November 2014 | Strategy
GM recently made headlines when it announced that the global headquarters of its luxury brand Cadillac was moving from Detroit to New York. It is a strategic change the company hopes will revive a brand that hasn’t been the number one luxury car in the United States since 1997, and whose sales are down over 4 percent this year (every other luxury carmaker has increases of up to 16 percent). Cadillac’s new president Johan de Nysschen said the move was, in part, to be near other global luxury brands and their consumers: “There is no city in the world where the inhabitants are more immersed in a premium lifestyle than in New York.”
“I like that Cadillac is distancing its brand from GM,” says Wharton marketing professor David Bell. “Viewing their product as a lifestyle brand moves them out of a strict product category, and co-locating with other premium brands in New York makes a lot of sense. They will gain insights about the benefits those customers want — status, heritage, American luxury. There is a logic to this move, although it remains to be seen if it will be successful.”
Bell, who teaches in the new Wharton program Strategic Management of Luxury Businesses, notes that taking a more expansive view of the product helps Cadillac, and other brands, better identify their competition. Citing Theodore Levitt’s idea of “marketing myopia,” he says, “You need to think outside of your product category to see who your real competition is. If United, for example, only thinks of themselves as an airline, they won’t compete against email and Skype. Luxury brands are very good at looking more broadly, and understanding that their products or services elicit an emotional attachment for their customers. They know how to integrate their product into their buyers’ lives.”
The lessons any business can learn from luxury brands, however, go well beyond their savvy view of the competitive landscape. Bell says, “The success and longevity of these companies is remarkable. And now, as they move into the world of e-commerce, it’s interesting to see how they are addressing the potential conflict of putting what is exclusive and aspirational online.”
Strategic Management of Luxury Businesses will bring participants from many industries into the heart of a number of iconic brands, both in New York and in Milan. Designed by Wharton and Italian business school SDA Bocconi, the two-week program will combine site visits with classroom learning. SDA Bocconi professor Luana Carcano explains, “We firmly believe that the ideas and approaches learned from luxury business can be applied to other types of businesses and in other industries.” In addition to teaching in the new program, she is director of Bocconi’s MBA luxury business management track, in which she teaches classes including Luxury Business Strategy, Learning from Luxury Business Insights, and Luxury Business Fundamentals in the offices of high-end jeweler Bulgari.
During the week in Italy, participants will visit manufacturing plants, including leather goods producers, car manufacturers, and wine makers, and explore the creative side of luxury brands, getting an insider’s perspective on how an idea becomes a product. The program will also focus on the concept of innovation in terms of new business models, products, and supply chain management. “Sometimes we underestimate the importance of getting the product out at the right moment. Even in luxury businesses, as all other back office activities, timing is crucial,” says Carcano.
Carcano says the biggest takeaway from the program is differentiation strategy. “Luxury companies know how to build up a unique position, differentiating themselves from their competitors through the product or service itself and communication channels. Some entrepreneurs have a fantastic product, but they are not able to get the right message to the market. In other cases you have companies with unique products that make mistakes in the go-to-market or in their positioning. What you can take away is how to be successful with different strategies that are taken to the extreme by luxury companies.
“This is a unique opportunity in luxury education for executives,” she says. “We take a 360 degree approach, focusing on many industries, including fashion, automobile, hotels, and restaurants. We will meet with managers who will share their current practices and their vision of the future of their businesses, and learn the habits and cultures of luxury brands in Italy and the United States.”
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