The luxury business model – Building a high-end small business

Luxury Goods

Building a brand is difficult enough as is, but when you are aiming to conquer the high-end market, things get a hundred times harder.

Successful high-end brands have one thing in common: they found a way to build something iconic that speaks for itself. Names such as Hermès, Armani, Bang & Olufsen and Tiffany & Co. need no further presentation. Everyone, no matter if they can afford it or not, has at least heard of their name.

If you are looking to build a high-end brand, you need to forget almost everything you learned about sales, marketing, and management. The luxury business model is almost entirely different from any business model out there. It does not aim to convince customers to purchase its products through traditional channels, such as heavy marketing, substantial discounts, or affiliate marketing.

They aim to attract customers by doing the exact opposite: building exclusivity and resisting the urge to respond to rising demands. In other words, building a wall that only the worthy can climb. But how is that achievable?

Focus on a niche segment

Exclusive brands don’t aim their products at the masses, which is why you need to identify a niche segment and start targeting your products towards it. This is a general principle that can be applied to any business, but luxury brands need to also have a symbolic value that can be attributed to the niche.

The symbolic value that helps build a brand’s exclusivity needs to be significant to a certain type of customer. This goes beyond your position on the market because exclusivity and luxury should not be comparative.

High-end brands do not seek to compete with each other, mostly because their positioning on the market is already set the moment a brand is launched. When it comes to luxury, uniqueness is the key word. Being sure of who you are as a brand and who you want your customers to be, gives you the power to thrive in such an exclusive market. Think of Chanel for example. Chanel does not position itself on the market, but rather has its own identity.

Accentuate your brand’s symbolic value

Being able to create a symbolic value for your brand is one, but managing to also communicate it to customers is an entirely different thing. Consumer brands typically focus on the functional value of the product, whereas high-end brands focus on giving their products a symbolic value. While functional value focuses on what the customer expects when buying a product, such as trust, quality or reliability, symbolic value focuses on entirely different aspects.

The symbolic value of a brand or product comes from where the brand is positioned socially, and from the elitist products it offers. In a way, you can say that the symbolic value needs to somehow be validated by the most exclusive of customers.

Symbolic value can also be built through storytelling and building heritage. All high-end brands have a story to tell, be it the story of their founder, the brand’s origins, or something that makes the company unique. Identify that story, create it, and sell it.

Emphasize on exclusivity

Most people want high-end brands precisely because they are not easily accessible. Be it because of the price, or its limited-edition products, if you want to attract valuable customers, you need to offer exclusivity.

Creating perceived exclusivity can be done in a number of ways. Some brands prefer to create limited edition products, that once sold out, will not be back on the market again. “If customers know there is only a small window of opportunity to purchase a certain product, they will want to do so as fast as possible” explain experts from the jewellery company Pearl-Lang.

Another way to create a sense of exclusivity for your brand is through price. Luxury customers don’t want products that can be easily accessible, and they will be willing to pay the price for premium products.

Hermès is one of the best examples of how efficient an exclusivity strategy can be. Their waiting lists for certain products are endless, and even though customers know they may not get their hands on a Hermès handbag, they still sing up and wait years for such an opportunity.

Never compromise on business quality

If you are aiming to launch a high-end business, your products are not the only thing that needs to be superior. You need to deliver exquisite quality in all aspects of your business, from the people you hire to packaging, delivery and customer service. Remember that customers don’t only buy the product, they buy everything your brand represents.

If you can’t make big promises and deliver on them, you are not a high-end brand, because customers expect everything you do to be outstanding. This is why you will never find untrained employees working for high-end businesses.

Planning to open a high-end business means much more than delivering good products. You need to hire and train the best employees you can find, ensure you contract good vendors, and make sure your stores are always looking spotless.

Build strong alliances

Many consumer brands collaborate with celebrities to promote their products. Sure, high-end brands do this as well, but on a different level. Retail brands use celebrities to convince customers to buy products based on an imitation model – I want to buy this because x famous person was wearing it.

High-end brands leverage celebrities in an entirely different way. They don’t need to use them as models, but rather as testimonials – A famous person is using the same products as I am. You can say that it serves as a way of comforting customers that they have made the right choice.

Collaborations between luxury brands and celebrities are more of an alliance, rather than a paid partnership, and advertising is done in a more subtle way. You need to find individuals that align with your brand image perfectly. If you are a company that sells luxury jewellery aimed for ladies over a certain age, having the most recent pop star sensation wearing them will not exactly fit.