Podcast: So You Want to Be a Luxury Brand

So why are people still willing to put themselves on a three-year waiting list for the privilege of paying $15,000 for a real Hermès Birkin handbag?

That’s the power of the luxury brand, says Gregory Carpenter, the Harold T. Martin Professor of Marketing at the Kellogg School, who studies the $380 billion luxury industry.

“We buy the luxury brand because it’s something extraordinary,” he says. “It also connects us with a particular group of people who appreciate that and admire that.”

But becoming a luxury brand is not easy. Carpenter describes how companies can convince audiences that their brand is truly extraordinary.

Build on Authenticity

Unlike their copycats, luxury brands are distinguished by their authenticity. They offer customers something certifiably rare, which has been prepared according to rigorous standards.

Several factors confer authenticity upon a brand, according to Carpenter. One is heritage: companies like Hermès have been around for decades—or centuries—and create their products according to the highest standards of the craft.

Take the Stradivarius violin, for example. There are very few of these exquisite 17th century violins left, and concert violinists insist they sound superior to contemporary violins—even if blind tests reveal otherwise.

When you buy a Strad, you are not just buying the instrument, but a part of its legacy as well.

“Stradivari was a very accomplished luthier, but the real issue is that it was being played over the last three or four hundred years by the most famous violinists on earth, so it has a heritage,” Carpenter says.

Flaunt a visionary founder

Luxury can also be attached to brands with visionary founders, whose successors continue to live up to their tradition of excellence. More than a half century after Coco Chanel, the brand carrying her name remains synonymous with luxury.

The extraordinary founder story can extend beyond a company’s scrappy startup story to reveal people destined for greatness in the industry. In the documentary The Boy Who Made Shoes for Lizards, luxury-shoe designer Manolo Blahnik recounts the story of how, as a child, he fashioned tiny candy-wrapper heels for the lizards in his parents’ garden.

“Manolo Blahnik is a designer of shoes, and he’s considered a genius in the shoe industry, so the authenticity comes in large measure from his expertise,” Carpenter says. On the brand’s website, Blahnik’s sketches appear like paintings in an art gallery.

Blahnik’s reverence to the ethereal, artistic sensibilities of design translate into devotion among fashionistas. Sarah Jessica Parker’s shoe-obsessed fashion writer Carrie Bradshaw on Sex and the City nods to this tradition when she has a near-religious experience with a pair of patent-leather Manolos in the offices of Vogue magazine.

The story of a design-obsessed child who becomes a leading light in the fashion industry fits the visionary-founder trope—and luxury consumers gravitate toward these narratives.

Enlist an A-List of customers

While a rich history and a telegenic founder’s story can help your luxury brand keep its luster, conscripting a Who’s Who of exceptional customers can give a luxury brand an aspirational glow for other consumers.

When Joan Rivers interviewed gala-goers on the red carpet, the first question she asked was typically: “Who are you wearing?”

“Customers become what I call the actors of the brand,” Carpenter says. “If you’re a Ferrari owner, they want you to be a symbol of the brand and the actor of the brand the way someone walking down the street in aRalph Lauren suit would be an actor of the brand.”

Kate Middleton, Princess of Wales, has what people call “the Kate Effect,” where her sartorial choices are obsessed over, leading to spikes in sales for products she likes. Wear a particular perfume and watch it fly off the shelves so quickly that the brand may struggle to fill orders.

Some luxury brands worry less about filling customer demand because they have reached the point where they choose the customers who are allowed to buy their products.

“If you walk into a Ferrari dealer with a quarter million dollars and say, “I’d like to buy a car,” they will not sell you a car,” Carpenter says. “You have to demonstrate that you’re enthusiastic enough and passionate enough about a Ferrari to actually have them sell you a car.”

This strategy—of not allowing just anyone to buy a Ferrari—reinforces the vision of a customer whom others aspire to be counted among. Which is a pretty powerful message to send.

Editor’s note: this is the first of a two-part episode.

PODCAST TRANSCRIPT

Laura PAVIN: When you think about the history of human society, luxury was something that only a select few got to enjoy. Think about the gilded tombs of ancient Egyptian royalty. Or Marie Antoinette and all of the trappings of Versailles.

But now? It’s an interesting moment for luxury.

Gregory CARPENTER: In fact, the most valuable company in Europe today is LVMH, which is Louis Vuitton Moët Hennessy. More valuable than British Petroleum, and Unilever, and Volkswagen, and Nestle, and Bayer, and all the pharmaceutical companies of Europe.

PAVIN: Gregory Carpenter teaches marketing at Kellogg. He studies the luxury industry. And by the way, LVMH—Louis Vuitton Moet Hennessy—doesn’t just own the brands in its name; it owns dozens and dozens of the luxury names we’re all familiar with, like Tiffany’s, Christian Dior, Givenchy, and Fendi. So yeah, that adds up to a lot of dough.

Carpenter says that, thanks to changing incomes and globalization, luxury is now a $380 billion industry. More people have the money to spend on these goods, and they are spending it.

CARPENTER: So it’s become a huge business, and what this has created is a motive for some new companies to get into the luxury-goods market.

PAVIN: The luxury market’s consumer base is growing, too, analysts say. Last year the market had about 400 million consumers. It’s expected to hit 500 million by 2030. And it’s surprisingly resilient. Lots of industries are still trying to recover from the cornucopia of issues Covid-19 brought. Luxury, though? It’s been having blockbuster years.

Chanel’s profit margins in 2021, for example, were more than 25 percent, its highest ever. Oh, and, by the way, the average profit margin in the U.S.—across industries—is less than 8 percent.

For would-be luxury brands, this is enticing, to say the least. But becoming one ain’t easy, Carpenter says. Because you have to sell something much bigger than function.

CARPENTER: Luxury brands propose a dream to consumers, a dream of something exceptional. And they don’t pursue customers; the consumers actually pursue them.

PAVIN: I’m Laura Pavin. And today we’re back with Insight Unpacked—kind of. You might recall the series goes deep on a topic with our faculty’s help. We focused our first season on how to create an extraordinary brand. This episode, with Carpenter’s help, we have an addendum for you on how to craft a luxury brand.

Unlike the mass market, Carpenter says, if you want in on the luxury market, you need to make people believe that you are legitimately extraordinary. A huge pot of gold waits for brands that can do that kind of convincing.

Today, we get into how brands elevate themselves into this product echelon so, you know, maybe you could become the next one. Even if you aren’t looking to penetrate this market, there’s something all brands can learn from luxury, which is: a strong narrative is a very powerful tool.

That’s next, in part one of our special two-part series on luxury brands.

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PAVIN: What is luxury, anyway?

There are a number of things that separate a mass-market brand from a luxury brand. For our mass-market brands, Carpenter says it comes down to function.

CARPENTER: Mass-market brands, let’s take Windex, advertise a logical message to you. You should use Windex because your windows will be cleaner.

PAVIN: These brands do everything they can to tell you their product is more functional than the next one on the shelf that does the exact same thing.

[CLIP FROM WINDEX COMMERCIAL] NARRATOR: Windex starts working even before you wipe, for a superior, streak-free shine.

PAVIN: But Carpenter says that luxury brands need to do something different.

CARPENTER: We buy the luxury brand because it’s something extraordinary.

PAVIN: … so extraordinary that cheaper products imitating the brand still don’t hold a candle to the real thing, in the consumer’s mind.

CARPENTER: So you can buy a perfectly good handbag that looks just like a Hermes Birkin bag for around $40. If you want to buy a real Hermes Birkin bag, it’ll cost you $10,000, and you have to wait three to five years if you’re lucky to get one.

PAVIN: He’s not kidding. I was actually shocked to find out that you can’t just walk in to an Hermes store and buy a Birkin bag. You have to ask about one, and they’ll see what they can do. The official line is that they have to call around to other stores to track down the one that fits your preferred specs. The fine print, though, as many will tell you, is that you’ll get one if they think you’re “deserving.” This is allegedly what a sales associate told one customer who wrote about the experience online.

On the one hand, infuriating. But still. Kind of ups the intrigue, doesn’t it?

What this translates to is that it doesn’t matter that a $40 bag looks and holds things just like the Hermes Birkin bag. It can’t make people feel the way a real Birkin does. That’s what makes the Birkin worth $10,000. It makes people feel connected to something extraordinary.

So luxury brands sell us a dream and a feeling that mass-market brands don’t. But how do brands like Hermes do that?

Carpenter says it has to start with authenticity. At its core, authenticity means that something is real in some way; that a product is, in fact, what the company claims it to be—which is valuable for any brand to have, really. If you’re Windex, you should clean windows as well as you say you do. And proving that is as easy as people using it and seeing that it works.

But in the case of luxury brands, proving that they’re authentically extraordinary requires actually being extraordinary using a few different elements.

One of these elements is heritage.

Consider the Stradivarius violin.

[CLIP FROM PBS FADES UP] Scott YOO: Ah, there is nothing like a Strad….[chatter] They don’t make them like this anymore, do they?

PAVIN: That’s violinist Scott Yoo on PBS playing a Stradivarius violin. You might have heard of it. It’s a violin made by the 17th century luthier Antonio Stradivari. He had a reputation for making some of the best stringed instruments in the world.

There aren’t that many Stradivarius violins left. The one Yoo was playing was worth $15 million.

CARPENTER: If you buy a Stradivarius violin, if you’re lucky enough to buy a Stradivarius violin, it’s because well, Stradivari was a very accomplished luthier. But the real issue is that it’s been played over the last three or four hundred years by the most famous violinists on earth, and so it has a heritage.

[CLIP FROM PBS] [Yoo plays Strad]

PAVIN: Lots of violinists say the Stradivarius sounds better than any modern violin. They’ve been saying that for years. Blind tests with concert violinists found that they couldn’t actually tell the difference, though. In fact, they ended up preferring modern instruments over the Strad—modern instruments worth just a few thousand dollars. But the Strad’s history of being tied to this exceptional luthier and all these amazing violinists is so alluring that people still pay millions to have one.

The rarity of the Strad plays a big part in that price. But its power is really in its heritage, it’s history. This is what makes people feel like they’re part of something bigger.

Hermes does this really well.

CARPENTER: Hermes was founded in the 1800s, and they’re still continuing to thrive.

PAVIN: Hermes started out making equestrian goods for Europe’s wealthy in the 19th century: its first bag was designed for riders to carry on their saddles. And when your origin story involves horses and wealthy people from 19th century Europe, that’s the makings of a luxury brand, baby. You build on that. And that’s exactly what Hermes did, infusing the essence of this story into all the other product categories it ventured into. Its logo: a man in a top hat next to a horse and carriage.

Today, every single item that leaves the workshop, apparently, must first get a sign-off from the brand’s creative director Pierre-Alexis Dumas. That plays into the company’s long history of putting quality first. Seems to be working: today, Hermes is worth $218 billion. That makes it the second-most-valuable luxury brand in the world.

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PAVIN: Carpenter says luxury brands use another element to punch up their status, and it’s kind of similar to heritage. They can zero in on a person—the founder of the brand.

Take Manolo Blahnik.

[CLIP FROM SEX AND THE CITY] Carrie BRADSHAW: Oh my god! Do you know what these are? Manolo Blahnik Mary Janes! I thought these were an urban shoe myth!

PAVIN: That’s shoe-obsessed Carrie from Sex in the City, in the now-infamous scene from 2002, when she stumbles upon a pair of Manolo Blahnik’s in the accessories closet of Vogue magazine.

[CLIP FROM SEX AND THE CITY] BRADSHAW: These are authentic, patent leather! And if they don’t fit, so help me, I’m going to wear them anyway.

PAVIN: One pair of Manolo Blahnik shoes can sell for about $1,000 or more. Among its most expensive pairs are the Lagarta heels. They’re green suede heels with a vine and water snake lizard design that wrap up to the lower calf. They go for around $7,600.

Who is Manolo Blahnik, exactly?

CARPENTER: Manolo Blahnik is a designer of shoes, and he’s considered a genius in the shoe industry. And so the authenticity comes in large measure from his expertise.

PAVIN: Blahnik has handcrafted—and still does—each shoe prototype himself, his shoes are elegant and artistic, and Blahnik, himself, is a legend—with a unique origin story.

[CLIP FROM MANOLO: THE BOY WHO MADE SHOES FOR LIZARDS] Manolo BLAHNIK: I’m so sick of this story, but it’s true. The truth is that I used to make shoes for lizards.

PAVIN: He used to make shoes for lizards. That was Blahnik in a documentary about himself. And in it you see some black-and-white footage of him as a boy making tiny little heeled shoes out of chocolate foil wrappers for the lizards in his parents’ garden.

You can see how this plays into his lore: here is a man who was born to make great shoes. People want to get their hands on that greatness.

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PAVIN: Carpenter says there’s a final element that’s important to a luxury brand’s story. Sure, a rich heritage and a founder’s background can go a long way. But Manolo Blahnik was helped by the fact that people who meant something in the fashion world wore his shoes. He had exceptional consumers like Anna Wintour and Madonna.

This goes for many of the world’s top luxury brands. You want notable consumers to hop aboard. Think back to when you first heard of some of the most famous brands.

[CLIP FROM FASHION POLICE] Joan RIVERS: First of all, who are you wearing? Julia ROBERTS: I’m wearing, uh, Giorgio Armani. RIVERS: Who are you wearing? Claudia SCHIFFER: Versace. RIVERS: And who are you wearing? Kirsten DUNST: I’m wearing John Galliano for Dior. RIVERS: Who are you wearing? Nicole KIDMAN: Um, Prada.

PAVIN: Remember Joan Rivers on the Red Carpet, asking different celebrities who made the clothes they’re wearing?

[CLIP FROM FASHION POLICE]: RIVERS: Who are you wearing? Hugh JACKMAN: I’m wearing Gucci. Deborra-Lee FURNESS: Gucci. RIVERS: Who are you wearing? You look fabulous.

PAVIN: We usually first hear about big luxury brands when distinguished people wear them. That puts them on an aspirational pedestal. Most people don’t need to know the luxury brand’s backstory or its history of craftsmanship to know that it’s top notch because these other people whom they respect, admire, or just know to have a lot of money, they’ve given it their stamp of approval.

CARPENTER: Customers become what I call the “actors of the brand.” You’re not just a consumer. You and I consume Windex; we don’t symbolize the company of the brand. But if you’re a Ferrari owner, they want you to be a symbol of the brand and the actor of the brand—the way someone walking down the street in a Ralph Lauren suit would be an actor of the brand, would represent Mr. Lauren’s work.

PAVIN: Kate Middleton, the Princess of Wales, has something that people call the “Kate Effect.” When she wears something publicly or people get wind of some product she likes, it tends to sell like hotcakes. This happened after her wedding to Prince William.

[YOUTUBE CLIP FROM HOW KATE MIDDLETON CHANGED FASHION] NARRATOR: The bride apparently wore White Gardenia Petals by the brand Illuminum, and the brand had to quickly issue a statement that orders for the popular perfume were on back order and would be fulfilled as fast as possible. It’s not surprising, since most brands can’t keep up with orders once Kate touches them.

PAVIN: High-status customers reflect the status luxury brands need to have. So they put a premium on these people, so much so that some brands are really picky about whom they allow to purchase their goods.

Taken to the extreme, you have the brand Ferrari.

CARPENTER: So if you walk into a Ferrari dealer with a quarter-million dollars and say, “I’d like to buy a car,” they will not sell you a car. You have to demonstrate that you’re enthusiastic enough and passionate enough about a Ferrari to actually have them sell you a car. They will tell you to go buy a used Ferrari and we’ll see how you like it and see if you measure up to Ferrari standards.

PAVIN: In a way, it makes sense: If you have just anyone driving a Ferrari, well, then is it really that special anymore? No. The customer needs to be someone whom others can envision themselves being among.

CARPENTER: We buy the luxury brand because it’s something extraordinary, but it also connects us with a particular group of people who also appreciate that and admire that. So it has a very important social component and that confers a certain amount of status on the consumer.

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PAVIN: If you want to become a luxury brand, having a rich heritage, a stellar founder, and high-status customers—that can launch you into this stratosphere. All of this makes people believe that you are the real deal. That you are authentically luxurious. Not fake.

Now you may have noticed that, so far, most of the successful luxury brands we’ve talked about are old. But what if you’re a newer company? How do you weave an extraordinary tale about yourself if your customers weren’t, say, wealthy equestrians in the 19th century? Is that even possible?

In our final episode on luxury, we look at one newer brand that pulled it off and another that failed spectacularly. Stay tuned.

[CREDITS]

PAVIN: We’ll be back in a week with the next and final episode of this special luxury-branding edition of Insight Unpacked. In the meantime, if you haven’t already, you can check out our first season of Insight Unpacked at kell.gg/unpacked. It’s on the nuts and bolts of creating an extraordinary non-luxury brand. You can also find that at the Insight: Unpacked podcast feed, wherever you get your podcasts. This episode of Unpacked was written by Laura Pavin. It was edited by Jessica Love, Susie Allen, Fred Schmalz, Maja Kos, and Blake Goble. It was mixed by Andrew Meriwether. Special thanks to Gregory Carpenter.

Okay, until next week!