Luxury goods companies are the world's most centralized marketers, controlling marketing strategy from headquarters. Chanel and most other luxury companies prefer to create their advertising in-house, sometimes working with a small agency on a worldwide creative assignment.
"Most of them [prefer in-house] because they're in a very creative environment. They do their own packaging, use top models and have their own designers," said Stephanie Besse, a media buyer at CIA International.
Their marketing challenge is to maintain and extend the brand's mystique, so the Fendi name sells eyeglasses and furs, and the strength of Ferragamo's brand leads consumers to expect quality, whether from its longtime shoe line or the marketer's first fragrance, expected to launch in 1997.
"It's not just a question of money," said Ms. Besse. "It's being able to afford it and having the lifestyle that lets you say, `I need a pen worth $300.'*"
"They are rich, educated, they travel a great deal," said Jean-Marc Loubier, Louis Vuitton's director of marketing, of his luggage buyers. "They are people who can recognize a certain code, if you will, that talks only to them."
The code behind the new fragrance 24, Faubourg is clear to the cognoscenti. A bona fide luxury goods shopper knows 24, Faubourg St. Honore is the Paris address of Hermes, where endless swarms of eager Japanese shoppers grab handfuls of $275 silk scarves. The fragrance's name helps maintain Hermes' mystique.
Louis Vuitton is so determined to control its image that it won't sell in airport duty-free stores, a bonanza for many luxury goods marketers. Duty-free sales from airport stores and on board airplanes accounted for $18 billion last year, according to Generation Publications, Stockholm.
"We want to manage every aspect of the product, from the design to the manufacture and the distribution," Mr. Loubier said.
In a survey of global marketers by Advertising Age International last year, 87% of luxury goods marketers said headquarters set ad strategy, compared with only 30% for consumer products marketers and 17% for auto marketers.
With its 18, mostly money-losing, traditional haute couture houses, Paris is the heart of the luxury goods market, but increasingly the most dynamic marketers are Italian. German designers Jil Sander and Hugo Boss have a devoted and growing following, and American designers, from Calvin Klein and Donna Karan to handbag designer Judith Leiber, are expanding overseas quickly.
The 75 luxury goods companies that belong to France's Comite Colbert trade association saw sales rise by more than 9% in 1995, after years of growth under 4%. Aggressive Italian marketers such as Bulgari, Ferragamo, Fendi and a revamped Gucci are growing by more than 25% a year.
Last fall Bulgari, a 136-year-old Rome-based jewelry and watch marketer that added fragrances in 1993, announced plans to double sales outlets by 1998-and look for a luxury goods company to acquire. Bulgari will increase company-owned boutiques from 34 to 70 with new shops in Asia and the U.S., and go from 2,500 fragrance stockists to 5,000 and 120 Bulgari watch retailers to 300, offering wider price ranges.
"Bulgari is a great prestige brand, and distribution remained highly selective, but then we changed direction entirely," said Francesco Trapani, Bulgari CEO and nephew of company president Paolo Bulgari. "Our management formula unites the culture of a family firm based on quality and traditional values with hiring young, dynamic managers with marketing experience from companies like Procter & Gamble, Hewlett-Packard and IBM."
Mr. Trapani said he boosted ad spending to $35 million last year from $6.3 million in 1993 and distributed 1 million catalogs worldwide. A global ad campaign called "Metamorphosis" by Ogilvy & Mather, Milan, is running in newspapers and newsmagazines in Italy and womens' magazines worldwide. Playing on image and color, more than 50 ads portray jewelry in unconventional settings such as a necklace used as a bridge.
It may pay off. Mr. Trapani said Bulgari's 1995 sales were expected to rise 30% to $234 million. Growth is similar at Ferragamo, run by the widow and children of founder Salvatore Ferragamo.
Ferragamo said sales rose by 34% in 1995 to $442 million and forecasts an even bigger hike to about $630 million this year. Shoes account for 54% of sales, but ties and purses are the fastest growing categories, and the first Ferragamo fragrance launches next year.
Ferragamo's in-house advertising department works closely on worldwide, largely magazine campaigns with Giorgio Poli, whose Studio Poli in Milan specializes in luxury goods. Besides ads, Ferragamo sponsors popular culture, from donating to a New York theater project for underprivileged youth to opening a shoe museum in Florence, Italy, last year.
Similarly, Fendi, best-known for its haute couture fur collections designed by Karl Lagerfeld, controls its $20 million worldwide ad budget in-house with help from a small Milan agency, Studio Savorelli & Associati.
Run by the five daughters of founders Edoardo and Adele Fendi, the marketer boosted sales by 26% in 1995 to $600 million. With 80% of its sales outside Italy and much of new growth coming from Asia, Fendi opened four Asian stores last year and plans six more in 1996 in Bangkok, Seoul, Beijing, Singapore, Hong Kong and Osaka, Japan.
The real renaissance is at Gucci, now firmly under the control of Bahrain-based investment bank Investcorp International after years of Gucci family battles and red ink. With new management and quality control, Gucci is fast restoring luster to its brand name and is again popular with Hollywood stars. Tom Ford, Gucci's acclaimed U.S.-born designer, will be named designer of the year this month by the Council of Fashion Designers of America.
"Our marketing strategy emphasizes consistency of image and frequency of advertising," said Sally Altrocchi, Gucci's international marketing director.
Gucci boosted its ad budget to $38 million last year from $12 million in 1994 and a meager $6 million in 1993. All the money goes into in-house print ads; catalogs are also being used more.
After mailing out more than 100,000 catalogs for last fall's handbag and shoe lines, Gucci will produce a tie catalog for Father's Day in the U.S. and U.K. In the first nine months of 1995, Gucci's sales nearly doubled to $342 million.
Like other luxury goods companies, Gucci is finding Asian shoppers are its most avid customers. Seven of 16 new Gucci-operated shops opening in the next three years will be in Japanese department stores.
One of the main forces in the luxury goods market is LVMH Moet Hennessy Louis Vuitton, owner of the Givenchy, Christian Dior and Christian Lacroix brands as well as Louis Vuitton, the Moet champagne business and Hennessy cognac. LVMH already owns the overseas stores of Spain's leading luxury goods marketer, Loewe, and is negotiating to buy the whole company. Loewe sells women's and men's fashions and accessories at 20 stores in Spain and 55 outside the country. Only Loewe fragrances are sold outside Loewe stores. Loewe's sales rose 20% for the fiscal year ended July 31, with 70% of sales outside Spain coming from Asia.
"In Asia all the luxury products have a very strong market," said Almudena Becher, Loewe's advertising director.
Loewe distinguishes itself from rivals by emphasizing Spanish traditions and high-quality craftsmanship. Scarf and tie designs are based on traditional Spanish ceramics, tapestries and art, explaining the designs' origins in catalogs, Ms. Becher said.
All creative work is done in Spain, where Loewe follows creative director Jose Luis Zamorano, now at Lowe RZR, Madrid, from agency to agency.
Judith Leiber Inc., a division of Time Products, here, has already taken to Hong Kong, Thailand and Japan the $1,200-and-up day bags and $2,500-plus evening bags that shoppers once had to travel to New York to snap up. And Feb. 2, Judith Leiber announced she will open a boutique in the spring at London's famed Harrods department store.
Her $2 million ad budget is spent in upscale magazines like Town & Country in the U.S. and Ploykampet in Thailand. Ads for Judith Leiber handbags and a new "Luxe" jewelry line, priced at $300 and up, are by Favara, Skahan, Raffle, New York.
Some luxury goods marketers are positioning their brands to appeal to younger customers. Marc Schlussel, advertising manager of SMH International's Omega watch brand, is trying to move his core consumer group from 35-to-50-year-olds to a younger 25-to-45 age range by choosing personalities like Cindy Crawford for testimonial print ads and Pierce Brosnan for a TV spot wearing an Omega Seamaster watch in the James Bond movie "GoldenEye." Ads are done in-house.
Peter Littman, chairman of German designer Hugo Boss, has segmented the company into three clothing labels. A spinoff Hugo fragrance targeting men 18 to 28 launched in 11 European markets last fall and is going to Asia. A TV and print campaign includes scented postcards distributed in nightclubs, urging, "Don't imitate: Innovate." The Chelsea Partnership, Grey London's luxury goods specialist shop, handles.
Cultural differences compel local adaptation of global messages.
"With a spirit like cognac, while the end function-consumption, pleasure, conviviality-may be the same everywhere, the usage is not," said Michel de Tapol, international marketing director for Hennessy cognac. "In the U.S., for example, cognac is consumed often as a stand-alone drink in a glass, while in Europe it would be a drink served after dinner in a snifter. In China, it is consumed alongside a glass of water during a meal. So at Hennessy we prefer to maintain the brand image everywhere in the same manner, but communicate its attractions according to local taste."
Mr. de Tapol heads a central communications team based, of course, in Cognac, France, that scrutinizes regional strategies for consistency with a central branding document. Agencies like Leagas Delaney in the U.K., D'Arcy Masius Benton & Bowles in Hong Kong and Burnett in other markets adapt the message locally in ads and direct mail.
For fragrance marketers, Japanese women pose a special challenge. They spend only $2.40 per capita on scents each year, compared to Frenchwomen who are prepared to splash out $19 each, according to U.K. market research company Euromonitor, London.
"A [Japanese] lady wearing a strong perfume making her stand out will be culturally unacceptable," said Alain Lorenzo, director general of Parfums Givenchy, whose creative work is all done by Paris agency Louis XIV, owned by DDB Needham Worldwide. "In Japan, perfumes tend to be not really popular. If you want ladies to wear perfume, you must make them lighter, softer scents, so in the same way the campaign has to have a lighter touch."
In the Middle East, the scent is fine but the need to cover up women makes many international ads culturally taboo.
"When the photo is impossible we run a packshot," Mr. Lorenzo said. "In France, our Xerus rouge [fragrance] visual is a couple making love. There's not much you can do to cover them up."
Contributing to this story: Amy Barone, Milan; Bruce Crumley and Claire Wilson, Paris; Jan Jaben, Chicago; Deborah Klosky, Madrid; Dagmar Mussey, Dusseldorf.