Tuesday, January 04, 2011

Is your brand a luxury brand?

As little as a 5-6 years ago, computers and cell phones were purely utilitarian devices. That is, they were used to get tasks done. They weren't always very pretty to look at and certainly not things that you necessarily craved - unless your inner geek needed whatever was the latest and greatest technology. "Sexy" was certainly not a word ever used to describe the latest Dell, Motorola phone, or the newest desktop from HP.

Then Apple managed to change the world. Most people think that Apple's great innovation was the invention of the portable mp3 player.  Far from it. Plenty of others existed when the iPod  came along. What Apple focused on was design - the design of the software that ran on the iPod, the industrial design of the actual device,  and the simplicity of a single ecosystem for managing your music and getting it onto your device.

Even at the time the iPod first launched, it did less than it's competitors. It had fewer features yet it was more expensive than almost anything else out there. Even today, the current crop of iPods still does much less in raw functionality than alternative players. And yet, they still cost more.

What Apple knew was that customers craved simplicity and would be willing to pay for a device that looked cool. People could show off the fact that they owned an iPod with the (now ubiquitous) white headphones even when the device was in their pocket. If it cost a little bit more, that would make it slightly exclusive as it would scare away the bargain hunters and the pure feature geeks.

Apple created an accessible luxury. Something that cost a little more, something that customers craved. This started  mostly in the form of iPods, but now comes  in the form of subsidized iPhones and is extending to the iPad (although the iPad is priced to be a little more exclusive and not as affordable to the general populace).

Apple's computers are truly heading into "luxury" territory. The least expensive MacBook is $1,000, yet I can go down to my local "big-box" store and get a reasonable laptop for $300. I know - these two computers can't be compared in terms of quality, bundled software, processor speed, etc. I'm simply pointing out that the price of admission into the cult-of-mac is quite a bit higher than the cost of entry into the general world of laptop computing. When you open up your MacBook in the local Starbucks, everyone knows that your computer is a "premium" computer and not just some run-of-the-mill Dell.

Which brings me to my real point: What's so great about being a luxury brand?

First of all, you're protected from feature or performance competition. To compete, you need better style, perhaps better quality, and certainly better customer service. The experience of purchasing a luxury brand needs to be top quality from your initial shopping experience to customer support, but you don't necessarily need to compete on core features. Often times, less is actually more.

Second, you don't have to compete on price so your margins can be big.  In fact, you better have a premium price to substantiate your premium brand. Not only do you have a premium price, but you need to make sure that your products aren't offered in discount locations that can't support your entire brand experience. What this generally means is that you get to command higher margins than your competition and hopefully reap the profits at the end of the day. Luxury products tend to be highly profitable.

Third, your market is slightly more affluent than the target markets of other brands. Your customer is able to spend a little more to get a product that they can show off. This segment of the market is a little more resilient to economic ups and downs and will be able to spend money with you even when the economy tightens up.

Here's where Apple has had a brilliant strategy: not everyone can afford their higher-end computers, but they have plenty of "affordable luxury" products so that you can get a piece of the brand without having to pay thousands of dollars. This is equivalent to Coach selling slightly less expensive handbags or Dolce & Gabbana selling sunglasses for around  $100. Customers get to get a taste of a luxury brand at a reasonable price. Everyone likes to spoil themselves now and again with a little luxury and affordable luxuries can have great appeal. Witness the explosion of cupcake shops that sell the tiny cakes for $3 and up at huge profits!

The one potential issue with being a luxury brand is that you might have to give up the low end of the market in order to succeed. Back again to Apple, it appears that they might do this with both the iPad and the iPhone as Android phones and tablets  take over in terms of sheer volume. My guess is that Apple will stick with their high-end, luxury strategy and let the rest of the market be owned by someone else. They'll stick to their high-margin products for the top end of the market and let others fight it out to claim the rest of the market with low margins and tough price competition.

So, how can you make your own brand a luxury brand? Can you update the experience of shopping in your store or on your website? How do you make your product or service worth paying a little extra for?

Here are a few tips:

1. Extraordinary customer service. Make doing business with you a better experience than anywhere else.

2. Extraordinary product quality. Your product doesn't need to do more than the next guy's. It just needs to do the basics better.

3. Exclusivity. An endless supply of your product usually means that anyone can get it. You need to figure out a way to make your product or your service slightly scarce. Make it worth lining up for.

Is your brand a luxury brand? Can it be one?
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