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#4: Premium vs Luxury Strategies in Travel
What does luxury travel mean? And does it matter? Hint: it's more important to the people managing the brand than to customers.
Hi there! I’m Jess 👋
Bureau of Adventure is a newsletter about the travel business and how to take better vacations.
The Luxury Strategy is the best business book I read this year, and it totally changed how I think about high-end travel.
The word “luxury” is almost meaningless as a travel consumer - it usually translates to “expensive”. However, the luxury strategy can be powerful for travel companies. If you manage a high-end brand, you have two choices:
Pursue a premium strategy - beat the competition through superior quality and value. Use marketing best-practices. This has higher growth potential, but lower margins and fiercer competition.
Pursue a luxury strategy - create a singular brand and product. Follow a completely different marketing playbook. This has lower growth potential (in the short term), but higher margins and more defensibility.
Both strategies work well. It’s most important to choose one.
In this post, I’ll apply the lessons from The Luxury Strategy, which mostly focuses on physical products, to the travel industry. I’m still wrapping my head around this, so please reply or comment if you disagree with anything. I’d love to hear your thoughts.
Appropriately for a book about luxury, The Luxury Strategy is a little crazy. It reads like a marketing textbook crossed with a continental philosophy treatise. I’ll include lots of quotes in this piece, but I promise they’re worth reading. Buckle in 🤓
It seems legitimate to start from the fact that we bury our dead – proof that we are aware of our own mortality – is what truly sets us apart from animals […]
And what, apart from skeletons, do we find in these graves? We find objects that with the passage of time are more and more refined, until eventually we start coming across long-lost tombs with occupants who have been buried with their most previous jewelry and symbols of their power – such as weapons, horses and even ships.
Not your average business book 😁
Luxury as Market vs Strategy
There are three key ideas that are relevant to travel brands. The first: luxury as a market vs luxury as a strategy. “Luxury” is conflated with any product or service that is expensive, but those brands may not employ a luxury strategy.
Luxury as a market refers to the common use of the word in market surveys […] In fact, in all these studies, ‘luxury product’ is equivalent to ‘expensive product’. No differences are made between luxury, fashion and premium, but this is understandable. It is easy to get figures on expensive products. It is extremely difficult to qualify, and more to quantify, a strategy.
Luxury as a strategy refers to the fact that luxury is a very specific business model, which has been invented by those brands that now define the pantheon of luxury brands worldwide [Jess note: think LVMH brands]. It makes sense to call it a ‘luxury strategy’ because it is in the luxury market that is the most efficient and the most commonly implemented, but it can be used – and is successfully used – by companies and brands outside of the luxury sector. Its strict rules of use are very different from those of the fashion business model of the premium business model.
-The Luxury Strategy
The authors distinguish luxury from two other business models: fashion and premium. We’ll ignore “fashion” in this article, since it’s more relevant to clothing brands. The luxury/premium distinction, however, is quite relevant to those managing travel brands (more on that later).
What makes a brand luxury?
We understand we’re talking about a strategy, not any high-priced products. But what exactly makes a luxury product? The authors have this definition:
A very qualitative hedonistic experience or product made to last;
Offered at a price that far exceeds what their mere functional value would command;
Tied to a heritage, unique know-how and culture attached to the brand;
Available in purposefully restricted and controlled distribution;
Offered with personalized accompanying services;
Representing a social marker, making the owner or beneficiary feel special, with a sense of privilege
These criteria […] are all necessary but their weight may differ […] Criteria two, three and six differentiate luxury from premium or super-premium products: premiumness is based on objective superiority when comparing alternatives. The more you pay the more you get. Luxury instead is non-comparable. The pricing power of luxury instead rests on high intangibles, making the brand singular, unique.
An accompaniment to this definition is the list of 24 Anti-Laws of Marketing (listed below, but the the book has great explanations). It’s important to remember: these rules only work for brands pursuing a luxury strategy. It would be crazy for most brands to “make it difficult for clients to buy” or “not test” products with clients. Luxury marketing is different.
The Luxury vs Premium distinction
The third key idea - premium vs luxury - is most relevant to people who manage high-end travel brands. The authors use car brands to illustrate the difference.
In the 1980s, Toyota decided to start a “luxury” division. After years of market research and testing, they launched a new brand: Lexus. When the first car came out in 1989, it immediately surpassed sales of BMW and Mercedes, and Car and Driver rated it better than the competing models from the German brands (check out this 1990 Time article if you’re curious).
[Lexus] did not win its spurs through F1 Grand Prix […] but though the prizes of institutions dedicated to surveying satisfaction and market perception. Its reputation-creating approach is summed up in its slogan: ‘the relentless pursuit of perfection’ […] Lexus is the car without flaw. […]
Is a Ferrari a perfect car? Anyone who has driven it knows that it is not. A Ferrari has fragilities that are part of its charm, its weaknesses as a mechanical beast that, like its rearing horse emblem, is not easily mastered. You have to know how to drive it, accept its vagaries, its unique character. […]
Luxury is therefore not the category above the top of-of-the-range; luxury and upper range are not on the same trajectory. Their criteria are not the same: upper range will be judged on it polyvalence, its boot space, its maneuverability, all criteria defined by clients. In luxury, it is the creator who defines the criteria; there is a reversal of the relationship to the client.
Examples of Luxury vs Premium brands in travel
For travel brands, this premium vs luxury distinction gets murky. In fact, many brands think they are “luxury” but they’re really ultra-premium. Let’s go through some examples on the border.
This one’s the easiest. Business class is premium; First class is luxury. Business class is all about value, and it’s often justified by ease and how well-rested passengers will feel on arrival. In the age of lie-flat business seats, there’s no practical reason to fly first class. It’s about hedonism and exclusivity (which is why cabins are small and points are hard to use). The reason you choose first class is not because it is a higher tier than business, it’s a completely different product.
Small, location-specific brands like Aman and Belmond are luxury. Their properties are small and exclusive, and the brands grows slowly, minimizing risk of over expansion. It’s usually impossible to compare an Aman or Belmond property with competitors. They create their own mythical worlds. Singular, over-the-top properties like Deplar Farm or Blackberry Farm are even more clearly luxury.
Four Seasons is an ultra-premium brand (with some exceptions). They have properties almost everywhere their target demographic wants them, and they lead with price (ie value) more than you would think. Business hotels in Minneapolis and Houston are top-of-range - the nicest hotel in town - and they’re priced accordingly at $350-500/night. In Lanai, where new development is forbidden, Four Seasons has a true luxury hotel, and it’s priced at $2,000+ per night.
“Luxury goes beyond functionality. Being creative, it takes the risk of not being liked” - The Luxury Strategy
Tour Operators and Outfitters
Most high-end tour operators are premium. The tell is a “Why us” or “What’s included” page with a list of attributes - check out DuVine, Tauck, and A&K Small Groups. They expect you to comparison shop, a defining feature of premium brands. These companies are pursuing a form of perfection, just like Lexus.
Silversea, Seabourn, and Regent are categorized as luxury cruise lines, but for our purposes they are ultra-premium. They sell by communicating their value and specific attributes (included alcohol, high staff ratio), they are higher-end versions of mainstream cruises, and they seek perfection - they have no flaws.
In contrast, I’d argue that high-end but singular ships are luxury. Think of Commandant Charcot and Le Ponant, both unique and flawed in their own ways (“so boring!”). The tradition and commitment to formality on a Queen Mary 2 crossing, particularly the highest class Queen’s Grill, qualifies it as a luxury experience. Many people don’t want to wear tuxedos on vacation. And why would you take 7 days to cross the Atlantic when you could cross in 7 hours? Hardcore expedition trips might be thought of as luxury too, since they require time and discomfort in order to experience sublime, exclusive remoteness. None of these are perfect products. They make tradeoffs and take the risk of not being liked.
It’s important for managers of high-end travel brands to be honest with themselves and their teams. Are they committing to a premium or luxury strategy?
There’s nothing wrong with choosing premium. In fact, a premium strategy has several advantages:
You can use marketing best-practices, like touting your product’s benefits vs the competition.
You can grow faster, only limited by demand and your ability to maintain high standards. Luxury brands constrict growth to maintain their exclusivity.
You can dedicate yourself to consumer desires using surveys and market research.
You can still market your product as “luxury”, since it may help position your product as high-end in consumers’ minds. You just need to be clear internally that you’re competing in the luxury market, not pursuing a luxury strategy.
If a travel brand does choose the luxury strategy, they’ll eventually achieve higher sustained profit margins (though not necessarily higher absolute profits, since growth must be limited to preserve the luxury perception). More alluringly, the competition will matter much less - “luxury is not comparative” after all. But pursuing this strategy takes time, expertise, and discipline. In travel, I think the hardest parts of a luxury strategy are:
Creativity & taste - You need a unique point of view, and it has to be good. Find and enable the right people to create true luxury experiences (look at how LVMH “manages” their talented creative directors). Have a strong point of view and don’t pander. It’s okay to be disliked by some if loyalists love you.
Price integrity - no discounting or sales unless they feel fair and clear (eg. honeymoon discount or teacher discount).
Heritage & culture - ensure your brand is associated with a tradition and never compromise. The myth of most luxury brands is built on a sense of place and the authentic credibility of the people who make that product. As travel companies grow, they often lose this.
But don’t take my word for it, read the book and decide for yourself 🤓
🎧A few podcasts related to travel and luxury🎧
1️⃣ Interview with Norse Atlantic President (starts at 12:00) - Charles Duncan is refreshingly candid about the challenges the airline faces and why he thinks they’ll succeed when all other low-cost long-haul carriers have failed. I flew Norse several times this year, and I’m rooting for them.
3️⃣ Acquired LVMH - a 3+ hour history of the largest luxury conglomerate.
4️⃣ Business Breakdowns Hermès - analysis of the best(?) luxury brand.
That’s it for this week. Thanks for reading!
Please comment or reply (email@example.com) if you disagree with me. I’m still wrapping my head around how to apply the luxury strategy to travel. I’d love to hear your thoughts.
Thank you to Angela Wu for originally recommending the book, and thanks Sam and Amin for reading early drafts of this piece.