11 New Strategic Brand Management by Philip Kotler   4th Edition
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11 New Strategic Brand Management by Philip Kotler 4th Edition

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Arnault, the CEO of
LVMH, the world\u2019s leading luxury group,
which owns 41 luxury brands. What are the
key factors in the success of its brands?
Arnault (2000: p 65) lists them in the
following order:
l product quality;
l creativity;
l image;
l company spirit;
l a drive to reinvent oneself and to be the
luxury brand
The upper-range brand
The brand Mass series, cost pressure, the spiral of quality
Series, factory, highest quality in the category
Small series, workshop, handmade work,
very fine craftsmanship
Pure creation, unique work, materialised perfection
Figure 5.1 The pyramid brand and business model in the luxury market
Writing earlier in his book with reference to
Dior, the ultimate luxury brand, he notes,
\u2018Behind Dior, there is a legitimacy \u2026 roots \u2026
an exceptional evocative power \u2026 a genuine
magic, to say nothing of its potential for
economic growth\u2019 (p 26).
As we can see, in this pyramid model, with
its base which expands to feed the brand\u2019s
overall cashflow (through licensing, exten-
sions and a less elective distribution system),
there must be a constant regeneration of value
at the tip. This is where creativity, signature
and creator come in, supplying the brand
with its artistic inventiveness. Here we are in
the realm of art, not mere styling. Each show
is a pure artistic event. Unlike the second
brand and business model (as we shall see), it
is not a question of presenting clothing which
will be worn in a year\u2019s time. As Arnault puts
it, \u2018One does not invite a thousand guests to
watch a procession of dresses which could be
seen on a coat hanger or in a show room\u2019
(p 70); \u2018most competitors prefer to show off
mass-produced clothing on their catwalks, or
indulge in American-style marketing. We are
not interested in working this way\u2019 (p 73); and
\u2018Marc Jacobs, John Galliano and Alexander
McQueen are innovators; fashion inventors;
artists who create\u2019 (p 75).
The creativity of the signature label, at the
tip of the pyramid, is at the heart of
the business model: within a few years of the
arrival of John Galliano at Dior, sales had
increased four fold. Never before had Dior
been talked about so much worldwide. Dior
was back at the centre of world artistic
creation for women.
The disadvantage of this model \u2013 and after
all, every model has a disadvantage \u2013 is that
the more accessible secondary lines are
entrusted to other designers, and the further
away you move from the tip of the pyramid,
the less creativity there is. In this model, there
is a strong danger that brand extensions will
show little of the creativity of the brand itself:
they will merely exploit its name.
The second brand and business model may
have originated in the United States, but we
should also include the likes of Armani and
Boss in this category, which is characterised
by its flat, circular, constellation-like model.
At the centre is the brand ideal, while all
manifestations of the brand (its extensions,
licences, and so on) are around the edge, at a
more or less equal distance from the centre.
Consequently, these extensions are all treated
with equal care, since each of them brings its
own individual expression of this ideal to its
target market. Each portrays the brand in an
equally important way, and plays its own part
in shaping it. For example, Ralph Lauren\u2019s
home textile extension (bed sheets, blankets,
tablecloths, bath towels and so on) is a
complete expression of the patrician East
Coast ideal and its values: indeed, the tactic of
merchandising the range in the corners of
department stores aims to create an idealised
reconstruction of a room in a house.
This second model can include brand
\u2018places\u2019 such as The House of Ralph Lauren \u2013
superstores which not only stock the entire
brand range and its various collections and
extensions, but are also specifically designed
to give flesh, structure and meaning to the
brand ideal. Ralph Lifshitz, Ralph Lauren\u2019s
founder, built his brand on an ideal: that of
American aristocracy, symbolised by Boston
high society. Ralph Lauren\u2019s flagship stores are
three-dimensional recreations of this fanciful
illusion (Figure 5.2).
The same model is also used by brands such
as Lacoste, created in 1933 in the days of
tennis champion René Lacoste, a Davis Cup
winner along with his friends \u2018Les
Mousquetaires\u2019, and nicknamed \u2018The
Crocodile\u2019 for his tenacity. Ever since then,
the brand\u2019s values, which are encapsulated in
his famous chemise (meaning \u2018shirt\u2019: the word
itself is important), have been upheld by the
Lacoste family and a collection of partners,
their licensed producers and distributors.
Lacoste thus has a certain authenticity and a
genuine history, yet at the same time follows
this second business model.
Indeed, the creation of this model has
nothing to do with chance: it is an economic
necessity for any brand which continues to be
sold at an accessible price point. There is no
way of sustaining an exclusive distribution
network with an average purchase of around
s65 or US$75 \u2013 that is, the price of a Lacoste
shirt \u2013 or US$60, the price of a Ralph Lauren
polo shirt. The economics only become
feasible with multiple extensions. Following
our model, this can be done in two ways. The
first is horizontal product extension to
increase brand recognition, providing that
elusive access to large-scale advertising
budgets, and breaking into different distri-
bution channels or different locations inside
the same department store. This increases the
perceived presence and status of the brand.
The second is vertical product extension to
increase average till prices. Today, for
example, Lacoste has segmented its product
range into three groups \u2013 sport, sportswear
and Club \u2013 yet has steered clear of formal
wear, which is outside the brand\u2019s sphere of
legitimacy. This segmentation makes it
possible for customers to wear Lacoste in a
variety of situations: sport, leisure and \u2018dress-
down Friday wear\u2019. At the same time, the
average product price is increasing according
to the particular segment: the high-quality
materials used in a Club jacket explain why.
Of course, the product ranges of all Lacoste\u2019s
extensions are arranged around this same
Ralph Lauren uses a similar model: its
recent Purple Collection features Italian-made
outfits produced from quality materials, and a
price tag to match: s3,000 per outfit.
This brand extension policy makes matters
easier for distributors, who have come to
understand that the rate of return increases as
the physical sales area expands. Each store can
now offer a rich assortment of products which
are no longer mere accessories, but extensions
in their own right \u2013 and in so doing, can
increase the value of the average shopping
It should be noted that \u2018pyramid-based\u2019
brands face a rather perverse problem. If they
create too many accessible extensions, they
reduce the profitability of the sales outlets. In
a Chanel boutique, it makes more sense to
spend 10 minutes selling a customer a Chanel
bag \u2013 given the margin it offers \u2013 rather than a
perfume or a product from the Chanel
Precision range. Clearly, the extension policy
is inseparable from the distribution policy.
Paint, home furnishing
Purple label
RLX PoloRalph Lauren
Figure 5.2 The constellation model of luxury brands
History-based and story-based luxury
An examination of luxury brand strategies
shows two brand construction models. The
first is based on product quality taken to the
extreme, the cult of product and heritage,
History with a capital H, of which the brand is
the modern embodiment. The second is