methodology............................................................................................... 8.0 Conclusion................................................................................................................ References 1.0 Introduction Bvlgari is a luxury brand based headquartered in Italy with a long history in providing top quality products to consumers. The company was founded by Sotirios Voulgaris who launched the business to focus on jewellery in his hometown of Epiru, Greece. In 1881, Voulgaris moved to Rome where, in 1905, it became a family-run business by 1905. Today, Bvlgari has created a superior brand reputation for luxury and the company has diversified to include several different product lines that are inclusive of fragrances, hotels, jewelry and various top quality accessories. Bvlgari is now considered to be Italy’s “best known luxury brand” (Foulkes 2007, p.1). To capitalise on this positive brand identity, the company will be introducing a line of wedding gowns and high heels into the market. This report highlights an introduction of a new product into Bvulgari’s established market, offering a comprehensive analysis of external market factors that pose opportunities or threats to Bvlgari, micro-level considerations that could potentially impact success in the new product line launch, and an overview of the viability of the market to sustain the new product line. 2.0 Situational analysis Between 2007 and 2009, the luxury good market experienced financial problems as a result of the global recession (Euromonitor 2011). However, the luxury market in Europe is in a recovery stage and BRIC nations are demanding more luxury products. On a global basis, demand for luxury products continues to escalate. In 2000, the global luxury market that includes cosmetics, jewellery, handbags and fragrances is estimated to be worth $170 billion USD (York University 2001). In 2012, China became the number one market for consumption of luxury products, overtaking all other global markets (Inocencio 2013). China has surpassed even Germany, Italy, the United States and the UK in luxury goods consumption volume. It has further been estimated that the global luxury market will increase to a value of €880 billion between 2014 and 2024 (Zargani 2014). nation, surpassed all markets in the world as the largest consumer of luxury products (Inocencio 2013), inclusive of Japan, Russia, Germany, Italy, the United Kingdom, the United States and Brazil. There is ample growth in luxury consumption and luxury marketer profitability as a result of developing economies in Asian nations. In the year 2014, it is expected that the global luxury sector will grow to a value of 880 billion Euros over the next 10 years (Zargani 2014). Hence, this is a lucrative global market with ample profit opportunities for Bvlgari. China is considered one of the most viable markets for launching luxury products. China sustains over one million different millionaires and over 60,000 that have been classified as being ultra-rich (Financial Post 2012). More increased GDP, entrepreneurship and quality employment opportunities in the Asia Pacific region has made this a growth market for luxury goods demand. It is uncertain what is serving as the specific catalyst for high growth in luxury consumption in the Asian Pacific region. However, Stokburger-Sauer and Teichmann (2011) argue that luxury products have a substantial amount of symbolic value in the female markets, which is driving higher demand with women consumers. Hence, launch of wedding gowns and high heels should be catering to the most viable market that considers these products to be representative of their sophistication and refinement in Asian culture. It has further been offered that because luxury is such a high involvement process when making decisions about what products to purchase, women have more willingness to put forth this effort than male consumers in the same region (Wells and Prensky 1996). What is driving such a higher growth rate in luxury consumption in Asian nations, which make these viable environments for targeting consumers for producer revenue growth? Luxury consumption with females is poised to overtake male consumption in this category. Stokburger-Sauer and Teichmann (2011) suggest that luxury products might have more symbolic value for women than men in Asian cultures. Wells and Prensky (1996) suggest that luxury consumption is a high involvement decision-making process by which women are more willing to expend the effort than their male counterparts. Additionally, luxury products are more widely available in the global market than in historical years. It has been a traditional view that the category of product luxury is available for those with significant power and financial wealth. Luxury products are considered to be very prestigious brands (Vigneron and Johnson 2004). Luxury brands exude a perception of exclusivity and high stature which fulfils an emotional or psychological need for gratification when making comparisons to others in the social environment (Tynan, McKechnie and Chhuon 2009). In the luxury market, the influence of social reference groups is a well-recognised phenomenon that drives purchase decision-making in the luxury sector. Heaney, et al. (2005) offer that luxury consumption is a method of enhancing one’s social status. This is supported by Sproles and Kendall (1986) who suggest that having an idea of fashionableness is directly related to the social environment. The phenomenon of ostentatious consumption also drives higher demand for luxury products. Many in global society use luxury products as a method of showing important reference groups that they are successful and affluent (O’Cass and McEwen 2004). Hence, there is a multi-faceted blend of complex social and psychological variables that drive demand which are unique to each luxury consumer. However, the phenomenon of social reference group influence on purchase decision-making provides ample opportunities to launch the new Bvlgari wedding collection. Especially prevalent in Asian markets, there is a strong sense of collectivism. Collectivists have considerable loyalty and concern for the in-group and its members and loss of face from a reputational perspective is considered very distasteful (Cheung, et al. 2008). Collectivist nations sustain cultures that make many consumption decisions based on sentiment and attitude from important social figures. It has also been recognised that Chinese consumers are highly hedonistic , meaning they maintain characteristics where self-indulgence and pleasure-seeking are primary goals for the consumer (Overskeid 2002). In fact, as it pertains to the male market, it is said that having an elegant mannerism and nice skin is what makes a gentleman in this culture. According to Wen (2007), Chinese males maintain dreams of owning expensive face creams that are developed using high quality pearls. Clearly, there is a viable luxury market based on hedonistic desires of Chinese consumers to have top quality and expensive merchandise. 3.0 External analysis – PEST Framework To assess the viability of market entry into the global luxury market for Bvlgari’s wedding collection, it is crucial to understand the dynamics of what drives business activity in the region. The PEST framework provides this analysis competently. Political The Chinese government has invested considerable capital into supporting businesses with considerable de-regulation that once drove business compliance. As a matter of policy protectionism, China has increased many tariffs on imported products. This could raise the operational expenses to procure raw materials used in wedding dress and shoe construction that is procured largely from India. Economic Wedding dresses require high quality silks in order to remain viable for the Bvlgari luxury brand. India currently ranks #2 in silk production in terms of total product output (IBEF 2010). Low labour expenditures make product procurement from India a viable supply chain opportunity. Coupled with a significant advantage in exchange rates between Italy and India, low-cost procurement opportunities abound. At an average wage rate of only 91 cents per hour in India (Sincavage, Haub and Sharma, 2010), this is the most efficient and cost-conscious opportunity for silk procurement. Social When a luxury brand is able to provide consumers with the sense of social self-expansion, they are predicted to develop very strong emotional attachments to the product (Zhang and Chan 2009). Consumers develop a sense of self-esteem when they are able to utilise luxury products to gain a better social status in society. Hence, Bvlgari can utilise effective marketing to build esteem in its most desirable target markets which fulfils their emotional needs. Technological Technologies necessary to fulfil production output of wedding dresses and high heel shoes are readily available in the global market. Research did not uncover any potential hindrances to procurement of technological assets that would complicate establishing a new operational model of manufacturing. 4.0 Micro-level analysis – Porter’s Five Forces Michael Porter described five forces stemming from the external market that could conflict business success or improve its opportunities. These include threat of new market entrants, buyer and supplier power, competitive rivalry and threat of substitutes. This section describes the forces that are relevant to Bvlgari. Threat of new entrants Fortunately for Bvlgari, the costs of entering this established market are considerably high for new entrants. Bvlgari has further created barriers to market entry by sustaining a brand identity that is respected and exclusive in the minds of consumers. The threat of new entrants in the luxury sector is marginal at best. Competitive rivalry This is the highest risk factor for Bvlgari. Many competitors utilise effective marketing that builds on the psychographic traits and characteristics of consumers, hence creating strong brand attachments and loyalties. Consumers value luxury products for their quality and status symbols and main competitors such as Cartier and Chopard recognise this. See Figure 1 for an illustration of the competitive rivalry that builds consumer loyalty for competitors. Buyer power Buyers in the luxury sector are not price-sensitive, hence they do not force any backward integration in the market. The switching costs to other competitors are quite low, however, which should make Bvlgari at least conscious of pricing considerations to ensure they are competitive. Supplier power Suppliers have considerable buying power in this industry. Jewels and other fine quality materials are produced in nations that have low switching costs for vendors. Silk, if unable to be procured at an acceptable price in India, can be procured in other regions as a contingency plan for the new wedding collection launch. Threat of substitutes In the wedding industry, not all consumers want traditional clothing and are seeking alternatives that are deemed appropriate for wedding engagements. There are many luxury clothing companies in the global and Chinese markets that provide top quality merchandise at expensive prices. Bvlgari must be ever-conscious of the volume of potential clothing substitutes available and identify their integrated marketing communications to ensure the company creates a positive brand identity competitively. Figure 1: Sample advertising from Cartier that creates substantial competitive rivalry Source: Pinterest.com. (2013). Vintage Ads. [online] Available at: https://www.pinterest.com/pin/198791771022560647/ (accessed 1 April 2014). 5.0 Marketing objectives Having identified the characteristics of the external market, Bvlgari has identified three distinct objectives that will assist in carrying the brand into the future. 1. Establish brand recognition in the wedding fashion industry by 2015. 2. Recruit four different fashion designers to consult with Bvlgari and extend the brand into the wedding clothing industry to improve marketing visibility. 3. Improve corporate revenues by 15 percent through 2015. 6.0 Marketing strategy Because the wedding industry is heavily dependent on the social environment and the psychological dynamics of wedding events, marketing must be lifestyle-oriented (psychographics) in order to build a positive sense of brand preference. This is ideal considering that the Chinese market, the initial launch market, is so considerate of social sentiment and attitude when making purchasing decisions. Bvlgari must recognise that launching a new product line is a very high risk activity with considerable expenditures necessary due to the fact that it involves procurement of technologies and assets whilst developing new processes to sustain the product line (Johnson, Scholes and Whittington 2011). At the same time, the costs associated with a brand extension strategy are significant, but necessary for fulfilling the objective of brand recognition in the market. Bvlgari will first sustain its original quality positioning approach which is aligned with over 100 years of brand excellence. Emphasis in integrated marketing communications will be inclusive of top quality, high craftsmanship and excellence in service delivery that has brought Bvlgari a potent brand identity. The main factor in building brand recognition is the promotional function in the 4Ps of marketing. Bvlgari will be launching an intensive pre-launch and post-launch advertising campaign in China. The company will develop several television commercials using relevant, upscale Chinese actors that will promote more visibility and social aspiration. Bvlgari, for this campaign, will recruit respected and aspirational celebrities well-known in the Chinese market to promote the brand whilst performing in lifestyle-oriented situations in the promotions. The relevancy of celebrity endorsements for gaining potent brand attachments is well understood in marketing research (Pornpitakpan 2003; Ohanian 1990). By using lifestyle relevant celebrities with similar reputations as Bvlgari for sophistication and refinement, it will improve brand identity in the Chinese market. China also maintains a substantially well-develop distribution network in the country. This has come as a result of significant government expenditures to improve the transport infrastructure in the country. As a result, main urban cities such as Shanghai will be the target distribution methodology. Bvlgari will maintain its own branded bricks-and-mortar retail outlets in order not to inter-mix the brand with other competing brands in upscale shopping districts. Bvlgari has maintained a brand identity that speaks of exclusivity and superior sophistication over competition which must be sustained. By ensuring that place marketing is aligned with the Bvlgari image, consumers will be entering the stores in the pursuit of Bvlgari products and not deterred by competitive marketing strategies utilised in-store at major shopping districts. Though this represents a higher expenditure operationally to sustain self-owned outlets, it will be worth the cost absorption as a result of effective integrated marketing communications. Competitive wedding gowns and high heel shoes should be considerate of pricing, at least to a moderate degree in the face of a target market of female Chinese consumers that are not largely price-sensitive. The company will be conducting an initial competitor analysis of the pricing structures utilised and will align pricing on the products to ensure a fair margin of return whilst also recuperating the very high costs of setting up new production operations. As a contingency, if pricing analyses illustrate that competitors are gaining market share with price as a positioning tool, the company will consider utilising a penetration pricing structure. This would not only satisfy the main target buyers, but also lure new markets with moderate resources to explore the Bvlgari brand, thus improving revenues through dual market attraction. With a positioning strategy aligned with quality focus, emphasis on product will be critical to ensuring success of this new launch and marketing campaign. Because the wedding products will be constructed with very top quality materials (i.e. silk and hand beadwork), Bvlgari must express in all of its marketing communications that quality is not only a tangible element in product construction, but an entire holistic business philosophy. Bvlgari will be creating a presence in social media that is relevant for the upscale consumer most viable for choosing the brand for their wedding fashion needs which expresses its procurement strategies, quality assurance objectives, and the handwork that will be involved in manufacture. There is a growing trend in a phenomenon known as ethical consumption whereby consumers reward companies with a strong focus on corporate social responsibility and punish other companies without this same focus (Grande 2007). The social media presence will illustrate that company’s ability to sustain the lives of raw materials labourers in India and how procurement enhances human welfare. This will make the company stand out in terms of CSR, thus giving the brand a unique type of responsible brand identity in China. 7.0 Control methodology To ensure success of this new campaign, the company will be conducting regular market research which engages consumers about their experiences and impressions with the Bvlgari brand. The business will be conducting surveys with relevant target consumers that have high resources. This survey data will provide quantitative statistics about the viability of the brand and provide opportunities to make adjustments to brand strategy if consumer sentiment is less than expected. Bvlgari will also be conducting focus groups bi-monthly that recruits high resource luxury shoppers to discuss the brand. These focus group sessions will allow consumers to express their in-depth emotions and attitudes and engage with the brand representatives conducting the sessions. This qualitative data will ensure that Bvlgari alters its marketing and production strategies to better fit the needs and values of the most viable consumer segments in China, thus providing a more valuable experience between service and the brand. Tangible construction of the merchandise must be aligned with fashion trends, therefore the design specialists recruited to consult with the company will be required to conduct routine analyses of latest trends in the wedding industry. It is important that the company is innovative and follows the trends that are developed in relevant environments such as France and Italy. Bvlgari cannot afford for the brand to become stale and irrelevant by producing outmoded fashion designs. The design team will be a critical component for controlling marketing strategy and production strategy to ensure ongoing relevancy and brand sustainment. 8.0 Conclusion Since Bvlgari is not familiar with working and servicing wedding industry consumers, much of the learning about how to better corner this market will come from direct experiences in service, research and marketing. The company must be considerate of the social condition that drives luxury consumption in China and in the rest of the world in order to further extend the new product line into other international markets. Social factors must be incorporated into marketing communications if the brand is to be perceived as relevant and sophisticated in this market since this is a critical dynamic in the wedding industry. 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