Rarity and luxury are fragile things. Cartier, the Richemont subsidiary, has in recent years not enjoyed the double-digit growth common since the 1970s. Part of the blame for this has been put on the Must label, which was introduced in 1973. The label was intended to rejuvenate and enlarge Cartier���s customer base through a more accessible entry line. Offering an affordable image and wide availability, Must was a huge sales success. Along the way, however, Cartier may have lost some of its luxurious allure. Aware of this, Cartier reduced the number of Must references, narrowed the number of points of sale, in particular with duty free operators, and opened a ���Private Collection��� department for high-end watches. All this was aimed at reintroducing the notion of scarcity that wealthy customers presumably desire. Business Strategy Review Autumn 2003 Volume 14 Issue 3 The great pretenders: the magic of luxury goods 10 The great pretenders: the magic of luxury goods Luxury goods offer quality, emotion and rarity, observes Bernard Catry. But how can this scarcity be maintained while, at the same time, expanding sales into emerging new luxury market segments? Luxury goods companies are not selling rare and exclusive products. But, like magicians, they are adept at pretending to do so by offering an illusion of scarcity.

All companies in the luxury goods market face the question of whether exclusivity, so central to luxury appeal, is inevitably diluted by increased market share. The Latin etymology of luxury means difference, departure, deviation. When they buy luxury products customers distance themselves from the mass and from one another through the emotional value of acquiring well- crafted and rare objects. So, is the notion of widely sold luxury goods an oxymoron? This question is increasingly relevant. In developed countries middle-class households with growing incomes have begun to shop for brands that were previously seen as out of reach. Globalisation has also fuelled this growth. Though potential customers may come from different parts of the world, their tastes are increasingly similar. The luxury industry has been tempted to meet this new demand, not least because many small luxury goods producers are now part of conglomerates such as LVMH and Richemont, which must chase sales to amortise their investments and ever-growing marketing and distribution costs. But this new demand and the pressure to meet it confront luxury goods companies with a dilemma. They can either ignore it, pursuing their traditional differentiation strategy (and risk being isolated in an elitist niche market) or they can launch more accessible lines that embrace the potential sales volumes but potentially jeopardise their exclusive image. This latter route was chosen by Cartier with its Must line and also by Havana Club when it decided to modify its premium range of aged rums. Havana launched an anejo version, a blend of different-aged rums, as a substitute for its top- of-the-range seven-year-old version, available only in extremely limited quantities. Will it kill the prestige of the brand? To retain its premium status, should the company restrict itself to a limited market segment? Vuitton appears to have some answers. The luxury luggage brand opens stores at a relentless pace. One of its most recent investments, the Omotesando store in Tokyo, generated more than $1m of sales in its first day. Vuitton also diversifies into new fields every year. Its entry into the watch market with the Tambour line was an instant success. Vuitton���s management clearly believes that continuing to develop sales does not risk losing the brand���s allure. Rarity, says Vuitton, resides essentially in its over 280 directly owned stores, the only locations where customers can find the famous fashion items. As a notion, rarity is hard to pin down. Historically, it has stemmed from the use of valuable materials such as gold, silver or diamonds, which are naturally scarce. The Industrial Revolution introduced a new rarity dimension. In the 1920s and 1930s, for example, electrical appliances were launched as a luxury. More recently, luxury goods companies have added a more virtual dimension to rarity. In an effort to reconcile differentiation and volumes, they have tried to generate a sense of rarity through artificial shortages, limited series, marketing policies such as selective distribution, or the selling environment. Like magicians, the luxury incumbents seek to perform an illusion where actual scarcity is replaced by a perceived rarity. Natural rarity Originally, scarcity stemmed from the limited availability of raw ingredients, components or production capacity. In the wine and spirit business, customers realise that products may be in limited supply because of the lack or excess of rain or sunshine. Valmont uses rare alpine herbs to produce its high-end Swiss cosmetics. This natural limitation bears both on the ingredients and on the knowledge necessary to turn them into active skincare creams. The luxury industry has always been familiar with natural shortages. Look at the long delays to buy a SLK Mercedes Coup�� during its first years in the US because of factory constraints. Or the wait to acquire the new luxury Vertu telephone from Nokia. Capitalising on natural shortages to express rarity may lead to a durable competitive advantage if the company can secure its supplies. Nonetheless, it presents some obvious drawbacks. First, natural scarcity is a clear impediment to the sales ambitions stimulated by the emergence of a The great pretenders: the magic of luxury goods Autumn 2003 Volume 14 Issue 3 Business Strategy Review 11 Like magicians, the luxury incumbents seek to perform an illusion where actual scarcity is replaced by a perceived rarity