Welcome toLuxury Pricing, Promotion and

Distribution

Dr. Satyendra SinghProfessor, Marketing and International Business

University of Winnipegs.singh@uwinnipeg.ca

www.uwinnipeg.ca/~ssingh5

Hermes Birkinnamed after Jane Birkin

$9,000-$150,000

Clive Christian’s Imperial Majesty$215,000 (16.9 Oz)

Patek Philippe$200,000

Patek Philippe: $320,000

Patek Caliber $5mMost complicated watch

X 2 Ferrari’s price!

PricingPrice depends on

Positioning of the luxury; e.g., true luxury

Operating cost, custom duty, foreign exchange

Operating cost (retailing + staff) = 30%

Distributors need 60% margin (co-efficient 2.4-2.6)

HK, SP, Guam and Panama no custom duty

Duty-free shops 20% cheaper

EU (France) may be cheaper than EM (Brazil) due to custom duty yet buy in Brazil why

PromotionLimited advertisement control and project image

Mass advertisement is not efficient for luxury goodsSome brands do not advertise in mass media ZaraSome countries ban luxury advertisements China

Window displaysTo create dream and desire Needs creativity and interactivityProduct merchandizing and communications

Name products after famous people Gucci’s Jackie Kennedy bag

Use of celebrities for promotion debatableLV/Furla… use celebrity as a brand ambassador

Window Display

Harrod’s window display: Creativity, dream

Rolls-Royce at Harrod’s window

LV: Jennifer Lopez

LV: Uma Thurman

Discount

No discount LV destroys old goodsWe cannot ↓ value Control image and supply

Loyal customers loyalty gift by invitation

Reason New wed, 1st baby, 1st degree, …

Outlet Shopping villageLa Vallée Village (France), Bicester village (UK)…

The Bus Tour

Bicester village Shop

Selling Techniques

Trunk showsNext season’s collections are previewedheld in luxury store by invitation buyBurberry /Ralph Lauren outside

Pre-season showsCollections launched just prior to main season

Post-season showsBy invitation 50% off True luxury avoids this

Shopping lunchEat lunch in store (e.g., Fendi…) and then buy very selected few are invited

Hilton in Sari

Luxury Department Stores

25,000 square feet a place of worship

People like spending time or meeting there

Location is important customers avoid crossing river, railways, bridge…

They carry multiple brands

Department store are opinion leaders

Sales in 2010 $150mMonday = 9,000 visitorsSaturday = 17,000

France: Luxury Department Stores

Sephora

Galeries Lafayette

Boon Maché

Printemps

UK: Luxury Department Stores

Harrod’s

Selfridges 2nd largest in London

House of Fraser

Canada: Holt Renfrew (10 stores only (very upscale): Toronto, Ottawa, Montreal, Calgary, Vancouver, Edmonton)

USA: Luxury Department Stores

Macy’s

Bergdorf Goodman, Barney’s

5th Saks Avenue stay as long as you wish

Nordstrom largest independent store

It has a loyalty program:2nd floor > $2,000/year (You should spend)

3rd floor > $10,000/year (Personal concierge service)

4th floor > $20,000/year (customers get fashion show ticket, can host private

party in store for their friends

Japan: Luxury Department Stores

Mitsukoshi

Isetan

Daimaru and Matsuzakaya

Takashimaya Most exclusive

TakashimayaJapan

Tsum Moscow

Dept Store

Media Selection

15

Luxury Retail Strategy…

Company Operated Store (COS)

Free standing flagship store (i.e. one door)

Non-COS

Franchisee

Distributor/Retailer

Bluebell, Dickson Poon Asians markets. Mercury Singapore markets

Luxury Retailing Strategy

Company Operated Store (COS)

Rolex, Bréguet… prefer COS

Distributors

Perfumes and cosmetics

75% of luxury perfumes and cosmetics are sold through department store

Perfume Distribution

Perfume store countries

Selling through small perfume shops

France, Italy, Germany

Department store countries

US, UK, Australia, Canada, Japan

Kinds of Luxury Outlets…

Free standing, flagship COS

Shopping centre retail store

Rent + % of sales for common promotional activities

Outlet in retail park

with own entrance with parking, yet in mall

Must be destination brand extra effort justification

Kinds of Luxury Outlets …

Shop-in-shop department store can be COSNo cash register, but brand’s staff and merchandise

Give % of sales to the store (but no rent)

Brand has its own identity and culture

LV Matsuya in Tokyo

Chanel Daimaru in Osaka (2 floors & own elevator)

Counter in a department storeStore does everything for you Merchandising, pricing, promotion, space allocation, organises activities...

Takes % of sales

Brand has no self identity and no control

Kinds of Luxury Outlets …

Corner in a department store between shop-in-shop and counter in store

Brand pays its staff; but store takes title to the merchandise

So the Brand gets limited identity, but stores put many brands together to create a full spectrum of store image

Gents suit, perfumes…

Franchisee store can be COS3%-5% of sales, No investment

Franchisee must follow instructions and buy goods

Minimum sales are needed as guarantee

Chanel, LV, Hermes against franchising/licensing

Kinds of Luxury Outlets

Factory outlets

Shop attached to your factory like shop-in-shop

Duty-free shops airports

Customers have $ in pocket and time in hand

# of flights passing through the airport

Destination, nationalities, type of travellers

Japanese smoke a lot – mild cigerettes

Americans like Whisky, Cognac (Hanessy and Martin)