The Secrets of Luxury Brand Strategy
By: Michael Weeks
Tags: Life Lessons, Coffee, Nespresso, Business Strategy, Luxury

What actually makes luxury brands better than others? Is there a secret distribution strategy or silver bullet that they’re using? Today we’re going to take a deep dive into what makes luxury (or even premium) brands so incredibly valuable and answer some questions you have.

If you’re familiar with our publication Absolute Zero, you’re familiar with the concept that there is no silver bullet. The change that special brands like Off White, Ferrari, Apple, Nespresso, and more see to make is engrained in their foundation.

Every so often we witness the classic entrepreneur who tries to frame their brand with a version of the iconic “think different” Apple ad campaign and they fail. This happens for a number of reasons but at the core, the foundational work in their product/service isn’t there.

Chateau du Coudreceau

It’s like comparing an apartment complex to a chateau. Their DNA and structure is different from the start. Finding the right formula is everything. It’s how Coke and Dr. Pepper came up with their signature drink, how Apple was able to make a quantum leap with the iPhone, and how genetics determine who may likely be a future NFL or NBA star.

If I was asked to explain proper marketing or overall business strategy in one paragraph (or Seth Godin for that matter) I would have to quote Seth Godin…

“The hard work of creating the change you seek begins with designing evangelism into the very fabric of what you’re creating. People aren’t going to spread the word because it’s important to you. They’ll only do it because it’s important to them. Because it furthers their goals, because it permits them to tell a story to themselves that they’re proud of.”

Seth really is a master of putting complex things into simple terms. He uses the brilliant example of the loaf of bread. See how a simple loaf of bread can have evangelism designed into its very own fabric.

The Loaf of Bread

Would people rather pay $1.95 or $2.50 for a loaf of bread? Let’s say the profit is $.05 for the price of $1.95 and $.55 for the price of $2.50.

Don’t be mistaken, there’s a significant difference here. One is an eleven-fold increase in price and more than 1,000% more profitable per loaf. The baker sells 20X more of the cheaper loaf. And so we naturally exclaim, “But the customer wants to pay the lower price!”.

Maybe.

But did you account for the sparkling clean shop with plenty of well-paid and helpful staff, the new sign in the window, the beautiful shopping bag, and the free samples of butter cookies you dub as punitions?

Perhaps most importantly, how does it make your customers feel when they tell their friends that they’re eating the same loaf of bread that’s served at the fancy restaurant down the street?

Better to apologize for the price once than to have to excuse a hundred small slights again and again. Price is a signal, use it accordingly.

Analysis: Seth absolutely nails it here. People value the stories they tell themselves and others just as much (if not more) than the product/service itself. Pretty much every successful product or service in the market is told with a story we buy into. A narrative that melts our heart in a way and takes advantage of our irrational feelings.

We want to seem sophisticated, we want to be refined, and we want to feel classy and like the best version of ourself. And there are countless examples and narratives of it. This is why marketing is so fascinating. It’s a much deeper analysis of human psychology and our emotional buying triggers.

Case Study: Nespresso

George Clooney Nespresso Ad

Nespresso is made by Nestlé. While I disagree with many of the things Nestlé does, I still want to extract value from this.

It took Nestlé several failed attempts with the coffee capsule and brewing technology to derive success with Nespresso. They tried to sell into hospitality, then office catering, and finally figured out (as a last resort) that the home-selling business model was the sweet spot.

They had very few users to sell capsules to initially. This was a problem because no grocery store wanted to carry their low-demand pods. They were all ordered via telephone and shipped directly to consumers. So Nespresso shipped directly to consumers to ‘fix’ the supply chain but this actually ended up providing a unique service experience directly to customers. It held the allure of exclusive membership and made people feel special.

The consumers now had a narrative to tell. A unique product that only they were accessing in their social circles. Remember the loaf of bread?

The Nespresso Club was born and 700 flagship stores were opened since then all over the world. From a few hundred users, Nespresso’s membership has grown on average from 25–50% YoY. They did roughly $4.3 Billion in sales in 2013 and account for over 1/3 of global espresso consumption.

A Glimpse at The Nespresso Club (2009)

The mission and marketing for Nespresso is simple. If it was an ordinary brand it might be described as ‘granting consumers the right to make a very good cup of coffee’. Their mission is something more like ‘enabling us to bring out and enjoy our inner gourmet and sophistication’.

This is strikingly similar to when coffee was first introduced in 17th Century Europe where it became the drink of the rich, the noble, and the cultured classes. It was a privilege to drink coffee and Nespresso reignited that passion through marketing and delivery.

Nespresso’s iconic ad features George Clooney who is out-attracted by a fine cup of Nespresso. At the core, the message is that the Nespresso product is sexier than one of the sexiest men alive (or women depending on the ad). It’s not any man’s espresso, they bring out the most unique, sophisticated form of espresso and deliver that essence to consumers.

So when someone asks what Nespresso sells, they have captured and sell the essence of class and sophistication — espresso’s most unique and sophisticated form. Not a cup of coffee.

How will you stand out? How will you make something remarkable? This doesn’t just apply to business. This applies to you.