There is no more pure form of marketing than luxury brand marketing: This is an industry where customers' perceptions drive everything. One false step and the fall from shoppers' most-desired lists can be swift and brutal.
Luxury products—clothes, handbags, shoes, and jewelry—might be well made, but they're not difficult to make. The entirety of the business rests on keeping shoppers convinced that the brand name alone is worth paying extra for.
So, who is best at it?
Each year, market research company Millward Brown ranks the top 10 luxury brands globally, based on "brand value." The company's BrandZ model takes into account a brand's dollar earnings, its potential future earnings, and the quality of the brand in the mind of the consumer, to arrive at a final "brand value," expressed in dollars.
We've put that information together with a description of the marketing plan for each brand: Now you'll know why you wear the labels you wear.
10. Burberry. Brand value: $4 billion, up 21%
The company also prides itself on its digital marketing. Its web site has a click-to-chat function and the stores carry iPads for customers who want to browse via screen.
One note of caution: Burberry said growth in China is slowing in its last financial update.
9. Moet & Chandon $4.2 billion, down 8%
Thus LVMH is essentially grandfathered into the region, and competitors can't enter unless the company sells. It's a classic barriers-to-competition situation created by government regulation. (Prosecco and Cava are often just as good as champagne—but people want to celebrate special occasions with "the real thing.")
It is not surprising that €1.8 billion of LVMH's revenues come mostly from champagne.
8. Hennessy. Brand value: $4.6 billion, down 8%
Good luck finding an inroad into this market: Hennessy owns 177 hectares of the cognac growing region, and actually reduced that acreage in 1999 by 60 hectares in a scheme to pay farmers to grow other types of wine grapes, its annual report says.
7. Cartier. Brand value: $4.8 billion, down 9%
The company is owned by the Richemont group, which also owns Van Cleef & Arpels, among others. Its jewelry brands saw revenue of €4.5 billion last year, up from €3.5 billion the year before. That massive run-up can be explained in a single word: China.
Here's how CEO Johann Rupert explains it, and we're quoting this verbatim from Richemont's most recent earnings call:
I am not going to say that this is sustainable. We have no idea what the currencies are going to do.
... So anybody who’s going to ask, ‘So, what do you think the next year looks like?’, why don’t you just not ask the question, because we’re not going to answer any? It’s not that we’re coy or funny. We don’t know. We also do not know what the currencies are going to do, and we also do not know whether the Chinese are going to continue to buy ad infinitum. We don’t know.
… I feel like I’m having a black tie dinner on top of a volcano. Okay? That volcano is China, but that’s what I feel like. I go, in the morning we put on our ties and our watches and we go, and the food’s better, and the wine’s better, and the weather is great, but let’s not kid ourselves. There is a volcano somewhere, whether it’s this year, in ten years’ time, or in twenty years’ time. We are exposed to China. I think they’re going to travel more. I think they’re going to survive. I think all of these things, but we are now a ‘China play’, and it suits us if the euro gets weaker.
6. Prada. Brand value: $5.8 billion, N/A
Millward Brown says: "Following its IPO (Initial Public Offering) in June 2011 on the Hong Kong Stock Exchange, which raised over €206 million ($275 million), Prada planned to add about 80 stores annually over the next three years, including a total of 30 stores in China. Most of the openings will be Prada brand stores, reflecting a general trend among luxury brands to assert tighter brand control by shifting away from licensing and franchising. The brand currently operates more than 200 stores worldwide and also distributes through an extensive wholesale network."
5. Gucci. Brand value: $6.4 billion, down 14%
Going forward, Gucci is rolling out an extravagant redesign of its major stores, featuring digital video displays.
Unlike the other luxury brands, which operate in an almost obsessive culture of secrecy about themselves (to maintain that elusive chic), PPR is rather more down-to-earth about how it intends to operate Gucci, which it acquired in 2004. It has centralized media buying for all its brands (including Puma and Volcom). And it is constantly fussing over its factory-to-store supply chain, which it completely owns or controls.
4. Chanel. Brand value: $6.7 billion, down 2%
Chanel—and its head designer Karl Lagerfeld—have worked hard to retain this air of exclusivity (it doesn't sell certain products online, for instance), and the company reportedly books about €1.8 billion in revenues annually. But it has actually extended its brands to become more mass-market again, for instance with the Coco Mademoiselle sub-brand for younger women.
Like a lot of luxury brands, Chanel has also opened new stores in Asia, and Lagerfeld pays special attention to Japan where Chanel has a store in the Ginza district.
3. Rolex. Brand value: $7.2 billion, up 36%
Since 2008, the privately held Rolex has succeeded despite itself. The brand got new leadership in 2008 when CEO Patrick Heiniger resigned for "personal reasons" after reports that he had lost $900 million of the company's money in Bernie Madoff's ponzi scheme. He was replaced by Bruno Meier, who has maintained the company's culture of secrecy. Then in 2011 Meier was replaced by Riccardo Marini, who was previously responsible for Rolex Italia. The brand's flagship London store was sold late last year for £12.5 million.
No one really knows whether the company is healthy or not.
2. Hermes. Brand value: $19.2 billion, up 61%
The company sees itself as a guardian of creativity and craftsmanship. But it's also financially disciplined—it sold its stake in Jean Paul Gaultier and expanded into housewares recently. The chain has only 328 stores worldwide.
The company's annual report is somewhat whimsical. It described last year's performance thus: "Hermes passed 2011 with the lightness of the horse who plays the obstacle."
1. Louis Vuitton. Brand value: $25.9 billion, up 7%
The parent company, LVMH, did €8.7 billion in leather goods sales in 2011, up €7.5 billion from the year before. It has an operating margin of 35 percent, which has gotten bigger in recent years after a 1998 plan to expand its roster of leather suppliers—which no doubt had the effect of maintaining price competition among its vendors. LV also controls its distribution through a chain of 1,200 stores which it owns.
The real growth in this brand, however, comes from Asia, Japan and South America. Sales are actually stagnant in Europe and the U.S.