, February 16, 2017

Can luxury products take a no-frills position?

In the mid-1990s, well before the internet had tangled us all in its worldwide web, Michael Porter set the benchmarks for marketing strategy which still resonate today. To sum up some quite complex theory, he argued that brands either had to achieve cost leadership or they had to differentiate. In a nutshell, differentiation is what allows luxury and fashion brands to charge so much more than the value brands that often produce cheap copies of their goods.

A recent article in Marketing Week suggested that the digital era is driving Michael Porter’s strategies in a new way. Tom Goodwin argues that brands either have to simplify or create a “delightful” experience. Citing Amazon as a functional website, designed to make buying very easy (but boring), the article proposes that consumers want shopping to be a branded experience and buying to be the “ultimate in ease”. The author suggests that brands should either “systematically reduce complexity at every turn, or add it in the most delightful way” and there is no room for middle ground. The parallels with Michael Porter’s cost leadership vs differentiation strategies are self-evident.

It might seem, at first glance, that all luxury products would need to strategically differentiate and provide a delightful experience as an essential pre-requisite for being a luxury good. Oxymoronic as it seems, even the most luxurious products can be sold on the basis of no-frills simplicity. A good example is 77 Diamonds a no-frills internet brand which sells diamond jewellery at prices which they claim substantially undercut those paid elsewhere in the jewellery industry. If you want a famous luxury brand, the shopping experience and marketing substantially add to the costs. In a recent Guardian article, 77 Diamonds Managing Director Tobias Kormind pointed out that customers have paid six figure sums for jewellery they had bought online without visiting a showroom.

So, luxury product companies can take a no-frills position but that doesn’t make them luxury brands! The long term issue with this approach is that unless you genuinely have Michael Porter’s “cost leadership” strategy, a price led marketing position will lead to lower profits. 77 Diamonds is not alone in the low cost diamond jewellery market. Blue Nile for example is a much larger operation which takes a similar position. In a world where buying by price online allows consumers to compare prices in a way that commoditises a diamond ring down to a specific cut, carat weight, shape, colour, clarity and setting, then the lowest price will win the sale, driving profits down.

The clear message here is that selling luxury products cheap does not make a luxury brand. Blue Nile was originally called “InternetDiamonds.com” and has rebranded to obtain a less generic position. 77 Diamonds may in the long run decide that leading on a low-price position is not sustainable and rebrand to become the “modern version of Tiffany and be an aspirational brand,” that Kormind refers to in the Guardian article. He goes on to say “It’s not just about selling diamonds cheaply, it’s about craftsmanship. If you want people to refer you, you need to have that quality product, service and design.” A rebrand and reposition may be inevitable for 77 Diamonds but without investing in building the heritage and creating the “delightful” brand experience of Cartier or Tiffany’s, it’s unlikely to ever be a true luxury jewellery brand.

Jewellery branding, new brand development Savage and RoseAt Grain, we specialise in luxury branding and have worked with leading jewellery brands as well as startups. We recently created the name, brand and website for startup jewellery brand Savage and Rose who sell high quality 18ct and 22ct gold jewellery at very competitive prices. However, the brand positioning builds the luxury elements of heritage, quality, craftsmanship and service in from day one. Everything is in place for it to thrive as the new luxury digital brand of choice.

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