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  • Subject area(s): Marketing
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  • Published on: 14th September 2019
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1. Introduction

1.1. Topic Background

Classically, the concept of luxury goods is associated with wealth, exclusivity, and power, as well as the satisfaction over human's peripheral needs (Brun & Castelli, 2013), attributing to serve human's vain and conspicuous consumption. On the other side of the industry, ethical issues appear every now and then as a repercussion of luxurious production process. The use of exotic animal skin, hazardous chemical and greenwashing are some of the most noticeable headline attacking luxury goods business these recent years. Europe as the origin of numerous world class luxury accessories brands such as LV, Chanel, Fendi, and Burberry also home of 3 out of 4 Big Four Fashion Week holds pivotal position in the change and environment of the industry as the main domain of the industry. This essay will focus on Europe business environment of Luxury accessories business regarding the ethical and environmental aspect.

1.2. Tools and Theories Background

In this essay, the theories that will be utilized are:

- Stakeholder mapping (Power/Interest matrix) (Lecture 7: Stakeholders and Corporate Governance)

As the information and technology, also industry grows, more parties can raise their voice and be heard to the industry. With stakeholder mapping, business can better choose the attitude towards different groups of interest.

- Types of Innovation (Lecture 8: Technology Innovation and Change)

The year of rapid technology grow are focused on 2000s onwards. The integration of technology on new markets influence the industry, whether by its products, process, or service. Understanding the technology force in the environment give snapshot on how the company should compete against changing attitude and habits of technological adapt customers.

- CSR Types, level, and stage (Lecture 5: Corporate Social Responsibility)

Determining the type and stage of involvement of the industry majority based on their CSR types. After analyzing the type of CSR it would be possible to know which type the should go for according to the issues they are facing.

2. Environment Analysis

2.1. The recent past (since 2011)

2.1.1. Stakeholder analysis

The rise of environmental awareness and organizations started around 1970-1980. The institutionalization of environmentalist groups happened around 1990 (Rootes, 2003). The internationalization of Environmental Movement Organization (EMOs) also occurred following the growth of communication and technology. Foreign based EMOs set up their branches in EU countries such as PETA and Greenpeace, making the ethical environment issues more reachable to address. The most prominent methods are by doing protests.

During 2010s Greenpeace managed to persuade Burberry and Valentino to revise their production process, avoiding river pollution with the hazardous chemicals with their Detox My Fashion campaigns, also managed to persuade EU to ban the import of textile with hazardous chemical ingredients (Greenpeace, 2016). PETA as the biggest animal rights organization also managed to hold back the usage of animal fur on fashion industry. The problem arises back when the furs and leather from exotic animals are used in the luxury accessories. Comparatively cheaper than large coats, it becomes the alternative to more customers (Zemke, 2013). The high end brand such as Chanel or Fendi which is known for their use of fur seemed untouchable, even publicly serving backlash for the campaigns (Sharkey, 2015). The sales of exotic skin animals contributing 10% of the total sales of luxury handbag on 2012 within (Kew & Roberts, 2013).

On the other hand, timepiece business seems to move forward into sustainability. The use of exotic animal skin and precious stones by brands such as Cartier and Jaeger-LeCoultre was reduced.The recent past shows the start of intention from several brands but not an industry level dilemma (Bhattacharyya, 2013)

Customers still take the feed of trends from the big brands, thus has little to no choice over the products available to them. The movements and rising awareness stir insignificant number of customers to cause no major change in the industry and demand, although managed to get several major names to stop using exotic animal skin and go vegan such as Stella McCartney. The companies and shareholder are the stakeholder that holds the most importance and power on the recent past. While having quite a power to interfere, the furthest step regulator took was the plan to ban of fur farming in several countries within EU, as the largest fur producer. There was no major publication on business ethics and environment from the media that shook the industry. The EMOs focused on the river pollution and fur usage but wasn't enhanced with the other stakeholders.

The stakeholders are mapped based on their power and interest indicator. Several identification aspects are control of strategic resources, negotiating arrangements, claim on resources, control of human environment, and internal links.

2.1.2. Innovation Type

Consumers nowadays want to engage with the brand through social networks. They live on electronic device as 87% of the millennials use multiple device on daily basis. The interconnectivity and their shifting behaviors was followed and intensified with ecommerce trends (Schawbel, 2015).

Apparently luxury business is one of the industry that lag behind when it comes to digital integration. The habit of the market to buy luxury products offline derived from the classic value of luxurious goods, which are exclusivity and brand reputation, relying on smaller audience with high disposable income. Aside from their own offline store, luxurious accessories such as LV, Fendi, Valentino, and Chanel opt for luxurious retail store but apparently even in late 2010s only 40% of the luxury retail goes online (Thiele, 2015).

The lacking in understanding omnichannel options nowadays customers demanding for is not beneficial for the newly emerging young target whose nature is interconnected with internet (Cosmetic Business News, 2016). Instead of enhancing the product with technology, the industry just started to incorporate their business with online shopping platform, once thought to be effective only for mass products, now critical for them. The lateness is quite crucial as the infamous Chanel joined the ecommerce sector of the business just 2015 (Karmali, 2015). Burberry, who is by 2014-2015 leading with 10% of their income come from ecommerce, started their ecommerce website just two years earlier (Cosmetic Business News, 2016). The progress on technology within the industry seems to be basic, just transferring their information and shopping platform to online without groundbreaking service or products integration to technology.

Using the types of innovation analysis with Perceived Extent of Change/Changed Aspect matrix, the luxury accessories industry only went through Incremental Change in Service. Nothing radical or transformational on their innovation.

2.1.3. CSR Analysis

The rise in CSR concept started and intensified around the middle of twentieth century, when Ackerman analyzed the adaptive behavior of companies towards stakeholder's social expectations. He predicted that in the future companies that can achieve social responsiveness and good economic performance will be the successful ones ( (Ackerman, 1973). The emerging activism and widespread social action by societies taken against corporation forced the companies to be more transparent, and be less harmful to societies (Porter & Kramer, 2006).

Recent awareness of environmental issue also adding the needs for company to address ecological issues concerning their business line. Derived from that several related organizations create code of conducts and guidelines for the jewelry maker to provide common ground for CSR such as The Ten Principle of Global Conduct by the United Nations, also Responsible Jewellery Council. Some guide on standardized CSR reports are made by The Global Reporting Initiative, which follows after Triple Bottom Line (Global Reporting Initiative, 2011). On recent past, even during global financial crisis the luxury company didn't show much care about society at large (Waller & Hingorani, 2011). The reason is weighted on the lack of interest and reaction from internal stakeholder such as employees, investor, suppliers, and media, thus no pressure on this sector (Lochard & Murat, 2011).

Since there were no benchmarked methods and regulations on CSR, each companies acted variously. One of the example is luxurious watches. The most known variant is Swiss watches, which was dominated by LVMH, Richemont, and Swatch Group. The issues varied starting from working regulations to precious stones and metal mining. Some companies chose to participate in targeted corporate philanthropy, benefiting from the good image they receive back after the charity. Some CSR projects are improving public transportation and equality of treatment between men and women as the emphasize on social aspects of CSR (Müller, 2011). Some of the companies take over sustainability issues by reducing CO2 emissions, to recycle or to build new premises made of eco-friendly materials (Müller, 2011).

The type of CSR used mostly on recent past is Philanthropic giving, focusing more on the charity and social aspects after the production process while building their own branding. The type of CSR could be seen as promotional CSR at some point. In Carroll's Pyramid of CSR, the intentions are still mixed between legal and ethical. Seeing the triple bottom line has been considered, yet still reactive to outside pressure instead of proactive, the CSR stance would be alternating between Enlightened Self Interest and Forum for Stakeholder Interaction.

2.2. The current period (since 2016)

2.2.1. Stakeholder mapping

During 2010s the urbanization and economic development grow invite more serious support on environmental as it comes hand in hand. Enhanced with the technology and widespread freedom of expression through multiple emerging medias, making it easier for vigilante customers to put front what they believe is not righteous. The power of media has gone up, and it became the powerful cultural and political force, shaping the course of global events (Manjoo, 2016). Growing millennials who lived through environment and technology era with the number bigger than Baby Boomers made up the majority of young adult market (Goldman Sachs, 2015) starts to stray towards modern luxury which are experience based with personal related values (Smulders, 2016)

With the trends on environment awareness boosted with social media, it gives more influence and power to EMOs in voicing their concerns. The videos of multiple animals such as ostrich, python, and crocodiles being skinned alive went viral, posted and spread by internet citizens. Environmental issues and green living has become a trend, not just an alternative lifestyle. Consumer are also being more educated, helped with the instant information sharing from social media, giving them more power over the industry.

On the other hand, apparently technology managed to bridge the companies with public in appealing way. Not only focusing on marketing its way into customers in old fashioned methods, Louis Vuitton reaches new audience by featuring the main protagonist of Final Fantasy, game produced by Square Enix with massive fan base, in their spring 2016 campaign. Burberry also goes beyond offline by having collaboration with Apple Music, curating playlist related to its fashion show, reaching more people in a fresh, original content on marketing (Rein, 2016).

The actor who raises the voice more are fellow business participant and influencer. Stella McCartney has been vocal regarding the unsustainability luxury, being the speakers and having appearance in multiple event and articles (Ruby, 2016). Jane Birkin, whose name is used in the infamous Hermes Birkin bag made from choices of animals such as ostrich and saltwater crocodile sold ranging from £6,700 to £100,000, asked Hermes to take out her name after allegation of animal cruelty has risen up (Bolton, 2015). Armani Group and Hugo Boss have also chosen to be fur-free in all of their labels, showcasing the power of environment force on strategic implementation of the companies (Feitelberg, 2016). The endorsement from direct actors of the industry contributes the power growth of EMOs in addressing the issues.

Several highlights from EU also numbers of meetings and discussions regarding wildlife and endangered species protection and biodiversity loss, and nature protection across Europe (European Commission, 2016). The steps might not be directly involving luxury accessories business but it shows the increasing interest on sustainability. Having set the target to achieve natural habitat sustainability by 2020 and 2050 (European Commission, 2016), more concrete legislation and regulations can be expected.

2.2.2. Types of Innovation

The understanding and study on typical behavior of the millennials, as the new potential customers extends on multiple industries. 58% of millennials customers search online for the luxury products they intent to buy and 31% look for discounts and coupons, also online (Deloitte, 2015). Their inclination on healthy living and technology incorporation into their daily life, also internet of things as longwearing trend seems to find its way also into luxury accessories company. The thought of classic luxury value of bags, belts, and accessories also turns into experience.

Apple move beyond smartphone and gadgets into all-in-one watch designer with their Apple Watch with the tech savvy waiting on the list for it. Not only targeting the mass, a cooperation with Hermes was established. Setting up the watch into luxury accessories category (Boxall, 2016). Tory Burch design their own Fitbit device for health conscious and active consumers. Bulgari now launches Bulgari Vaults, their mobile app for the storage of personal data, way across their traditional identity as watch and jewellery maker (Bulgari, 2016).

Progress on products innovation also goes with campaigns and sales innovation. The latecomer on ecommerce now building their social network presence with attractive and interactive campaigns involving the customer and citizen of social media network. Louis Vuitton designed their state of the art mobile apps to let the audience scroll through their latest collection. Also putting in the personal touch of the company history in their website to better connect with customers. Chanel also came with their youtube campaign hiring supermodel such as Gisele Bundchen, acting also as social influencer, posting it on their YouTube with more than 11 million views making it the most watched commercials of all time. Tiffany & Co. also released their mobile app with interactive content, showing their romantic image with engagement and wedding inspirations and ring designers (Joy, 2016). The use of smart personalization has been a trend and strategically put into the platform to let customers know better on the investment they will purchase.

Production process is also facing innovation. Luxury watchmaker such as Cartier made a rerun through their production process to improve the sustainability. Innovative production process of watch making use handcrafted mechanical movement to reduce the impact of industrial manufacturing process. There is also the light powered watches by Panerai and Citizen (Bhattacharyya, 2013)

The technological advancement could also address the unethical diamond mining situation which over the years caused ethical debates, impacting on social and ecological damages. Diamond Foundry are now studying and designing lab-grown diamond. All planned and done by Tech companies CEO and Hollywood artists and activist, such alternatives might bring effectivity and efficiency on the production process without taking a toll on environment (Diamond Foundry, 2016).

During 2016, luxury industry able to have Radical to Transformational Change in each products, service, and process. Moving way forwards from the previous period.

2.2.3. CSR Analysis

Historically luxury brands often avoid risky causes that might offend their authenticity, brand image, and potential customers, they tend to play it safe. Nevertheless, with more external stakeholder get to raise their voice on social or environment causes revolving around the industry, more luxury brands get vocal with their CSR. Kering, luxury group based on Paris which owns Gucci, Yves Saint Laurent, and Stella McCartney, is one of the pioneer of CSR on the business. They address issues such as women's right, being transparent on their productions process by releasing ‘Environmental Profit and Loss' statement, sustainability, and intellectual property (Friedman, 2015). Kering doesn't mind being the one who start the move as they are the industry leader.

Kering also incorporate the CSR into their manufacturing process by not using hazardous chemicals, using sustainable source of raw materials, fair supplier practice, and PVC-free products (Flora, 2015). They are considering CSR as business strategy, not marketing one. Sustainability for them is a risk management approach while also protecting company reputation from ecological wrongdoings. It is also acts as powerful recruiting tools as new millennials sees a company with sustainability brand on it to be more desirable.

Although not yet eliminating nor discussing the animal cruelty causes accused by popular opinion, companies with CSR reports published tried to achieve transparency and traceability with the source of fur or leather they are using. Sustainability of the fur or leather farming business are on Kering's ‘Environment Profit and Loss' report (Saga Furs, 2015)

On the other hand, LVMH, the group that owns Louis Vuitton, Dior and Fendi, on their latest CSR report is still highlighting social causes instead of environmental. Concentrating on talent and skill development, quality of life at work, discrimination prevention and equality, and supporting local communities (LVMH, 2015), no noticeable change and progress from their previous years.

Richemont, who owns luxury watches brands such as Cartier and Montblanc, managed to even out the social and environmental CSR by improving the production process (reducing emission with energy efficient building design, and a programme of carbon offset purchases. Along with that they are building support on wildlife conservation with their Peace Parks Foundation, and supporting multiple causes on community youth with Laureus project (Richemont Group, 2016)

During these current period CSR has evolved into a strategy less peripheral than previous period. More luxury groups assimilate social causes with environmental causes, whether by minimizing the damage they caused with production process or supporting other part of the theme unrelated to their resource.

More companies reengineer their value chain, and transform their ecosystem as their CSR type for more significant benefit and effects. The companies are moving forwards from Enlightened Self Interest into Forum for stakeholder interaction, some like Kering is starting to show the trait of Shaper of Society with their defining CSR acts. In Carroll's pyramid of CSR, during present years the business indicate ethical and philanthropic intention towards social responsibility.

2.3. The near future (2021)

2.3.1. Scenario Planning 1: European Environmental Concern

Advocation on environmental awareness is on the prime moment. Europe is ambitious regarding their Biodiversity target by 2020 and 2050, and one of their main goal is helping to avert global biodiversity loss (European Commission, 2016). With the focus set on ecology sustainability on broader scale, business threatening the goals will be put into spotlight and will be under regulations and close watch. NGOs will have more power negotiating with the regulator.

Millennials have grown to be the working class who can afford the luxury accessories by 2021. Environment has been an important issue ever since, and once it has been addressed, new value and sense of protection embedded within the customers as they are grown in the era where the ecology changes noticeably (climate change, biodiversity extinction, ethical labor). Being the knowledgeable customer and as well as having shifted attitude towards possession, no longer valuing possession but more into experience (Moore, 2016) will alter the demand on unsustainable luxury products. European demand for luxury accessories will decline as the market behavior shifted.

R&D are invested in reducing ecological damage including reducing CO2 emission and creating high quality faux materials. Giving back to society is compulsory, it will not be based on ethical obligation anymore.

2.3.2. Scenario Planning 2: Technology On-Demand

With the customers' attitude on technology move forward, they integrate technology with accessories and items they purchased. Luxury would be seen in experience, value, and quality while the conspicuousness changed into moderation. Rate of technology and internet research from all over the world increases and along that the market for electronic accessories gets tighter.

Health and travel experiences are priorities in millennial market and the innovation accommodating those two would be on demand. Mobile and life integration and big data will be a hot topic that companies try to address. More business swim across their original industry to reach more market. Market will demand personalized content in both advertising and products, thus the digitization of everything. The market will favor indie brands with quality to offer and quick response on what they need. E-Commerce and social media will take part in majority of the sales and advertisement, more type of segmentation will follow with the surge of internet citizen and their different behaviors.

3. Conclusion

3.1. Limitation

This essay suffers the lack of applicability as the environment only tailored for European market. Less primary data and more secondary data also risking the representativeness of the whole industry, only taking account mostly the major name in the industry.

3.2. Conclusion and Recommendation

As we are moving forward the future, customers especially European market will be more conscious towards environmental and social justice. Changing from being silent protester, the era of social media and freedom of speech encourage the activist to raise their cause to the public. Morale of the company would shift as the external stakeholder get more power to put pressure on internal stakeholder, thus forcing them to be ethical.

Technological advancement influence consumer behavior, values, and strength over the industry. Different types of products integration and different values offered changes the market while competition will be intense. CSR is not only a part of business unit and marketing tools, it evolves to be a sound business strategy and practice to assure supply chain sustainability and brand reputation.

The recommendations for the industry would be;

a. Taking closer look at the stakeholders, equally both internal and external as they might have more power with the time progress. Company should know which stakeholder they should manage closely or keep satisfied. Addressing the cause with cautious attitude would help them without damaging their brand uniqueness and potential customers.

b. Keeping up with the technology, luxury accessories have unlimited potential to evolve their products suited for the tech savvy customers. Their target market would fit the profile of customers in dire need of tech assistance in their daily life, also able to afford experiences with luxury touch. Being rigid with their original value proposition would cause obsoleteness.

c. CSR is no longer a charity event for the company. With the industry leader speaking up against the sustainability and taboo causes, there is no harm in other business to do that, not playing it safe anymore. Luxury brands should go wider than charities and more into investing production reengineering and ecosystem transformation. The needs to do CSR should be after philanthropic intention instead of merely law-obeying.

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