Why you should use scarcity to build your luxury brand
By: Michelle Wiles
Tags: Creativity, Marketing, Economy, Business, Luxury

LUXURY BRANDS

Why you should use scarcity to build your luxury brand

The art of creating an enduring luxury brand.

In May 2020, Ferrari became more valuable than General Motors. This is despite the fact that Ferrari produces fewer than 10,000 cars per year, in contrast to the nearly 7 million produced by General Motors.

Clearly, each Ferrari is very, very profitable. But the secret to this profitability is a counter-intuitive marketing strategy: Ferrari makes it very difficult to buy its products.

In order to purchase a limited-edition Ferrari, you must undergo a rigorous character assessment and have a history of owning other less expensive Ferraris. Even to buy an entry model, would-be customers are told to first buy a used vehicle, and come back later. As a result, Ferraris are one of the few vehicles known to appreciate in value. But don’t think about purchasing a Ferrari only to flip it for a profit; Ferrari bans customers for this practice.

Only 499 limited-edition LaFerraris exist. Source: Flickr

Ferrari isn’t the only luxury brand to limit who can purchase its products. Handbag maker Hermès, and watch brand Audemars Piguet are part of an elite class of luxury brands which translate scarcity into an extremely profitable marketing strategy.

Former Hermès CEO Patrick Thomas, once commented, “The luxury industry is built on a paradox: the more desirable the brand becomes, the more it sells but the more it sells, the less desirable it becomes” (WealthX). In order words, running a luxury brand requires a delicate balance of selling products, but not too many, lest your brand loses its exclusivity.

Executing this strategy is not as easy as making your products exclusive to a select few. Instead, elite luxury brands typically follow a carefully crafted strategy that includes these 3 elements:

1. A history of craftsmanship

According to Hermès, a Birkin handbag requires 3 days of labor from a single craftsman who has apprenticed at Hermes for at least two years (Source). Ferraris are made almost entirely by hand in the Ferrari factory in Maranello, Italy. And watchmaking at Audemars Piguet has been “handed down with the utmost dedication from generation to generation of watchmakers at Audemars Piguet’s workbenches since 1875” (Source).

Creating an Audemars Piguet. Source: The Audemars Piguet Manufacture © Audemars Piguet

An Hermes craftsman. Source: Garland Magazine

For a luxury brand to get away with denying customers access to their product (and keep these customers on a wait list), they must have a credible reason for the lack of supply. The level of craftsmanship required to build the product is that reason. It answers the question, Why can’t you simply produce more? (craftsmanship takes time, and is limited to those with the skills) and creates a moat around the product that competitors find difficult to copy (a supercar produced by anyone else simply would not be a Ferrari).

2. A universe of consolation products

If you enter a Hermès store and ask for one of their flagship Birkin handbags, the sales manager is likely to tell you that the Birkins are out of stock. However, he will then direct you to the many other Hermes products available: bracelets, scarves, other handbags — to offer you a bit of association with the Hermes brand without actually offering the Birkin itself.

Hermes Store in Mumbai. Source: Architectural Digest

These other products have two major value-adds to the exclusive luxury brand. One, they give the brand access to a universe of customers without diluting the value of their exclusive products. Many more people can afford a $500 Hermès bracelet than a $11,000+ Birkin handbag. And two, they increase the revenue from elite customers who go on to purchase the flagship scarce products, as these customers typically need to build up a history of purchasing consolation products to get on the list to buy more the exclusive products.

A friend who purchased an Audemars Piguet watch told me that he had been hoping to buy another version that was wait list-only. The sales rep told him that his position on the wait list would move up if he purchased an in-stock product. Now, he is on his way to becoming a multi-watch customer.

3. Elite customers you want to associate with

Owning a limited-edition Audemars Royal Oak or a Birkin bag is different than an Omega watch or a Louis Vuitton handbag. The product does not just say that you have wealth or style, but that you have been vetted. You are part of an elite group allowed to purchase said product. Luxury brands which execute the scarcity strategy must prove that their clientele is a club worth joining.

Singer John Legend sporting an Audemars Royal Oak. Source: DMARGE

Ferrari uses its racing program to associate its customers with some of the most famous and heavily awarded drivers. They are also known to be owned by celebrities including Drake, Gordon Ramsay and Ralph Lauren. Hermès has built its handbag brand off of association to specific celebrities — the Birkin bag is named after English singer and actress Jane Birkin, after Hermès chief executive Jean-Louis Dumas sat next to her on a flight and she told him that she could not find a large enough handbag to suit her needs. And before Hermès created the Birkin, Hermès was already selling a smaller handbag named after actress Grace Kelly. As a result, the brand is a symbol of the Hollywood elite clientele their bags are named after.

Audemars Piguet has build brand relationships with top tier athletes, including Serena Williams, LeBron James, and Leo Messi, which supports the ‘luxury sports watch’ positioning of its top-selling Royal Oak. Serena Williams even sports her Audemars watch while gracing the Wheaties cereal box.