At the CAGE 2016 conference in London today, LVMH CFO Jean-Jacques Guiony spoke about how his company operates in the luxury goods category. Key to bringing in new consumers are entry-level products, about which Guiony said: “We basically rely on them.” Here are the main points from his speech on entry-level products as well as on high-end items and the modern marketing methods needed to sell them.

What are entry-level products?

  • Luxury is not high-end. High-end is small volumes, as opposed to luxury, where brands are able to reach a certain size
  • Luxury depends very much on entry-level products and there is no exception in the industry. All luxury categories have credible entry-level products. This approach is extremely important for all the brands
  • Entry-level products are not cheap versions of the expensive product. If a brand takes this route, the perceived value of the brand is driven down. It is very important to find the right entry level and each brand should find its own
  • They should be accessible in terms of price, but value will be very high because of all the marketing behind the brand. People should get a good sense of the value of what they buy
  • For many consumers, the entry-level product is the only affordable version of the brand

What about high-end?

  • When a company doubles the price, it divides the addressable fan base by five
  • Compare a US$1,000 product and a $4,000 product, and there is a 20-to-one difference in terms of market potential. The addressable market for expensive products is a fraction of the addressable market for more affordable products
  • This is important to bear in mind: If a company focuses too much on the high end, it risks missing out on a big chunk of the market. There are plenty of examples of luxury companies that have done this, and have got into trouble
  • The main function of a high-end product is image. When it comes to the advertising of a brand, it is important to do so on the products that have the highest image. They make the message the most sophisticated and they create the most effective kind of desire

Conclusion

  • Luxury companies use entry-level products for volumes and high-end products for image. This gives LVMH the right range of products from a few hundred Euros to tens of thousands of Euros
  • Price does not matter – only value matters. In luxury, a product can be expensive at US$500 and inexpensive at $3,000. This depends on how the consumer views the value of the item compared to the price the company sets

Marketing

  • Guiony cited an unnamed executive saying: “Half of my advertising is useless. The problem is I don’t know which half”
  • It is very difficult to measure the impact of advertising, particularly for luxury products. At some point, overspending in advertising is useless, as there is a decreasing margin of efficiency
  • This is even more the case online. There is a growing share of advertising going towards digital, and Guiony noted that LVMH finds it extremely difficult to measure the return on investment
  • “Story-telling” vs advertising: Story-telling is more comprehensive than advertising
  • For example, LVMH opened a Louis Vuitton museum in Paris in 2014. It was very expensive but “I don’t regret a penny”, said Guiony. About 500,000 people came in two months, he noted, and the group plans to open one in Japan this year and in London next year
  • Despite the cost, the museum is much more efficient that advertising. “People who make the effort to go there are probably lovers of the brand for ever,” he concluded

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