Despite the economic crisis, the luxury goods industry has been growing at double digits. One reason: an influx of new customers from emerging markets such as Brazil, China and India. Another reason is that consumers, even when they cut back on other purchases, can’t resist the social cachet of luxury goods. However, luxury brands still face challenges today: new local competitors, a high dependency on consumers in China, changes in tax regulations and increasing customer awareness of price differences.
For luxury goods, the value of their benefits is higher than their face value. Customers seek quality, authenticity and a brand history. As a consequence, some luxury goods possess the rare characteristic of positive price elasticity: the higher the price, the higher the demand. Similarly, scarcity is also a key element of success for luxury products. Therefore, producing and selling fewer coveted luxury items typically makes consumers want them even more, and willing to pay a higher price.
And sometimes, the cost of a luxury good does not correlate at all with its price. If consumers perceive plastic is trendier than leather, it can command a higher price.
Along with gauging consumer demand and preserving their products’ cachet, luxury goods manufacturers also operate in an increasingly complex global marketplace. Their international marketing and pricing strategies must achieve such goals as:
- Maximizing customer satisfaction and brand loyalty
- Maximizing value extraction but limiting arbitrage opportunities (re-imports) and reducing pricing complexity
- Planning for tax/refund effects (which range from 5% to 20%)
- Integrating exchange rate fluctuations
- Accounting for differences in parity purchasing power and currency over/under-valuation
Simon-Kucher has strong expertise in the luxury goods industry, especially with strategies on international pricing, product mix, value-based consumer segmentation, omni-channel and digitalization.
Our projects for luxury goods clients include:
- Optimizing international pricing strategy, especially price index definition per country and per product category
- Revising price and product portfolio strategy in an omni-channel environment
- Identifying new growth levers, quantified potential demands and distribution channels in emerging countries
- Enriching customer segmentation and developing effective marketing mix strategies
- Optimizing service pricing and the design of new services
- Digitalization and eRetailing strategy