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E-commerce in the Luxury Apparel Industry

Maintaining Competitive Advantage in an Online Context

Written by A. Herrström, D. Thorslund

Paper category

Master Thesis


Business Administration>General




Master Thesis: This chapter includes a literature review covering existing theories on strategy, luxury brand management, consumer buying behavior, and online retail. The first part of this literature review starts from the company's perspective, focusing on how companies can gain competitive advantage through the development and positioning of luxury brands. The second part discusses consumer behavior and motivation, and thus adopts a consumer perspective. Finally, I will review the influence of the Internet on the fashion retail industry. The theories put forward in this chapter will form a conceptual framework together as the support of the research and analysis part. 2.1 Features of luxury goods This section aims to clarify the concept of luxury goods. Different definitions and characteristics of luxury are introduced to help distinguish luxury from high-end and mass market brands. Subsequently, it explained how companies in the industry can gain a competitive advantage. 2.1.1 Definition of luxury brands A basic assumption made by Kapferer and Bastien (2009) is that luxury goods are fundamentally different from other products, which is why they require a different approach to marketing and distribution than basic consumer products. Kapferer and Bastien (2009) describe luxury goods as objects of accompanying services. They further suggest that when purchasing luxury goods, consumers not only pay for the item, but also for the entire experience. Basic products correspond to needs, brand products correspond to wishes, and luxury goods correspond to dreams. Kapferer and Bastien (2009) pointed out the two dimensions on which the concept of luxury dreams is based; the social level and the personal emotional level. The social dimension means that luxury goods bring social status and class, while the personal and emotional dimension, due to the intangible and symbolic value represented by the product, gives consumers an inherent sense of pleasure. Being able to separate the dream aspect of a luxury product from its functional aspect is the foundation of product success. What a product represents is more important than what it really is (Kapferer & Bastien, 2009). In addition, Kapferer and Bastien (2009) describe luxury brands as "superior" rather than "comparative." Brand image is an important aspect of luxury goods companies, and companies should focus on integrating this image deeply into the brand instead of worrying about their relationship with competitors (Kapferer & Bastien, 2009). Many other scholars have defined luxury brands and luxury goods. The following table summarizes some definitions. 2.1.2 The Pyramid Model Kapferer and Bastien (2009) describe the business model of luxury goods companies and the impact they receive when they use brand extension strategies. Brand extension, or brand extension, means that a brand provides one or more alternative product lines that are more acceptable to the public in terms of price and distribution than the original product line. This strategy is commonly used and allows luxury brands to increase sales and surpass their organic internal growth. The main reason for brand expansion is financial (Kapferer & Bastien, 2009). Luxury brands are expensive to establish and maintain, and some licensed products can be "easily profitable" because it allows the use of existing brand images to enter new markets without any specific investment (Albrecht et al., 2013). Pressure from shareholders to increase the return on equity is another factor that often leads to brand extension. Kapferer and Bastien (2009) proposed two ways to expand the brand; vertical (pyramid model), expanding the price of products to attract a wider range of customers, or horizontal (galaxy model), without changing the price level, New products are introduced into other areas of consumer life. The pyramid model is attractive because it provides rapid sales growth. Expansion mainly includes products that can be produced quickly and sold at a high profit margin, usually around 75% (Kapferer & Bastien, 2009). Many luxury goods companies have a history of high fashion or other handmade products (such as leather goods or jewelry). Haute couture means "premium sewing" in French, which means customized, hand-made high-end clothing (Jackson & Shaw, 2006). These types of products are not generating enough profits today, which has led luxury goods companies to create products that are more accessible, including products that more people can afford. Haute couture and other handmade products still exist in the company’s products, but their function is to maintain the dream aspect and mythical image of the brand, and the cheapest product (ie, extended product) is the real cash cow profit margin created (Kapferer & Bastien) , 2009). Brand extensions are usually achieved in three product categories; perfumes that build brand awareness for the masses through advertising; accessories that generate profitability and visibility, and cosmetics and spa activities that bring customers closer (Kapferer & Bastien, 2009). With this brand extension, price, exclusivity, and luxury halo gradually weakened, sometimes referred to as downward extension. The pyramid expansion model can be applied to the business models of many luxury brands, so we will conduct a more in-depth study in the next section. Read Less