It’s all about Sole Value

May 19, 2010 § Leave a comment

What is it about that red sole that has transformed the shoe industry? Christian Louboutin came on the shoe scene in the early 1990’s after an unsuccessful string of assistant positions in large fashion houses like Chanel and Yves Saint Laurent in Paris. Without any real design training, he applied his passion and ambition and today is considered to be one of the most valuable luxury brands in the world. It seems like every minute a new designer emerges but why are some companies so successful at leveraging their brands, while other struggle to break even?

It all boils down to the creation of value. In our readings, “Value creation depends on the relative amount of value that is subjectively realized by a target user (or buyer) who is the focus of value creation…and that this subjective value realization must at least translate into the user’s willingness to exchange a monetary amount for the value received” (Lepak, Smith, & Taylor, 2007). In other words, creating value involves complex processes and often multiple targets for the purpose of monetary exchange. The importance of creating value is to gain competitive advantage in a market where product differentiation has become increasingly difficult. To be an industry leader one simply cannot focus on making a buck, now more than ever, customers need to understand that prices reflect more than the actual costs of production. Instead, customers must perceive the product or service as providing more than a need fulfilled but does so better than any other competitor or substitute can. Like all organizations, fashion houses are also focused on value creation. The buyer knows that she is buying a pair of red-soled Louboutin’s because no other shoe can deliver the same prestige, exclusivity and style. Or so she thinks…

The mere term implies that value is created. Although buyers are led to believe there is an intrinsic need to own that particular product, drive that certain car or travel to that specific destination, this value is far from absolute. It is likely the consequence of expensive marketing strategies and the firm’s capability to create and innovate that tells the target “buy me”. The fashion industry is no exception and Christian Louboutin illustrates a company focused on value creation that has led to long-term profitability.

Despite the economic downturn in 2008, Louboutin proudly notes that his company has experienced successful sales and double-digit growth. The secret to his success? Value.

New York City-based Luxury Institute reported the results of the “Best of the Best” luxury brands in the U.S. where consumers rated Louboutin as the best in the women’s shoe class. The scale was based on a survey that asked consumers to rate luxury brands by category across four equally weighted components: Consistently Superior Quality, Uniqueness and Exclusivity, Making the Customer Feel Special Across the Entire Experience, and Being Consumed by People Who are Admired and Respected (Swanson, 2010).  The survey indicates that consumers associate the luxury shoe designer with high value, but not based on price, instead it is the perceived quality, the exclusivity and the non-substitutable qualities that make owning a pair of Louboutin’s so valuable.

Schumpeter’s concept of “creative destruction” comes to mind. Christian Louboutin’s rise to luxury stardom was a result of entering a highly competitive market (luxury footwear), pure innovation (the red sole), and creating a value that was perceived and supported by society (celebrity endorsements, media).  At first glance, his level of innovation seems rudimentary. Painting the soles red emerged out of an idea that when a woman walked, the back of her heels would peek out. Within Schumpeter’s framework, the red soles acted as an isolating mechanism, strengthening Louboutin’s supplier power to price his shoes well above average shoes while simultaneously opening the door to replicas and imitations.

Like all great innovations it wasn’t long before red and other colour painted soles began to surface. In fact, the Chinese were not only able to replicate the red sole but went as far to produce thousands of counterfeit Louboutin’s, often in a timely seasonable fashion. Such is the process of value creation, eventually value slips away from the originator to be shared with other competitors and users.

In an attempt to combat the counterfeit goods, Christian Louboutin has started a viral campaign of a YouTube video exposing a factory in China as a pile of what appear to be Louboutin red-soled shoes are seized by the Chinese Administration for Industry and Commerce (Dodes, 2010). Currently on his website the names of several websites identified as selling fakes are listed next to a very limited list of online retailers that actually sell authentic merchandise. His strategy seems to be paying off, amidst all of the substitutes available (although of much lower quality), the Louboutin value has not been damaged. Instead, the brand has been able to maintain and if the shoes visibility in Hollywood magazines is any indicator, enhance its value.

Unlike other luxury brands, Louboutin has refrained from discounting his merchandise and has been quoted saying that starlets and even Oprah have to pay full-price. This has added yet another layer of value to the consumer, heavily discounted goods is like telling the buyer “we were kidding, it’s not as valuable as we said it was”.

It’s days like these when I love being in B-School…

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