Consumer spending on luxury goods has risen at double the rate of the global GDP and tripled over the last twenty years at an estimated rate of $260 billion dollar a year, according to the consulting firm Bain & Company. Publically traded luxury companies have far outperformed others, making luxury conglomerates the envy of business geniuses everywhere. The largest category is cars, at an estimated $438 billion, followed by personal luxury goods at $249 billion, with hotels ranking at $183 billion. Spirits and fine wine rank fourth (at $66 billion), and fine food comes in fifth (at $46 billion). With the gaming and hospitality industry heavily involved in four out of five of those categories, it’s no wonder that many hospitality companies are taking a closer look at the luxury space and considering strategies to either expand their footprint or get into new segments.

Since the United States consumes the highest volume of luxury goods by far at almost $80 billion—Japan (at $20 billion) and China (at $18 billion) come in at a distant third and forth respectively—many foreign companies are making aggressive strides to increase their market share for the American luxury buyer, and U.S. companies are working to expand their market share as well. The luxury industry is on fire, and with a revenue growth of four percent expected next year, many companies are thinking about luxury brand extensions or spinoffs. But before you go all in on a luxury brand concept, there are a few things to consider.

First, is luxury brand development right for you? Few companies make it happen, but if you are able to achieve one of the highly coveted business accomplishments of creating and managing a luxury brand, it is truly a feat to be proud of. With gross margins of over 79 percent, Cartier and Louis Vuitton make the idea of wanting to create and own a luxury brand tempting.

At a distance, luxury brands have what even the most brilliant and well-accomplished business people crave—a high-margin, high-profile, difficult-to-replicate business. In the gaming and hospitality industry especially, having a luxury brand is the Holy Grail, because it attracts high-level players and maximizes the average daily room rate (ADR). If you haven’t been part of a luxury brand team, what you don’t see is the grueling, expensive, highly disciplined process it takes to bring a luxury brand to market successfully and keep it that way. The risks are higher for luxury brands—consumers expect more when they pay more, and the competition is fierce. In this article, I will illuminate the dark side of leading a luxury brand. After that, we will explore tips and tricks taken from the most sought-after companies in the luxury space on how to build a luxury brand. These will be broken down into three key secrets they all know:

1. Create Something Amazing
2. Gain Access
3. Execute Flawlessly

But first, it seems only appropriate to start with an exploration of why people invest in luxury brands in the first place.

Why People Buy Luxury Brands

Personally, when I buy a luxury product, I justify it as a high-value, long-term investment. And sometimes it actually is. People buy luxury goods for a lot of reasons, but one thing is certain: the purchase choice is always attached to strong emotions we associate with expensive material products, and frequently the decisions to buy are irrational. According to a study published by the Journal of Experimental Social Psychology, low self-esteem is a big factor in determining whether a person will buy luxury goods that they may not be able to afford. For others, the motive can be to show off, gain acceptance, or reward themselves.

Luxury Brand Ownership—The Dark Side

Yes, the glitz, glamour, and profits of getting into the luxury brand game are alluring, but before you jump in, consider this: Luxury brands are expensive and risky to launch. Quality can’t be skimped on or compromised, even in the startup phase, and there are no guarantees that consumers will think your premium product is worth a premium price. In addition, enveloping your customer in a fully branded experience means a higher staff-to-customer ratio and an increased level in employee training, which means more labor and team-orientation costs. Since service is so important in the luxury brand space, companies often go out of their way to please dissatisfied customers by providing them with free goods or services. This is a solid approach, but it leaves them open to unscrupulous consumers looking for opportunities to take advantage of the system. Striking a balance between accommodating valuable customers while protecting the company against less-favorable customers isn’t easy.

Three elements to building a luxury brand:

1. Create Something Amazing

A luxury product can’t just be a fabulous product that appeals to the masses—it has to be something that appeals to the High Net Worth (HNW) and Ultra High Net Worth (UHNW) population. HNW is considered $1 million in liquid financial assets. For UHNW, the threshold is $30 million or more. To add volume to your target market, you can create a product that also appeals to the “affluent” (someone with less than $1 million in liquid assets but more than $100,000). If that still doesn’t provide you with the high population you want for your product, don’t worry. Consumers that make around $100,000 are considered “aspirational” luxury brand buyers who buy the lower-end, less-pricey items within luxury brand offerings.

Your product must be high quality enough to not only withstand the intense evaluation of the discriminating eye, but also delight your target audience’s senses and make them feel special. From the moment your consumer begins interacting with your brand, they should be enveloped in an experience that leaves them feeling like nurtured royalty. When constructing your concept to take over the luxury brand sector, customization, craftsmanship, and a level of understated elegance are usually solid elements to incorporate. These attributes are found consistently in brands such as Aman Resorts and Bugatti. But creating an amazing product alone isn’t enough. A few other crucial elements to consider are brand identity and pricing.

• Brand Identity: Being the strategic brand development genius behind a brand is one thing; having the ferocious discipline to ensure the launch of a luxury brand is executed flawlessly is a whole different ballgame. Everything from the paper you select for your business cards to the pillow cases you select for your hotel rooms has to enrapture the senses. No more feeling the pressure to increase margins and giving in to the pressure of cutting the quality of your guest experience. One dimensional branding is also no longer enough. Focusing on a sensory branding approach is key. That means tapping into the full sensory experience of your audience, from their sense of smell to that of touch and taste. Rolls Royce taps into the power of our olfactory senses by impregnating the materials in its cars with scents—like mahogany, leather, and oil—that echo the feel of their older models.

• Pricing: If everyone could have it, it wouldn’t be as valued. Scarcity breeds the perception of exclusivity. Luxury brands create an exclusive identity by pricing high and creating fewer products—for example, smaller properties, less rooms, and smaller, more intimate gaming spaces. Since space is limited, this creates perceived scarcity, which creates a higher perceived value resulting in higher demand. Luxury brands don’t discount, because that devalues the product in the consumer’s eye.

2. Gain Access

A crucial step to ensuring your luxury brand has clout and credibility is gaining access to the affluent community, getting your product in their hands, and getting them talking about it. The best way to make this happen is by identifying influencers within that community that you think your brand would resonate with and offering them incentives to use your product. Response from outreach efforts can range from one to ten percent, so get the odds in your favor by reaching out to a high number of suitable influencers. Outreach efforts can include direct calls and messaging, networking, high-end event attendance, or placing your products in places where high-net-worth influencers will be (for example, the welcome bags given to attendees at the Oscars). Having a celebrity or highly glamorous, influential individual use your brand creates a pedigree for your property that increases your perceived value. Make sure you are discriminating about the placement of your marketing. You wouldn’t want your brand anywhere it could be defaced or perceived as less than opulent. Subways? No. Private Jet Carriers? Yes. This helps support your brand narrative of exclusivity.

3. Execute Flawlessly

Well, almost flawlessly. Consumers of luxury brands don’t expect perfection, but they do expect luxury brands to try hard to meet their high expectations. At the end of the day, people who buy luxury brands want to feel a sense of belonging—but not just a sense of belonging to any club: they want to belong to an exclusive club that signifies that they’ve made it and helps support an idealized version of themselves (even if it’s only for a fleeting vacation). The true opportunity to cement a relationship with your guests in the luxury space is to go above and beyond—every time. The challenge for the luxury consumer is that they have often become accustomed to high-level service. They feel entitled to a certain standard of service, which makes going above and beyond—i.e., exceeding expectations—difficult.

The good news is that going above and beyond doesn’t always have to include an opulent approach. Sometimes the act itself is enough. A friend of mine is the President of a company in the oil and gas space. He frequently courts clients, much the same way as we court high-level players in the gaming industry. Recently, he told me a story of an experience that locked him in as a client for life with a private jet chartering company:

“When I chartered the jet to North Dakota for myself and some clients, I thought I had a rental car waiting for us. However, the rental car company didn't actually have cars available, and they failed to notify me until I landed. The pilot, however, had already called ahead to get the car delivered to the jet, and when he learned there were no cars available, he arranged to have the personal pilot car delivered to us. It was an old Ford Expedition, but it fit everyone, and I drove over 400 miles in it in one day. I liked the company before, but now I’m a client for life.”

Before you jump headfirst into creating a luxury brand of your own or leading the charge on a luxury brand extension for your company, it’s a good idea to look at some of the huge wins of certain luxury brands to emulate, as well as epic fails to avoid.

Huge Wins To Emulate

The best in business luxury brands, like Louis Vuitton or Tiffany & Co., don’t just sell a product or a specific area of expertise or functionality—they sell a lifestyle. This primes them for success when extending or licensing their brand. For example, when the jewelry and watchmaker Bulgari licensed its name to the luxury hotel company Marriott, it was a wild success for all parties. This was due, in large part, to Bulgari’s lifestyle brand development and the association of exclusivity it had in the minds of consumers. Conversely, brands have failed with their extension efforts when focusing on the technical elements of their brand instead of the lifestyle elements that evoke emotion.  For example, when the high-end jean company Diesel attempted a brand extension into wine, it didn’t take. Not only did the company lose the investment they made in the wine venture, but it devalued their existing Diesel brand, resulting in decreased sales and customer attrition.

Epic Fails To Avoid

The death of a luxury brand can be caused by over extension. While the fashion designer Pierre Cardin has unapologetically cashed in on his brand to the tune of an estimated $1 billion, critics say that he has over extended his brand to the point of no return. If you do create a luxury brand successfully, or are currently managing one, be very cautious about brand extensions. If you stretch your enterprise too far, you might break it, losing not just the opportunity you were reaching for, but your current core customer segments as well.

An Alternative To Creation—Licensing

If the ins and outs of luxury brand creation has your head spinning, but you are still drawn toward the benefits it has to offer, there are alternatives. Constructing deals to license or partner with luxury brands so you can cash in on the benefits of association are solid solutions. At first glance, these options may seem more expensive, but when you consider the risk of creating and launching a new luxury brand along with the time it takes to ensure the venture’s success (not to mention the associated risk), licensing a successful luxury brand or partnering with a luxury brand company to move your business goals forward starts to look like an appealing option.

The financial opportunity the luxury industry provides, ties in seamlessly with the luxury hotel and casino offerings the hospitality industry offers along with the high-end spirits, wine, food and retail that are perfect accompaniments to a luxury vacation. If this has you thinking about stretching your currently luxury brand offering or creating a luxury division, now you are armed with some key tips and tricks of the trade to make a well-informed decision about your next strategic move in this space.

Sarah Procopio, President of Thrive Marketing Science, a business intelligence and driven marketing firm. Sarah specializes in loyalty program development and turning around flailing companies and marketing programs quickly. She can be reached at sprocopio@thrivemarketingscience.com or 949.230.7873. This article was original published in Gaming & Liesure Magazine and can be found at https://mygamingandleisure.com/digital-edition-archives