Essay preview
The Internet use by the Luxury industry An interactive tool for a very demanding sector
Supervisor: Margareta Paulsson
Authors: Charlotte LARBANET Benjamin LIGIER
Master Thesis Umeå School of Business Spring Semester 2009
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Acknowledgements
Assistance from many people contributed to the accomplishment of our master thesis. Therefore we wish to express our thanks to Umea School of Business and Economics for contributing toward the success of our year abroad in Sweden. Also, we would like to thank our teachers, friends, and classmates at USBE. It has been a real privilege to work in an international school at multinational and diverse people‟s side. Special thanks go to our supervisor Margareta Paulsson for her determination to make our paper each time better with corrections and suggestions. Finally, we appreciated the love and encouragement from our families stayed in France during this experience of ten months at Umeå.
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Dedication
This thesis is firstly dedicated to my parents Anne-Valérie and Patrice Larbanet and to my grand-parents Annick and Jean-Paul Godart for their education and love; and to Marc Moles for all his support during this year. Charlotte Larbanet
I highly dedicate this thesis to my entire family: my parents Michèle and Daniel Ligier but also to my brothers and sister Maxime, Jean-Philippe and Anne-Sophie Ligier.
Benjamin Ligier
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Summary
Luxury is a particular sector that is difficult to define. However it can be characterized using these following adjectives: high price product, exclusivity, prestige, and niche market. A luxury branding offers a high quality product associated to a superb level of service to customers looking for pleasure, experience but also social identification. Internet is a mass media using by 1,596 million of people around the world that don‟t permit physical interaction between web users. Despite this, the authors asked themselves why a mass media without physical contact possibility was used by an industry of niche whose the pillars are high service levels and relationship. The aim of the study was firstly to understand and show that the Internet is a medium equal to the luxury industry‟s demands and needs in terms of communication and distribution. The second objective was to describe how luxury brands should design and build their websites in order to respect their luxury‟s specificities and reach their goals. This paper starts with a definition the luxury sector in order to equip the readers with the subject in concern. Besides it, an overview of the relevant concepts about marketing tools and Internet applications available to online brands is made. Then, the concept of Web experience is reached giving the four important elements in a website conception: technology, interactivity, trust and services. Next, we audited eight French and American luxury websites using these same four elements in order to observe current practices and support our literature review. By making comparison between theoretical and empirical findings, we observed that there are many marketing tools and Internet applications that are actually used. Viral marketing, Relationship marketing, Customer Relationship Management and Web 2.0 applications are some examples of what permit to improve the four online elements and thus provide a real luxury web experience. After this study, we concluded that the Internet medium was equal to the luxury industry‟s requirements and needs because it actually permits them to provide a service of high level and to build relationship with online customers. Secondly, we precised which elements of a website, in concrete terms, have to be improved at their maximum during the website conception. The contribution of this thesis is mainly a feedback for luxury managers and web-designers in order to inform them about what is really possible to realize online nowadays and what it is actually done in France and in the USA.
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CONTENTS
CHAPTER ONE: INTRODUCTION............................................................................................................. 7 1.1 BACKGROUND ............................................................................................................................................... 7 1.2 PROBLEM DISCUSSION ................................................................................................................................... 8 1.3 RESEARCH QUESTION AND OBJECTIVES ......................................................................................................... 9 1.4 DELIMITATIONS ........................................................................................................................................... 10 1.5 READERS ..................................................................................................................................................... 10 1.6 PLAN ANNOUNCEMENT................................................................................................................................ 11 CHAPTER TWO: THEORETICAL METHODOLOGY ........................................................................... 13 2.1 CHOICE OF THE SUBJECT.............................................................................................................................. 13 2.2 AUTHOR‟S BACKGROUND ............................................................................................................................ 14 2.3 PERSPECTIVE OF THE THESIS ....................................................................................................................... 14 2.4 SCIENTIFIC APPROACH ................................................................................................................................. 15 2.5 RESEARCH STRATEGY ................................................................................................................................. 16 2.5.1 Critiques of the qualitative strategy .................................................................................................... 17 2.6 DEDUCTIVE APPROACH ............................................................................................................................... 18 2.7 SECONDARY DATA ...................................................................................................................................... 18 2.7.1 Critiques of Secondary Sources .......................................................................................................... 19 2.8 RELIABILITY ................................................................................................................................................ 20 2.9 VALIDITY .................................................................................................................................................... 20 2.10 LIMITATIONS ............................................................................................................................................. 21 CHAPTER THREE: THEORETICAL FRAMEWORK ............................................................................ 22 3.1 LUXURY DEFINITION ................................................................................................................................... 22 3.1.1 Luxury sector’s definition ................................................................................................................... 22 3.1.2 The customers purchase motivations for luxury products .................................................................. 23 3.1.3 Luxury brands’ characteristics ........................................................................................................... 23 3.2 THE ONLINE MARKETING TOOLS .................................................................................................................. 24 3.2.1 Traditional formats: e-business and e-commerce............................................................................... 24 3.2.1.1 E-business ..................................................................................................................................................... 25 3.2.1.2 E-commerce .................................................................................................................................................. 25
3.2.2 Branding and identity ......................................................................................................................... 26 3.2.3 Viral Marketing and Word of Mouth .................................................................................................. 26 3.2.4 Relationship marketing ....................................................................................................................... 27 3.2.4.1 Definition ...................................................................................................................................................... 27 3.2.4.2 Relationship benefits for customers .............................................................................................................. 27 3.2.4.3 Relationship benefits for firms ...................................................................................................................... 27
3.2.5 Online Customer Relationship Management (e-CRM) ....................................................................... 28 3.2.5.1 Acquisition .................................................................................................................................................... 29 3.2.5.2 Retention ....................................................................................................................................................... 29 3.2.5.3 Extension ...................................................................................................................................................... 30
3.3 INTERNET AND LUXURY BRANDS: THE WEB EXPERIENCE ............................................................................ 30 3.3.1 The technological elements................................................................................................................. 31 3.3.1.1 Usability ....................................................................................................................................................... 31 3.3.1.2 Aesthetics ...................................................................................................................................................... 32
3.3.2 The interactivity .................................................................................................................................. 33 3.3.2.1 E-CRM .......................................................................................................................................................... 33 3.3.2.2 Online interaction with vendors.................................................................................................................... 33 3.3.2.3 Online relation with other Web users ........................................................................................................... 34
3.3.3 Psychological elements to build online trust ...................................................................................... 35 3.3.3.1 Decision-making process .............................................................................................................................. 36 3.3.3.2 Factors influencing online customers’ trust ................................................................................................. 36
3.3.4 Online services ................................................................................................................................... 37 3.3.4.1 Product ......................................................................................................................................................... 37 3.3.4.2 Price ............................................................................................................................................................. 38 3.3.4.3 Place ............................................................................................................................................................. 38 3.3.4.4 Promotion ..................................................................................................................................................... 38
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3.4 SUMMARY ................................................................................................................................................... 39 CHAPTER FOUR: PRACTICAL METHODOLOGY ............................................................................... 41 4.1 DATA COLLECTION ...................................................................................................................................... 41 4.1.1 Audit of website .................................................................................................................................. 41 4.1.1.1 Criteria ......................................................................................................................................................... 41
4.1.2 Press monitoring................................................................................................................................. 43 4.1.3 Critiques ............................................................................................................................................. 43 4.2 THE EIGHT WEBSITES AUDITED .................................................................................................................... 43 4.2.1 Process (practical aspects) ................................................................................................................. 43 4.2.2 List of criteria ..................................................................................................................................... 44 4.2.3 Data transcription (observation) according to the criteria ................................................................ 45 4.2.4 Critiques ............................................................................................................................................. 45 4.3 DATA ANALYSIS .......................................................................................................................................... 45 4.3.1 Critiques ............................................................................................................................................. 45 CHAPTER FIVE: EMPIRICAL RESEARCH ............................................................................................ 46 5.1 EMPIRICAL FINDINGS FROM THE EIGHT WEBSITES AUDITING ....................................................................... 46 5.1.1 Louis Vuitton ...................................................................................................................................... 46 5.1.2 Hermès................................................................................................................................................ 48 5.1.3 Dior .................................................................................................................................................... 50 5.1.4 Boucheron........................................................................................................................................... 51 5.1.5 Ralph Lauren ...................................................................................................................................... 52 5.1.6 Tiffany & Co. ...................................................................................................................................... 53 5.1.7 Calvin Klein ........................................................................................................................................ 54 5.1.8 Coach.................................................................................................................................................. 55 5.1.9 Table summary ................................................................................................................................... 56 5.2 SOME CHARACTERISTICS OF THE INTERNET USE BY LUXURY BRANDS ......................................................... 57 5.2.1 Level of service ................................................................................................................................... 58 5.2.2 Technology and quality of the websites .............................................................................................. 59 5.2.3 Interactivity......................................................................................................................................... 60 5.2.3.1 On the official website .................................................................................................................................. 60 5.2.3.2 On other internet websites ............................................................................................................................ 61
5.3 COMPARISON BETWEEN FRENCH AND AMERICAN LUXURY BRAND ............................................................. 63 CHAPTER SIX: DATA ANALYSIS ............................................................................................................ 64 6.1 TECHNOLOGICAL LEVEL .............................................................................................................................. 64 6.1.1 Usability ............................................................................................................................................. 64 6.1.2 Aesthetics ............................................................................................................................................ 65 6.2 INTERACTIVITY ........................................................................................................................................... 65 6.2.1 E-CRM ................................................................................................................................................ 65 6.2.2 Online interaction with vendors ......................................................................................................... 66 6.2.3 Online relation with other web users .................................................................................................. 66 6.3 PSYCHOLOGICAL ELEMENTS ........................................................................................................................ 67 6.4 HIGH SERVICES LEVEL AND MARKETING MIX.............................................................................................. 67 6.4.1 Product ............................................................................................................................................... 67 6.4.2 Price ................................................................................................................................................... 68 6.4.3 Place ................................................................................................................................................... 68 6.4.4 Promotion ........................................................................................................................................... 68 6.5 SUMMARY ................................................................................................................................................... 69 CHAPTER SEVEN: CONCLUSION ........................................................................................................... 71 CHAPTER EIGHT: FURTHER RESEARCH ............................................................................................ 72 REFERENCES ............................................................................................................................................. 73
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Chapter One: Introduction
This chapter provides a clear summary of the evolutions in the Internet use by the French luxury sector. This overview takes us to a knowledge gap within the current area of all the possibilities given by the Internet usage by the French luxury brands in order to provide a luxurious web experience and a virtual visit of high quality for their online customers. This knowledge gap enables us to build our research problem and to precise the purpose of our present study. Furthermore, we identify our main readers target and inform them about some limitations in the study. Lastly, we announce our guideline presenting the main steps used in our paper. In order to present the background and problem discussion, we used a country of reference, France, our native country, which is the country that „owns‟ the most famous luxury brands and that is known as the country of “savoir-vivre” and luxury. We decided to deal with our research question at an international level, that is to say that we have not limited our researches only to France and French brands even if our point of departure is based on a paradox related to French luxury brands.
1.1 Background
The Internet, the international-network‟s abbreviation, was invented and developed in the 1960s by the American government. Since 1990, the Internet knew an overture of its use by other organizations that governments and universities. It took only few years for private firms from all over the world to understand what its main benefits were and how use it correctly to take advantage of this media. Thus, firms, small or multinational, from America to Africa and from many types of sectors started their Internet adventure opening websites (Lagasse, 2008). It was also the case in France, for instance, where the Internet was the media knowing the most important growth of its investment in advertisements with 34% of growth between 2006 and 2007. At the same time all the other media like TV, radio, press or poster knew a decline or a weak growth of their investments. Thus, 97 of the 100 biggest ads investors in France are nowadays present in the Internet (Levin, 2007). So, in spite of an international financial crisis context, the Internet is the only media that keeps attracting increasing levels of investments. French firms have started to diminish their advertisement investments in many media but it is not the case for the Internet. In front of all these firms present online, an audience more and more numerous all over the World is connected. This always high number of Internet users and the Internet attraction for ads investments show clearly the power of this new media that is called a mass media. It has the ability to extend incredibly the communication‟s volume and speed with anyone who has also an Internet connexion (Neuman, 1992). But, despite all the Internet‟s advantages, the last French sector to not use this powerful media was the luxury industry. This particular sector used to communicate through its consumers via distinctive media like fashion magazines and posters. And the only way for buying French luxury products was to go to one of the few stores often only in the Capital of fashion, Paris. This sector of niche would not use a media such the Internet because it was not part of their marketing strategy. In spite of the fact that American luxury brands were already present for a long time online, it is only after 2005 that the French luxury brands like Clarins started to use the Internet opening its own website. They have first opened only an online showcase in order to take less risk as possible but they were precursor. Few years later the great majority of the 7
French luxury brands are now present online offering e-business and sometimes e-commerce websites for the highest pleasure of their online consumers.
1.2 Problem discussion
Luxury can be defined thanks to specific characteristics like high sophistication products or services, high prices, impressiveness, and rarity. But in spite of these few distinctiveness there is not a common definition of what luxury is. Indeed thanks to different authors, luxury can be defined in several ways. The “Rarity principle” is explained by Phau and Prendergast (1998, p.122). The uniqueness and exclusivity characteristics of luxury are really important points according to those two authors. When consumers buy luxury products, they are expecting a definite level of uncommonness and rareness and this is their purchase motivation. This idea of uniqueness is linked with the idea of quality because products of high quality are most of the time very expensive due to the time spent on creating and realizing a product and due to the material and “savoir faire” used. The luxury world is also addressing its messages and codes to a small target due to the fact that what is unique or luxury, is very often expensive. Indeed the luxury brands don‟t have a large target in order to keep their exclusive image. In order to make easier reading of the rest of the thesis, we will define the luxury product concept as a product of high quality sold in short quantities and at a relative high price. Lastly, according to Reppa et al. (2007), a luxury branding offers a high quality product associated to a superb level of service. In order to attain a good customer satisfaction, these luxury brands are concentrated on four main points: create a “customer centered-culture” at all levels to create value, take good care to choose the best staff in order to give a finer image of the brand and to satisfy customers for the best, pay attention to retrain employees in order to help them to be at their top, constantly measure the customer satisfaction and needs to improve continually their sales. Around 1,596 million of people around the world use the Internet (Internet World Stats, March 2009). It represents in average 23.8% of the worldwide population and this number of Internet users should increase again during the next years. 74.4% of the North American, 60.4% of the Australian, 48.9% of the European are connected to the Internet. Moreover, children, teenagers as well as seniors learn how to use the Internet. Everybody is concerned. Through these figures, it is easy to understand the huge power that represents the Internet media in the entire world. More and more people use the Internet, and more and more powerful and attractive is this communication and distribution channel for companies. Thus, the Internet was seen and continues to be often seen like a mass media. And unfortunately, this impressive number of Internet users doesn‟t help to destroy its bad image that shows the Internet like a communication tool connecting no matter whom with no matter who. Indeed, in this way, Chan K. et al. (2007) had started one of their articles by “The internet is undoubtedly the most prominent mass medium today” (p.244). This same opinion about the Internet is also shared by Melewar et al. (2003) that had stated that the Internet “has the potential for mass communication and advertising with negligible variable cost per customers” (p.364). Because everybody uses the Internet, this mass media is a great tool for any company that has to communicate toward the majority of the population. Moreover, Colgate et al. (2005) in a study about the relationships benefit in an Internet environment has showed that the lack of personal contact online could have a negative effect on how customers feel linked to a brand and thus it affects their loyalty. This is true that a firm opening a website often meets the difficulty of this lack of physical interactions with its online customers. It seems hard to look after customers without to get them in front of you. 8
And this point is one of the most important breaks of the use of the Internet by the luxury brands for which the relationship with their customers is the key of their business. Thus, as any media, the Internet has both assets and drawbacks. We can undeniably characterize the Internet as a mass media unable to permit human contact, associated with mass consumption and mass communication. At the same time, the luxury industry is a business area where relationships and services levels are precisely considerable and which is centred on a relatively small and demanding target. So the use of this kind of tool by the luxury brands seems to be contradictory. Over the years, the Internet has evolved. However nowadays almost every luxury brands, even the French one, have already open e-business and/or e-commerce websites. Some of them only use an e-business website in order to be present online for their customers providing them all information they need about the brand or products. In a more general context, the term e-business is defined as the use of the Internet in order to connect customers, suppliers, employees and other stakeholders with the organization in order to exchange information about its products and policies online (Rodgers et al., 2002, p.186). Other luxury brands, more adventurous, took the risk to open an e-commerce website. An ecommerce website is used to connect customers with a firm in order to provide products and services online (Rodgers et al., 2002, p.186). So, finally, after a while, managers became aware of the new Internet possibilities that could completely change their point of view about this media. Thus, fears and apprehensions were replaced with hope and expectations. Their scares about the impact of the Internet use on brand images are nowadays an idea only shared by the last pessimists. The risk of competition against traditional stores, called cannibalization, was totally forgotten and the one about online counterfeit products is fighting out. The main assets of the Internet like its power to attract new types of customers, its relatively weak costs of communication and distribution, its high results and its high service levels are nowadays put up by the luxury brands. In a context closer to today, the Internet is continuing to evolve. The only problem left by this Internet and luxury brands association was the lack of human relationship between the luxury brands and their online customers. Indeed, the luxury industry guarantee to each of its customers a pleasant welcome in each store, a personalized and constant help and advice during their shopping times in order to make it nicer again, and an impeccable sense of service like payment and delivery at home. But online, it is much more difficult for a luxury brand to do all these so crucial things in order to keep its luxurious identity. However, the luxury brands need to take care of their customers even if they are online and divided from the salesperson by many kilometres because it is the identity of their brands that is at stake. And here is where our knowledge gap is situated: How can the luxury brands promote their luxurious activity and create relationship with online customers through a website? Rich media, the Web 2.0 technologies and online security are some of the factors that have totally improved the web experience possibilities and particularly for the luxury sector. Through these new possibilities, the Internet permits nowadays many improvements of websites quality and potential.
1.3 Research question and objectives
In front of this paradox, a mass media without physical contact possibility used by an industry of niche whose the pillars are high service levels and relationship, we can easily ask ourselves 9
these following question: How can the Internet promote an online luxury experience of high quality and relationship by luxury brands? Based on the problem discussion and the purpose of the thesis and the research question, following sub research questions will be answered: 1. Is the Internet a medium equal to the luxury industry‟s demands and needs in terms of communication and distribution? 2. How luxury brands should design and build their websites in order to respect their luxury‟s specificities and reach their goals? By answering these two sub questions, we would like to make a report on how luxury brands should use the Internet medium according in theory and what do they effectively do online. The main aim of this thesis was indeed to advice online marketers and Web designers working in the luxury sector about online current practices both by French and American luxury brands in order to improve themselves in their professional activities.
1.4 Delimitations
We have chosen to study the international luxury brands and their Internet use. The main reason is because, as we will see, all luxury brands or at least most of them have adopted the Internet as a part of their strategy. However we will focus our attention on two countries in particular. Indeed, we chose to center our attention on the United States of America and France because the American luxury sector is the second luxury industry in the world and France is the ambassador of luxury and mainly because it is at the first place of the worldwide luxury industry according to the official website of the French economical government. Moreover, we have chosen to focus on the luxury brands that sell online and so that use an ecommerce website. Actually, we wanted to look at the Internet more precisely as a distribution medium. Lastly, we restricted our study on three families of luxury products: leather goods, haute couture and accessories, and jewelry. Thus, we didn‟t talk about premium hostel, liquor and spirit, food and furniture of high quality. This choice was made because of a really few numbers of websites of these types of brands were found online.
1.5 Readers
We have studied many articles about the Internet‟s use by the luxury brands and then we have try to write our paper giving back all the important points that were cited by different authors to characterize this ongoing relationships. So, here, we are speaking to online marketers and website designers from the luxury sector or working with this type of sectors. We have described specificities of this particular industry. And those points were pointed out as needing particular attention when a website for a luxury brands is designed and created. Of course, students of the Business School of Umeå are also specific readers targeted by our paper, particularly, those studying in marketing. Indeed, this paper is a good starting point for students who don‟t know anything or only few things about the Internet in a business use. It could be a great reading for those who hope for working either in the Internet area or in luxury sectors.
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1.6 Plan announcement
The thesis is divided into seven distinct chapters.
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Introduction
Chapter One:
• This first chapter begins by providing background in order to present the framework of the topic and explain its necessity. Then the research question and its two objectives are formulated. Besides this, the delimitations are given to readers. Lastly, the chapter ends with a plan announcement. • This chapter discusses and the authors‟ preconceptions influencing or not the choice of our topic. Then the perspective of our study is presented. Lastly, diverse alternatives for research approaches are discussed and our choice made for this study is explained.
Chapter Two: Methodology
Theoretical
Chapter Three:
Theoretical Framework
• This chapter reviews the theoretical foundation and literature relating to the luxury industry and the Internet medium. It presents several defitions of what is luxury and presents many Internet marketing tools. Lastly, it equips readers with key concepts about the Web experience.
Chapter Four:
• This chapter describes the practical aspect and the process concerning the collection, observation and analysis of empirical data.
Practical Methodology
Chapter Five:
• This section presents the data collected through an auditing of eight websites, conducted in order to fulfill the purpose of this study. The results are summarized according to three main criteria.
Empirical Findings
Data Analysis
Chapter Six:
• This sixth chapter confronts our theoretical and empirical findings in order to show the linkages between all parts of the study and form the bases for the next chapter.
Chapter Seven:
Conclusion
• The last chapter presents the conclusion of our thesis. It explains if the research question and objectives are fullfilled. Then, it underlines what could be the further researches about this same subject.
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Chapter Two: Theoretical Methodology
In this chapter, we make a description of the methodology adopted in order to answer the research question. First of all, an explanation of the choice of the subject will be presented, followed by the perceptions and the background of the two authors Charlotte Larbanet and Benjamin Ligier. We will also discuss the perspective of this thesis. Then we will focus our attention on the different approaches used to write our paper, that is to say the scientific approach, the research strategy and the deductive approach. Finally this chapter will end with a discussion about the secondary data collection.
2.1 Choice of the subject
Before this international business program in Umea, we were respectively interested in the world of luxury and design concerning Benjamin and about Luxury and the Internet concerning Charlotte. While we were following the same Marketing Master‟s program, and since we had the same sensibility to the world of luxury and luxury industry, we decided to work together on a common subject in which we were very interested each other. Charlotte had previously written a thesis about the connection between the French luxury sector and the Internet. We tried together to find an interesting area of discussion that is linked with actuality of luxury and we decided to focus our intention on the relation between the Internet and the world of luxury, and mainly luxury brands. Each one of us wanted to understand why and how a luxury brand can use the Internet that is completely virtual in order to promote its exclusive and sophisticated image (identity, atmosphere, values…) and what kind of tools (eCRM, internet technologies, e-commerce and e-business websites…) the French luxury brands adopt currently. Since Charlotte had prepared a bachelor thesis related to the idea that French luxury brands had some delay to adopt the internet as a business tool, we also wanted to know if nowadays, they use the internet fluently as a marketing and business tool, and in which way they use it. However we decided to focus not only on French luxury brands but in luxury brands in general since luxury brands are known worldwide as they make business all over the world. We had the opportunity to deal with a subject for which we have some knowledge and for which we wanted to have deeper awareness. So our thesis is the opportunity for us to understand the strategy of luxury brands nowadays. Moreover, since the Internet is an integral part of the people from industrial countries‟ lives, it was interesting to relate the subject in which we were most interesting to a tool as the Internet which takes more and more importance in our habits. In...