This Is Why High-End Brands Are Still Thriving Despite Economic Uncertainty
Brand positioning has never been more vital to the success or demise of a business than it is today. The consumer base for which a founder, CEO, or brand director of a company chooses to target—is a gamble that could determine whether a company either succeeds or succumbs to the marketplace. Which is why it’s extremely important for a brand to appeal to the right audience—at the right time.
But the thing that makes positioning a brand such a peculiar process is that it often opposes actions that seem to be so apparent at the time that the decision on which way to position the brand is being made.
For example, at a time when gas prices are at an all-time high around the world and with supply chain issues affecting every aspect of the economic system—logic would tell you that high-end brands would suffer due to consumers buckling down to save money because of inflation—along with the financial ramifications and incertitude that would result.
However, in this case—logic would be giving you bad advice (I hear you, it doesn’t make sense).
In fact, high-end brands are thriving and setting record numbers in both sales and revenue despite economic uncertainty. Here’s how and why it’s happening.
Two industries that serve as touchstones to the extent of just how much high-end brands are flourishing—are the automobile and apparel industries. To which high-end brands are setting record numbers in spite of the fact that overall sales in both respective industries are below pre-pandemic numbers.
In 2021, automobile maker Rolls-Royce booked the highest annual sales in the brand’s 117-year history. While at the same time, auto manufacturer General Motors (which makes much more affordable vehicles) reported that their sales had fallen 13% in 2021 from 2020.
As for the apparel industry, Francois-Henri Pinault, Chief Executive Officer of Kering—the French-based multinational corporation that is the parent company of the luxurious fashion brand Gucci, announced in February of 2022, that despite inflation and supply chain issues—fourth quarter sales for the high-end brand in 2021, had been “brilliant.” With Kering reporting revenues of $11.02 billion—an increase of 31% from 2020.
Why luxury brands are prospering
The rationale behind the two main types of reasoning that lead consumers to increasingly purchasing luxury items during unsettling times could be deduced to two things: validation and alleviation.
From the validation perspective, when times are tumultuous; we, as human beings—are much more likely to seek things that give us comfort. This phenomenon is labeled as “emotional spending.” And what’s more comforting than validation from others? Which is the primary reason consumers purchase luxury products.
“Spending money to help us feel better has been a long-standing coping mechanism for many Americans,” says clinical psychologist Sheila Forman, PhD. Dr. Forman went on to state, “To be an emotional spender is to use shopping (online, in person, or both) to soothe what ails.”
In regards to the alleviation aspect of emotional spending—that falls under FOMO or in simpler terms—loss aversion. “With loss aversion, we want to avoid future losses. When we’re worried our money won’t buy as much next week, we’re more likely to buy more today. This increases prices.” Says Dr. Ben Rutt, PhD.
In times of crisis, many consumers spend their money on expensive products because they fear the ramifications of not spending it. Therefore, in order to alleviate that fear—they feel as though they must spend more money.
For necessities—that involves hoarding products. But for luxury items—it’s a reaction that causes consumers to spend money on things that they’ve always wanted before life as they know it no longer exists.
Rolls-Royce chief executive officer, Torsten Müller-Ötvös, stated that after many consumers witnessed the trauma caused by the pandemic in 2020, “That made them think life can be short and you’d better live now rather than postpone until a later date.”
The goal of this article isn’t to inspire you, as an entrepreneur or executive—to change the positioning strategy of your brand and suddenly raise the prices of your products in hopes of reaping the rewards that come along with being a high-end brand. In fact, authors of the legendary book “Positioning,” Al Ries and Jack Trout warned of this, “Too often, however, greed gets confused with positioning thinking. Charging high prices is not the way to get rich.”
Trout and Ries went on to explain the proper way to position a high-end brand is by, “Being the first to (1) establish the high-price position (2) with a valid product story (3) in a category where consumers are receptive to a high-priced brand is the secret of success. Otherwise, your high price just drives prospective customers away.”
If your brand isn’t already premium priced—you’ll have a much better chance at success by continuing to serve the target audience and segmentations that your current low or moderate price points were configured to appeal to.
But if you haven’t already launched your brand, and would like to create a luxury brand—follow the positioning advice provided by Ries and Trout because that’ll give you the best chance to drive consumers your way—as opposed to away.