As the notion of luxury changes, marketers of high-end products are wrestling with the challenge of maintaining brand exclusivity while reaping higher sales, according to executives who spoke on a panel titled, “The New Luxury: Balancing Volume vs. Elite” during Wharton’s Marketing Conference.

The definition of luxury lifestyle used to translate to an image of old-money Palm Beach, said George Ayres, vice president of marketing for Jaguar North America. Today, it is much more difficult to conjure up a consistent picture of luxury living. People may live in expensive homes and drive luxury cars, but purchase Evian water by the case at Costco and live with barely any furniture, he said. “They might have two bean bag chairs, but they have the car. That’s how they decided to express themselves. Other people might drive a Honda Excel, but have a plasma TV.”

Many of today’s luxury shoppers are not about to wait for the good life, he added. “Guess what? Twenty-five-year-olds have money,” Ayres said, adding that the funds for this youthful luxury spending often come from aging, affluent baby boom parents who help finance their children’s lifestyle, often out of guilt.

These new definitions of luxury and affluence are making it increasingly difficult to target advertising in the high-end market, according to Ayres. “It’s not about demographics anymore,” he said, adding that he was once able to focus his advertising in Architectural Digest, but now he has to maintain a presence in smaller shelter magazines too, such as like Dwell and Wallpaper. “Now you have to be in all these little places because that’s what the 25-year-olds are reading.”

A Shopping Experience

According to Edgar Huber, president of the luxury products division at L’Oreal USA, luxury goods manufacturers must constantly balance sales volume against the risk of diminishing the prestige of their brands. Another challenge is consumers’ desire to have increasingly personalized products. Distribution channels are also a consideration for luxury-brand marketers, he said. “In cosmetics we are defined not only by innovation and the quality of our products, but it is also very much a shopping experience.”

Department stores have dominated cosmetic sales for years, Huber noted, but with the recent turmoil among department store retailers, cosmetics firms are concerned about the strength of their distribution networks. “We have to sell our products and provide this experience in the future. Finding alternate and new ways of selling products will be a key challenge.”

Lauren Schickler, vice president of international sales and worldwide marketing at The Movado Group, the 120-year-old Swiss watchmaker, suggested that luxury-brand growth increasingly is tied to licensing. “The new growth platform is all about licensing brands from big multibillion companies and launching products.” The goal is not to build brands, but to build categories, said Schickler who oversees her company’s marketing of its Tommy Hilfiger licensed watches.

She pointed out that Hummer has a fragrance, Burberry licenses leather goods, and “Coach is now a lifestyle brand. They have licensed everything from home furnishings to watches to shoes. It’s not just a handbag company. Companies are no longer limited by the abilities of their companies to create a luxury category.”

She, too, said luxury-brand names no longer fit the Palm Beach image. “J. Lo is a luxury brand … a very aspirational brand, a lifestyle brand.” The J. Lo brand is on watches, handbags and jewelry, she noted, adding that Donald Trump has a fragrance deal with Estee Lauder. “This is what many people are aspiring to be a part of.”

Meanwhile, shifting income and demographics have placed tremendous spending power in the hands of young people, including high school girls toting Christian Dior handbags. “The number of young people who have the financial ability to buy luxury goods is astounding,” she said. “The demographic is changing significantly. It’s now up to us to not only talk to the target, but to understand how the target is shifting, while not alienating the core customer.”

Another challenge for luxury names, Schickler added, is managing the growing disparity between the image of the parent brand and licensed products. “The woman or man wearing Gucci is not the same consumer wearing a Gucci watch,” she said. Licensing allows an esteemed luxury brand a chance to enter the fashion business. “We don’t think about Tommy Hilfiger as watches. They are not timepieces. For us, it’s about a fashion statement and being on trend and having a bit of the Tommy Hilfiger franchise on our wrist. It’s not about satisfying a consumer need. It’s about what you need on your wrist to be relevant to the next season’s fashion trends.”

Trading Up

Meanwhile, counterfeit and knockoff products remain troublesome for luxury businesses, panelists agreed. “We are fighting as aggressively as we can,” said Huber. “It is a very serious issue.” Knockoffs do not carry “anywhere near the same emotional benefit” as the genuine article, added Mary Egan, a manager at the Boston Consulting Group who specializes in retail and consumer goods. “I can’t say that it’s not a problem; it is. But people want the real thing.”

According to Egan, high-end manufacturers are struggling to strike a balance between exclusivity and driving volume sales in this period of shifting definitions of what a luxury lifestyle means. “I think the industry is in the process of redefining itself. I would say Starbucks is a luxury brand; it’s not the same as every luxury brand, but it’s an example of a new luxury brand.”

Marketers should strive to find ways to dominate the “emotional space” in their category. “Luxury has become so many things,” Egan explained. “So many consumers are making decisions on where they want to trade up or trade down. Few can afford to trade up everywhere. How do you find the people who are trading up in your category and are willing to pay the price?” Holding firm to the high-ground of exclusivity may not be an option, she said. “If a luxury brand is purist and doesn’t go for mass commercialization, it risks someone else taking the brand and doing the same.”

Meanwhile, Egan said the middle market is eroding. “In the old days rich people lived one way.” Now, people of all ages and income levels have various aspirations at different stages of life. “If you are in the middle market it’s very unstable. You are at risk.” To draw the middle market up into luxury price brands, marketers need to make sure their products are credible, Egan suggested. Even if unsophisticated buyers cannot tell the difference between the high-end products and a lower quality substitute, they will take their cue from knowledgeable shoppers who can tell the difference. “If it’s not credible to an expert, it’s not aspirational to the novice.”

Even if a brand reaches out to a broader market, managers must still protect the essence of their luxury product, said Egan. “It’s really about how you maintain the image and how you create accessible price points so that people can get a piece of what you are offering, but not the whole thing.”

Ayers was asked about Ford’s strategy in introducing new lower-priced models selling for $30,000 and whether that would diminish the luster of the Jaguar brand. “Everyone thought we were trying to get 22-year-olds to buy this car, and that is not at all who we are trying to attract,” he said. While the entry-level priced Jaguars are designed to sell for $30,000, drivers think it is a $50,000 car, because it is styled like a Jaguar and carries the name, explained Ayres. “They don’t have $200,000 a year in income. They have $120,000 in income. A 50-year-old school-teacher who always wanted her Jaguar – 60% of buyers of that car are women. Their income is capped; they are never going to make more. Our challenge is how to capture her, and get her to move up and spend more disposable income on a car.”

Egan concluded by saying that despite the challenges and unsettled current state of luxury retailing, the “future of luxury is very bright.” She noted that more markets are opening up, and developing countries like Russia, China and India represent huge new markets.

Even in developed nations, she said, there will always be opportunity because people never stop wanting to learn new things. A key characteristic of luxury brands is that they serve to educate people. “People like to learn – from going on a luxury vacation or learning about coffee or looking at car magazines. I think that bodes well for future growth.”