Keeping the Luxury Market Profitable - Xavier Drèze

“Premium products, like Lexus or BMW, are going for performance, and they’re
always going to position it as a great value…Luxury marketers don’t talk about
price…It’s about quality and service.”
Dr. Drèze: Premium products, like Lexus or BMW, are going for performance, and they’re always going to
position it as a great value. The Lexus people will tell you, “You can’t buy a car like this for cheaper.” Luxury
marketers don’t talk about price. You don’t buy a Rolls-Royce because it’s a good value. It’s about quality and
service.
A lot of the brands that a common person would consider luxury are not real luxury. People don’t know of a lot of
the real luxury brands—it’s an insider game. As you get into the market, you learn about new brands you didn’t
know existed.
eMarketer: So which brands are more affected by the recession?
Dr. Drèze: Premium brands are affected more than luxury brands, because price is part of their communication
and selling point. I see a lot more push by those brands to convince consumers it’s a good time to buy. Brands like
Tumi are doing a lot of e-mail marketing now advertising sales. You see the same thing even with West Marine, a
big sailing superstore.
You don’t see that from the real luxury brands, but they also use e-mail marketing. Louis Vuitton will send you stuff,
but it’s never, “This is a great deal.” It’s all about, “This is a great product.”
eMarketer: Is a luxury brand that starts talking about value demoting itself to a premium brand?
Dr. Drèze: Yes. A lot of luxury brands, like Louis Vuitton, will sell scarves, belts and key chains that are affordable
to a lot of people, but they’re never pushing those.
eMarketer: Just like Tiffany & Co. and the smaller sterling silver items it sells. No one wants to say, “You can get
this great keychain here.” They want to sell engagement rings.
Dr. Drèze: Right, and they put a very strict limit on how many keychains they sell, because they don’t want
everybody to have a Tiffany keychain. They want to use those products as an entry product into the line, so they’re
going to limit the amount of products.
There’s a big risk for a luxury brands letting in the masses. You’re trying to build a relationship with someone who’s
going to come back. The wrong consumers might buy a premium item that’s on sale. Five years later, when they’re
going to replace it, it’s not going to be on sale and they’ll go back to another brand. Luxury brands want consumers
who will still be there when the economy gets back to normal.
BMW, as a premium brand, is playing a volume game. They want to sell a lot of cars. Ferrari, in contrast, is
artificially creating scarcity. If you want a new one, there’s a two-year waiting list. That also means they’re going to
be less hit, because in the recession, the waiting list goes from two years to maybe a year and six months. But
there’s still a waiting list, so they don’t need to lower the price.
eMarketer: Are affluent consumers doing more research before making purchases now?
“Rich doesn’t mean that you waste money. The affluent are the biggest deal