Internationalization of small luxury brands

Sophie Friedl, MBA

How small luxury firms can conquer international markets: marketing strategies for a successful international luxury retail development.

The challenges of small luxury brands at the beginning of an international retail project are various: no fund for the expansion, no manager with international expertise, no available location at a prime spot in the new market and – on top of it all– the brand is still totally unknown in the new region. However, even small luxury brands might be at the point to think about going beyond their domestic market to increase profit and widen their customer base. So, how can a small manufacturer of luxury goods overcome all obstacles and succeed in foreign markets?

To collect the main marketing challenges and in a further step offer, the 7Ps of marketing – product, price, promotion, place, people, processes and physical facilities are used as a framework:

1. PRODUCT: luxury has to be human made and exclusive

Luxury SMEs should focus on their core product and self-consciously offer only standardized products. It might be better to avoid eventual product adaptations (e.g. new designs) for a specific market, as the adaptation process might cause a financial burden for a smaller firm and/ or lead to brand damage.

„Manufacturers and small luxury brands often offer niche products, which can be an advantage when entering a new market, because less competition can be expected.“

The management should study well the target customer in the new market (if statistics are available) and rather adapt the stock to the preferences of the local people. Moreover, manufacturer can offer limited or special editions (e.g. special designed packaging), or personalized products (e.g. monogram on leather goods). It is important not to neglect the packaging: studies have confirmed that a product is considered more luxurious the more prestigious its packaging is.

2. PRICE: is luxury simply expensive?

A price is not only the cost of the good, but it is also part of the image of the luxury product. It is crucial for a new brand in a new market to set the correct pricing right from the beginning. Consumer behavior and competition must be considered carefully. Anyway especially small brands, with little funds, should study wisely the financial dimensions (taxes, duties, currencies) and all other costs (material costs, logistics, etc.) before setting the prices, to prevent financial challenges later on.  They usually cannot afford to open flagship stores in so called “fashion capitals” as Paris, London or New York, just for image reasons, accepting even a non-profitable POS.

„Nowadays customers travel a lot and recognize the brand in other countries – and the customer expects the same unique treatment in every POS.“

Luxury brands also have to set a framework for eventual discount or loyalty programs: unlike some famous luxury brands who do not offer discounts as it does not seem to fit their luxury image,  smaller and unknown brands can benefit from loyalty programs or events like private sales (discounted product sales for VIP costumers). In any way luxury SMEs have to establish a reasonable pricing system and clear regulations of a discount policy.

3. PROMOTION: it is all about a proper strategy

Promotion includes all kind of marketing activities and communication, such as advertising, direct marketing, events and PR, as well as internal communication.  It appears to be a positive correlation between a proper brand strategy planning and the right position of the brand in the new market. As it is very difficult to change the image of a brand afterwards, the positioning of the luxury brand should be well thought of beforehand.  The brand strategy should, among others, include the brand’s story: indeed, the luxury business lives on the connection between the luxury good and emotion. In practice smaller brands with little funds can focus on innovative marketing activities through social media to limit expenses or work with local PR agencies to handle personnel restraints.

4. PLACE: Paris, Milan, New York – fashion capitals are the place to be

In luxury retail the localization of the POS is also a discussion about the correct distribution channel: the usual channels for luxury brands are flagship stores or boutiques (directly operated stores), franchised mono-brand stores, mixed-brand stores (franchised or managed by partners), and corners in duty free areas and department stores.

„A directly-operated store maximizes the visibility and offers maximum control for the brand, but it means a major investment.“

A store in a prestigious location, which is necessary for a luxury brand, might cause financial straits. If the brand does not consider wholesale business it is, though,  not advisable to open a luxury store nearby, even with only a minor distance to the perfect location, as it can impact sales negatively .

5. PEOPLE: employees at a luxury store play a major role

Luxury brands register a higher interaction-intensity between customers and sales employees than other brands, which means that the employees at the POS are crucial. If the brand is unknown, the sales people need especially to be educated and well trained to guarantee a certain credibility. In certain markets, it is important to educate the employees so that they “feel at ease to sell luxury items”.

6. PROCESSES: excellent customer service or e-commerce?

In the case of a luxury firm’s boutique, the processes include not only the procedures, the policies and the flow of activities, but also customer service: “Luxury marketing means an outstanding dealing with the customer as the service has a strong impression on the image of the luxury brand”. By offering an excellent customer-service and luxurious shopping experience, small brands can stand out from the competition. Many luxury companies boost their sales by also offering an online shop – this can be also a good tool to develop the brand image in the specific country.

7. PHYSICAL FACILITIES: marble and ebony – what does a luxury store look like?

Especially in the luxury industry, the interior design and the lighting conditions influence the quality of the customer’s experience. The factors of influence range from the color of the walls, to the appearance and workmanship of the furnishing and from olfactory aspects to the visual merchandising. The inside of a luxury store has to be shiny and spotless, inviting and elegant and reflect the luxurious image of the brand.

„In a new market, the store has to wow the new customers and leave a good impression so that they feel at ease and come back to shop.“

Generally, when entering a new market, luxury SMEs do not only encounter the challenges of smaller firms of any industry, like lack of financial and personnel resources or legal and economic barriers.  On top of it, they have to make huge investments in the design of the luxury boutique, in a high-class appearance in the media and to guarantee premium services. Generally, a luxury SME has to consider a new market entry carefully to guarantee a high profile positioning in the new market and ensure the same luxurious brand image in the new country. A failed internationalization project, or the closure of stores, can cause major damage or even the bankruptcy of the company due to its small size.

Therefore, in a first step, the firm has to evaluate if there is/ are:

  • A concrete retail strategy for a detailed planning of the market entry
  • Sufficient funds for an internationalization (considering all eventualities)
  • Experienced and competent managers to execute the project
  • With these three requirements fulfilled the firm can begin to consider a marketing strategy and study the 7Ps of marketing for a further development of the luxury brand in the new country.

Literature

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Author

Sophie

Sophie Friedl, MBA

Head of Retail, Roeckl Group

The article is based on her Master Thesis in the Excecutive Education Program at the TUM School of Management.

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