Saturday, February 25, 2006

On Creating a Premium Brand

A quick rundown on the basics of creating a premium brand.

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My past few months have been peppered with several conversations around the creation of premium brands, and I’ve decided to pen some opinions on what really constitutes components of a luxury brand, specifically as it applies to consumer products and the retail experience. First of all, “luxury” isn’t what it used to be. Credit cards and the function of borrowed equity have created opportunities for purchase that no longer allow luxury brands to be defined just by the demographics that buy their products and services. In 2005, more people filed for bankruptcy in the US than graduated from college. People live on the borrowed edge, and communication vehicles are so disjointed now that it is impossible to catch one customer at all her accessible points. Heck, we don’t even know what they are anymore. In the future economy, luxury brands are not going to be those that just sell at a premium price and have celebrity endorsements. Luxury brands are going to be defined by a combination of innovation and image, where innovation can be either within the product or the services that surround the purchase process. Prada acknowledges this, and the retail experience in their 5th avenue store uses RFID tags to create tangible, awe-inspiring value in the shopping process—translucent dressing rooms automatically darken when you enter, and the tags automatically bring up images of other products in the store that match the choices you’ve brought into the dressing room. In general, when a brand has a high-end image but supplements that image with high innovation, a premium brand can be built because the perception of value exceeds the price paid for the product. With low innovation, it then becomes incumbent upon the brand to build a significant amount of trust with the customer in order to justify higher prices. This is why, for the most part, luxury brands that currently thrive without much service or product innovation have mostly been established several decades ago. Every situation is different, and there is no specific blueprint for the creation of a new premium brand. However, the consultants at Booze-Allen published these four key parameters, which I generally agree with: Distinction: Something that is differentiating from mass brands and not just a created image. For example, in the gifts category, Red Envelope uses its “product story” and red gift box and clearly differentiating elements. So much so that you must pay an additional $4.95 in order to GET that red gift box with your order. Communication:Specifically, word-of-mouth, and not advertising. Premium brand customers believe other premium brand customers, and brands that capitalize on the stories that enter the cultural ecosystem tend to do better at creating a luxury brand faster. SKY Vodka capitalized on the rumor that their vodka caused less hangovers than other competitive brands. Tangibility of the Retail Experience: Premium brands require a premium experience at the point of sale. Steve Jobs knew that he wasn’t going to be able to get most department or electronic stores to truly represent the brand he was creating, and therefore decided to launch individual, company-owned Apple Stores that had a very distinct shopping experience that supported the brand. Pricing: Of course, pricing for luxury brands must reflect the intended premium status and should therefore be higher than mass products in the same category, regardless of uniformity in manufacturing costs. http://www.brutalclarity.com/index.php/75/
 

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