Market Segments
There are different market segments in which fashion and luxury companies complete. The most common criterion to segment a market is price, which leads to the so-called fashion pyramid, which is the reference for everyone in the industry to position its brand. Different brands (even from the same company) occupy different market segments of the fashion pyramid. There are 5 price segments, the higher position, the higher quality, creativity and price.
| Segments | Price / Usage / Target / Idea | Characteristics |
| Haute Couture (means high fashion) | extremely expensive special occasion very few people, celebrities sell the dream | made to measure pieces max craftsmanship pieces of art |
| Ready-to-wear (prêt-a-porter) | hight price: 3x – 5x mass market wider occasion of use | creativity + industrialization designer’s expression |
| Diffusion | second young lines more affordable sportier young audience | wider volumes outsourced wholesale wider |
| Bridge | connect high end to mass market more affordable than high end suitable for daily use | right marketing mix fantasy names mix of distribution local |
| Mass market | different customers different occasions different price range | very homogeneous low price and efficiency |
Business Models
Business models are very important to achieve a sustainable competitive advantage. Business models describe how a company as a system is made of different parts, and how the pieces of business fit together. In this framework of designing business model, there are 4 drives / pillars:
| Who | Value propositions / customers |
| What | Product offered |
| How | Supply and value chain |
| Revenue Model | The way you make money |
Even in the same price range, you might have different positioning according to how much reactive to fashion trends your supply chains are. So in the market there is business models that are
- classic, less reactive to fashion trends and seasonality
- on the other side, more reactive to fashionability, seasonality, and market trends
In the fashion pyramid, business models usually are:
| Segments | Classic, Conservative | More reactive to fashion |
| High fashion | Luxury Brands | High Designer Fashion |
| Premium | Premium Brands | Fast Premium Brands |
| Mass market | Mass Basic Retailers | Fast Fashion Retailers |
Luxury Brands
Luxury Brands is probably the oldest business model in the world of fashion, because it was first established particularly in France. The center of this model is the brand itself, its heritage, its tradition. The brand has authority. Most of the brands were born in Europe, 2 centuries ago.
| Who | Luxury Brands has a very clear value proposition, it is more about: timelessness, legacy, heritage of the brand, uniqueness, exclusivity, craftsmanship. |
| What | Hard luxury category like watches, jewels, or leather goods. |
| How | Increasingly vertically integrated France – Design + Manufacture + Retail Italy – Design + Manufacture + Retail / Wholesale Channels Some American brands of Accessible Luxury – Design + Retail, but without Manufacture |
Luxury conglomerate are groups which diversified in both core and non-core businesses with very wide portfolio of brands in different product categories, in order to get economics of scale, but also with drawbacks that brands are less autonomous. The big question is how to manage the brand portfolio. Some brands are cash cow, meanwhile there are newly acquired companies or brands on a different positioning.
Premium Brands
Premium brands identify a quite heterogeneous groups of companies that were born as a result of the vision of an entrepreneur and industrial / commercial know-how (not a consequence of intuition / inspiration of a designer). We mainly find a brand with fantasy name. Its competitive advantage is its marketing mix. The products are trendy but not extreme in terms of fashionability, they are of right value for money, and with right customer services.
Premium brands grows fast. It offers customers the right mix and match products. It is perceived less as a commodity (as Mass Market’s products) but is still less expensive as Luxury Brands.
Designer Brands
I always wanted to be different.
I always wanted to be first.
Miucca Prada
The center of this model is the designer, its persona, its interception of trends, the fashion show. It is about anticipating and creating new trends. It is about fashionability. The core of the business is clothing, which is the most important source of revenue (a strong difference to Luxury Brands).
The role of designer is not just creating new collections, but also making decisions for every aspects of the brand. The model relying on external partners (so called licensing) for manufacturing and distribution of the collections. As business gets bigger, designer will take direct control of clothing lines. Designer Brands include both Ready-to-Wear (expensive) and Diffusion (second lines, more affordable) segments..
Vertical Retailers
They are not limited to distribution and retailing activities, actually in order to better manage the interaction with the customers, they go backward integrating the design process and communication process. Mass basic retailers are less responsive to seasonability and fashionability. On the other hand, fast fashion retailers are more responsive. There are different ways in interpreting the design of a value chain among vertical retailers.
Licensing
Fashion and Luxury brands sell many product categories under one name. They don’t design, manufacture and retail all of these categories by themselves. Most of them are entering into licensing agreements. Licensing can be defined as a marketing and brand extension tool.
Licensing is the process of leasing a trademark or a copyrighted entity (the “property”) used together with a product, service or promotion. Licensor is usually the brand owner, meanwhile licensee is usually manufacturing or retail partners. The licensor gives to the licensee the permission to use the trademark, the property and the style in a certain product category, within a specific territory, within a certain distribution channel for a certain duration. Licensor receives royalty and Contribution to Communication (both are percentage on wholesale sales from the license).
| Licensor | Licensee |
| Creativity and Stylistic guidelines Creativity development (point of sale material) Full control of creativity in communication | Develop prototypes and final products Develop retail business, sell to customers, pricing strategy Local media planning |
Pros
- share the risks and cons of new venture
- earn initial license fees and income from royalties
- faster market penetration
Cons
- diminished ability to enforce quality control
- risk of infringement of intellectual property
- difficult to understand the market and consumers
My Certificate
For more on Fashion & Luxury Business Models, please refer to the wonderful course here https://www.coursera.org/learn/mafash
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