COLEGIO UNIVERSITARIO DE ESTUDIOS FINANCIEROS GRADO EN ADE BILINGÜE Trabajo Fin De GRADO THE INFLUENCE AND EVOLUTION OF THE LUXURY SECTOR Autor: María Santo-Domingo de Linos Tutor: María Eugenia Fernández Moya Madrid: abril de 2020 1 INDEX 1. INTRODUCTION………………………………………………………………………………………………. 3 2. WHAT IS LUXURY?................................................................................................ 4 3. TARGET AUDIENCE……………………………………………………………………………….…………. 6 4. LUXURY GOODS…………………………………………………………………………….……….…………7 4.1 TYPES OF LUXRY GOODS…………………………………………………………..…………………9 5. VALUES OF LUXURY GOODS ………………………………………………………………..……….…12 6. LUXURY BRANDS………………………………………………………………………….…………………13 6.1 TYPES OF LUXURY BRANDS…………………………………………………………..……………16 7. LOYALTY TOWARDS LUXURY BRANDS AND ITS CONSEQUENCES……………….…….18 8. LUXURY E-COMMERCE……………………………………………………………………………………19 8.1 SOCIAL MEDIA…………………………………………………………………………………….…….20 9. MARKETING STRATEGY OF LVMH……………………………………………………………………21 10. CONCLUSION………………………………………………………………………………………………….31 11. BIBLIOGRAPHY……………………………………………………………………………………………….32 2 1. INTRODUCTION The purpose of this work is to explain the influence of luxury in our lives which have more presence in the society than people think, and the different challenges faced by the luxury brands. In the past, luxury items were something exclusive of social high class. Currently the target market of luxury brands has evolved and increased and together with that, the purchase intentions of consumers. Luxury brands face the challenge to satisfy (i) the needs of the new consumers who seek for status and (ii) the needs of those who want to differentiate themselves from the rest (social mass). With the goal to achieve this, luxury brands offer different types of products. Luxury goods are divided by categories, and inside those categories, luxury goods can be personal or impersonal, formed by different proportions of conspicuous attributes and with different accessibility and volume production levels. Therefore, luxury products integrate functional, social and economic values. In the same line as luxury products, luxury brands aren’t equally luxurious. Brands are divided by different levels, depending on their luxury level, brand awareness and production volume. As each brand has its different luxury level and products, the loyalty achieved among consumers is different, and loyalty is one of the major strengths to face the competitive challenge between luxury brands. Another problem faced by the luxury brands is e-commerce as the exclusive experience of the store is untransferable and the concern if the easy accessibility of the products by the web affects the consumer purchase intentions. As an example, the luxury group LVMH will be further analysed to better understand how it has affronted those challenges to adapt its business model. 3 2. DEFINITION OF LUXURY The word luxury comes from the Latin term luxus which means excess. The term can be defined and interpreted in many ways. The definition according to the dictionary, “is sumptuous, elegance or usually a delicacy. Also, extremely comfortable living.” (Huntley, 2015) . What a person perceives as luxury depends on the circumstances. For example, in the past centuries, salt was a luxurious product, now a days, is one of the most common products. So, starting to define luxury, is something expensive and hard to obtain, something exclusive and exceptional that just a few people have access to it, that’s what makes it so special. The main difference between necessity and luxury depends on the degree of the elasticity of the demand where price or income have a big impact on elastic goods (luxuries) and the impact of inelastic goods (necessities) is relatively little. A brand is differentiated in their product category by their luxury characteristics establishing the products offered over the top of their product categories (Alonzo, 2012) with an exceptional beauty, innovation and function. The products fulfills the aspects of creativity, innovation, pleasure, precision, passion and expertise (Bayley, 2015). There for are not necessary or essentials, just adds desire and comfort when are enjoyed. This is the key driver of consumers preferring luxury items. As the interpretation of luxury depends on the circumstances, the understanding of luxury is shifting in the recent years due to economic and public perceptions. In the past decades it was a sign of elegance and high class, now a days, a man with a big purchase capacity but with little social standing can buy a Hermès suit and look like part of the elite society. As a result, a broad range of consumers have a bigger accessibility to luxury goods, so luxury brands need to detect and please the common needs and desires of the different market segments. 4 The main reason why the availability range of consumers has increased is due to their need to impress others as luxury brands are the highest level of prestige and display psychological and physical values. These factors are the ones that differentiate luxury from non-luxury brands and the ones that luxury brands use in their strategic marketing. The availability of consumers is not the only thing that has changed in the recent years, also the traditional conspicuous consumption model has evolved to a model where the experience and the sensibility are the key aspects. Consequently, marketers need to find the answer of why consumers purchase luxury items, exploring their beliefs about luxury and how their purchase behaviors are affected by their perception of luxury (Hennigs, 2012). "The word luxury today is just a branding tool . You can go to Tesco and buy luxury sausages,” said Anderson Loewe´s creative director, explaining that he can´t just sell and item, he needs to sell an item accompanied by an emotion caused by a perception. But not forgetting that perceptions should be analyzed taking into account the different cultural influences. Normally luxury is related to the consumption goods and a lifestyle where everything must be very exclusive, expensive and extremely unique, this turns out to be even more special and more enjoyable. Every time a person consumes a luxury product, the thing that values the most is the “lived experience”. This term refers to the experience of buyer in the luxury consumption. Therefore, it’s a hedonistic consumption which leads to multi-sensory pleasure, fantasy, something fun. So, as a summary, luxury items must have a hedonistic component, because if not, it would be just snobbery (Mills & Miller, 2012). 5 3. TARGET AUDIENCE As the luxury market has expanded its target audience to all types of consumers, marketers need to be constantly studying and adapting to the tastes and spending behaviors of the different consumers. Consumers are targeted in different groups based in their education, occupation and income. These groups explains the different aspirations and goals each type of consumer has with the aim to understand all of the consumers as each group follows different ways of thinking, feeling and acting (M.Carey & Marcus, 2016). Speaking with other words, social class refers to the personal status and social rank adding the accessibility the person has to material wealth resources. In order to achieve this, companies segmented the market into five household groups regarding their wealth and how much each of them spends on luxury each year. - Aspirational mass-market households: their annual income in the develop markets is at least $55.0000 and in the emergent markets $18.000. Is a very significant group with trendy tastes and average jobs but aspiring to have a better and luxurious life. The do not spend a lot in luxury goods every year, just around $400. This segment consumes nearly the 30% of the global luxury sales -from $45bn to $50bn. - Rising middle-class households, their annual income in the develop markets is at least $110.000 and in the emergent markets $35.000. They come from the middle class with well-paid jobs. The people in this segment accounts sales for one-fourth of the global luxury sales- from $35bn to $40bn. - New-money households: this group have at least $1 million bankable assets. Are high-net worth households, earning the wealth by themselves through business activities and investments. Is the segment that spends more on luxury, more than one-third of the global luxury sales- from $55bn to $60bn. 6 - Old-money households: the difference between them and new-money households is that they have inherit their wealth. This group is related to the aristocracy or family owned business. The expenditure of this group in the luxury market is approximately $10bn, around 7% of luxury sales. - Beyond-money households: this group is similar to the old-money households but with the difference of not spending on luxury goods in order to avoid ostentation of their wealth due to their indifference of showing their status. No needing to show their status and the indifference of the luxury brands is also an affirmation of their elite status. Just 5% of the luxury sales comes from this group. Observing this market segmentation, we can conclude that the lower groups are more likely to purchase elite brands as they only view viable this alternative to increase their social status. On the contrary, the individuals in the top levels of prestige chose to not consume luxury brands with the purpose of distinguishing themselves from the individuals who have the need to demonstrate and “invest in” their status level (D. Hess , et al., 2012). A study