Woodbury University: How to nurture luxury brands in the developing world Featured

1:05am EDT November 19, 2013
Andre Van Niekerk, Ph.D., Dean, School of Business, Woodbury University Andre Van Niekerk, Ph.D., Dean, School of Business, Woodbury University

Woodbury University’s School of Business has partnered with universities in Beijing and Berlin to form the Carl Benz Academy to provide a specialized MBA for Mercedes Benz employees. Learn about the School of Business at our website.

The world of business today goes beyond the U.S. borders, so executive education programs like MBAs have a global component. For example, Woodbury University is part of a customized MBA program through the newly formed Carl Benz Academy for employees of Mercedes Benz and its affiliate companies.

Andre van Niekerk, Ph.D., dean of the School of Business at Woodbury University, says the program specifically serves employees in the luxury brand segment in emerging markets.

“There’s always a market for high-end brands, and that fully applies to the developing world,” he says.

Smart Business spoke with van Niekerk about the challenges and opportunities in marketing luxury brands in the world’s emerging economies.

Given the uneven recovery from the global recession, how open to luxury brands are today’s developing economies?

Virtually all luxury brands are jumping, or have jumped, into the developing world. That market — that collection of economies — is reaching a near-saturation point for some. To a large degree, it’s a matter of numbers; the size of the individual markets is key. If millionaires represent 3 percent of the population of China, for example, companies will pay attention.

Of course, if you step back and ask, ‘what is luxury?’ Your immediate response might be that people who have very little define luxury. In some parts of the world, two meals a day would be considered a luxury. There’s clearly a different context in the developing world, when contrasted with the developed world.

Having said that, however, luxury brands appeal to similar demographics worldwide. The people who buy and consume what are generally recognized as luxury goods, from clothes to jewelry to cars, are simply not as affected by economic downturns as the rest of the population. There’s just less price sensitivity.

Combined with quality and aesthetics, exclusivity is central to marketing a luxury brand. But the richer the world gets, the tougher it is to keep that exclusivity. Brands can artificially impose exclusivity by raising prices. Price, therefore, confers status — the status the brand affords the consumer. It’s an implied status, creating a desire to move up. The challenge for manufacturers is to keep customers brand loyal, wherever in the world they may be.

How do cultural differences come into play, as manufacturers introduce products and develop strategies to market them?

While many recognized luxury brands have a genuine global reach and can be considered universal, local tastes and accepted local norms matter. A specific handbag may become a roaring success in the U.S. but may not be as desirable in China. Or a specific color popular in Western Europe may not resonate somewhere else. Cultural nuances are often reflected in advertising, and it’s common for brands to reword and reposition ads for each market. Some nuances simply can’t be transplanted.

Status exists in every culture, and everyone has an ego, but the drivers for status differ across cultures. The U.S. is largely externally driven, as places like Newport Beach, Rodeo Drive or the Chicago Loop suggest. Other cultures are very circumspect — you don’t wear status on your sleeve.

What impact has the proliferation of luxury brands in the developing world had on those same brands in the developed world?

That trend has given rise to knockoffs. Counterfeit goods pose a huge problem for luxury brands, especially when the population at large may not be knowledgeable about what’s real and what’s fake. Knockoffs can ruin the brand by association. That’s why manufacturers confiscate and prosecute — they actively pay for that vigilance.

Things may be changing on this front, however. In a deal with China, Ralph Lauren agreed to overproduce by approximately 4 percent. Local merchants are allowed to sell the overproduction in controlled outlets at a slightly lower price. It’s a total win — a way to spread the brand successfully and locally, while helping to undercut the market for counterfeit merchandise.

Andre van Niekerk, Ph.D., is dean of the School of Business at Woodbury University. Reach him at (818) 394-3311 or andre.vanniekerk@woodbury.edu.

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