Commentary

'Premium' Versus 'Luxury,' A Blur?

At the recent New York Auto Show’s media day a panel of industry experts (Ian G. Beavis, chief strategy officer, AMCI Global; Sam Chotiner, executive director, brand strategy, KBS; Edward Loh, editor-in-chief, Motor Trend, and Jack Nerad, executive editorial director and market analyst, Kelley Blue Book) wrestled with the Jacob’s angel of the marketing differences and strategic implications of “Premium” versus “Luxury.” This is an issue that still dogs or inspires a range of luxury brands in many segments of luxury including fine jewelry, apparel, hospitality, travel and, of course, automotive.

As early as 1995 when Mercedes was one of the first to launch an aspirational Mercedes, priced then unthinkably, in the $40,000 range, an uproar of skeptical pundit voices in the trade and business press predicted disaster, dilution, if not stock-price-dropping bastardization, of a venerable brand.

Mercedes was confident they were on the right track. They had done deep and thorough global research on the impact of this strategy. By engineering greater value into their then new vehicle, they were confident that they would stand out among competitors. And, that intelligent consumers would recognize this value and as their financial circumstances steadily improved would be sold for life on Mercedes, trade up and buy higher-priced Mercedeses. History shows the strategy worked and spawned similar strategies among competing brands. 

No question, luxury is a tough and more demanding master today. Established luxury brands are facing upstarts, and ambitious mass-market brands. Hyundai and sibling Kia have introduced their own bona fide luxury brands. BMW’s Mini division is shifting its messaging from ersatz to elegant.

The panel took a deep dive into the strategic implications — risks, rewards and important considerations — of a “premium” marketing strategy in the context of growing communities of increasingly sensitive, knowledgeable and demanding consumers with a luxury mindset demanding excellence at every price point.

 Here are some of the challenges that also hold true for luxury brands outside the automotive segment, articulated by this expert panel.

• Migrating up the value chain to a premium product from for a mass brand is more difficult than migrating down for a luxury brand.

 • Either way there are significant risks: for a mass brand the difficulty of establishing credibility in launching a premium product; for a luxury brand the potential to alienate loyal and proud consumers by tarnishing the aura of the luxury brand with a mass, lower-priced product.

• For luxury brands going top down the challenge is to attain dominance over those in the new niche and prove greater value than competitors at an equivalent price.

• If going up the value chain, it’s critical to ensure the new product launch is not just a marketing play but a value play. Quality engineered into the new product must distinguish the brand and stand above the competitive field.

• In the migration of mass to class or class to mass, education of the customer is absolutely imperative in building sales. If the targeted buying community appreciates value, then price won’t be an issue.

• The importance of surgical segmentation of targeted communities and niche markets (the GLBT, millennial, Hispanic/Latino, Black/African American) can’t be taken for granted.

• Integration of all media with increasing emphasis the web and social media is essential.

• Promoting good corporate citizenship practices as pertains to manufacture, human resources, “green” luxury, given the increasing sensitivity of the media and buyers, cannot be ignored.

• Ensuring premium options really are premium. 

• Avoiding the pitfall of over-engineering which can confuse rather than delight the buyer.

• Creative collaborations with kindred-spirit luxury brands can dramatically lower the cost of acquisition of key target customers. 

In the race to find new profit centers and move up or down the value chain in the creation of new products, brands will find a playing field mined with challenges from concept through implementation. To succeed brands moving from premium to luxury or from luxury to premium, will need to seamlessly marry value, price and customer understanding and enthusiasm for these new offerings in an increasingly crowded, competitive field.

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