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

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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.

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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 ´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.

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- 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 made by Berger and Ward (2010) showed that there is a positive co-relationship between occupational prestige and education. In the study was found out that those individuals with a higher level of culture and education avoided luxury brands because of two main reasons. The first reason refers to the non-differentiation of consuming those products with the lower status consumers. The second reason is because those individuals with a higher cultural level demand more quality levels and find not worth it the incremented cost of the prestige products.

7 On the other hand, those individuals with an absence of status decides to purchase elite products with the goal to balance their insufficiency, although, they know that the higher quality obtained in the products do not compensate the incremental cost.

Figure 1: The Least-Established Segments Spend the Most on Luxury

Source: The Boston Consulting Group 2010

As we can observe in the chart above, the groups with a lower status (aspirational and new money households) are the largest purchasers. Spends the most summing between them approximately 105bn and old money plus beyond money just sums $15bn. The first group spends seven times more than the second one.

Whereas the consumer trends varies from the different groups, the “connoisseur” differentiate themselves from the new money purchasing inconspicuous luxury brands. Just the people who is “in the know” can distinguish a luxury product by its subtle signals. (Mills & Miller, 2012).

8 4. LUXURY GOODS

People use products with the purpose of differentiating themselves from the rest and show their identities and social status. Some products have symbolic meanings which are understood by others. These symbolic meanings can be in the form of a brand´s logo, or the name, or another visible feature that is identify with the brand in order to reflect a lifestyle (B. Amaral & Loken, 2016).

Consumers purchase luxury goods to display their role in the society but also to satisfy their emotional and functional needs. Every time a person buys a luxury item, has the belief that will feel positive emotions (at least for a period of time) and this is one of the main motivators for purchasing luxury goods whose demand is growing fast and strong

(McFerran, et al., 2014).

There are two types of luxury consumers. The first ones relates to those who are searching for something unique and their luxury consumption is driven by individual reasons like the belief in their quality (Rod, et al., 2015).The second type is related to those seeking for status with the intention to impress others. This type gives little importance to the functional aspects and are less price conscious than other consumers. For them all that matters is the pleasure enjoyed with luxury items.

“The person who buys a luxury product is in fact buying a dream” (De Barnier,2012). This is due to the fact that every time a consumer purchase a luxury item is experiencing pride regarding exclusivity and prestige. People use the luxury items as a way to communicate to other groups their belonging or aspiration to a certain group or to whom want to be similar or dissimilar. Therefore, luxury goods enhance purchaser’s self- esteem with their desire to show to the rest their social superiority, success and or accomplishments. Luxury products are characterized by six attributes: - Rarity: the goods are limited and exclusive. Making the accessibility limited, makes them more desirable and gives the brand the power to decide how the products are made, how are sold and to whom.

9 - Quality: the quality of the products is based on the excellence. Most of them made by craftsmanship and the best materials. - Expensiveness: all luxury products have a high price. - Timelessness: it doesn’t matter time passing by, the iconic models remains the same trough the time. - Symbolism: the brand image is the most important part, drifting different emotions like status to the person who wear it, envy from other people, also causing pleasure and intrinsic satisfaction. - Extraordinariness: luxury knows what’s perfect for the customer, every product feels bespoke, unique. Experiencing not just and object, also including high-level delivering services in the store environment, the treat given by the staff, the packaging, etc.

Looking at the portfolio of the luxury brands, the products are segmented in different categories which are adapted, complemented and temporally. These categories are not stable over time due to the emerging industries. (Yongjun, et al., 2014) These categories are: - Fashion products: apparel, shoes and underwear. - Fashion accessories: belts, gloves, scarfs, hats, ties and eyewear. - Bag and cases: luggage, handbags, wallets and cases. - Cosmetic and fragrances. - Body decoration: mobile electronics, wristwatches, jewelry, pens, diaries, and wiring. - Means of transportation: bikes, motorcycles, automobiles, boats/yachts, and aircrafts/jets. - Delicacies: beverages (wines, sparkling wines, spirits) and foods. - Interior decoration: furniture, kitchens, table decoration (silverware, crystal and glassware, porcelain and stoneware), linens (table linens, bed linens and bath linens), bathroom equipment, carpets, lamps, interior electronics, interior accessories, sports equipment and garden furnishing.

10 4.1. TYPES OF LUXURY GOODS

Depending on the type of luxury good, different marketing strategies are used.

Luxury products can be divided in to two types, personal referring to those products that manage self-image like a wristwatch or on the contrary, impersonal like bathroom equipment. Continuing, can be privately consumed using the previous example that is seen by few people or publicly consumed referring to those products seen by others like for example, a car. But the same product can be publicly or privately consumed depending on the situation. For example, an expensive beverage can be consumed in a restaurant or at .

Additionally, luxury goods can be accessible or exceptional products, being the major difference between them the selling price (Parguel, et al., 2016). Differentiation plays a key role in the luxury consumption experience, is more disclosing if someone buys an expensive watch than a bottle of champagne. There is an intermediary category of luxury products for example Maserati cars are bought by wealthy people but on the contrary, yachts are accessible by a few people so in contrast, Maserati cars are reachable for numerous people.

Figure 2: Hierarchy of Luxury Products by their Accessibility

Source: Luxury brand management

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Furthermore, luxury items can be differentiated by their production volume leading to the exclusivity of the product. The production volume of the products is divided in different categories.

The first one is unique pieces. This category is at the top of the production volume category described with the French word “griffe”. This word refers to grab the idea of an inspired creator whose obsession is to a create and idea transforming it into a unique masterpiece full of perfection (Vickers & Renand, 2003).For example in the clothing segment will be . The second category are limited editions, near to the idea of the “griffe” but products are produced in limited editions. For example, the Aston Martin AM-RB 00 with just one hundred of units produced which price is $3.661.000. The third category are limited-diffusion products characterized by their manufacturing complexity based on a high degree of craftsmanship and handwork. For example, porcelain figures. And the last category are expanded-diffusion products whose production volume is limited compared to the mass-market products, but the production of this products are mass-market serial production. In the fashion category will be segment of high genre.

And finally, luxury products can be conspicuous or understated. The main difference between these product types is the proportion of conspicuous attributes. Everything is about symbols, the quality or the excellence of the product goes after the performance of showing to the rest the expensiveness of the product (Heine, 2012). A perfect example is the “Kiss or & Diamonds” by , an overpriced (62.000$) which makes the normal function of a lipstick but is decorated with one hundred and ninety- nine diamonds. But on contrary, a part of the luxury market is based in non-conspicuous products, or products that their main function is not to be conspicuous. For example, Sander and Bottega Veneta or the “Elephant Bag “of Loewe, both don’t wear the logo of the brand but can be recognized by the design, so are understated products but with hide conspicuous attributes.

12 5. VALUES OF LUXURY GOODS

Consumers purchase luxury goods to display their role in the society but also to satisfy their emotional and functional needs. So, accordingly, luxury products provide functional (quality and financial utility), emotional (experiential) and social (symbolic) values. The meaning of value is referred to the net benefits that consumers obtains and drives the consumers judgments towards their purchase decisions. (Lim, et al., 2012)The net benefits gained by consumers depends on the situation of the consumer, but mostly, consumers purchase this type of goods to maintain their social status giving more importance to the emotional and social values acquire by owning those products rather than the functional values.

As exposed before, functional values, focus not just at the design of the product but also at the durability and cost effectiveness relationship of it. As a consequence, functional values are divided in quality value and economic value.

Quality value refers to the benefits gained by purchasers with utilities like durability, usability, uniqueness and reliability. The high quality of luxury goods is a key motivator for consumers purchase decision where products promise long-lasting use of them and reliability of the consumers view towards the brand. Quality value is related to economic value because the higher the price the higher the perception of quality by the consumer. Economic value refers to the monetary aspects like price or investment value. Consumers establish their economic values through the perceived price (the evaluation of the cost by the consumer) and the objective price (the price they actually pay).

Emotional values relates luxury purchases with pleasurable emotions experienced like confidence for example when going to a meeting wearing a luxury item. This item will boost the confidence of the person. Owning luxuries derives emotional responses like gratification, excitement, beauty…rising the hedonistic emotional state of the consumer (Lee, et al., 2015). That’s why, experiential value is included in emotional value, due to the feelings and emotions related to hedonic value. The higher the level of hedonism of the consumer, the higher the focus on sensory or emotional facts rather than in the high

13 price of the items. Another point is that emotional values also boost materialistic and self-identity values.

And social values. These values are associated with the values that consumers relates with luxury products and are shared by the rest. As one of the main points of luxury is to create a favorable social image, prestige and conspicuous values are very important to distance from other consumers. Therefore, the consumption of luxury goods enhance power and status. Hence, symbolic value is a key point because it is referred to the psychological meaning that consumers associates with a certain product. Consequently, its function is to demonstrate the socioeconomic position of the consumer.

6. LUXURY BRANDS

Consumers tend to prefer brands when they see themselves reflected in the brand, when they closely relate their self-image with the common user of the brand or in a specific circumstance where their intention is to use the brand.

Luxury brands prompt to consumers that they can construct their selves in a more suitable way accorded to their personality. The manner in which luxury brands achieve this, is through their marketing communications where the aspirations of the ideal and social self’s of the consumers are appealed.

The products offered by these brands are “not owned by everybody”, “consumed in public” (Yi-Cheon Yim;, et al., 2014) and enable consumers to express their ideal selves by the use of the brand. Therefore, the first motivation when purchasing a luxury brand is the self-pleasure. Luxury brands makes consumers feel better with themselves giving them feelings like accomplishment and pride.

Individuals in order to gain status pay impossible prices just to wear a label or a logo that sends a message. Each brand has its own personality which have characteristics in common with the purchasers and their social and physical situations. (Yongjun, et al.,

14 2014). The personality of the brand is the main way to differentiate it with its competitors.

As a result, the consumption of luxury brands is based in consciousness value and the demonstration of status to show their power, influence and ability to others. Individuals attitudes towards luxury brands depend on the level to which individuals are influenced by others and the stereotypes they want to replicate. Also, the consumption of these brands is manifested differently between genders. Women use them with the concern of their physical appearance and men with their earning capacity.

On the other hand, some consumers, having the financial ability to purchase luxury brands, choose to not purchase them or buy luxury brands which do not display logos where the design of the product is recognize by the people who is “in the know” of its price and therefore, exclusivity.

Luxury brands are related to rarity, and this leads to an economic phenomenon where the higher the price, the higher the demand. The high price helps to define the perceived values specially the quality as it’s the only way to be evaluated by the consumers. These brands offer the most high-priced products of their category promoting exclusivity by their limited production.

Nowadays, luxury brands are increasingly using “mass marketization” where the term “masstige” (mass and prestige) is present in the mass-market luxury items (De Barnier, et al., 2012). This is a new trend denominated “democratization of luxury” where the brands extend their products to the middle-class consumers apart from the traditional target rich consumers

As a consequence, there is a new luxury and brand symbolism where the old luxe has evolved from being “hidden” to be conspicuously where there are tangible signs of the brand like logos, the name of the brand or initials. This new process of displaying the products with the purpose of being seen by others is called “liquification”. This is due to

15 the new consumers who are younger and make money sooner. In this new luxury situation, is more important who you are wearing rather than what you are wearing.

Mass luxury has incremented the demand of luxury. For this reason, brand managers have kept the traditions of the old luxe focusing on connoisseurs who view this type of luxury as extravagance and opulence and on the other hand, also focusing in the aspirational consumers who view luxury as prestige.

The present perceived dimensions of luxury brands are: conspicuousness which refers to the idea that the consumption of luxury brands by individuals is to look for social position and the items of the brand are publicly consumed. Then perceived uniqueness as the limited supply of the products offered enhance exclusivity and as a consequence, the desire for a brand. Another one is the perceived extended self. This perception is based on the idea that consumers use luxury brands to distinguish themselves from others integrating symbolic meaning in their lifestyles (Johnson & Vigneron, 2014). The next one is perceived hedonism; this happens when the consumers search for personal recompenses after the purchase and consumption of luxury products. And the last one is the perceived quality as luxury brands offer the higher quality products with the higher performance compared with the rest of the products of their category.

So we can conclude that luxury brands are characterized by offering superior quality items that are scarce and provide the sign of status and wealth that includes meanings in the consumers identities providing them emotional benefits (Parguel, et al., 2016).

6.1. TYPES OF LUXURY BRANDS

Even though a brand might be perceived as luxurious, the level of luxuriousness is different among brands. The brands of this category are divided by luxury level, by awareness and by business volume.

Starting with the first one, by luxury level. Luxuriousness is determined by the differentiation among brands. This leads to divide luxury brands into different subgroups. The first one are the entry-level brands which are in the lowest luxury level

16 but are above the premium segment. An example is Michael Kors. The second one are medium-level brands, which are included in the luxury segment but are not in the forefront of luxury. An example will be Maxmara. The third group are top-level brands referred to the leading luxury brands like Rolex. The last group are elite-brands. Here is where the “top of the top” is found, where consumers find the highest level of quality and exclusivity. The clientele are connoisseurs that apart from having the financial resources, also have “culture intellectuelle”. An example is Graff, the extraordinary diamond jewelry.

Continuing with the second type, by awareness. This type refers to the level of differentiation of awareness between being a connoisseur or a star brand. On one side, connoisseur brands are those brands specialize in niche markets that are those markets specialized in a particular products or service. These brands focus in a tight target group and do not search for awareness. On the other side, star brands, look forward to go beyond their target group. Their goal is to be known by everyone even though just a relatively few people have access to them. Consumers of these brands are driven by demonstration. An example is . But star brands are differentiated between them by their level of awareness. Starting by the bottom, little-star brands are relatively little-known and therefore fights for a higher awareness. The next level are big-star brands, which have a high level of awareness but not all the desired. An example is Philipp Plein. And the highest level are global-stars brands that are globally well-known and have the highest level of awareness. An example is Gucci, Ferrari etc.

Finishing with the last type, by business volume. In this segment brands are divided in six subgroups. The lowest one is Micro-sale brands; their revenues are under $10million and are often ventures. The next one is Small-scale brands characterized by being specialized into markets with relatively small business volume, within $10 and $100 million. Followed by Medium-scale brands, with revenues higher than $100million. Then, Large-scale brands which are not many of these, with revenues over $250million. Afterwards, Big player brands. Having revenues by more than $1bn, an example is Hugo Boss. And the highest level is Giant player brands, with profits going beyond $5bn. Just

17 a few brands achieve this level of revenues, normally those of high-turnover product categories as cars. An example is Mercedes.

Figure 3: Types of Luxury Brands by Level of Luxury, Awareness and Business Volume

Source: Luxury brand management 2012

Looking at the table above, we can conclude that brands with high level of business volume are far from the top levels of luxury being nearly impossible to achieve them and less known brands are the higher the level of luxury.

7. LOYALTY TOWARDS LUXURY BRANDS AND ITS CONSEQUENCES

The main point of luxury is to obtain high returns through the perceived scarcity of the products offered. As I explained before, luxury items are characterized by their symbolic meaning that differentiate them from other brands with characteristics like quality, elitism, scarcity and therefore, after consuming the products, luxury brands enable psychological benefits

Every luxury brand has a different special cachet and a weight of its own status symbol obtained through the level of inalienability.

18 This is the reason why the image of the brand is the key point in the attitude of a consumer towards a brand and subsequently loyalty to a specific brand as consumers attach different sets of associations to each brand.

Loyal consumers play a key role in the well-being of any business. Loyalty comes from the beneficial attitudes of consumers towards a company, product or brand (Anon., 2013). Loyal consumers purchase more often, are the higher spenders and recommend the firm to others. That’s why firms takes so much effort and work to appeal consumers and meet their needs constantly.

Another outcome of consumers loyalty is the brand extension that is the process used by brands based on using their names to introduce new products or services, and subsequently, achieve an essential growth.

New products or service categories are accepted far more easily thanks to the name of the brand. So, therefore, the brands image is the most important asset of the company and bring the opportunity to enter in different market segments but always at a risk (Albrecht, et al., 2013). The principal risk of these brands is to sustain their “dream formula” that’s it’s like an “aura” for consumers and enhance their loyalty.

8. LUXURY E-COMMERCE

In previous times, luxury brands sold their products exclusively in their physical stores or as an exception, in multi-brand retailers but with a limited production range.

But in present times, we live in the digital era were internet is the key transaction platform of business and luxury brands are not an exception having the need to follow the new business trends, even though, some luxury brands do not utilize it.

19 As the luxury market and consumers buying preferences have changed dramatically, the conventional idea of selling luxury items is no longer applicable. New consumers are younger, sympathized with technology and with online purchases habits. Consequently, online presence of luxury brands is inevitable.

Luxury brands face multiple challenges. The first one is the non-transferable in-store experience. The second one is if the easy accessibility and availability of the products offered online affects the brands exclusivity. The third one is to have digital presence but maintaining the essence of the luxury brand.

On the contrary, luxury brands also face opportunities in the digital market like achieving a higher brand awareness and financial strength. This is the reason why luxury brands are paying attention to e-commerce developing their own websites with the purpose to sell their products online.

The major point to develop online sales is for each brand to build their own official e- commerce website where consumers don’t perceive risks offering the higher e-service quality, discern by all the consumer in the same way regardless their income level, that is the main determinant to maintain a firms long-term success in the e-commerce. (Jung- Hwan, 2019) The official websites of the luxury brands must be well designed offering a superior customer experience as it is the opportunity to create emotional links with consumers towards the products even before they see it. Therefore, the experience offered in the luxury brands website is the key to the success of the e-business strategy of the brands.. A website presence helps the brand to have a better success in the competitive global market reaching out to more consumers increasing the brand awareness leading to higher online sales and having a more cost-efficient basis in contrasts with physical stores. Also helps to meet the consumers’ needs integrating multifaceted elements which boosts the desire and mood towards products for example through e-customization, e-branding, e-communication, interacting with consumers with 3D content that allows consumers to view closer the items.

20 In summary, the luxury products offered online is not negatively viewed by consumers and it does not decrease desirability, on the contrary, its increased. The online accessibility is positively correlated with the willingness of buying as consumers have limited time for shopping and a disposable income that should be taken into account.

Although, the online proportion of sales in the luxury products markets is small, is increasing throughout the years. In 2017 represented just the 7% of total sales, expanded to 20% in 2020 and will increased to five-fold in 2025. This is thanks to the digital in-store sales strategies, with several options like “click-and-collect, where six out of ten sales comes from the digital influence.

8.1. SOCIAL MEDIA

Social media and digital technology have enhanced the connectivity with firms and consumers. Social media exists in many ways: microblogs, social networking sites, virtual words etc. These different forms allows consumers and firms to exchange information and experiences.

Social media provides several profits like creating a brand reputation and marketing strategies. Nevertheless, the luxury sector is approaching these new technologies slower than the rest. Although, most of the luxury brands have developed their social media existence to engage with the presence of social networks forced by the young consumers who use all the time social media. As a consequence, firms need to develop new strategies to maintain their importance in this new dynamic and volatile market. Creating different content (photos, videos…) for each social platform and with the use of bloggers and influencers for eye-catching campaigns.

Luxury brands have observed that social media has a high effectiveness enhancing the consumer relationships with the brand and their purchase intentions. (Arrigo, 2018)This effectiveness in achieved through the interaction of sharing opinions, consumers following trends, the customization of items through the customize services and the word of mouth derived from this positive experiences.

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9. LVMH

Louis Vuitton Moët is a large French luxury conglomerate with a lot of designers and brands formed in 1987 by the merger of Louis Vuitton and Moët Hennessy. Straightaway the merger, the company became the leather in the luxury goods market.

After the merger, the company started to expand by acquiring new firms of the luxury sector, investing in firms not related with the luxury sector and opening new stores with the purpose to enter in new markets.

Nowadays, the firm integrates seventy-six firms - most of them family firms-, divided in six market segments:

Wines and Spirits: Ao Yun, Ardbeg, Belvedere, Bodega Numanthia, Cape Mentelle, Chandon, Château Cheval Blanc, Château d'Yquem, Cloudy Bay, Dom Pérignon,Glenmorangie,Hennessy, Krug, Mercier, Moët & Chandon, , ,, , Volcan de mi tierra, Woodinville, Wenjun.

Fashion & Leather Goods: , Céline, Charles & Keith, Christian , , , (brand), , , Loewe, , Louis Vuitton, , , Nicholas Kirkwood, ,, ,, .

Perfumes & : , , by , Fresh, Givenchy Parfums, Guerlain, Kendo Brands, KVD Vegan Beauty (formerly Beauty), Kenzo Parfums, Maison Francis Kurkdjian, , Marc Jacobs Beauty, , Perfumes Loewe.

Watches & Jewelry: , , FRED, , TAG Heuer, Tiffany & Co., .

Selective Retailing: DFS, La Grande Epicerie, Le Bon Marché, , Starboard Cruise Services.

22 Other Activities: Belmond (hotels), Caffè-Pasticceria Cova, Cheval Blanc (hotels), Feadship (luxury yachts), Princess Yachts (luxury yachts), (financial ), Pinarello (bicycles).

Bernard Arnault is the CEO of the company and therefore, the person who controls these seventy-six firms. Thanks to his successful management technique, he has transformed the organization from a small firm to conglomerate of seventy-six firms plus the ones that will acquire in the future. (Anon., 2012) He has built an excellent undoubted reputation based on craftmanship and quality which leads to individuals paying extra prices happily. The way in which he obtained the reputation was through a hard marketing strategy chasing the opportunities abroad. The perfect example is how the company has persuaded the Asian middle class handling them the European sophistication.

Figure 4: Revenues by geography (1998-2008)

Source: LVMH google site

The company has expanded its business through internalization. As exposed before, by the acquisition of new firms to increase their level of awareness, entering in new markets specially focusing in Asia and inside it China. LVMH is specialized in the international trade of luxury goods carrying out operations in their subsidiaries over the world controlled by a parent company and always with a long-term vision (P³oneczka, 2018). The first internalization process was by Louis Vuitton in 1885 with the opening of a store in London and in 1750 by Moët with the distribution of its champagne through Germany, Spain, Eastern Europe and America.

23 In the present is hard to define the LVMH´s internalization strategy due to the huge size of the conglomerate and the broad portfolio of brands. The group selects the most promising brands, with the scope to add them to the company’s portfolio, paying especial attention to acquire brands in the fashion industry and in the wines and spirits division. LVMH portfolio is split in size, age, market segment and profitability (Cavender & Kincade, 2015) .

With the brands under its portfolio, the company introduce the new firms to a bigger audience increasing their awareness with the goal to transform them into star brands. The major point used by the company to convert a small brand to a star brand is by a radical innovation.

The products made and sold by LVMH are a paradox as nobody needs them and consequently, the brands are also a paradox. (Anon., 2002) LVMH brands have in mind three points: to be updated, to maintain their reputations and to deliver what is promised. Thanks to the aspects followed, the brands of the company are highly profitable, grow fast and are timeless.

LVMH biggest success is the way the company has integrated new brands to its portfolio transferring them the value of the company while following a protection strategy to preserve the acquired brands identity where the interactions between the acquired firms and LVMH is minimum.

The brand identity is created to make possible brands strategy. Sometimes, the brands identity is not perfectly adapted to the brands strategy having difficulties to fully develop their brand identity and has to be changed. An example is how Arnault revitalized Dior’s identity restructuring the brand. Dior’s reputation was diluted, and through product lines, retail spaces and big marketing campaigns the brands image in the luxury consumers improved significantly. Arnault used an impressive global expansion of the brand injecting to it modernity.

24 Another example is how he also revitalized Louis Vuitton in the 1990s when its sales dropped. The company’s potential was exploited by limiting the production with the intention to create scarcity, and diversifying the products offered adding new materials and original designs. These restructuring strategies became highly successful.

Brand positioning helps marketers to create the best place in the minds of the existing and potential clients. Most of the brands of LVMH have a really high level of awareness with recognized symbolism in their logos and famous designs. For example, the LV monogram print or the jungle-themed aesthetic of Kenzo. Consumers don’t need to see the name of the brands to know what brand it is.

LVMH has a great capacity to change its marketing orientations through the pass of time (Cavender & Kincade , 2014). Projecting the perfect brand image, reflecting its symbolism and appealing to consumers by transporting them to a new world that is like a fantasy, with the new experimental marketing strategy that the company has created. With this strategy, the company has increased the loyalty and expands its awareness above its target consumers.

At the same time where the new world around the luxury products was created, the company started to develop the internet channel that was not used by the luxury companies at the time (Riot, et al., 2013). The global strategy implemented by the company was very innovative at the time.

In 2000 LVMH launched its e-luxury website. The group started to develop the online presence of all the brands that the company had in its portfolio. Meanwhile, the rest of the luxury brands were in a stand-by position towards the luxury e-commerce. This innovation caused a big advantage of the group among its competitors.

Apart from creating a website, most of the brands of LVMH included digital marketing by mobile applications or social media. Additionally, the brands of the group integrated NOWNESS, an interactive and creative editorial website technologically progressive that allows consumers to luxury experience via online.

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LVMH was the first one investing in social media as they view it the best and easiest way to engage millennials. Each brand of the group has the autonomy to decide and implement its own digital strategy following different approaches (Agnew & Ellison, 2017). For example, Marc Jacobs sell its products in the online platform Net-A-Porter and Loro Piana selects a section of its products and sells them on its official website.

Some brands like have recently launched their e-commerce platforms. Others like Louis Vuitton have a long-time presence on the internet with the goal of promoting a wider global image adapted to the different cultures and therefore, reach to a bigger target audience.

Continuing with the example of Louis Vuitton, it follows the same strategy as Loro Piana. The main message that the brands projects in the website with the purpose to handle in consumers the luxury experience and the exclusivity of the brand is: “A dream. An Icon. A masterpiece. Each Louis Vuitton product is the embodiment of uncompromising quality and exception craftsmanship. From the famous Monogram pattern to the astonishing Louis Vuitton diamond cut, the Maison has enchanted the world with its unique creations since 1854. Today, we invite you to take a journey through a world of luxury, inventiveness and excellence: the world of Louis Vuitton's savoir-faire.".

LVMH discovered that despite the fearless idea of losing clients due to the easier accessibility with the e-commerce, the sales incremented and those clients who buys online and in-store, spends fifty percent more than those who only view the products by visiting the stores.

With the successful results of company’s e-commerce looking at the fast-growing online sales, LVMH recently launched an e-commerce site where all of the brands are in the same webpage. The most ambitious online project the company has had since 2015 when the company expanded its online retail.

26 In the past few years, the company lagged in digital sales. With the intention of changing the situation giving e-commerce another try, the company launched another website, the first group digital selling platform offering products ranged from LVMH brands to competitors like Prada. This website is head-to-head with online platforms like Farfectch or Net-A-Porter which also distributes some LVMH brands (Agnew & Ellison, 2017) .

The name of the platform is 24S. The website started as a branch of Le Bon Marché, where LVMH owns a warehouse in that attends the needs of the Parisians and the tourists that are in-the-known. 24 Sèvres is the physical address of Le Bon Marché, so, to make it easier for the global purchasers, LVMH shortened it to 24S.

Even though the company started in this market late (2017) compared with the competitors being around for almost 20 years, the company had a big growth and innovation that its seen as an advantage in terms of technology with its competitors (La Torre, 2020). But on the other hand, the absence of visibility towards its competitors makes it harder to get new customers.

LVMH also focused on optimizing its social media and its campaigns. The company integrated social media in the brands strategy campaigns as its more efficient in terms of saving time and resources.

Firstly, the company focused on monitoring the fan brands pages of the different social networks like Facebook, following the conversations between issuers.

As a result, LVMH can compare its brand performance with its competitors through the results obtained by benchmarking. Also, each brand can improve its social performance sharing its most engaging content integrating recommendations like the frequency of posting and the preferred type of content (Romieu, s.f.). It also helps to figure out the decrease/increase of the brand awareness, detect the key influencers to increase the brand appealing and gain competitive ideas to improve its strategies.

27 Another strategy used by LVMH to increase its sales and awareness of social media was the creation of Fenty Beauty. It’s the new fashion house of the company, the first one crated in thirty years, being a collaboration with Rihanna.

The company chose Rihanna hoping that she could bring her cachet to the brand and the industry’s celebrities designers. The celebrity counts with nighty six million followers on Twitter and more than eighty million on . The pop star is the number twenty-six in the Instagram’s list of top followers, therefore, she has become one of the best-known social media influencers (Anon., 2019). LVMH pays special attention to the level of influence on social media as it drive of sales has been accelerating in the past few years.

Rihanna has developed the new label, the style and the promotion of Fenty Beauty, owning a majority stake. She also sells lingerie and sportswear, as a result, she is a building a business empire with fast-growing brands. An example is SavagexFenty her lingerie line.

Rihanna’s followers buy from her because they have an emotional connection with her and as a consequence, LVMH has been introduced to a new audience and exposure.

To conclude, LVMH has increased its marketing expense at the fastest rate from the last seven years in 2018 at an amount of 5.6 billion euros achieving in that year a 12% of group profits. Half of its marketing expenses were placed in digital medias as it’s the main sales driver (White & Pascale, 2019). Some brands like Louis Vuitton, Marc Jacobs, Givenchy and Christian Dior were in the Tribe Dynamics top 10 brands in 2018.

28 Nowadays, there is another challenge: CORONAVIRUS. Coronavirus is affecting all the sectors and luxury is no exception.

The company expected a fall in revenues between 10% and 20% during the first quarter of 2020 as a consequence of the shops being temporarily closed and the wallets of the purchasers being more tightened. The impact of coronavirus in the conglomerate can’t be measured accurately due to the uncertainty of the time left to return to normality (Anon., 2020).

The company is maintaining a strategy based on the preservation of the values of its different brands. Although, brands won’t be equally affected (Bhasin, 2020). Despite the thousands of stores closed globally, the group is managing to re-open some stores in China as the measures of shutdown are being lifted.

LVMH published its first-quarter revenue on April 16. The company evolved as expected. Its sales have decreased as an overall of 15% as a consequence of the pandemic measures. Apart from having to close the stores, the production plants also had to be shut down in the past weeks.

Sales have dropped differently among the different sectors of the company. In Watches & Jewelry sales have shrunk by a 24% being Bulgari the most affected brand. In Fashion & Leather Goods sales decreased by a 10% but on the other side, online sales had a fast growth. This fast growth has been also experienced in Perfumes & Cosmetics, but sales have contracted by a 19% (Anon., 2020) .

Regardless of the LVMH losses, the company is taking care of social and health issues. is facing a nationwide shortage of anti-viral gel. The company is taking care of the deficit of gel by using its production lines of its cosmetics and perfume brands to start making large quantities of hydroalcoholic gels till the French authorities do not need them anymore. The gel will be distributed to the health authorities without costs (Anon., 2020).

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The French government also faces a deficit on surgical masks. LVMH also compromised to take care of the issue by purchasing ten million of masks to a Chinese supplier and afterwards, donate them. (Anon., 2020) The ten million masks are divided in seven surgical and three FFP2. The purchase will be repeated in the next four weeks with similar quantities of masks with the intention to get forty millions masks. The first ten million will be paid by Arnault, and the thirty million remaining will be paid by the government even though LVMH will take care of the expenses of the supply chain, delivery and customs clearance for all subsequent deliveries.

The company also wanted to take advantage of the situation and because of the shortfall of masks, some brands like Louis Vuitton and Fendi are selling personalized masks. These masks have been very criticized as the people sees it as an opportunistic way to take advantage in a dramatic situation. The mask of Louis Vuitton has its monogram design and costs eighty-five dollars and Fendi’s masks has been one of the most polemic ones due to its high price, two hundred euros. The mask has the monogram logo of Fendi, and all the existences sold (ARBAT, 2020).

Louis Vuitton Fendi

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10.CONCLUSION

To conclude, luxury is something expensive and hard to obtain, therefore, exclusive.

As a result of the new target audience, brands had to divide the society in different social levels by their income level. Brands adapt the different products to the different needs of consumers. The lower levels search for products to demonstrate status and the upper levels seeks to differentiate themselves with in-the-known products and brands.

Luxury goods are very special not just because their characteristics but also due to its social, economic and functional value perceptions.

Luxury brands are divided by awareness, business volume and luxury level. The least known brands are the ones with higher luxury level and vice versa. These brands pay special attention to their image as it drives consumer loyalty, the most important asset of a company.

Luxury brands are also focused on e-commerce and social media. Although, the adapting process was long and slow full of challenges, now a days, luxury brands are well integrated in this new way of shopping. On-line sales increase year by year and six out of ten purchases are digitally influenced. Luxury brands also developed their social media sites where they interact with consumers.

Looking at LVMH, thanks to the implementation of its internalization strategy, it has become one of the major luxury companies. Achieving a global presence and a high awareness in most of its brands having the ability to adaptd to the different countries, cultures and needs.

The company was the first one innovating in e-commerce and has achieved a big awareness in social media thanks to its content and the different collaborations made with celebrities like Rihanna.

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