Wednesday, August 10, 2011

Luxury Brands Like Prada Struggle with Mixing A-List Reputations and D-List Countries of Manufacture

By Pam Danziger, author of Putting the Luxe Back in Luxury

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Prada is going to China not just to sell, but to make — Is this where your brand should go too?
Prada – it’s a name synonymous with luxurious Italian fashion and design. That’s why the Wall Street Journal story on Prada manufacturing in China gave me a jolt. Click here to see the story.
Prada is gambling a great deal on the notion that its customers won’t care about where their clothes and handbags are made as long as that logo is there.  Miuccia Prada, the brand’s designer, says, “Sooner or later, it will happen to everyone because [Chinese manufacturing] is so good.” Many luxury consumers would beg to differ, as would I.

For a brand like Prada, being made in Italy is one of the foundational pillars of the brand. Without it, all that’s left is a hollow shell of the classic luxury brand. A recent Unity Marketing survey among 1,321 affluent luxury consumers with an average income of $287.2k reveals the danger in Prada’s made in China strategy. Over 80 percent of the luxury customers agreed with this statement:
“Many luxury goods brands have a heritage associated with a particular country, such as Chanel with France, Gucci with Italy or Mercedes Benz in Germany. These country associations are important to maintain and integral to the perception of the luxury brand.”

Brands like Prada, which displays ‘Milano’ proudly in its logo, are closely aligned with a specific country or place and have the most to lose if changes are made to where it traditionally has manufactured products. These companies need to understand that the mystique of their brands is a complex amalgamation of reputation of the company, experience in the store or online, and knowledge of the craftsmanship in manufacture of the goods.  If a luxury good is made in a country with a questionable reputation, this decision can damage the brand far more than it saves in overall costs.
In that survey, China led the ‘D-list” of countries for place of manufacture. Some 56 percent of the luxury consumers surveyed said that they associate China with poorer quality goods.
Even Chinese luxury consumers are suspicious of made in China goods, as consultant Armano Branchini says in the WSJ article, “Chinese consumers are ready to pay higher prices for luxury brands, but they want products not to be manufactured in China.”

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Think verycarefully about brand integrity and consumer confidence if you chose to ignore the halo that traditional place of manufacture bestows 
In this time of economic uncertainty, the pressure is on for brands to move to China or other low-cost countries in order to bolster operating margins and keep prices in line. Further, production capacity in many traditional European countries is limited, as we were reminded not long ago when Louis Vuitton had to close some of its stores early in the day because stock was running low.

Before making any such drastic move, companies need to conduct market research to talk to loyal customers who will be affected by such a move. Marketers need to learn through one-on-one interviews or focus groups about their customer’s prejudices and fears should products be manufactured in new places. By understanding the specific areas of concern to the customers, marketers can develop marketing messages that address these concerns directly.

Such research will reveal to luxury marketers the importance of place of origin in the buying equation for their brand. Through this understanding, they can use country of manufacture to their advantage when they can; and if not, take steps proactively to counter negative perceptions about a country as a place to manufacture.

Brands may find it is better to accept the increase in price and limited availability of product in order to play up the prestige that comes from association with an ‘A-list’ country of manufacture, rather than switching to production on the cheap in a country that might damage the brand.

For companies that already source their goods in ‘D-list’ countries or decide the time is right to make the move, they need to educate the consumer. Luxury marketers in these cases must convey to the consumer that they hold high standards of quality, regardless of the country that produces the product.  For example, they might take their customers behind the scenes into the factories through videos or pictures on the company website to demonstrate quality standards are in place.

Luxury marketers must work to overcome the negative association with the “Made in China” stamp
While it is tempting to ignore the country of manufacture in one’s marketing efforts, especially if it is a ‘D-list’ country, luxury marketers do so at their own peril. They must address head-on the country of origin of their products, because they can be sure their customers are flipping the item over to take a look at that country stamp before they buy.

For example, Coach is a USA heritage brand which has moved much production overseas to China. They have been able to seamlessly integrate their global sourcing thanks to the company’s iron-clad lifetime guarantee, which reads, “Coach products are made to ensure satisfaction and service for the natural life of the product. If, during its lifetime, your item should require repair, we offer a repair service for many of our products.” Such a guarantee gives reassurance that quality standards are not compromised no matter where the item is made.

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