Submission No.：C000052 An Empirical Analysis of Pricing in Luxury Fashion Brands & Business Keywords: Luxury fashion, Online store, Regular and selli...

ISASE 2019

An Empirical Analysis of Pricing in Luxury Fashion Brands

Takao FURUKAWA*, Mariko NAKAZAWA **, Chikako MIURA *, and Kaoru MORI ***

* Kyoritsu Women’s University, 2-2-1 Hitotsubashi, Chiyoda-ku, Tokyo 101-8437, Japan {tfuruakwa,cmiura}@kyoritsu-wu.ac.jp ** e-Agency Co., Ltd., 1-9-4 Yurakucho, Chiyoda-ku, Tokyo 100-0006, Japan [email protected] *** Keio University, 5322 Endo, Fujisawa-shi, Kanagawa 252-0882, Japan [email protected]

Abstract: Characteristics of luxury fashion brands were quantitatively derived from regular and selling prices extracted from online retail stores specialized in luxury fashion products. This study assumes that brands definitively determine regular prices based on marketing; however, online retail stores dynamically adjust selling prices considering the balance between consumer demand and producer supply. Regular price distributions indicated the prestige of 34 luxury fashion brands, with traditional French and Italian brands appearing in a higher rank. Two emerging luxury brands also had a higher social status. This result suggests that the mobility of creative talents allows emerging brands to inherit the brand equity of traditional and prestigious brands. The analysis of variance (ANOVA) suggests that 34 luxury fashion brands were segregated in the market, even price distributions overlap each other. Two-way ANOVA for brand groups comprised of main and diffusion lines confirmed the difference between lines, and the difference between regular and selling prices. This paper classified these brand groups forming diffusion lines into five types, based on brand operations and the price relationship between main and diffusion lines. Keywords: Luxury fashion, Online store, Regular and selling prices, Prestige, Diffusion line

1. INTRODUCTION The ready-to-wear products presented at fashion shows The market for personal luxury products and services by luxury fashion brands have a significant impact on is expected to continue growing in developed and mass fashion products, and they lead fashion trends. emerging countries. The market size amounted to EUR Luxury fashion brands limit distribution channels to 262 billion in 2017, a three-fold increase compared to the directly managed stores and department stores, in order market size in 1996 [1]. Luxury products that fascinate to provide special purchasing experiences for customers customers are quite different from commodity products, with visual merchandising, such as a museum. Therefore, in terms of the tangible and intangible added value that luxury fashion brands avoid selling their products cannot be expressed by their function and performance. through the distribution channel of general merchandise Luxury products and brands have been studied from stores, where various brand products are mixed. Limited multifaceted viewpoints. These interdisciplinary distribution channels allow luxury brands to strictly viewpoints have included cultural backgrounds of history control price and brand image. and heritage, aspects of product design and integrity, and In recent years, the online market has shown rapid elements of marketing strategy, such as positioning and growth. Online stores must be considered as a pricing. In marketing research, in particular, existing distribution channel even for luxury brands due to their frameworks designed for commodity large economic impact. This paper explores the attributes products—emphasizing high performance and low of luxury fashion products, such as brand and prices, price—were not sufficient for analyzing luxury products extracted from the online stores. We shed light on [2]. Quantitative analyses of consumer investigation dynamic pricing of luxury fashion products, as observed targeting luxury brands have also been reported in from the difference between regular and selling prices, behavioral science and psychology [3, 4]. Except for and we quantitatively analyze characteristics of brands.

some papers on brand extension [5–8], existing papers 2. METHOD discussing case studies focus on specific luxury brands 2.1 Online luxury fashion store [9–10]. The outcomes in these papers are interesting but The online stores of luxury fashion products are difficult to generalize because of limited case studies.

1 ISASE 2019 ISASE Submission No.：C000052 An Empirical Analysis of Pricing in Luxury Fashion Brands Fashion Design & Business Keywords: Luxury fashion, Online store, Regular and selli...

categorized into flagship online stores and online retail considering the balance between consumer demand and stores. The following directly managed online stores are producer supply.

typical flagship online stores: 3.2 Price distribution • Hermès, www.hermes.com First, we assumed that the regular prices reflect the • CHANEL, www.chanel.com brand prestige. Second, we selected luxury fashion • Louis Vuitton, www.louisvuitton.com brands selling more than 800 items in online retail stores • 24 Sèvres managed by LVMH www.24sevres.com to ensure the reliability of the quantitative analysis. In In 2000, Yoox and Net-A-Porter opened their online addition to these brands, we added Burberry Prorsum, retail stores specialized in luxury fashion products. Yoox which is a representative UK luxury fashion brand [8]. and Net-A-Porter have a relatively long history and large Figure 1 demonstrates the regular price distribution of revenue in the online retail stores. In this study, we have various products by brand with a logarithmic scale. A selected Yoox and Net-A-Porter, which cover various box with a vertical line indicates the 25th, 50th, and 75th brands, as sources for the quantitative analysis. percentiles of the regular price distribution. A horizontal 2.2 Product attributes dotted line indicates the range between the lowest and An HTML file on a web page describes attributes of highest prices. The result of ANOVA, F (33, 126652) = products sold in the online retail store. Table 1 shows the 835, p < 0.001, suggests that 34 luxury fashion brands attributes of luxury fashion products sold through Yoox were segregated in the market, even though the price and Net-A-Porter. For this study, we developed a distributions overlap. crawling application that automatically and periodically In Figure 1, brands are listed in order from the highest collects HTML and image files of products, which are mean regular price. Burberry Prorsum, regarded as a then saved on a cloud service. We also developed a high-grade line of Burberry, was ranked at the top. scraping program to extract the product attributes listed Except for Tom Ford and Alexander McQueen, French in Table 1. and Italian brands with a long history, such as Valentino, Table 1: Product attributes Saint Laurent, Dior, Celine, and Gucci, appeared at a 1. Date 6. Regular price higher rank. Burberry, which was established by Thomas 2. URL 7. Selling price 3. Brand name 8. Stock Burberry at Basingstoke in the UK in 1886, has a more 4. Product name 9. Image file name than 160-year-old history. Burberry Prorsum, which was 5. Product ID 10. Path to image file established in 1999, is a new brand, but it inherits the 2.3 Brand tradition of Burberry from the 19th century. Gucci was This study selected prominent European, American, established as a leather goods manufacturer by Guccio and Japanese luxury fashion brands satisfying a Gucci in Florence, Italy in 1923 after World War I. Dior, sufficiently high number of products sold in the U.S. which was established by Christian Dior in Paris, France market on Yoox and Net-A-Porter. Table 2 summarizes in 1946 after World War II, is a core brand in the LVMH the number of selected luxury fashion brands by country. conglomerate. Valentino was established by Valentino Table 2: Number of selected brands Garavani in Rome, Italy in 1957. Saint Laurent was Country France Italy UK US Japan established by Yves Henri Donat Mathieu-Saint-Laurent Brands 21 20 8 15 10 with support from Pierre Bergé in Paris, France in 1962. These brands have a history of more than 60 years. This 3. PRESTIGE OF LUXURY FASHION BRANDS suggests that a long history and tradition, and a premium Price is the most significant indicator characterizing price, shape brand prestige. products. There are various prices associated with Tom Ford, which ranked in 2nd place, was established distribution processes. For example, producer cost by Thomas Carlyle Ford and Domenico De Sole in 2006. comprises manufacturing cost and producer profit. Alexander McQueen, ranked at 6th place, was Wholesale and retail prices contain distribution margins established by Lee Alexander McQueen in 1992. in addition to a producer price. Regular and selling prices Compared with the typical luxury brands described in this paper are the retail prices of online stores. This above, these two brands do not have a long history and paper introduced an assumption that brands definitively tradition. It is interesting that these two brands can retain determine regular prices based on marketing; however, a premium cost despite a relatively short history. online retail stores dynamically adjust selling prices This paper discusses how emerging luxury brands

2 ISASE 2019 ISASE Submission No.：C000052 An Empirical Analysis of Pricing in Luxury Fashion Brands Fashion Design & Business Keywords: Luxury fashion, Online store, Regular and selli...

acquire a prestigious position in the market in the short distributions of brands operating diffusion lines. The term. Thomas Carlyle Ford had previously worked as a white and gray boxes illustrate the distributions of creative director of Gucci and Yves Saint Laurent Rive regular and selling prices, respectively. Main and Gauche. When he joined Gucci in 1994, Gucci had been diffusion lines tend to be separated into high and low fundamentally restructuring its historical brand to stay prices. This tendency clearly appears in , Chloé, relevant. In this period, therefore, Mr. Ford gained and Valentino. In terms of brands (main and diffusion experience in establishing prestigious brands. Lee lines) and prices (regular and selling), we applied Alexander McQueen had also worked as a designer for two-way ANOVA for each brand group. In the case of well-known brands such as Givenchy. Despite the Giorgio Armani, Emporio Armani, and Armani Exchange, relatively short history of Tom Ford and Alexander for main and diffusion lines, F(2, 26291) = 4071, p < McQueen, the mobility of creative talents allowed them 0.001, for regular and selling prices, F(1, 26291) = 1455, to inherit the brand equity of traditional and prestigious p < 0.001. A two-way ANOVA confirmed the difference brand such as Gucci and Givenchy. Indirect inheritance between the main and diffusion lines as well as the of DNA from traditional and prestigious brands is a difference between regular and selling prices for all significant factor for emerging luxury fashion brands to brand groups. Although Miu Miu is a diffusion line of succeed in the market. Prada, the mean regular and selling prices of Miu Miu Mean Quartile were both higher than those of Prada. The mean regular and selling prices of Junya Watanabe were both higher Burberry Prorsum, N=302 Tom Ford, N=961 than those of Comme des Garçons. Valentino, N=4651 Mean Regular price Saint Laurent, N=2482 Selling price Givenchy, N=2989 Alexander McQueen, N=2488 Dior, N=1550 Giorgio Armani, N=1422 Céline, N=2142 Emporio Armani, N=11475 Gucci, N=6628 Armani Exchange, N=252 Giorgio Armani, N=1422 Chloé, N=4019 Chloé, N=4019 See by Chloé, N=4922 Miu Miu, N=5126 Jil Sander, N=2269 , N=4111 Jil Sander Navy, N=1243 Dolce & Gabbana, N=10896 Valentino, N=4651 Balenciaga, N=3608 RedValentino, N=6736 Prada, N=9517 Alexander Wang, N=2617 , N=2623 , N=4640 T by Alexander Wang, N=830 Salvatore Ferragamo, N=2062 Maison Margiela, N=4640 Dries van Noten, N=1037 MM6 by Maison Margiela, N=2368 Burberry, N=1390 Prada, N=9517 Jil Sander, N=2269 Miu Miu, N=5126 Marni, N=5309 Comme des Garçons, N=738 Stella McCartney, N=5297 Junya Watanabe Comme des Garçons, N=438 Burberry London, N=1056 Dolce & Gabbana, N=10896 Alexander Wang, N=2617 D&G, N=765 RedValentino, N=6736 Marc Jacobs, N=2623 Burberry Brit, N=1129 Marc by Marc Jacobs, N=6791 Jil Sander Navy, N=1243 Moncler, N=611 Emporio Armani, N=11475 MM6 by Mason Margiela, N=2368 Moncler Gamme Rouge, N=124 See by Chloé, N=4922 Moncler Gamme Bleu, N=7 Marc by Marc Jacobs, N=6791 Moncler Grenoble, N=53 T by Alexander Wang, N=830 , N=314 DKNY, N=999 Burberry Prorsum, N=302 20 50 100 200 500 2000 5000 20000 Burberry, N=1390 Price [US$] Burberry London, N=1056 Figure 1: Regular price distribution of luxury fashion brands. Burberry Brit, N=1129

4. DIFFUSION LINES 20 50 200 500 2000 10000 50000 Existing luxury fashion brands often create a new line Price [US$] Figure 2: Regular and selling price distribution by brand group. with a lower price level in order to supply inexpensive products. A new branched line is called a diffusion or Table 3 classifies these brand groups into five types second line. A diffusion line intends to supply based on brand operations, in addition to the price inexpensive products that share a prestigious brand relationship between main and diffusion lines. The image with the main line for young consumers who have brands classified into the “divided price lines” type a lower disposable income [8]. clearly separated the main and diffusion lines into high Figure 2 shows the regular and selling price

3 ISASE 2019 ISASE Submission No.：C000052 An Empirical Analysis of Pricing in Luxury Fashion Brands Fashion Design & Business Keywords: Luxury fashion, Online store, Regular and selli...

and low prices. The brands classified into “multiple high retail stores. Regular and selling prices for 72 brands price” lines have a high-priced diffusion line, like Prada were analyzed. The results suggest that emerging luxury (Miu Miu) and Comme des Garçons (Junya Watanabe fashion brands, such as Tom Ford and Alexander Comme des Garçons). In these brand groups, the McQueen, have inherited brand equity from historical diffusion line has established a strong position and is and prestigious brands through the mobility of creative regarded as an independent brand in the market. Other talent. It will be a vital matter to create a prestigious brand groups that discontinued diffusion lines were luxury fashion brand. The brand groups were also subdivided into discontinuance of high or low price lines classified into five types based on brand operations as and integration. well as the price relationship between the main and

Table 3: Classification of brand groups comprised of main and diffusion lines. Mean diffusion lines. Regular price Type Main line Diffusion lines Selling price Divided price Giorgio Armani Emporio Armani Sacai, N=465

lines Armani Exchange Issey Miyake, N=211

Chloé See by Chloé Junya Watanabe Comme des Garçons, N=438 Jil Sander Jil Sander Navy Comme des Garçons, N=738 Velentino RedValentino Issey Miyake Cauliflower, N=167 Alexander Wang T by Alexander Wang Maison Margiela MM6 by Maison Margiela 20 50 200 500 2000 10000 50000 Multiple high Prada Miu Miu Price [US$] price lines Comme des Garçon Junya Watanabe Commes des Garçon Figure 3: Price distribution of Japanese brands. Discontinuance Dolce & Gabbana D&G of low price Marc Jacobs Marc by Marc Jacobs ACKNOWLEDGMENTS line This work was supported by Grant-in-Aid from the Discontinuance Moncler Moncler Gamme Rouge of high price Moncler Gamme Bleu Centre for Interdisciplinary Studies of Science and line Moncler Grenoble Culture, Kyoritsu Women’s University. Donna Karan DKNY Integration Burberry Burberry Prosum REFFERENCES Burberry London [1] D’Arpizio, C. et al.; Luxury goods worldwide market Burberry Brit study Fall-Winter 2017, Bain & Company, Inc., 2017. [2] Kapferer, J. N. (1997) Managing luxury brands. Journal 5. JAPANESE BRANDS of Brand Management, 4(4), 251–259. [3] Vigneron, F., & Johnson, L. W. (2004). Measuring Among Japanese luxury fashion brands, the mean perceptions of brand luxury. Journal of Brand regular price for Sacai was the highest, followed by Issey Management, 11(6), 484–506. Mitake, Junnya Watanabe Comme des Garçons, Comme [4] Wiedmann, K. P., Hennigs, N. & Siebels, A. (2009) Value ‐ based segmentation of luxury consumption des Garçons, and Issey Miyake Cauliflower, as shown in behavior. Psychology & Marketing, 26(7), 625–651. Figure 3. Comme des Garçons, which was established in [5] Stegemann, N. (2006). Unique brand extension challenges for luxury brands. Journal of Business and 1969, has the longest history among these Japanese Economics Research. 4 (10), 57–68. brands, and it is regarded as a pioneer. The price level of [6] Keller, K. L. (2009). Managing the growth tradeoff: Sacai was almost equal to Giorgio Armani and Fendi. It Challenges and opportunities in luxury branding. Journal of Brand Management, 16(5–6), 290–301. is noteworthy that Sacai can keep a high price level than [7] Albrecht, C. M., Backhaus, C., Gurzki, H., & major Japanese brands. In 1999, Chitose Abe, who had Woisetschläger, D. M. (2013). Drivers of brand extension success: What really matters for luxury brands. worked for Comme des Garçons in the past, established Psychology & Marketing, 30(8), 647–659. Sacai as an emerging brand. Sacai has been held in high [8] Moore, C. M., & Birtwistle, G. (2004). The Burberry esteem by prominent individuals in the fashion industry business model: creating an international luxury fashion brand. International Journal of Retail & Distribution like Anna Winter, , and Suzy Menkes. Management, 32(8), 412–422. Sacai owns all stocks and has direct connections with [9] Moore, C. M., & Birtwistle, G. (2005). The nature of parenting advantage in luxury fashion retailing–the case overseas retailors. Accordingly, this brand management of Gucci group NV. International Journal of Retail & maintains the independence of creative work in the brand Distribution Management, 33(4), 256–270. as well as its prestigious position. [10] Moore, C. M. & Doyle, S. A. (2010) The evolution of a luxury brand: the case of Prada. International Journal of Retail & Distribution Management, 38(11/12), 915–927. 6. CONCLUSION [11] Fionda, A. M., & Moore, C. M. (2009). The anatomy of the luxury fashion brand. Journal of Brand Management, This paper revealed the characteristics of luxury fashion 16(5–6), 347–363. brands from price information extracted from online

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