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Abundant rarity: The key to luxury growth

Jean-Noel Kapferer 1

HEC Paris, 78350 Jouy en Josas, France

1. Luxury: A financial dream

Bernard Arnault, founder and CEO of Moet HennessyLouis Vuitton (LVMH), said straightforwardly thatLuxury is the only sector that can provide luxuriousmargins (Kapferer & Tabatoni, 2011, p. 1). SinceJuly 2011, after 3 years of paralysis, Americasaffluent class began fueling luxury growth onceagain. It is difficult for such Americans to indefinite-ly postpone this unnecessary, but very appealing,desire to buy luxury products. Interestingly, even in

this time of financial struggle, it is the high-end,inconspicuous, and fully priced products that areflying off shelves (Clifford, 2011). Todays economiccrisis has prompted the affluent populationthe top20% of income earners who together represent 60%of the marketto refocus on real value and greatclassics, and to pay the price for them.

A sign that the sector is booming once more, 2011was a year of new acquisitions of luxury companiesand brands by investment funds in Asia and theMiddle East, and by luxury groups such asLVMH, PPR, and Richemont. In all cases, the highmultiplesaround 20measuring the valuations ofthese companies demonstrate that investors share adream. They believe that the sectors prospects for

Business Horizons (2012) 55, 453462

Available online at www.sciencedirect.com

www.elsevier.com/locate/bushor

KEYWORDSLuxury;Prestige;Brand equity;Growth;Elites;Marketing syndicates

Abstract Although Western economies have not yet transitioned out of crisis, theluxury sector is growing again, especially at the high end. In emerging countries, theluxury sectors expansion has reached double digits. However, as luxury productscontinue to penetrate global markets, the prestige of brands like Louis Vuitton has notdeclined at all. This seems at odds with the concept of luxury being tied to rarity andexclusivity. Thus, how can we reconcile these facts with theory? In order to capturemounting demandsnot only from extraordinary people, but also from ordinaryindividualsluxury brands enact virtual rarity tactics, construct themselves as art,and adopt a fashion business model while deemphasizing exceptional quality andcountry of origin. Rarity of ingredients or craft has been replaced by qualitative rarity.Further, the cult of the designer is a potent tool in building emotional connectionswith a vast number of clients. Today, brands in the luxury sector are actually sellingsymbolic and magic power to the masses. There exists a culture gap between Asia andthe West; namely, Asian consumers feel safer buying prestigious Western brands withwhich individuals around them are familiar. The insights offered herein provide cluesfor entrepreneurs attempting to launch luxury brands.# 2012 Kelley School of Business, Indiana University. Published by Elsevier Inc. Allrights reserved.

E-mail address: kapferer@hec.fr1 Pernod-Ricard Chair on the Management of Prestige Brands

0007-6813/$ see front matter # 2012 Kelley School of Business, Indiana University. Published by Elsevier Inc. All rights reserved.http://dx.doi.org/10.1016/j.bushor.2012.04.002

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growth are huge, and they are right; the future isbright, especially in the BRIC countries (i.e., Brazil,Russia, India, and China) and soon in the CIVETScountries (i.e., Colombia, Indonesia, Vietnam,Egypt, Turkey, and South Africa). In all these coun-tries, gross domestic product (GDP) growth is high, afine prospect since Bernstein Research financialanalysts showed that luxury market growth is strict-ly correlated with GDP growth because the lattercreates a middle class and fosters optimism. Unlikeconsumers in Europe, consumers in these countriesgenerally do not save for their retirement but ratherspend money on newly available products, especiallythose that confer status and serve as symbols of self-achievement. In BRIC and CIVETS countries, there isno middle range. Consumers buy local brands orglobal fast-moving consumer goods brands to meettheir everyday needs, and luxury foreign brands tospoil themselves. Having developed consumption so-cieties quite late, people in these countries advanceby leaps and bounds and claim their right to luxury.For instance, visiting newly built luxury malls is afavorite leisure-time activity for individuals in thesecountries. What was once described as the Mallingof America (Kowinski, 2002) has now become themalling of Asia, or even of the world, with retailand entertainment mixing into retailment withinsuperb luxury stores.

To take advantage of the mounting demand forluxury goods in newly rising cities, major luxuryretailers are now engaged in a very dynamicstore-expansion strategy. For example, LouisVuitton announced that it would enter so-calledthird-tier cities, mainly provincial capitals, in Chinato attract more consumers. Today, the brand has37 stores across 29 cities in China. This move isdriving other luxury brands, such as Gucci, Zegna,Coach, and Burberry, into these same third-tiercities to get a cut of the profit.

This fast-paced retail expansion strategy would begood news for the luxury sector if only it could twistthe basic equation that luxury = rarity, which predicts(Figure 1, A) that a products luxury statuswhich iscrucial for charging high priceswill be diluted whenits penetration rate increases because too manypeople will own it. A less stringent prediction is thatincreasing penetration first boosts a products luxurystatus by making the brand visible and recognized,but then reaches a tipping point beyond which luxurystatus dilution occurs (Figure 1, B). Returning toour example, third-tier Chinese cities representbig numbers demographically speaking, but by en-tering such cities, luxury brands run the risk ofbecoming provincial themselves.

Brands like Louis Vuitton have thus far succeededin postponing this tipping point. Half of the women

in Tokyo offices own a Louis Vuitton bag (Chadha &Husband, 2007); however, according to Ipsos (2011)data, consumers in Japan still regard this brand asthe most luxurious. Is the luxury industry actuallycreating a new phenomenon (Figure 1, C) in whichluxury status is not diluted, but actually reinforced,by penetration rate?

2. The many meanings of luxury

Why is there apparently no contradiction betweenthe high penetration of a luxury brand and its resil-ient luxury status? It could be due to the manymeanings of the word luxury itself. To understandthis seemingly contradictory state, we need tomake a clear distinction between the notions ofluxury, my luxury, the luxury sector, and the luxurybusiness model.

2.1. Luxury as an absolute concept

Luxury as an absolute concept typically evokes im-ages of rich and powerful individuals lives; that is,the ordinary of extraordinary people. As Castare`de(2008) noted, it is no surprise that luxury DNA canbe found in the history of societys elites. Luxury wasfirst found in religious temples, churches, pagodas,Egyptian pyramidal tombs, and so forth, in the formof tributes to god(s) and attempts to buy mercythrough the sacrifice of wealth. Later, luxury be-came a signal of rank in aristocratic societies(Podolny, 2008). As Bataille and Hurley (1991)showed, ones rank is demonstrated by his/herability to sacrifice productive resources to buynon-productive items. In the past, luxury was theconsequence of social stratification. Only recentlyhas there been a paradigmatic shift: luxury nowcreates social stratification in countries in whichit did not previously exist (Kapferer & Bastien,2009). As a newly rich Chinese man, participatingin a focus group, put it: What I like about luxury is

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Figure 1. The luxury-rarity relationships

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that it is expensive. This is luxurys core, latentsociological role, despite the overt excuses orrationalizations that consumers may provide whenasked in surveys why they purchase luxury items forthemselves.

Interestingly, when asked, What examples ofluxury spontaneously come to your mind? typicalanswers mention inaccessible products or lifestyleelements of the very rich: helicopters, private jets,and private islands in paradise seas. Luxury as anabsolute concept needs no brand (Kapferer, 2010) aspeople talk more about lifestyle elements thanabout products. However, if the interviewer insteadasks, What brands come to your mind when youhear the word luxury? then the answers changeand refer to products or services with the list beingmore or less the same worldwide: Louis Vuitton,Chanel, Gucci, Rolex, Ferrari, Dior, Prada, Bulgari,Ritz Carlton, et cetera (Ipsos, 2011). Note that thesebrands are more accessible than the former evoca-tions. They also communicate a lot in the media andthrough their extravagant stores.

2.2. My luxury

My luxury has a different meaning, most oftenreferring to a small personal luxury purchase. Take,for example, the lipstick effect: a term attributedto Estee Lauder, founder of the skincare company,who was surprised by the increase in lipstick salesduring the Great Depression. This notion is an exam-ple of the well-known phenomenon whereby, afterexperiencing psychological stress, individuals pur-chase affordable luxuries as a substitute for moreexpensive items. For instance, a woman may pur-chase Dior lipstick ($30.00) to feel a sense of luxury.My luxury is clearly a break from plain, normal life andits many constraints: an escape into an ideal world ofbeauty, pleasure, taking care of oneself, and a bit ofeternity. Individuals compulsorily buy what they donot needwhether it is a product or serviceat aprice far above what functional values command, andthey do this to pamper or reward themselves. How-ever, in order to feel the full effects of my luxury,these products or services need to be from prestigiousbrands. That is, self-healing requires big names for itsmagic to operate. This is exactly the same mechanismunderlying the placebo effect, by which patientsillnesses disappear because they believe they aretaking a real medicine. The lipstick effect only workswith brand names that evoke the lifestyles of the richand famous. It also requires a sacrifice of money. AsHubert and Mauss (1981) showed, this high-pricesacrifice is necessary for the product to becomesacred and to endow the buyer with its luxuriouseffects.

2.3. Luxury as an economic sector

Luxury in the form of economics is the meaningimplied when one talks about the growth of luxury.In fact, Bain & Co, a consulting company specializingin the luxury sector, regularly publishes forecastsabout luxury sales. How does Bain generate theseforecasts? Its analysts add up figures from companiesthat syndicated authorities consider to be part ofthe luxury sector. In Italy, France, Germany, and theUnited Kingdom, there are syndicated authoritiesthat act as representatives for the collective inter-ests of luxury companies; namely, companies thatbelong to these syndicates. The luxury syndicate inItaly is called Altagamma. In France, it is ComiteColbert, which represents a fourth of world luxurysales, twice as much as Altagamma. These luxurysyndicates are not independent of the companiesthemselves, and the system works like a club. Anynew member has to be co-opted and must behaveaccording to a set of criteria and values to beadmitted. However, not all members would be wide-ly perceived as luxury brands. For instance, inFrance, although almost no one considers a Lacostepolo shirt to be a luxury product, Lacosteas acompanyis part of Comite Colbert. As a result,Lacostes sales are taken into account in Frenchluxury sector forecasts. Similarly, Illycaffe is partof Altagamma, while Corneliani, the Mantovian lux-ury mens fashion brand of Italy, is not part of theItalian syndicate even though its stores are locatedjust in front of those of Zegna (an Altagammacompany). Cornelianis sales are, therefore, notincluded in Italian luxury sector data. Bains fore-casts do not encompass automobiles, five-starhotels, or resorts; rather, they concentrate on luxu-ry fashion, leather, watches, skincare products,fragrances, jewelry, and shoes. In order to continu-ously grow and following LVMHthe worlds numberone luxury group with more than 50 luxury brandsthese companies have decided to democratize thesector and capture part of the massive demand inemerging economies (e.g., BRICS, CIVETS) in whichthe middle class is growing with an appetite forrecognition, status, and pleasure. To do so, manyluxury brandsconsidered as such by the corpora-tive syndicateshave moved away from the classi-cal luxury business model in two major ways.

First, many luxury companies now base theirprofits on logo-typed accessories or second linesproduced on a larger scale and sold as fashionobjects such that consumers feel the need to buynew products each season as the fashion systemdictates. For example, the notorious It bagchanges from season to season depending on trendsand popularity (Aspers, 2010). Fashion is about the

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contagion of desire (Girard & Gregory, 2005). Thus, ahigh number of consumers buying the same fashion-able product ceases to be a problem, especially inAsia where Confucian rules discourage individualsfrom being too original. Unlike in individualisticWestern societies, in Japan, wearing the same LouisVuitton product reinforces a feeling of together-ness, which is very important in that culture. Infact, in Asia, luxury creates both distinction fromothers and a sense of belonging at the same time.

Second, many luxury companies have abandoneda major obligation of the luxury business model: nodelocalization. For example, by making some of itsproducts in China, Prada has reduced its productioncosts and improved its gross margins thanks to lowlabor wages. In addition, the company is even moreappealing to Asian investors who can now buy thecompanys shares on the Hong Kong stock exchange,and lower production costs also allow brands toinvest more in communication to build the dreamconsumers associate with them.

2.4. Luxury as a business model

Finally, luxury is also a business model that has beenempirically fine-tuned over time by luxury brandsthat dominate worldwide, such as Louis Vuitton,Chanel, Gucci, Herme`s, Ferrari, and Rolex. Thesecompanies, many of which are still family owned,have crafted a common, yet unique, businessmodel: a pillar of their resilience and profitability.This business model runs contrary to most presentbusiness models in any sector. It rests on strictprinciples that maintain the uniqueness of luxuryand preserve the non-comparability of those luxurybrands that adhere to its guidelines (Karpik & Scott,2010). Here are a few examples, some of which havebeen called the anti-laws of marketing (Kapferer &Bastien, 2009):

Do not delocalize production: Luxury is the am-bassador of the local culture and refined art devivre.

Do not advertise to sell: Luxury communicates tobuild the dream and to recreate it. This is notmeasured by short-term sales increases because,unlike fast-moving consumer goods, possessing aluxury good dilutes the excitement one had be-fore the purchase was made.

Communicate to non-targets: Part of the value ofowning a luxury good is the quality craftsmanshipof the product, but another necessary part isrecognition by non-owners. This is why AstonMartin, although a very small brand, used product

placements in the blockbuster James Bondmovies; that is, so everyone in the streets couldrecognize one, thus endowing the driver withadmiration.

Maintain full control of the value chain: Fromingredient sourcing to the retail experience, lux-ury quality can only be delivered if the brand has100% control.

Maintain full control of distribution: Distributionis where one-on-one service and interactionshould take place. The experience must be ex-clusive.

Never issue licenses: Licensing necessitates lossof control and increases the risk of consumershaving a bad experience. Luxury promises excep-tional quality and an exceptional experience, butlicensors must be profitable even after payingimportant licensing fees. This can only beachieved by reducing the quality of the productsthemselves or of the distribution. This is whybetween 1998 and 2008 Ralph Lauren retail salesfrom licensing decreased from 60% to 35%. TheU.S. fashion brand bought back many of its li-censes worldwide.

Always increase the average price: Since themiddle class gets richer, to remain its dream,the luxury brand should never trade down norcut its prices. If it does create some accessiblelines, this must be done on a limited scale andmust be counterbalanced by systematic trading-up. For example, when managed by Ford, all newJaguar models were designed to make the brandmore accessible. The brand never created its ownS Class like Mercedes did.

Develop direct one-on-one relationships with cli-ents: Luxury means treating all clients as VIPs.This necessitates direct, personalized, one-on-one interactions, ideally in exclusive stores thatrepresent the dream in 3D.

This luxury business model can be applied tocompanies in any sector. Thus, Apple, MINI, andNespresso are typical examples of companies thatare not considered to be luxury, but neverthelessfollow the luxury business model. There are otherbusiness models among more high-end labels, in-cluding the fashion business model and the premiumbusiness model. The main characteristic of the fash-ion business model is that it delocalizes productionin search of low-cost labor forces. Unlike luxury,fashion does not sell timelessness. As soon as the

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fashion season ends, sales and super-sales slashingmargins are employed to eliminate inventory. Fash-ion does not worship quality like luxury does.

As for pricing, in the luxury business model,average prices should always go up because thereare enough newly rich consumers to justify thisstrategy as long as they dream of the brand. Whenthis dream falters, many luxury companies prefer toexpand downward, selling to more people thanks toprofitable accessories that have more accessibleprices and can be produced in larger quantities incountries with low labor costs. Such accessories canthen be bought repeatedly by consumers, a sign thatthe luxury brand has moved to a fashion businessmodel where originality and change are valued, notrarity and timelessness.

The premium or super-premium business modelrests on a brands willingness to create the objec-tively best product. Grey Goose super-premiumvodka, for instance, advertises itself as the worldsbest-tasting vodka since it has received manyawards from expert juries. Unlike luxury, whichrefuses to bear any comparison, super-premiumbrands look for it and build their fame through it.

3. How scarcity creates value

It is a basic law of economics that when demandexceeds supply, price goes up. In one behavioralexperiment, social psychologists Worchel, Lee, andAdewole (1975) made a particular brand of cookiessuddenly unavailable to one group of people, whileanother group was still able to buy them. Post-experimental measurements showed that the per-ceived value of these cookies was higher in the firstgroup than in the second. Similarly, Apple capitalizeson this effect by creating an artificial scarcity at eachnew product launch: people wait in line at Applestores for an entire night and become price insensi-tive, even though they know almost nothing aboutthe new product. The same effect can be seen inservices. For example, it is a good signal of valuewhen one has to book many days in advance to get atable at a restaurant. Should the restaurant ownerthen increase the number of his/her tables and cap-ture a higher daily turnover? Of course not! Doing sowould reduce the line and dilute the scarcity effectand, thus, the attractiveness and pricing power of therestaurant. Remember el Bully in Spain, which waswidely considered to be the best restaurant in theworld? Its creator decided to close it, but the waitingtime for a table was more than 1 year. Wouldnt ithave been better to create a second line with afew restaurants located in fashionable areas, withmore accessible prices but still a reservation waiting

period? This is typically what most famous chefsholding the Michelin three-star recognition do. Thesecond line builds the chefs star brand awareness,and the three-star restaurant keeps the flame alivefor those rare few who can access it after a long waitand an important sacrifice of money.

4. From scarcity to qualitative rarity

Romanee Conti vineyards produces only a few thou-sands bottles of wine per year. Ferrari also restrictsits production, as does watch maker Patek Philippe.Herme`s Kelly bag sales are limited by the actualscarcity of more-than-perfect crocodile skins avail-able globally. These famous examples entertain themyth of luxury as a rarity business. However, physi-cal rarity/scarcity is not welcomed by shareholdersof listed luxury groups because it prevents fastgrowth. Even though some brands, such as Herme`s,hold to this objective rarity, the luxury sector hasgrown thanks to a shift in what may be termedvirtual rarity: the feeling of privilege and of exclu-sivity (Groth & McDaniel, 1993).

In fact, objective rarity is quite boring andinsufficient if the involved components are not per-ceived as elementally desirable. For this reason,sustainable luxury is difficult to grow. For example,based on her personal conviction as a vegan, StellaMcCartney refuses to use leather in her fashion linesand accessories. As such, her craftsmen painstakinglymake use of alternative fabrics, albeit ones that arecommonly thought of as less precious than leather.This is a typical premium for a fashion endeavor, but itlacks the dream factor attached to luxury.

It is time to acknowledge that modern luxuryenacts a qualitative rarity. It embodies a level ofover-quality that runs contrary to all the trends ofmodern industrialized production processes and de-fies all laws of value analysis, the method by whichthe costs associated with product/service featuresare reduced while maintaining the features targetvalue for the consumer. This qualitative rarity canbe enacted through the production process if, forinstance, handwork is needed to tie a precious redribbon on each Chloe fragrance bottle or to engravea seal on each Royal Salute bottle of whisky. Non-delocalization is also part of this construction ofvalue, as is the culture or historical reference that isembedded in the product.

5. Introducing virtual rarity

Rarity can also be artificially induced. One methodof sustaining consumers desire for brands that now

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offer longer series and extended production entailsregularly launching limited editions, which capturemedia attention and uphold desirability of the brandvia ephemeral rarity.

Another essential lever for creating an aura ofprivilege is selective, if not exclusive, distribution.Luxury rarity is built at the retail level. Thus, forinstance, until now, there was no Louis Vuittonfragrance because the brand refuses to sell anywherebut in its own stores. Fragrances, however, are closerto mass market and need wide exposure. Most luxuryfashion brands have chosen to sell their fragrancesakey lever of brand awareness, image, and profitsthrough selective distribution in high-end depart-ment stores. This practice endows these brandswith a halo of glamour and an air of exclusivity. Ata Chanel skincare and makeup counter within adepartment store, for example, any woman can becared for like a VIP. . .even if only for a few minutes.

Finally, communication builds virtual rarity. Toconstruct the dream, the luxury brand must com-municate far beyond its actual target. The brand, itsproducts, and its prices must be known by manyeven though only a few should be able to buy. This iswhy Chanel typically advertises its most prestigiousjewelry line, rather than the more accessible one.Luxury firms even capitalize on celebrities as brandambassadors to spread their luxury branding mes-sage. Moreover, their systematic use of social eventsaims at exhibiting the brands selectivity based onwhoand who is notdeemed worthy of an invita-tion. Brands must show that not just any celebritycan attend, but rather only a select few judgedprecious enough to represent the brand.

6. From craft to art: Elitism for all

A significant shift taking place in the luxury sector isthe starification of designers. Unlike artisans, whoare famous for their craft, designers now beg forrecognition as creative beings. Some, such as KarlLagerfeld, demonstrate that they have other tal-ents, like photography or cinema. John Gallianopresents himself as a piece of art, staging the typicalfigure of the romantic artist. Little by little, art ispervading commerce, especially in the luxury sec-tor. Louis Vuitton promotes avant-garde artists likeS. Sprouse and R. Murakami. The Musee des ArtsDecoratifs in Paris hosts the Ralph Lauren collectionof vintage automobiles. To build its prestigious im-age, Cartier installed a temporary museum withinthe Forbidden City in Beijing. In Seoul, The PradaTransformer is a striking building in the shape of atetrahedron, with the capacity to change its ownform and function. Luxury likes to be associated

with art because, like art, it aims at being perceivedas intemporal; diamonds are forever, as is a Porsche911. This intense proximity between art and busi-ness has another goal: to position products as au-thentic pieces of contemporary art, each oneblessed by the hand of the designer. By doing so,luxury brands deemphasize craftsmanship, whichrequires time and effort and is not compatible withvolume (Catry, 2007). This association with art alsoenhances a brands extensibility beyond its coreproducts (Hagtvedt & Patrick, 2008).

Thus, the transformation of luxury fashion de-signers as art icons is a consequence of the searchfor growth through democratization. Designers whosucceed in the luxury sector are those who havepersonality, and are able to create followers andemotional bonds among larger audiences. Such de-signers are avant-gardeperhaps even polarizingand they purposefully do not appeal to everyone,creating a cultural elite of followers. These design-ers capitalize on a cultural segmentation; namely,people who like to think of themselves as the crea-tive elite. The media and social media make design-ers into cultural icons, and their charisma is a sourceof authority that is embodied as an aura, bits ofwhich are passed to clients through the designersproducts. When one buys a special item in the MarcJacobs e-boutiquefor example, a Rubixcoin purseat $18 or neon rain boots at $28one has the feelingthat these items have actually been designed byMarc himself. Despite their low price, this feeling ofowning an extraordinary object is reinforced by thefact that they are exclusively available at MarcJacobs stores, just as the luxury business modelprescribes. Finally, the purchase of luxury productsindicates ones advanced taste and serves as a socialmarker. Art and culture create elitism for all, whichcan be leveraged by selling more products to morepeople without diluting their appeal because theseproducts are held as artistic objects, not as com-mercial products.

The desire to look non-commercial and appearfully engrossed in the world of art is exemplified byadvertising. Nowhere should luxury advertising obeythe classical rules taught by Procter and Gamble. Asregards luxury, the less explicit and understandableadvertising is, the better it is. In this realm, adver-tising seeks to create a distance while simultaneous-ly trying to communicate to the masses. This socialconstruction of advertising as art holds communica-tion as a full product of the creative brand. Forinstance, Dior ads are to be treated as its bags ordresses. This is why luxury brands do nothave communication directors; rather, the creativedirector imposes his or her vision on all thebrands productions. To communicate this vision,

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some luxury brands go so far as advertising their newads: discussing the famous director recruited tocreate it, the top models featured within it, theincredible location where it was shot, and so forth.Similarly, luxury brands now put videos on YouTubeand other social media sites, documenting the mak-ing of their TV commercials. Since advertising is inessence non-credible, by focusing on the artfulconstruction of their advertisements, luxury brandsdefuse their commercial undertones.

7. The new reality of Asia: Egalitarianluxury?

Most of the rules of luxury brand management wereinvented in the West. They reflect the sociology ofWestern societies and are dominated by conceptslike distinction, class differentiation, and elite cul-ture. In such a context, increasing the penetrationof a luxury brand dilutes feelings of privilege. As aresult, the elite accept paying more so conformistscan no longer afford the higher prices (Amaldoss &Jain, 2005). This is confirmed by the dream equation:the notion that the desirability of a luxurybrand is correlated with the difference betweenbrand awareness and brand penetration (Dubois &Paternault, 1994). Unknown brands do not createdesire and magnetism, but when luxury brands aretoo mass-marketed and go after all consumersthrough the so-called democratization of luxury, theylose their cachet (Nueno & Quelch, 1998; Silverstein& Fiske, 2003). They are no longer distinctive enough,at least in Western countries, but maybe not in Asia(Phau & Prendergast, 2000).

Since 1980, Japan has been the gold mine of theluxury sector. Soon, however, China will become theworlds largest luxury market. Interestingly, Japanhas a very egalitarian culture, yet it made LouisVuitton the worlds number one luxury brand. Thisseems like a paradox, but it is not.

One should keep in mind that when it was pene-trated by luxury brands, Japan had the largestmiddle class of all developed countries, with a veryhigh average income per household: more than$60,000 USD. Japan is also a society in which thegroup is more important than the person, and it hasa very hierarchical structure. Western luxury brandsprovided the Japanese with a way to reward them-selves, but also enabled individuals to behave ac-cording to their rank in society without disturbingsocial order/conformity. In Japan, owning an un-known luxury brand meant taking a risk. The fameand distribution of mega brands, such as LouisVuitton, was very reassuring from a face-savingperspective. Furthermore, these brands made a

wide array of products available, ranging from attain-able accessories to extremely expensive items. As aresult, both the Tokyo administrative assistant andthe CEO could buy the same brand at the same store,but of course they bought very different products.Thus, price distributes rarity through discriminatorylevels. There is a price for the many and a pricefor the few. Even the lowest price must be seen asa sacrifice, though, or else the magic of luxury doesnot work.

The same process is now taking place in China,with millions of consumers eager to show they aresucceeding while they remain novices in terms ofknowing what is or is not a luxury product. Chineseconsumers love leading brands. This is clearly anadvantage for brands with high brand awareness anda network of stores in all major capital cities, andnow even regional cities. For a local Chinese con-sumer, buying a luxury good is a way to participate inthe world of consumption. It is also egalitarian.

8. Is the cult of luxury religious?

A religious phenomenon seems to be occurring in theluxury sector. As described by Chadha and Husband(2007), there exists in Asia a cult of luxury, whichappeals even to teenagers. Western youth have alsoadopted luxury brands, mixing and matching luxuryaccessories with casual clothing. Why has luxuryextended so far past its natural borders? If Fukuya-ma (1996) is right, since the collapse of communism,there are no more ideologiesat least none thatpromise paradise on earth. Only consumption re-mains, and in its highest form: through highly he-donistic luxury goods that embody both creativityand heritage, and impart quality craftsmanship,symbolism, glamour, and transgression (through ex-cess price).

Luxury is a spiritualization process of human-made objects. This is why price is so important inaddition to the blessing of cultural and powerfulelites. An excessive price is the measure of onesdesire, and thus of an objects desirability based onvalues that have nothing to do with down-to-earthpracticality. By sacrificing an important part of hersalary to purchase a luxury bag, the Tokyo adminis-trative assistant creates the objects sacredness;indeed, the etymology of sacrifice is to makesacred. Luxurys similarities with an actual cultare many. We already analyzed how luxury brandsseem engaged in marketing adoration to sustain thiscult, starting with that of the iconic designer. Theiconization of particular products within a brandsrange is also significant. It is how luxury counter-balances the loss of aura created by large-scale

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technical reproduction of products. Iconic productsare meant to look intemporal, almost eternal. This isachieved in two ways. First, they are permanently inthe catalogue like the Porsche 911, Chanel N85, orJaeger Lecoultres famous Reverso watch. They arealso made intemporal by relating them to somehighly significant moment in the life of the brandsfounder. The spirit attached to this moment and thestory that accompanies it endows the product withpart of the aura its production in long series hasdestroyed. The iconic product becomes an object ofthe cult. One needs to possess at least one of theseproducts once in ones lifetime. Luxury brands alsocultivate mythical stories about their foundationand maintain secrecy regarding back-office happen-ings, such as details concerning production sites andquantities/finance. Their flagship stores, magnifi-cent pieces of urban art designed by famous archi-tects, have been compared to modern cathedrals inwhich faith is reinforced. In these stores, eachproduct is put on a pedestal like a holy statue oricon. The stores act as closed shrines where a subtlesecret order reigns and where one is introducedselectively, thus leading to lines outside. Consumersvisit the stores in small groups, making a pilgrimageand wishing to attend rituals delivered on a one-to-one basis: welcoming services, demonstrations, ex-planations of the exceptionality of each item, etcetera. This comparison with religion is most reveal-ing: luxury likes to present itself as an elevatingcultural force. It belongs to the upper tier of Mas-lows pyramid, that of self-realization (Maslow,2011). Religions like big numbers and large commu-nities, unless they wish to remain a small sect.

As this comparison with religion has its limits,however, we should instead speak of magic. As itsLatin root suggests, religion ties people together intheir belief of a god in heaven. Magic, on the otherhand, invokes supra-natural forces in action on earththanks to the mediation of objects, icons, and sha-mans. As Arnould, Price, and Curasi (1999, p. 264)wrote: Their possession links the owner or holderwith immanent powers to achieve certain ends.

There is something magical about possessing lux-ury goods. They endow the owner with the ability tobecome another person just by wearing a blessedcloth, jewel, or accessory. The starification of mod-ern fashion designers is an essential prerequisite ifluxury brands want to appeal to larger audiences.These designers are not mere humans anymore, butleaders who take their followers into the world ofart, creative culture, taste, and sensory experi-ences thus far restricted to the elite. Their magictouch is passed along by contagion from the designerto the end user. As such, there is no longer the needto link luxury to rarity or a finite number of clients.

As expressed by the dream equation of Dubois andPaternault (1994), the larger the number of clients,the more famous the name must be to keep thedream alive.

9. Nurturing the symbolic power ofthe luxury brand

Symbolic power is now fueled not by rarity but bythe theatrics of qualitative rarity. Unlike main-stream brands, which have a single logo (e.g., Nikesswoosh), luxury brands develop a war chest of sym-bols. Symbolic power is also nurtured by the design-ers visibility as a very singular entity and by thebrands highly creative communication. Hence, theimportance of fashion shows, those rituals of defilesheld in capital cities, acting as did medieval jouststo designate the bravest to the public. On eachrunway, designers agree to compete in front ofthe worlds cameras. This is necessary for the main-tenance of their fame. Similarly, in the automobilebusiness, F1 circuits play the same role for Ferrariand Mercedes. This is why giving mass market brandnames to racing teams instead of individual auto-mobiles makes F1 lose part of its mystique: one doesnot hear about Mercedes anymore, but about theRed Bull team. The widespread extension of luxurybrands communication far beyond the classic glossypages of magazines is also part of this phenomenon,as well as the latebut powerfulentrance of lux-ury brands to the Internet and social media. In 2011,Louis Vuitton created its own digital in-house agencywith 400 persons worldwide. Its goal is to diffusecontent about the brand all over the Internet, in-cluding history, heritage, craft details, socialevents, creative interviews, fashion shows, creativetravel guides, and limited editions. If the luxurybrand wants to stand above its many imitationsand look-alikes, selling only an image of luxury, itmust capture attention on the Internet and revealits depth and infinite creativity.

10. Short-term or long-term policy?

The goal of a luxury policy is to build pricing power,making clients become price-insensitive fans of thebrand. Pushed to grow by their shareholders, someluxury brands have decided to increase penetrationamong the public while attempting to maintain highprices. They have achieved this by ignoring manyconstraints of the luxury business model, such asobjective rarity and the informal rule forbiddingdelocalization. Instead, these brands have adopteda religious model of community building whereby

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the adoration of iconic figures, experiential selec-tive distribution, and highly visible creative com-munication play a central role in reinforcing thefaith of the many and the symbolic power of thebrand. However, there is a danger: the tradeoffbetween the short term and the long term. Know-ing that luxury can be defined as the ordinary ofextraordinary people and the extraordinary of or-dinary people, a natural question arises: How longwill the former dream about such brands? Thesepeople play the crucial role as the reference groupfor the mass of followers. Amaldoss and Jain (2008)demonstrated that the elite are ready andwilling to pay more to reduce the number offollowers; namely, conformists. Thus, to keepthese elite consumers, brands must produce su-pra-luxury products, services, and events. Willhaving elite consumers trade up to buy the mostexpensive, upper ranges of a brand suffice in main-taining the illusion of rarity and feelings of privi-lege? Is there a point beyond which Louis Vuittonwill have gone too far in penetration and diffusion?For instance, the brand has now decided toopen stores in so-called C-towns in China. Froma quantitative standpoint, these towns are biggerthan many Western capitals. Why, then, do theynot create a luxury market there too? From thestandpoint of Shanghais or Beijings modern elites,though, what does it mean for the brand to godeeper into Chinese provinces? If luxury brandsalways need to be perceived above the mainstreamto sustain their dream, how does this distributionstrategy maintain the aura? Will stratification be-tween stores with a clear hierarchy differentiatinga few experiential flagships in capital cities frommore normal stores in the provinces be enough?

Brands also develop what could be termed in-visible luxury: exclusive, very private services forthe rich and powerful. An example would beorganization of a dinner for an elite group ofindividuals at the newly-built House of Vuittonin London. Such invisible luxury is designed tomake even extraordinary consumers feel privi-leged. As for the hierarchy of stores, luxury brandsaim at making the provincial client in a C-townstill dream of accessing the slightly more upscalestore when he or she visits a more cosmopolitancity. Clearly, there is a long-term risk here. Thismay be one reason why LVMH has taken an unin-vited 20% share in Herme`s, whose present CEO,Patrick Thomas, said: When one of our productsgets too successful we stop [selling] it (Kapferer,2010). Herme`s wants to remain a luxury brand, notbecome a fashion brand. It could potentially act asthe post-Louis Vuitton brand in the LVMH multiple-brand brand portfolio.

11. Clues for entrepreneurs

The future of luxury brands is in the making. Every-where in the world, entrepreneurs are creatingluxury products and hoping to build their own luxurybrands. They now clearly understand the impor-tance of positioning their brands more as piecesof art than as products. Building a luxury brandtakes time. One does not launch a luxury brand asone launches a fast-moving consumer good brand,with a D-day signaling the start of an extensivemarketing plan. Instead, entrepreneurs should com-municate through creative directors and knit closeties with cultural elites, cultural places, and artcenters with a strong preference for the avant-gardeespecially if they want to represent thefuture. They should also understand that the classi-cal distinction between products and communica-tion is meaningless in the luxury realm; products arecommunication, and communication should be un-dertaken with the same exceptional exigency forstyle and ultra-qualitative detail as for any of theproducts. Also, it is important to build qualitativerarity that goes beyond objective rarity. Even newlybred brands should communicate their heritage,inspiration, cultural references, and stance as anambassador of cultural excellence. Ralph Lauren haspaved the way in this context; however, more recentexamples provide interesting benchmarks. For in-stance, Bell & Ross, a watch brand that is now part ofthe Chanel Group, is only 20 years old but looks as ifit has existed since WWII. Everywherefrom adver-tisements on the Internet to packaging, communi-cation, and product designBell & Ross referencesand pays homage to the right group: those heropilots who pushed the limits of supersonic jets. Thisis how new luxury brands acquire depth and pres-tige, thus sparking consumers desire for their verysymbolic products.

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