European Research Studies

The second method is the ‘joint-ventures’. This is a cooperation strategy that combines ‘know-How’ and foreign company experience with production facilities, especially in large competitive markets (Gualti, 1995; Jorde and Teece, 1992; Ring and Van de Ven, 1992). This entry strategy is considered for more risky markets due to geographical and cultural distance, such as Asian countries where CH is not yet established but planning future openings.

The third and final strategy is the franchise, which is selected for high risk countries that are culturally distant (Coviello and McAuley, 1999; Flavian and Polo, 2000). These include important markets like Saudi Arabia, Kuwait or Central America countries. The CH franchise follows the same business model as its own point of sales, meanwhile, the franchisee is responsible for fixed assets investment and staff recruitment.

Once a decision is taken for entering a specific country, CH follows an expansion pattern known as ‘oil stain’, a strategy defined by Castellano (2002) as opening the first store in a strategic area for the company, for the clear purpose of obtaining information related to this market and gaining experience (Blanco and Salgado, 2004). An example can be seen with Carolina Herrera, which began its North American experience in Miami and spent one year learning about customers, their needs and preferences and a year later, it continued its expansion in New York City, gradually and slowly expanding throughout the entire territory.

Company management believes that its main rivals are Loewe and Louis Vuitton, so we will analyse their commercial and international expansion strategies.

Loewe, the most emblematic firm in Spanish luxury industry, has belonged to the Möet Hennessy Louis Vuitton Group since 1996, when the French group, which pools together different luxury firms, took overall control of the Spanish company. The French group was trying to strengthen the Loewe foreign implementation process; because important synergies were obtained with its own international brands network (Barwise and Robertson, 1992).

In this new stage, Loewe began an image modernization process and renewed its product line. The goal set by the company was to provide the historic firm with a more trendy and dynamic image, getting closer to younger customers, yet protecting the classic Loewe identity and its quality, design and handmade craftsmanship. With this objective, it launched a more aggressive communication campaign and started up a new architectural design in the firm’s eighty stores.

The company carried out an optimum resource plan. First it reduced the number of handbag models, to launch a far more uniform range and to cut expenses, down from 230 ladies’ handbags in 1996 to around a hundred. Leather goods and accessories dropped from more than a hundred to little more than sixty and those models less in demand were removed. The company has revived private fashion shows to commercialize its catwalk collection. After huge success in Asia, Loewe launched the ‘Made to Order’ sales formula in the Spanish market in 2008, an annual leather and furriery collection that is sold at private event presentations.

Regarding its financial results, Loewe failed to make profits in 2008, as a consequence of reserving funds for the firm’s reorganization plan, recording a total loss of 10.53 million euros. Nowadays, the company has a total of 125 own stores and also sells at a hundred of multi-brand point of sales. We should emphasize that 51.4% of its turnover comes from outside Spain. This is a remarkable difference with STL, which under no circumstance sells its products in multi-brand stores, believing that this distribution format loses customer contact and product control.
3.1.2 Loewe Brand Internationalization Process

The new commercial strategy of the company aspires to turn Loewe in a worldwide benchmark luxury brand for leather articles. The company wants to develop the Loewe Brand as a global brand and empower its internationalization based on its strong point, which is leather craftsmanship.

The company's future plan consists of three different operating guidelines. The first one, a new product policy, reducing the number of models and developing the men’s prêt-à-porter collection. Furthermore, the company wants to boost fashion apparel collections in order to endow the company’s prêt-à-porter with prestige and strengthen it. Another of the company’s lines is the perfumes, where there are ambitious projects in place, due to their obvious synergies with the LVMH group. When analysing the company’s product portfolio, we see that in 2009 handbags accounted for 40% of company sales, followed by accessories and leather articles that represented 18%. Taking into consideration the company’s turnover, perfumes are third, totalling 16% this year. Finally, women’s collection accounts for 12% of turnover and scarves and ties for 9%. Men’s collection only represents 5%.

The company’s second line of action is the ambitious internationalization plan that involves new store openings in Europe, especially in Germany and France. In addition, the company plans to approach the North American market, and for that reason fashion designer Narciso Rodríguez was commissioned in 2007. Finally, the company expects to approach the South American market in 10 years’ time. Japan is one of the company’s bulwarks, where the brand has been present for 45 years, and is its biggest foreign market, with a higher trade volume than the Spanish one.

The outline followed by the company in selecting foreign markets for internationalization is of particular interest. The first country was Japan in 1965, a country with outstanding cultural differences with Spain and geographically quite far-off. The selection of Germany as the second destination market might be explained by the German origins of the company’s founder and therefore it could be considered an emotional expansion reason, because Germany is also a market that is culturally different from Spain (Treadgold, 1990). It would make more sense to continue international expansion in South America instead of the United States of America, due to its higher cultural proximity. Data from 2009 are quite significant, because they reveal that the European market accounts for up to the 45% of total sales of the company (including the Spanish market), meanwhile the Pacific region represents 34% of total sales and Japan the remaining 21%.
Table 3: Markets where brand Loewe is set up (year 2009)

EUROPE: AMERICA: ASIA: MIDDLE EAST: OCEANIA:	Finland, France, Germany, Greece, Italy, Portugal, Spain (29), United Kingdom. Canada, Colombia, Mexico, United States of America (5). China (14), Hong Kong, India, Indonesia, Japan (41), Korea, Macao, Malaysia, Singapore, Thailand, Taiwan, Vietnam. Lebanon, Qatar, Saudi Arabia, United Arab Emirates (U.A.E.). Australia, Guam, New Zealand, Saipan.

Source: own (number of most remarkable countries point of sales).
Finally, an innovation plan. The extremely high quality level of its products has led the company to manufacture products for other luxury brands such as Cartier, Escada Piel and Dunhill, due to the high company’s production capacity. This fact should be highlighted in comparison with STL, which has never manufactured for other brands, keeping a full control over its designs and products. Furthermore, the product development strategy, clearly identifying the luxury leather handbag segment, with excellent quality and a classic design, has been imitated by CH as well as by PG.
3.1.3 Louis Vuitton: History, Commercial Strategy and Internationalization Strategy

This company was launched in 1854 as a specialised travel articles brand. Nowadays, the suitcases, trunks and handbags have become key products of the company, but the Louis Vuitton brand ranges from garments to accessories. A decisive step in the company’s expansion process was its introduction into the North American market, because great Hollywood film stars were loyal brand customers.

In general, we can state that Louis Vuitton is the very first luxury brand in the world, a firm that links fashion with tradition. The brand is also owned by the French group Möet Hennessy Louis Vuitton (LVMH).

This is a company especially sensitive to forgery, putting a ‘zero’ tolerance policy in place, with constant monitoring in the fight against forgeries. It is the leading brand in luxury products, and therefore the most forged.

Handbags are the company’s most important product, along with leather accessories, as these are the most popular items sold. In spite of new trends, classic icon handbags, like the ‘Speedy’, continue to head the sales figures. In 2009, up to 37% of company’s turnover came from leather accessories and fashion collections.

The company that brought luxury to handbags and suitcases 150 years ago has a vertical organizational structure: the retail chain controls product distribution and it defines itself as a ‘retailer’, because it completely controls the distribution channel. The sale of its products is exclusively through its own point of sales, thus controlling the customer’s purchasing experience and in fact maintaining brand control. It does not sell through commercial licences or franchises in any country.

At this point, we find great differences in comparison with STL, especially in making use of franchise as a way of entering international markets and particularly in those markets that are distant from the Spanish one. This way, a faster expansion is achieved by the company; however, the company loses control over the point of sale and customer contact. On the other hand, STL, as occurred with Vuitton, has strengthened in the luxury handbag segment by imitating the strategy followed by its competitors.

It is important to remark that Vuitton is conscious about the fact that the luxury market is becoming democratic and that luxury and glamour are not only reserved for a few privileged persons. This situation does not concern the company, which recognizes that luxury is global and plural nowadays and underlines the brand emerging markets like China or Brazil (Table 4).

Besides searching for new markets, the company explores new consumer niches. If traditionally it aimed at women, it is currently beginning to aim at men and since 2010 the company has been immersed in online store development. This business development strategy has also been imitated by STL, maybe encouraged by the success acquired by this purchasing channel at the Spanish company Inditex, with its Zara Brand.

Table 4: Markets with Louis Vuitton brand presence (year 2009)

EUROPE: AMERICA: AFRICA: ASIA: MIDDLE EAST: OCEANIA:

Austria, Belgium, Czech Republic, Cyprus, Denmark, Finland, France (9), Germany (9), Greece (3), Hungary, Ireland, Italy (9), Luxemburg, Monaco, Netherlands, Norway, Portugal, Romania, Russia (3), Spain (6), Switzerland, Sweden, Ukraine, United Kingdom (5). Argentina, Aruba, Bermuda, Brazil, Canada, Chile, Colombia, Dominican Republic, Mexico (5), Panama, United States of America (36), Uruguay. Morocco, South Africa. China, Hong Kong, India (3), Indonesia, Japan (28), Korea (9), Macao, Malaysia, Mongolia, Singapore, Thailand, Taiwan (5), Vietnam. Saudi Arabia, Bahrain, Israel, Kuwait, Lebanon, Qatar, Turkey, United Arab Emirates (U.A.E.). Australia, Guam, New Zealand.

From this ‘Benchmarking’ analysis we can conclude three important questions. First of all, as the company Louis Vuitton had already perceived, the luxury market is going through a democratization process, which fully explains the intense internationalization and deep expansion processes carried out by the three companies analysed (Carolina Herrera, Loewe and Louis Vuitton).

In second place, we can comment on the real find of a global market niche, with huge growth potential, like the luxury handbags segment, which now represents the highest sales percentage to these companies, moving ahead of fashion collections.

In third and final place, another issue that merits attention is the brand extension strategies followed by the companies analysed to other products or items that complement the fashion collections and handbags, such as perfumes, leather articles, and other accessories. In that respect, we find that there are great growth opportunities as yet unexploited. In Carolina Herrera’s particular case, last year’s brand extension focused on children’s garment collection, baby articles and jewelry, for the clear purpose of continuing brand extension to home clothing.

As specified in the previous section, a new group of consumers has arisen in recent years, with similar preferences, who purchase similar brands and who communicate globally (Levitt, 1983). These new consumers have been referred to as global consumers, and possess similarities with people from other countries in terms of lifestyle and consumption patterns (Hassan et al., 2003). The lifestyle related to fashion is defined as the attitudes, values and interest of consumers with regard to purchasing fashion products (Gutman and Mills, 1982; Ko, Kim and Kwon, 2006). This variable is deemed very important in predicting consumers’ behaviour in purchasing products and brands. Using this idea, and bearing in mind the global niche or segment concept, we can define that the segment the CH Brand should target is characterised by the style and exclusive nature of Carolina Herrera New York. In fact, the Carolina Herrera CH Brand creates a lifestyle and concept characterised by a modern image based on values such as elegance, femininity, taste for detail, cosmopolitanism and design.

Carolina Herrera offers a luxury prêt-à-porter collection, with a unique style. The sales price of its products is three or four times higher than in the medium segment of the market, and is a further positioning tool of the brand in the market. To set a sales prices abroad, the company carries out a comparative analysis of its rivals Vuitton and Loewe, yet always remembering that it is selling a luxury brand not only targeted at a few, but to a global segment of the market, and therefore can be considered as a sales price that is accessible for this segment.

This positioning map of the Carolina Herrera Brand and other brands uses the price and quality attributes. These two attributes are commonly accepted as the most important ones for this kind of fashion product (Brown and Rice, 1998). While the price is an objective attribute, quality depends on the subjective perception of the consumer and is extremely difficult to define (Roger and Lutz, 1990).

The studies reveal the characteristics of a purchaser of the CH brand: 73% are women and the remaining 27% are men, 46% have a high level of income (with high considered as income of €60,000/year), while 52% have average income, 89% live in urban areas with more than 100,000 inhabitants and 68% have a high or medium cultural level.

Figure 2: Positioning matrix of fashion brands (attributes considered: Price and quality).


Democratic Luxury Brands vs. Luxury Brands Fashion accessories

Source: Sociedad Texil Lonia (figures from 2009).
The product and business lines targeted at the higher segment and the prestige of the CH Brand have allowed the brand to see a broader horizon, such as the launch of a line of luxury accessories, which includes handbags, leather goods, footwear, scarves, ties and costume jewellery. The company has also launched a line of perfumes and is extending the line of products with the Carolina Herrera accessories Brand, always targeted at the market segment that demands quality brand products (Figure 2).

5. Brand Equity Strategy and Marketing-Mix Variables in the Fashion Products of the Luxury Segment

Moreover, in the current globalisation process the brand is seen as a strategic variable of growing importance for internationalisation strategies and decisions (Cerviño, 2002; Kelz and Block, 1993; Luostarinen and Gabrielsson, 2004) as well as for the creation of greater brand capital. For this brand capital to acquire the highest value possible for the client, it is essential to have appropriate management of marketing variables (Holehonnur et al.; 2009; Raggio and Leone, 2009). In this regard, the costs in communication, sales network, PR, packaging and marketing events are factors that contribute to brand equity (Simon and Sullivan, 1993).

An examination of the benchmarking carried out shows that achieving a unique design is associated to high exclusivity. This aspect becomes even more relevant in the case of fashion products and has been highlighted by Moore et al., (2000) and Zaichkowsky (2010), whereby personalisation also plays a determining role. Here, we can state that CH sells a product that to a large extent is uniform for a global market. However, there are some adaptations to its product offer, because of the differences in local markets. The clothing sizes of collections in the United States have been adapted, the colouring of the collection has also been adapted for the Mexican market. However, we can state that the company does not anticipate the particularities of each market, but rather has a reactive attitude, modifying the features of products as an afterthought.

Of note is the fact that the company refuses to use any kind of identification or association with its Galician or even Spanish heritage (Ghemawat and Nueno, 2003), meaning that the country of origin removes importance from the expression of the global image.
5.2 Distribution: Strategic, Selective Location and Utmost Service

The distribution channel can directly affect brand equity through actions of support promotion and, indirectly, in the nature of product associations. Moreover, the distribution channel plays a determining role in achieving an exclusivity image.

The image of the point of sale has been considered as one of the most important determining factors in the distributor's success (Amirani and Gates, 1993). Consumers’ perceptions about retail stores are formed quickly and unthinkingly (Oxenfeld, 1974; Sewell, 1974) and this is why the atmosphere inside a point of sale is a key factor when it comes to influencing the decision-taking process (Birtwistle and Shearer, 2001; Greenberg et al., 1983). In addition, studies suggest that consumers tend to mentally abstract the information on image attributes such as style, trends, range of products and reputation or notoriety of the distributor (Boulding, 1956; Newman, 2003).

We can state that CH has great potential as it focuses very carefully on its points of sales, carefully checking every detail of the décor and furniture of the stores, which are renewed every so often to bring them up to date. Another of the key elements of the point of sale is the location. The top designers from France, Italy, United Kingdom and, to a lesser extent, the USA, which head the list of luxury brands, have chosen London as the first worldwide reference centre to launch their luxury brands onto the international stage. This data strengthens the theory of the importance of the utmost exclusivity in positioning a luxury fashion brand.
5.2.2 Customer Service

Service, which includes relations with sales staff, is an essential part of the distributor's image, and promotes favourable emotions and feelings in consumers (Bitner, 1992; Mattila and Wirtz, 2001). As highlighted previously, personal treatment enables value to be added to the end product (Berman and Evans, 1992), which confirms the importance of the store’s service as a hugely important factor in supplying greater value-added.

The prices of CH garments vary from country to country, and it is the Spanish and Portuguese markets where the lowest prices can be found, while prices in international markets are generally higher due to the logistics expenses. Prices are set in accordance with a market focus strategy and bearing in mind the position chosen by the brand. This means that certain articles such as handbags and accessories are never put in the sales. In the case of fashion, price promotions are an effective marketing tool for sales but have a negative influence on perceptions of quality (Tong and Hawley, 2009), and they communicate negative product association (Blattberg and Neslin, 1990).

Communication plays a vital role in the creation of brand equity (Biel, 1993).We can state that companies like Vuitton or Loewe have followed the brand alliance strategy with designers and celebrities. However, there are notable differences between them, because while Loewe pursues a brand alliance with a renowned designer like Narciso Rodríguez to strengthen its brand, for its latest advertising campaigns Vuitton has opted to recruit global celebrities with a high worldwide impact, yet not directly related to the world of fashion, such as Mijail Gorvachev, Francis Ford Coppola, Bono or Sean Connery. Studies reveal that the support from celebrities, used properly, plays a very valuable role in development of brand equity and in increasing its competitive position in the market (Till and Shimp, 1998).

The different means of advertising reveal different effects and strengths in the creation of brand equity. While television as a communication media has penetrated most households and is the most popular communications media among consumers (Liu, 2002), printed advertising, especially in magazines, is an effective communication media for fashion brands and products. However, CH conducts very little advertising on TV and press and relies on the store, together with PR, as the core communication tool.
6. Implications and Conclusions
Below we synthesise the main business implications and conclusions as a result of analysing this case. We have followed the logical order presented throughout the case.
6.1 Management Model

The business strategy pursued by STL lies in its unified, quasi-integrated and global business management model, which provides the company with great control over the process of production, distribution and marketing, as well as huge flexibility and agility to adapt production to market needs in a short period of time.

So, the company has a large degree of verticalisation, which enables it to integrate different stages of the value chain such as design, patterning, and delivery at points of sale, distribution and store management. Its flexible structure, as well as client focus and the use of advanced IT technologies, enable a rapid and flexible response to consumer demand and very good market orientation. Although we cannot say this is a just-in-time production system, it does fall within the quick response system, as it enables a quick response to changing demands of consumers and gives flexibility to the productive and marketing system.
6.2 Management Model

Four fundamental issues can be concluded from this benchmarking analysis. Firstly, luxury and glamour are not reserved for the elite or a few privileged persons, and they implicitly recognise, with their internationalisation plans, that nowadays luxury is globalised, understanding that there is a worldwide market niche that requires exclusive and high-quality products. In this regard we should point to the emergence of new markets for these brands such as China or Brazil, economies with high growth rates and which represent very important markets. However, it is appropriate to point out that luxury, understood as the utmost exclusivity, must not be confused with democratic luxury. Brands like Hermés, Armani or Gucci are for the elite and not for the masses.

Secondly, we can highlight the discovery by the three companies analysed of a global market niche, with huge growth potential, such as luxury handbags, which now represent the highest percentage of sales for these companies, ahead of the fashion collections. There is logic to this fact, given that both Loewe and Vuitton started out by manufacturing articles of leather and luxury briefcases and handbags, before subsequently developing the collections.

Thirdly, another issue that merits attention is the strategy of brand extension pursued by the companies analyzed towards other products or goods that complement fashion collections and handbags, such as perfumes, leather goods or accessories. Here, we understand that there are still growth opportunities that have not been exploited.

Variables like exclusivity, design, service quality and location and format of the point of sale -as mentioned previously- are key factors in developing a luxury fashion brand. In addition to these variables, brand positioning is also extremely important. Recent research (Moore et al., 2000) has suggested that there are two fundamental aspects to creating a real luxury brand identity: i) its capacity to create a specific lifestyle; and ii) not everybody that aspires to a specific brand can afford it. This data strengthens the theory of the importance of the utmost exclusivity in positioning a luxury fashion brand.

A fundamental element in positioning of luxury brands is the store location and setting. Thus, through merchandising and an innovative design, certain flagships (the discreet setting of an Armani store or the elegance of Gucci) have created a distinct brand. Analogously, the location must respect the criteria of utmost exclusivity.
6.4 Brand Strategy and Comprehensive Management of Marketing-Mix Variables

6.4.1 Diversification of the Brand Portfolio, Range Extension and Global Niches

To deal with the spread of demand and a greater increase in demand for designer brands, we propose the formula of diversification and definition of segments or global market niches. We propose creating new brands with products that are less expensive than the main brand or line as well as extending the brand towards new product categories that must be targeted at a different segment (e.g. Emporio Armani).

To deal with the spread of demand and a greater increase in demand for designer brands, we propose the formula of diversification and definition of segments or global market niches. We propose creating new brands with products that are less expensive than the main brand or line as well as extending the brand towards new product categories that must be targeted at a different segment (e.g. Emporio Armani).

The brand requires comprehensive management of the marketing-mix variables. Thus, the product or collection, packaging and even fashion events must be based on the fundamental values on which the brand is supported.