How to Use Scarcity to Build a Luxury Brand
“The theory holds that a threat to or loss of freedom motivates the individual to restore that freedom.” — Jack Brehm
When opportunities become less available we lose the freedom of choice. And when our choices are limited or threatened, our need to keep that freedom makes us want the item even more than before.
In 1993, the Hermes went public on the Paris Bourse, which for various reasons was considered a strategic move with its own set of weaknesses. Throughout the late 1990s, Hermès extensively followed a strategy of reducing franchise stores, by buying them up, closing quite a significant many and by opening more company-operated stores. As of 2019, Hermès operates 311 stores globally, out of which 223 were directly owned and operated by the company.
In 1976, Hermès entered into an arrangement with British luxury shoemaker John Lobb, wherein it was allowed to use its name in return for extending the distribution reach of the brand. In 1999, in one of its first non-brand moves, Hermès bought a 35 percent stake in the Jean-Paul Gaultier fashion house.
Over a period of time, the company has extended its reputation by entering into strategic collaborations with specific players and also its suppliers in the ultra-luxury segment. These include:
- Setting up a joint venture with Faubourg Italia, in which Hermès holds a 60 percent share, to extend reach into the premium home furnishings segment (upholstery fabrics and wallpapers)
- Holding a 30 percent share in J3L, an old French supplier of metal parts to the company
- Holding a 39.5 percent stake in Perrin & Fils, which is a specialist textile weaver in a variety of categories, which include lingerie, furnishing fabrics, ready-to-wear and accessories
- Holding a 25 percent stake in Vaucher, which is a manufacturer and supplier of movement parts for high-end precision watches
- Acquiring a 40 percent stake in Bettina, a long-standing partner of the company who specializes in production of twillaine
Today, the brand operates 311 stores globally across the U.S., Russia and Asia and has over 15,000 employees. It is one of the largest and most admired luxury makers in the world with revenues of over USD 8.3 billion and profits of over USD 1.8 billion as at 2019. The stellar performance of the brand throughout its 183-year history is largely credited to its drive for strategic consistency, combining excellent creativity with craftsmanship as well as an unrelenting focus on the long-term against short-term benefits.
Strategy of Exclusivity
Quality: Hermès has introduced “patience” as a very strong principle and element in its strategy to achieve the highest quality in its production. Customers cannot expect to walk into a store and walk out with a Birkin bag. Instead, one has to place an order and wait for a few months before it is ready. Instead of rationing high demand by price like normal economic law dictates, Hermès rations by queue. It is often debated by economists that the queue for Hermès bags creates surplus demand which overflows into other Hermès “consolation” products like wallets and belts. In addition, all new employees and artisans are carefully selected and go through a three-day in-house training session called “Inside the Orange Box” that traces the company’s origins back to its founders and the history of development of each of its product categories. The objective of this training is to make every Hermès employee feel close, involved in, and identify with the company’s culture, philosophy and values, hence demonstrating the company’s dedication to the quality of its brand and legacy.
Monopolization of High Fashion:
Despite having investments in everything from perfume to hotels and everything in between, LVMH is rooted in high fashion. It all started in 1984 when Bernard Arnault, then 35, bought Christian Dior’s ailing parent company, Boussac, with $15 million of his own money and a $45 million loan from Lazard-Frères. By selling off pieces of the once-prominent textile company, he brought Boussac out of bankruptcy and conveniently gained a majority stake in Dior. From there, Arnault has gone on to acquire 17 different high fashion houses. In 1987, following his success with Dior, Arnault acquired Louis Vuitton-Moët Hennessy, from which the conglomerate gets its name. In 1988, he bought Givenchy; in 1993, Berluti and Kenzo. In 1996, Arnault brought Céline and Loewe under the LVMH umbrella. In 1999, LVMH increased its stake in the Gucci Group to a majority 34.4%. However, François Pinault and rival holding company, Kering, bought out LVMH’s shares for $800 million. From 2000 on, Arnault has acquired Fendi, Bulgari, Loro Piana, and JW Anderson, among others. For a while, LVMH also maintained a 23% stake in French icon, Hermès.
A Diamond Is Forever”
These four iconic words have appeared in every single De Beers advertisement since 1948, and AdAge named it the #1 slogan of the century in 1999.
The woman behind the signature line (Frances Gerety, who wrote all of De Beers’ ads from 1943 to 1968) came up with it right before bed one night after forgetting to brainstorm it earlier for the next morning’s meeting. When she reviewed what she’d scribbled down the night before, she thought it was “just OK” — and, after presenting it at the morning meeting, no one was particularly enthusiastic. It’s unclear why the slogan was chosen anyway, but it was a choice that would contribute greatly to De Beers’ tremendous advertising success.
The slogan perfectly captured the sentiment De Beers was going for — that a diamond, like your relationship, is eternal — while also discouraging people from ever reselling their diamonds, as mass re-selling would disrupt the market and reveal the alarmingly low intrinsic value of the stones themselves.
At the very beginning of N.W. Ayer’s campaigns for De Beers in the late 1930s, the suggested spend on an engagement ring was one month’s salary. In the 1980s, De Beers ran a campaign to reset the norm to two months’ salary. The ads said things like, “Isn’t two months’ salary a small price to pay for something that lasts forever?”
The story from the campaign stuck, and De Beers’ “two months’ salary rule” is still widely accepted in the U.S. today.
Scam or Genius?
From the start, De Beers and their agency created and manipulated demand for diamonds by monopolizing the market, changing Americans’ social attitudes, and convincing people that a marriage isn’t complete without a diamond ring. So … are diamonds the biggest scam in history, or is this a prime example of ingenious marketing?
De Beers knew their product wasn’t intrinsically valuable (like gold and silver is). So instead of marketing to their product, they mastered the art of marketing to values — in this case, the values and ethics surrounding love, romance, and marriage. No one was interested in buying diamonds when they conducted their first round of extensive market research, so they had to create that value themselves.
How To Create a Sense of Exclusivity With Your Marketing
Try using these three simple tools in conjunction with an upcoming offer to increase its scarcity and perceived value:
1. Waiting Lists:
Build hype and awareness by having individuals sign up for an upcoming offer or event ahead of time with a dedicated landing page. This will help you build a list that you can email and overall nurture towards purchasing the product.
2. Set Deadlines:
Set deadlines for registering for an event or redeeming a promotion. This creates a sense of urgency and gives your audience an extra push to act now instead of waiting until its too late.
3. Limit Quantities:
Limit your promotions or offers to a set number of people or redemptions. This, similar to setting a deadline, creates a sense of urgency and scarcity around the offer and encourages your audience to take action now to and be one of the lucky few to benefit from the promotion.
- “Space is limited. Only 15 seats left for this week’s webinar!”
- “The first 100 people to register, get a free eBook!”
4. Have Qualifications:
Another way to build a sense of exclusivity is to have specific criteria for those who can take advantage of a particular offer.
Depending on your business, perhaps it’s only open to people in a certain area or industry. This limitation increases the perceived value of the offer; Not everyone can have it!