MAY 21, 2018 GUCCI AS A LUXURY BRAND CURRENT STATUS, CHALLENGES & CRITICAL ASSESSMENT TÂNIA FILIPA VARGAS SANTOS Index 1. Introduction ....................................................................................................................... 2 2. Short background of industry and company ...................................................................... 3 3. Critical review of literature ................................................................................................. 5 4. Findings and results .......................................................................................................... 9 5. Conclusions and recommendations ................................................................................ 11 6. References ..................................................................................................................... 13 1 1. Introduction Nowadays, having a brand within the luxury market asks for a well thought, structured but flexible marketing strategy. Not only the brand has to keep up with the latest trends while maintaining its identity, but it also can’t lose touch with its current clients whilst trying to drive new sales. Competing in the luxury market is isn’t the same as it was before. Quality products and exclusivity are no longer the main drivers of a luxury sale - companies now need to come up with ways to differentiate themselves, as consumers are more demanding (Four Seasons, 2012). Gucci is one of the companies in the luxury market that has been able to adapt to changing circumstances, while, at the same time, keeping most of its identity. Its use of social media, digital marketing and related channels has given the brand huge returns, especially with the millennials’ market (Danziger, 2017), but may be compromising their relationship with an older target market. The purpose of this report is to critically analyse Gucci’s brand equity and identity, the challenges the brand faces and to give recommendations on what can be done to improve Gucci’s position inside the luxury market. Keywords: Gucci, luxury, target audience, luxury market, brand equity, brand identity, pricing, distribution. 2 2. Short background of industry and company Gucci is an Italian luxury brand, founded by Guccio Gucci in 1921 (Vogue, 2015). The founder, inspired by the luxury goods and fashion he saw during his stay in Paris and in London, developed his first store in Florence, a city known for quality materials and expert craftsmen. With the help of his three sons, he was able to expand the company to other Italian cities, as well as opening more locations in Florence. In 1953, the company was expanded overseas, in the United States of America, giving the brand an international status. Although it prospered during the decades, in the 80’s the company was marked by a series of family disagreements, which seriously compromised the business. Fortunately, the brand was able to reverse the negative impacts, and in 1994 Gucci was able to return to its former glory (Cartner-Morley, 2011). As of 2017, Gucci had more than 500 stores worldwide (The Statistics Portal, 2017). Now owned by a French company, named Kering, Gucci operates within the fashion and leather goods industry. This industry is known for exclusivity, high quality products, premium prices and demanding audiences. Estimated to reach a value of $500 Million by 2020, the fashion and leather goods industry is mostly dominated by traditional luxury products such as the ones sold by Gucci (Consultancy EU, 2018). It is also an industry that has some degree of difficulty of drawing the attention of the millennials audience. Kapferer and Bastien (2009) claim that positioning is crucial. A company needs to ask the right questions (Why? For Whom? When? Against Whom?) in order to position not only the brand but also to help consumers understand it. The authors mention 4 types of business models: two for luxury products, one for luxury services and another for luxury in high-tech. Gucci falls under the first category - luxury products, specifically under the business model that has inside of a “market, being too narrow, [that] forces the brand to sell other articles outside the core trade, benefiting from its aura (brand stretching) in order to be profitable” (Kapferer and Bastien, 2009). Gucci stretches itself across several types of products (clothing, footwear, jewellery & watches, beauty, décor, bespoke products, among others) in order to be profitable and to reach different audiences. Gucci follows the pyramid business model (figure 1) - on top it has its higher end products (haute couture) and the further down it goes, the cheaper products are (Kapferer and Bastien, 2009), having accessories and discounted products at the bottom of the pyramid (either direct sale or sale by a third party). 3 Figure 1. The pyramid business model (Kapferer and Bastien, 2009) This means that Gucci’s more affordable fashion products are at the bottom of the pyramid, giving the brand higher margins of profit. These products appeal to audiences that traditionally don’t care about luxury, such as the millennials’ age bracket (Danziger, 2017). This business model, brings, however, some risks to Gucci. According to Kapferer and Bastien (2009), creative dilution and contamination from below may occur. Not only Gucci may “lose its way” by overstretching its creative power but also it may change its identity by trying to appeal to different audiences, dropping the feeling of exclusivity on the process. Gucci’s brand position in the market is a long standing one. It is a modern brand with traditional roots, associated with fine materials and quality. Its two pillars are craftsmanship and heritage, being based on the lover brand architecture, according to Adamska (2017). Its business is scalable, which gives the brand wiggle room to try new things, but can also bring dilution, as mentioned previously. Its target market goes from 15 to 40 years old, but like with any other luxury brand, it doesn’t limit itself to this age bracket. 4 3. Critical review of literature There are several theories on how to manage a luxury brand, measure brand equity, identify luxury brand consumers and defining pricing. One may even say that there’s a theory for everything, as long as we’re willing to search for it. When it comes to luxury, it is important to understand the what/how/where/why of the brand. Therefore, developing brand identity should be the first step on well-thought luxury marketing strategy. Kapferer (2004) developed a brand identity prism (figure 2) that clearly states what the brand should be able to answer. Figure 2. Brand Identity Prism (Hobson, 2017). Kapferer divides brand identity into two dimensions: how the brand sees and presents itself and how the target market sees and interacts with the brand. Then it goes on to define 6 major points: physique, personality, relationship, culture, reflection and self-image: Physique: As the name indicates, physique focus on the physical features of a brand. For example, for Apple it means a modern, edgy design, for McDonalds it means a large yellow “M”. Personality: It focus on the character of a brand. Writing style, the tone used when sending a message, among others. For companies like Coca-Cola, we already expect to see happy messages, it’s their personality. 5 Relationship: Part of building brand identity is also building a loyal lasting relationship. In luxury brands, it’s about creating a bond. For example, Ferrari is known for only accepting a few orders per year, giving preference to their existing clients or recommended by them. Culture: This is the basis for the brand’s mission and principles. For brands like American Express, it’s emphasising the connection to their country (United States of America). Reflection: The brand should craft an image that is a reflection of their target group. For Tiffany & Co, that reflection is seen in their adverts - a classy woman that enjoys jewellery. Self-Image: It’s about how the brand makes the customer feel and how he wants to be seen. When it comes to luxury products, it’s about giving status and the feeling of exclusivity. Building and managing brand equity should be the next step. Keller’s brand equity model (figure 3) is one of the many theories that can be used to give a theoretical basis to a brand. Figure 3 - Keller’s brand equity model (Knowles, 2016) Keller’s brand equity model (or Customer-Based Brand Equity - CBBE - Model) is focused on the client (Carter, 2016). Clients are at the heart of analysis, and all decisions are taken with the consumer’s needs in mind. The model has four dimensions: salience, performance & imagery, judgements & feelings and resonance (Keller, 2012). 6 Bottom level, salience, answers the question “Who are you”. It focus on the consumers’ awareness of the brand. Next level, performance & imagery, gives an answer to “what are you”. It explores consumer satisfaction and the brand’s reliability, quality and price. It also analyses the clients’ wants and needs. The third dimension, judgements & feelings, centres itself on “what about you”. It pays attention to clients’ opinions, real and perceived and confidence in the brand. On the top, resonance, gives an answer to “what about you and me”. It explores the relationships between brand and client, their loyalty and brand-client interactions. This method is a great way to actually understand the client, their needs and their motivations as it keeps their best interests at the centre of the research, giving an answer to four major questions - essential for a great marketing strategy. When it comes to luxury brand distribution, one also needs to evaluate and define a framework in order to deliver the product (and luxury experience) to the client in the most suitable way. Figure 4 – Brand Distribution Channels (Vandenberg, 2018). Brands can distribute their products by using third-party distributors, their own branded retail outlets or a combination of both (figure 4). All options have their pros and cons - third party retail may be great for raising brand awareness and increasing profits, but may damage brand equity by losing value (Catry, 2003). Branded retail outlets give the brand full control over its products, practicing a highly selective distribution, which gives the client a feeling of exclusivity. However, it may also diminish brand awareness and it is a much more expensive model of distribution (Fionda-Douglas and Moore, 2009). 7 The final approach should be the pricing strategy, since high prices are perceived as a synonym of expertise and quality. A balance needs to exist - too high a price will drive buyers away, too low and the feeling of exclusivity is lost. The Intrinsic Value Dependency Index (IVDI) formula (figure 5) is a great way to give pricing a theoretical basis. Garrant (2014) says that it, “is an effective way to determine the MSRP of a luxury good (...). The formula is based off of BMP (Behaviour Perspective Model), and looks at the abstract specifications for an item - its most important qualities. It then assigns varying weights to these qualities and looks to other brands which are considered low end and midend for pricing data, creating a baseline upon which to gauge a starting price.” It tests several prices without putting in jeopardy the consumer’s perception of the brand. Figure 5 - Intrinsic Value Dependency Index (IVDI) formula (Garrant, 2014). Decisions on which price to give the product or even temporary discounts (when comparing with permanent price reductions) are put to test with this formula. In the case of discounts, not only the price will still correspond to consumers’ expectations but it will also be perceived as a restricted sale (Olinski, 2017), thus not affecting brand equity and the exclusivity experience. This strategy allows the brand to experiment several prices, without discrediting the luxury experience, and allows, in the long term, more sales, increasing profits without losing brand equity. 8 4. Findings and results Gucci, as a luxury brand, faces challenges every day. From brand identity to pricing strategy, the brand needs to keep up with market changes, while making sure that its marketing strategy is airtight. In order to evaluate if the brand has taken all the necessary steps to success and to identify the challenges that it is facing, we need to apply the theories discussed in the previous chapter. Starting with brand identity, we need to apply Kapferer’s brand identity prism to understand Gucci. Physique: Gucci is easily distinguished by its double G logo. Black is the colour mostly used for this logo, representing exclusivity and excellence. However, while it is generally protected by trademarks, lack of use in some countries has made Gucci face the challenge of losing exclusivity of use of the logo (Richardson, 2014), which not only affects the brand image, but also leaves it open to copies. Personality: Gucci’s personality is sensual and extravagant (Adamska). Clients expect to see romantic associations, sometimes provocative. However this has raised a few controversies along the way. Gucci has sexualised and objectified women in its ads, which while it is in line with their personality, has angered clients (Uhlenbrock and Michelle, 2010). Relationship: Gucci is known for an immersive retail experience, using digital channels to reach their audience. This way, Gucci is able to reach millennials, which constitute the majority of its sales (Danziger, 2017). Nonetheless, clients from different age brackets may be missing out, which constitutes a challenge. Culture: The brand associates itself with charity, philanthropy, the arts and sustainable development, which haven’t raised any issues so far. Gucci has even dropped the fur from its collections. Reflection: Gucci presents itself as edgy and modern, appealing to millennials. While it is a big age group, it leaves out an older audience that demands more traditional values and image. Self-Image: According to Marco Bizzarri (Pan, 2017) “...respect, happiness, passion, empowerment, inclusivity” are the feelings that the brand wants to transmit to the client and those that see him using Gucci. While this differentiates the brand from competitors, it may compromise on exclusivity and brand experience, since it is not traditional luxury. 9 Moving on to Keller’s brand equity model, a few findings regarding Gucci can be drawn: Salience: Gucci is well known by their target market, being one of the most popular brands in the world - it is amongst the top selling and most-searched brands of 2017 (Prant, 2018). Therefore, brand awareness is very high and the brand doesn’t face any challenges at the moment. Performance & imagery: Gucci listens to their clients’ wants, anticipates their needs and incorporates their complaints in their business decisions, thus making clients very satisfied with the brand (Chamat, 2015). Judgements & feelings: Although the target market appreciates the brand and is happy with it, a few controversies with Gucci’s ads - objectification of women, use of overly thin models in drug adverts, among others - have made some demographics angry with the brand (Ford, 2008), losing respect for it, and, in consequence, making the brand lose equity. Resonance: Despite all challenges, Gucci’s relationship with their clients is a loyal one and the brand still provides a feeling of personalisation and exclusivity. The brand listen to their clients and uses their opinions in its business decisions (Chamat, 2015), making the clients more compelled to keep buying from the brand. This increases brand value and, consequently, brand equity. Gucci has increased and maintained its brand equity during its history. The company has a strong mission (Gucci, n.d), which incorporates in all products and in its marketing strategy, which helps keep the status quo on its brand equity. Next on our analysis is luxury brand distribution. Although Gucci still produces clothing and leather in its Florence workshops, assembly of some of these products and production of others such as jewellery, perfumes, among others are produced by partners or subcontractors. As mentioned before, this brings a big challenge to Gucci, as it is unable to have full control over the quality of the product every step of the way. Finally, on what regards pricing, the brand has followed a premium pricing strategy when it comes to the application of the Intrinsic Value Dependency Index (IVDI) formula. Gucci charges a high prices because their products are of a higher quality (Gittings, 2002) - this way, not only the brand is telling their clients that they have a superior product, but they also are passing the perception of exclusivity, as the product is not accessible to everyone. Their challenge is to actually make the product worth it and keep the client’s perception of superior quality. 10 5. Conclusions and recommendations Considering the issues identified in the previous chapters, a few recommendations can be made. When it comes to brand identity, Gucci is facing challenges in terms of physique, personality, relationship, reflection and self-image. In terms of physique, the biggest problem to be tackled is the active use of the brand in order to keep trademarks active. Keeping records of use, using the right logo, watching out for illegal use and generally keeping tabs on trademark renewal should be some of the steps to be taken. In what regards personality, whilst Gucci doesn’t need to reinvent itself, it also needs to take into account that the biggest demographic for sales is women (Brennan, 2015). Therefore, adverts that objectify and sexualise women should be avoided. The alternative is to appeal to a more chic or modern side, depending on the age bracket, showing this demographic that the brand can be modern but also associates itself with exclusivity and classiness. Relationship, reflection and self-image are all connected. Although Gucci has been reaching clients in new (digital) ways, the brand needs to also step up its game offline. The major focus has been the millennials’ group, and the brand is doing an outstanding job in keeping a loyal relationship with them, providing them with edgy, modern products (Danziger, 2017). However, older audiences still need to visit shops to trust Gucci and see the product in hand and they prefer a more traditional, exclusive type of product. Therefore, designing specific products for this target group or holding events for them is a great way to draw their attention. Gucci needs to reinforce for all its clients that it offers an exclusive experience and that its products are a symbol of status. The marketing strategy and luxury brand elements should take into account these two big target groups (millennials and older age bracket) and incorporate them accordingly. Considering Keller’s brand equity model, a few suggestions can also be offered. In terms of salience and performance & imagery, Gucci should continue with the current course of action - making sure that the brand is viewed widely (by having several stores and using the right adverts), incorporating their clients’ opinions and anticipating their needs in order to raise customer satisfaction, giving value to the brand. This will, in turn, raise brand resonance, which will also positively impact brand equity. The part that needs consideration is judgements & feelings. As mentioned previously, Gucci needs to associate itself with a respectable image, leaving behind controversies (please see 11 “personality”) in order to not draw away the female demographics and some male demographics that also don’t agree with the objectification of women. The marketing strategy should show women in a new, improved light, leaving behind the controversies caused as not all publicity is good for a brand. Regarding luxury brand distribution, since Gucci relies heavily on partners to produce some products, it wouldn’t be feasible to return to making everything “in-house”, as it would be too expensive. However, it should reorganise its production and partnerships in order to have more control over the quality of its products and ensure that all guidelines are met. Subcontractors should have an open line with the brand, so problems can be avoided (Za, 2014). Gucci should also be more transparent, letting clients know about the manufacturing process and all the craftsmanship involved. Finally, regarding premium pricing strategy, it is important to keep developing products of superior quality so it justifies the price. Not only the product should be of higher quality, but it should be marketed as such, in order to satisfy the clients and giving them the experience of luxury and exclusivity they desire. The marketing strategy should focus on heritage and craftsmanship with a touch of modernity. It should offer a luxury experience with values such as exclusivity, personalisation and one-of-a-kind products. 12 6. References Adamska, Magda, 2017. The positioning of the three most valuable luxury fashion brands [online] https://brandstruck.co/blog-post/positioning-three-valuable-luxury-fashion-brands/ [Accessed 16 May 2018]. Brennan, Bridget, 2015. 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