What strategies should luxury brands adopt faced with such profound change in the behaviour of Japanese consumers (see my post of 13 September)?
The McKinsey report suggests a number of tactics, without much originality, that have all been employed by luxury brands to a lesser or greater extent: reduce costs, strengthen brand equity, increase the number of distribution channels (Internet, mobiles, shop-in-shop, private sales ..), over-invest in CRM ...
I suggest tackling the problem at the base, from a luxury product customer's standpoint, from where one may draw some conclusions with regard to luxury brands.
- There is no longer such a thing as a typical consumer. There is also no longer a simple divide between "loyal" and "occasional" customers – the implicit schema of luxury brand marketing. There is now an entire typology of luxury brand consumers: each "type" has a different "psychological" profile (trendsetters / bandwagon / connoisseurs / ...), specific expectations regarding products (bestsellers / unique products / fashion products / entry-level products ...) expecting a unique relationship with the brand.
Brands must therefore create their own client typology and develop real marketing strategies for each segment. To do so they will have to, above all, strengthen their marketing teams (central AND local): remember that "marketing" is still considered a function that is not very noble by certain brands ...
- The prices of luxury goods have reached exorbitant levels - that is justified by nothing in the eyes of a growing number of consumers. Japanese consumers, like Western consumers, are well-informed and demanding: they are willing to pay if the value (material, symbolic, cultural…) of the product matches the level of the price. Otherwise they will buy cheaper brands.
Brands will have to completely revise their pricing strategies. Start by not having to pay prices that are 40% to 70% more (or plus) in Japan. Give meaning to their brands and rebuild their fundamentals (e.g. really make efforts with regard to quality and the importance of savoir-faire). In this regard Louis Vuitton remains exemplary (see my post of 8 August).
- Rarity is one of the fundamentals of luxury: if a luxury brand is perceived as being available "anywhere", it loses its value to consumers. How does one then reconcile the need for expansion (in mature markets) and this need for rarity?
There are too many shops in Japan: the figures I gave last week show that most luxury brands have twice as many sales-points in Japan than in the U.S. – for comparable markets. Except for Vuitton: at the end of 2008 they had 56 boutiques and shop-in-shops in Japan against 101 in the USA. Some brands will have to rethink their retail strategies: to consider closing some boutiques, or to reserve some of them for specific types of consumers or for certain types of products. In other words, recreate rarity.
Evidently, this does not concern only Japan. All the mature luxury brand markets are sailing in the same boat and the implications for brands that I point here reach far beyond that of Japan alone. They will have to practice more sophisticated marketing strategies, set aside the "one size fits all" that still implicitly structures their approach to markets... and not fall into the current magic idea that "China is our future El Dorado", because the Chinese market is going to mature much faster than the luxury brands could ever imagine.