Marketing Is The Delivery Of Customer Satisfaction Marketing Essay

Introduction

“Marketing is the delivery of customer satisfaction at a profit. The two fold goal of marketing is to attract new customers by promising superior value and to keep current customers by delivering satisfaction.” [1] 

Marketing environment mainly consist forces of political, legal, regulatory, societal economic and competitive technological, out of this forces we are focusing on societal forces. Societal forces states about the people and their demands by giving the product in nice quality and helping people to lead life in a comfort and satisfactory level. In a society it is not possible to satisfy every kind of people so the company focuses on particular segments, in our project we have also focused in upper segment of people.

Luxury, in general, means a thing which is inessential but desirable item. In economic terms luxury goods is a good for which demand increases more than proportionally as income rises. Luxury goods always target the market of rich people and satisfy their demand irrespective of the price of the commodity. It is also useful for the country as the economic condition grows up, people earn more and spend more too for fulfilling their demand. This segment is also betterment for the company as it earns higher amount of profit from its customers.

We have chosen our group project topic Luxury industry, while doing the research we came to know that this segment is also on an upward trend for many years. The luxury industry consists of drinks, fashion, cosmetics, handbags, luggage, watches, jewelry, fragrances etc. Out of this clothing and accessories section have grown 11.6% from 1996 to 2000. In our project we have focused on this segment of clothing and accessories and have focused on a company called “HERMÈS” which we will discuss regarding the company and its marketing strategy in our next part of project.

Project Objectives:

Hermes is one of the most famous luxury brands all over the world. It is the only brand that has the highest average price and most custom-made orders and the only brand that a used item of it can sell much higher price than a new item in second-hand market [2] .

2009 was a tough year for enterprises in every industry. Most of the luxury brands were facing huge challenges due to economic downturn. It is no exception that Hermes was having a decrease in demand and custom-made orders so as to affect profits and have tight cash flow. However, stand out the market as a famous and successful luxury goods provider, Hermes has strong confidence to survive in bad economic climate and even make progress in the market.

The objectives of this essay is to study Hermes from some aspects including its marketing strategies and competitive advantages as to know what kind of business strategies Hermes adopts to market its brand, build further relationship with potential customers as well as serve existing customers, and how Hermes survive on the strength of its perception and develop such strong bonds that it becomes immune to that turmoil of the global economic slowdown.

In Chapter 6, the necessary Porter’s Five Forces Analysis and Competitive Analysis will help me to have good understanding of Hermes strategies and the situation of the luxury industry.

Description of industry

Industry structure

A luxury brand or prestige brand is a brand for which a majority of its products are luxury goods. It may also include certain brands whose names are associated with luxury, high price, or high quality, though few, if any, of their goods are currently considered luxury goods. Another market characteristic of luxury goods is their very high sensitivity to economic upturns and downturns, high profit margins as well as prices, and very tightly controlled brands. For instance, the Gucci brand is now largely sold in directly-owned stores, following a nearly crippling attempt to widely license their brand in the 1970s and 1980s. The Burberry brand is generally considered to have diluted its brand image in the UK in the early 2000s by over-licensing its brand, thus reducing its cachet as a brand whose products were consumed only by the elite.

Industry Segmentation

The luxury sector targets its products and services at consumers on the top-end of the wealth spectrum. These self-selected elite are price insensitive and choose to spend their time and money on high quality clothes, accessories that are plainly lavish rather than necessities. For these reasons, luxury and prestige brands have for centuries commanded an unwavering and often unreasonable customer loyalty.

The luxury goods market has been on an upward climb for many years. Apart from the setback caused by the Asian Financial Crisis in 1997, the industry has performed well, particularly in 2000. In that year, the world luxury goods market, which includes drinks, fashion, cosmetics, fragrances, watches, jewelry, luggage, handbags; was worth close to US$170 billion and grew 7.9%. The largest sector in this category was luxury drinks, including premium whisky, Champagne, and Cognac. This sector was the only one that suffered a decline in value (which is -0.9%). The watches and jewelry section showed the strongest performance, growing in value by 23.3 percent, while the clothing and accessories section grew 11.6 percent between 1996 and 2000, to US$32.8 billion. North America is the largest regional market for luxury goods: unlike the modest 2.9 percent growth experienced by the Western European market, the North American market achieved growth of just fewer than 10 %. The top ten markets for luxury goods account for 83 percent of the market, and include the U.S., Hong Kong, Japan, China, Germany, Italy, France, UK, Brazil, Spain, and Switzerland [3] .

Key Players in Industry

The three dominant trends in the global luxury goods market are globalization, consolidation, and diversification. Globalization is a result of the increased availability of these goods, additional luxury brands, and an increase in tourism. Consolidation involves the growth of big companies and ownership of brands across many segments of luxury products. Primary examples include LVMH, Gucci Group, Dolce and Gabbana, and Chanel, which dominate the market in areas ranging from luxury drinks to fashion and cosmetics. Leading global consumer companies, such as Procter & Gamble, are also attracted to the industry, due to the difficulty of making a profit in the mass consumer goods market.

Moreover, LVMH (Louis Vuitton Moet Hennessy) is the largest luxury good producer in the world with over fifty brands, including Louis Vuitton, the brand with the world’s first designer label. The LVMH group made a profit of 2 billion euro on sales of 12 billion euro in 2003. Other market leaders include PPR (after it purchased the Gucci Group) and Richemont.

Otherwise, the global luxury market is going young so luxury marketers must learn to think young in order to survive and thrive. Global luxury marketers have gotten used to the passions and nuances of the maturing Baby Boomers after so many years of targeting this generation with their luxury goods and services. Now they have a new challenge, to appeal to the young affluent whose have different ideas about luxury and different priorities in how they spend their wealth.

HERMES Background and Description

Background history

Hermès International, S.A., or simply Hermès, founded in 1837 by Thierry Hermès as a saddlery company, the business has been owned by a family member ever since. By the 20’s, Hermès had the patent for the zipper in France, and introduced the first ladies’ bags with zip closures, and in 1937, the first Hermès silk scarves were born.

Thierry Hermès, founder of Hermès

Nowadays, a scarf is allegedly sold with every twenty seconds. The company expanded into riding gloves, belts, and men’s and women’s sportswear, and designed the now-famous travel trunks to meet the needs of the new automobile drivers. Today the Birkin continues to have the longest waiting list of any luxury accessory, about six years [4] .

Hermès marketed to people at a high income level. The fact that it never goes on sale and that there are always price increases shows this. Not for people just looking for a cheap and normal bag, Hermès is for people with lots of money to spend. There are different ages and styles being targeted though. There are the sleeker styles for the older and more refined groups.

Pricey purse! $129,000 Birkin bag from Hermes [5] 

The current Hermes’s CEO now is Patrick Thomas, who replaced Jean-Louis Dumas-Hermès in January 2006. Thomas has been with the company since 1989. There are over 240 Hermès boutiques internationally, including a Wall Street location, the North American flagship on Madison Avenue, and in the fall of 2009, the first menswear-only boutique right across the street. In Singapore, there are 4 Hermès store which located in Takashimaya at level 1, Changi Airport Terminal 2, Galleria Scott road (DFS store), and Liat tower at level 1.

Competitive Strategies

Step into any Hermès store and you can expect six things to happen: you will first be greeted by enthusiastic and helpful sales staff; they will help look for you the merchandise you are looking for; they may even help you try it on and suggest how it might be worn with other items in your wardrobe. And when you are ready to buy something, they will lead you to make the order and payment to the cashier, and later bid you farewell. These are the six steps that France luxury brand Hermès has established as part of its service policy to ensure that customers get the same kind of high service on all its stores. But this road to renowned service and success has not always been easy for the multi-million dollars clothing and accessories chain.

In the late 1990s, Hermès maintained its course of reducing the number of franchised stores; in 1999, for instance, they bought up franchises in Marseilles, Padua, and Berlin, while at the same time opening new non-franchised stores, including locations in Atlanta and Las Vegas. A new store on New York’s Madison Avenue was scheduled to open in 2000; in that year the company also expected to add four new Hermès stores in Lisbon, Santiago, Barcelona, and Taiwan, while also opening its first John Lobb footwear store in New York. Meanwhile, the company had already begun renovation of its Tokyo Ginza-district store and the opening of a branch in Moscow [6] .

Competitors

Direct Competitors:

Gabrielle Bonheur “Coco” Chanel (19 August 1883 – 10 January 1971) was a pioneering French fashion designer whose modernist philosophy, menswear-inspired fashions, and pursuit of expensive simplicity made her an important figure in 20th-century fashion. She was the founder of the famous fashion brand Chanel. Her extraordinary influence on fashion was such that she was the only person in the field to be named on TIME Magazine’s 100 most influential people of the 20th century.

Louis Vuitton Malletier, commonly referred to as Louis Vuitton, or shortened to LV, is an international French fashion house specializing in trunks, leather goods, ready-to-wear, shoes, watches, jewellery, accessories, sunglasses, and books. Known the world over for its iconic LV monogram and logo, Louis Vuitton is one of the most recognizable brands in the world. A long time symbol of prestige and wealth, the company commands some of the highest prices in the international fashion market for its products.

Christian Dior S.A. (known as Dior) is a French company which owns the high-fashion clothing producer and retailer Christian Dior Couture, as well as holding 42% of LVMH Moët Hennessy, the world’s largest luxury firm. Both Dior and LVMH are controlled and chaired by businessman Bernard Arnault. Christian Dior Couture, a division of the whole House of Dior, designs and produces some of the world’s most coveted haute couture, as well as luxury ready-to-wear fashion, menswear and accessories. Today, Dior operates about 160 boutiques worldwide with plans to open more in the coming years. Christian Dior, together with others in the fashion industry and the culture of the industry as a whole, was criticized by fashion model Inga Radziejewski for promoting anorexia and unrealistic body image in women, by designing clothes so small that the anorexic model could not fit into them even when she was dangerously underweight.

Indirect Competitors:

One of the most dangerous indirect competitors with Hermès is replica products. On the other hand, some people thought that replica products are great if you don’t want to spend lots of money on designer products, which included Hermès product. Replicas can be worn or used for work or play, and they often look and feel very similar to authentic designer items. There are replica handbags, replica watches (e.g. replica Hermès bags), replica jewellery, replica shoes, and many other items for the choosing. For replica handbags, qualities such as strong stitching instead of glue for the inside lining, proper markings, designer stamps, and serial numbers, sturdy hardware, and leather or leather-like material, everything is the same with the real one.

Product Mix:

Since 2008[update], Hermès has 14 product divisions encompassing leather, scarves, ties, menswear, women’s fashion, perfume, watches, stationery, footwear, gloves, enamel, art of living, tableware, and jewelry. The use of high-quality materials and appraised hand-craftsmanship drives the price points for Hermès merchandise well into high figures.

In general, Hermès sales are made up of around 30 percent leather goods, 15% clothes, and 12% scarves. Although the company has never licensed any of its products, they always keep control over the design and manufacture of its vast range of their products. Almost Hermès leather bound datebook, silk waistcoat, porcelain teapot and custom saddle is made under the company name [7] .

In 2003, following with Martin Margiela, Jean-Paul Gaultier joined the house as women’s ready-to-wear designer, debuting on the runway for fall/winter 2004, and also in 2005. Gaultier put a high-fashion spin on the label’s equestrian roots, with super-luxurious sheared mink jackets, velvet jodhpurs, and fringed blanket jackets. In June 2004, perfumer Jean-Claude Ellena took a post as the in-house perfumer and launched several scents that have amassed cultish popularity.

Research Methodology

The assignment needs a lot of research to get the useful information of Hermès, so that we can know more about it and then analyze it deeply and clearly.

Most of the information of Hermès is on the website. The official website of Hermès provided us a lot of useful information about the latest news and product. We also searched several websites from Google, Yahoo and other journals which relevant to Hermès strategies and the information of Hermès competitors.

We read many books to learn more knowledge about marketing, competitive strategies and how to analyze the strategies of Hermès. We learned the Porter’s Five Forces analysis from the book which helps us to know Hermès into systematically. We learned the marketing mix which is including product, price, place and promotion. It helped us to analyze the current business areas and strategies of Hermès.

Literature Review

PORTER’S FIVE FORCE MODEL

Michael Porter had identified five forces which will be useful for assessing the structure of industry. It helps to determine the profitable situation in an industry by influencing the prices, costs and required investments of business. The five forces are:

• Bargaining power of suppliers,

• Bargaining power of buyers,

• Threat of new entrants,

• Threat of substitutes, and

• Rivalry among competitors.

Bargaining power of suppliers

In a business the cost of inputs are important as it is totally dependent how much profit we can earn. Hermès produces its own raw materials from its basic business of saddle and harness making; they cut the leather goods, combining with the innovation of their craftsmanship to create products regarding customers want. In 2008 as per more demands they have decided to increase its manufacturing locations and they have also renovated or enlarged their factories in Belley and Norton. It has thirty-three manufacturing sites in twenty-six cities.

Bargaining power of buyers

The role of buyers describes the effect that your customers have on the profitability of your business. The involvement of both the parties creates value for each other; they should always be in win-win situation for a better flow of operation in business. Hermès basically produces the leather goods as per their customers wants. It always makes their products available in multiple sizes, colours and materials so as to provide the products in 165 exclusive stores worldwide by providing best prices as customers cannot switch to another brand. This strategy or power of the company has a good bargaining power over their customers.

Threat of new entrants

The threat of new entrants brings a force to cut the down the prices and put pressure on profits. In luxury industry the new entrants can enter easily as it does not have to obtain a particular license as in liquor industry. The new entrants always bring threats of sharing the market share and reducing the profit margin. But in case of Hermès it does not have much threat as no new business can easily take over their business due to following reason (1) they have a unique process of their products (2) it has lots of differentiated products (3) the brand quality is very high. (4) In luxury industry it needs huge amount of cash and a good planning to enter into the business as it has to create a picture of their brands in existing customers. (5) Hermes produces lots of products so its market share is very high. So, due to these factors the threat of new entry is minor.

Threat of substitutes

Substitue products are those goods which can fulfil a similar need to the products of one’s organisation. A commodity product which is undifferentiated, customers can easily switch away from that product. Hermès produces different types of products like it started a new SILKY bag, Lindy bag and Cariimi bag filled with colours and design to provide customers with different taste and a new type of product keeping the need of the product same. Hermès from the view point of Luxury industry also keeps on producing new products so as to increase their market share such as watches, apparels, and fragmented and small leather goods. As for women it produces leather for men they have started making diaries and small leather goods. Hermès provides the customers with lots of option so that customer cannot switch to other products.

Rivalry among competitors

It is often the strongest of the five competitive forces. In Luxury industry the competition is not about price competition, it is all about offering customers the most attractive combination of performance features, introducing new products, offering more after-sale services or warranties, or creating a stronger brand image than competitors. Rivalry among competitors can be reduced by distinguish product from your competitors’ by innovating or improving features, distributing your product in a novel channel, or trying to form stronger relationships and build customer loyalty.

Hermès has a strong rivalry among brands like LV, Armani, Chanel etc. But what makes Hermès strong is its uniqueness of product due to its craftsmanship and designers. The company always try to innovate and differentiate their product from one segment to another. For example, for women they have leather bags, silky bags, clothes, scarf’s, jewellery, fragrance etc. and for men they have leather belts, diaries clothes, footwear etc., to make this entire product available to customers they have a strong distribution channel; Hermès have 323 retail outlets worldwide. They always keep a strong relationship with its customers by providing best quality goods and best after sale-service. Achieving this entire thing Hermès is managed to create a good royalty brand.

Research Finding and Analysis

Marketing Mix

The primary targets for these products are the people with very high income and those who follow a fashionable lifestyle. The secondary targets are the upper middle class. Luxury brands have often been associated with the core competences of creativity, exclusivity, craftsmanship, precision, high quality, innovation and premium pricing. These product attributes give the consumers the satisfaction of not only owning expensive items but the extra-added psychological benefits like esteem, prestige and a sense of a high status that reminds them and others that they belong to an exclusive group of only a select few, who can afford these pricey items.

Product

The products of Hermès are luxury symbols. Through its products Hermès fulfills a person’s want of having a higher status in the society also the best product want. These products are highly customized. They take good care of each customer’s preferences. The products are manufactured based on the demand for the product. When a sale is made good care is taken to service the customers. In fact, high-quality materials and appraised hand-craftsmanship drives the price points for Hermès merchandise well into high figures [8] . Professional craftsmanship, originated from the creation of meticulous leather saddles, has been spread into every branch of product making, company-wide.

Price

The cost of Hermès products is very high as it is a luxury item which increases the status of the person who owns it. The fact that it never goes on sale and that there are always price increases shows this. Not for people just looking for a cheap and normal bag, Hermès is for people with lots of money to spend. The price is high because the quality of the materials used is of the top quality. The price may be high but the quality of the products is very good.

Promotion

The company uses various steps to promote its products. One of the few ways is by spending huge amounts of money on servicing its top customers. By this the company will be able to retain most of its customers. Few of the products of Hermès are being endorsed by some of the celebrities. As a result of this many try to get this product for themselves.

Place

Hermès boutiques are located worldwide in upscale locations. The image of the stores, however, most integrate with a respect of the culture in the location. Mostly the products of Hermès can be found be in high profile places such as Palm Beach, Shanghai etc.

General Strategy of Competitors

Louis Vuitton

Louis Vuitton is the world’s leading luxury products group. The strategy of LVMH is based on combining LVMH fashion and leather goods. It holds on to its own brand spirits and does things which are different from any other one. The various strategies of LV are as follows:

Price Strategy

The most important strategy is price strategy. The prices of Louis Vuitton productions are never cut off even the customer often buys bags .This kind of die-hard selling strategy makes customers follow the footsteps of Louis Vuitton more directly.

Service differentiation

Louis Vuitton is also adopting customization; customers can come to the outlets of Louis Vuitton and place the special orders. The company doesn’t provide the facility of ordering through website but they prefer the self appearance of the customer as it is more suitable. Louis Vuitton respects every customer. When shopping in the Louis Vuitton store proves the best service to every customer, and it doesn’t want the store too crowded, so it limits the number of customers.

Delivery Strategy

Louis Vuitton delivers the customized products door to door. But if anybody has standard size or willing to buy any accessories like wallets, belts, they can visit the Louis Vuitton outlets and find the product.

Personnel Differentiation:

Louis Vuitton’s staffs are one of the highly paid staff who is motivated to produce the products with highest standards of quality. Louis Vuitton’s management gives the complete training time to time to all the staff members to meet the standard which is making Louis Vuitton the well known luxury brand of the earth.

Channel Differentiation:

The company markets its product through its own stores, high end departmental stores throughout the world, which allows it to control product quality and pricing. It also allows LV to prevent counterfeit products entering its distribution channels. Louis Vuitton has neither discount sales nor any duty-free stores. In addition, the company distributes its products through a single online retailer, eluxury.com. Louis Vuitton outlets are located in several countries around the globe.

Image Differentiation:

Louis Vuitton has the strong reputation as it is the company of LVMH group owned by Bernard Arnault. The Louis Vuitton group carefully cultivates a celebrity following and has used famous models and actresses such as Jennifer Lopez and most recently Madonna in its marketing campaigns for creating the image of brand of celebrities and high class people.

Armani Strategy

The Giorgio Armani brand owned and run by the founder designer Giorgio Armani has earned the much hallowed space in the fashion industry through its superior design, relevant themes and trends. It maintains the aura of a real luxury brand. Not only has Giorgio Armani become one of the most respected and known brand names in the fashion and luxury brand industry, it is also one of the most highly valued fashion companies in the world with a value of nearly 3 billion Euros.

Brand strategy

Giorgio Armani with its iconic popularity amongst the elite of the society extends its brand. Today the Armani brand architecture encompasses one corporate brand and five sub-brands, each catering to different sets of target customers and at different price levels.

Price strategy

Armani’s venture into a slightly lower market segment. This basically caters to the segment of people who aspire to wear Armani apparel but cannot afford the ultimate signature line, or to those who crave to add extra products to their existing portfolios. The Armani Collezioni brand, with a price point of almost 20% lower than the main line, provides an excellent line of affordable fashion.

Personnel Differentiation

Whenever you enter to any Giorgio Armani store, the staff will welcome you more excitedly and give you the complete VIP protocol. Most of the staff working in Giorgio Armani factories and outlets is young, and not more than 30 years that makes Giorgio Armani to explore and design the most powerful and attractive products.

Channel Differentiation

Armani today employs about 4,700 employees and has 13 factories around the world. It has nearly 300 stores in 36 countries. Giorgio Armani is selling its products through its stores and e market like. Giorgio Armani is also giving the facility to buy online but it is only for USA.

Image Differentiation

Giorgio Armani is the symbol of luxury goods and VIP lifestyle. Most of the time, Hollywood actors and actresses are found in the boutique of Giorgio Armani which is also making the image of Giorgio Armani as the brand of celebrities.Armani’s advertising campaigns generally features Top celebrities such as Megan Fox , Cristiano Ronaldo [9] .

Recommendations

New-product development

In today world, consumer needs are changing very fast and there is intense competition between the competitors. Hermes is one of the top brands of luxury industry so they should be always ready on their foot for innovation. Hermes should always develop the new designs and variety of bags or even try to develop into new segmentation. They should also focus on their main products bag so as to keep their market share but in the mean time they should introduce new designs and types of bags with distinguishing features and uniqueness of bags at periodic intervals. This will help it to maintain the aura of wealth yet will not cheapen its image.

Protecting market position and competitive advantage

Hermes has got a strong market position and also a good brand image. They are the not the top amongst all the competitors in their segment. However, they should be wary of other top end brands like Armani, GUCCI, LV, etc as these are also top end brands which are capable of eating into Hermes market share. They are far more expensive, compared to the Hermes bags. Therefore, people who want unique handbags come to Hermes due to its uniqueness and designs. Hermes should take care that it does not tarnish its image by offering lower priced products, or over expanding production. They should maintain the image of providing the best quality bags for every age of women and in various sizes and colours, and on request depends upon the customer’s choice even. They have to be innovative and always maintain strong advertising, so that they attract the consumers.

Differentiation

Hermes should study its buyer’s needs and behaviour very carefully. They should analyze which types of bags are in greater demand, when value for their product raises, what value the customers hold for their product.

Hermes has always differentiated itself from other luxury brands by the unique quality of leather they use to make their products. They have never directly advertised but have invested in path breaking events, to get indirect publicity. Every firm has a capability, so they should differentiate themselves on the basis of their capabilities, which their rivals cannot easily copy and even if they do, their rivals will not be able to match their standards.

Conclusion

Marketing is the delivery of customer satisfaction at a profit. The two fold goal of marketing is to attract new customers by promising superior value and to keep current customers by delivering satisfaction. Luxury, in general, means a thing which is inessential but desirable item. In economic terms luxury goods is a good for which demand increases more than proportionally as income rises. It is also useful for the country as the economic condition grows up, people earn more and spend more too for fulfilling their demand. This segment is also