From Mass Market to Haute Couture: How Fashion Segmentation Shapes Business Models
We often hear the words haute couture, ready-to-wear or mass market, but what do they actually mean and what do they imply? To answer these questions, let's glance at the fashion market segmentation, which shows us how the fashion industry is theoretically divided. From there, we can move on to the business model framework, which gives us an insight into how fashion brands operate and position themselves in the market.
Fashion Market Segmentation
Let's start by looking at the segmentation of the fashion market, more commonly known as the fashion pyramid. The main aspect driving the rungs of the pyramid is price, accompanied by the amount of creativity and quality that fashion brands incorporate. As the pyramid suggests, the level of these three components increases as we move up the pyramid. In general, we can distinguish five different segments: Couture for luxury brands, Ready-to-wear for designer brands, Diffusion for designer and premium brands, Bridge for premium brands and finally Mass for retailers. To fully understand the principle of segmentation, let's examine at the five different ranks.
Haute Couture
Firstly, haute couture collections are the flagship of luxury brands, characterized by the highest level of craftsmanship and exceptional attention to detail. These pieces are truly artistic and inimitable. Because they are usually made to measure and precious, they aren't available on a regular basis and are only worn by a few, such as celebrities for premieres and special occasions. They are, however, the epitome of a luxury brand, illustrating the brand's identity to the general public and opening the doors to the fashion house's distinctive dream.
Ready-to-wear
Next up are the ready-to-wear brands, also known as prêt-à-porter labels. Their collections are marked by a high level of creativity and quality and are therefore an expression of the designer's skills and proficiency. However, the garments can be worn on a wider scale - from day to night - and are aimed at a greater audience. Looking at the ready-to-wear collections, we are still in a high price segment which is about five to three times higher than the average market. Overall, prêt-à-porter lines allow designer brands to showcase their designs to a wider audience and develop their image and relevance.
Diffusion
Clothing from diffusion brands costs between two and three times the typical market price and is often actually a young second line from high-end brands. They are generally inspired by ready-to-wear, but focus on higher volume production, which is mostly outsourced. The collections are "sportier" and more casual and are aimed at a younger generation. In this way, diffusion labels broaden their target group compared to ready-to-wear brands.
Bridge
The second lowest segment, the bridge segment, was usually born in the USA with the rise of department stores. The garments are fashionable, but not too extreme and radical, and the production is outsourced. The cost/value ratio is balanced or, in some cases, two to five times higher than the normal market price. Besides, the clothes are designed to be worn on a daily basis and for different occasions, as the bridge segment is the link between the high end and the mass market.
Mass
Finally, let's talk about the mass market and vertical retailers. While some labels are quick to respond to emerging trends, others focus on basic clothing. As the price at which the garments are sold is generally below the average market price, the retailers need to ensure a fully functioning cost control in order to remain competitive in their segment. Their clothing is aimed at a wide range of people, from teenagers to sophisticated adults, and can be worn on a daily and regular basis. They also integrate masstige - a concept that aims to highlight mass-market pieces by combining them with a seemingly prestigious shopping experience - into their operations and are keen to create strong fashion communication.
Firstly, haute couture collections are the flagship of luxury brands, characterized by the highest level of craftsmanship and exceptional attention to detail. These pieces are truly artistic and inimitable. Because they are usually made to measure and precious, they aren't available on a regular basis and are only worn by a few, such as celebrities for premieres and special occasions. They are, however, the epitome of a luxury brand, illustrating the brand's identity to the general public and opening the doors to the fashion house's distinctive dream.
Ready-to-wear
Next up are the ready-to-wear brands, also known as prêt-à-porter labels. Their collections are marked by a high level of creativity and quality and are therefore an expression of the designer's skills and proficiency. However, the garments can be worn on a wider scale - from day to night - and are aimed at a greater audience. Looking at the ready-to-wear collections, we are still in a high price segment which is about five to three times higher than the average market. Overall, prêt-à-porter lines allow designer brands to showcase their designs to a wider audience and develop their image and relevance.
Diffusion
Clothing from diffusion brands costs between two and three times the typical market price and is often actually a young second line from high-end brands. They are generally inspired by ready-to-wear, but focus on higher volume production, which is mostly outsourced. The collections are "sportier" and more casual and are aimed at a younger generation. In this way, diffusion labels broaden their target group compared to ready-to-wear brands.
Bridge
The second lowest segment, the bridge segment, was usually born in the USA with the rise of department stores. The garments are fashionable, but not too extreme and radical, and the production is outsourced. The cost/value ratio is balanced or, in some cases, two to five times higher than the normal market price. Besides, the clothes are designed to be worn on a daily basis and for different occasions, as the bridge segment is the link between the high end and the mass market.
Mass
Finally, let's talk about the mass market and vertical retailers. While some labels are quick to respond to emerging trends, others focus on basic clothing. As the price at which the garments are sold is generally below the average market price, the retailers need to ensure a fully functioning cost control in order to remain competitive in their segment. Their clothing is aimed at a wide range of people, from teenagers to sophisticated adults, and can be worn on a daily and regular basis. They also integrate masstige - a concept that aims to highlight mass-market pieces by combining them with a seemingly prestigious shopping experience - into their operations and are keen to create strong fashion communication.
Business Model Framework
Business models, on the other hand, show how a particular organization positions itself in the market and operates in order to be profitable. There are four main pillars that companies need to consider in order to build their unique brand. Firstly, the value proposition tells customers what they can expect and is therefore the organization's commitment to its buyers. The value proposition is characterized by the price range, exclusivity, creativity and image of the brand. Hence, fashion brands use their value propositions to target specific groups, such as the affluent, early adopters, connoisseurs or price-conscious consumers. In addition, the pieces sold by the brand are characterized by a USP (unique selling proposition). When buying fashion from a particular brand, consumers know whether they can expect iconic and timeless pieces that are characterized by craftsmanship, or trendy fast-fashion garments. Besides, each company has a different infrastructure and therefore a different value chain. This is where international reach, vertical integration, distribution channels, the product development stage and many other factors come into play. Finally, the revenue model dictates how an organization generates profit, taking into account licensing, margins versus volume or distribution channels. In general, there are several different business models, which we'll look at in more detail below: Luxury brands, fashion designer brands, premium brands and finally mass market retailers.
Luxury brands
Firstly, luxury brands are the oldest business model of all, originating in France. They focus on hard luxury and typically include fine jewelry, watches, leather goods and silk accessories. As these product categories suggest, the value proposition includes exclusivity, excellence, uniqueness, craftsmanship, timelessness and a long history of the brand marked by heritage. If we look at French luxury companies, we can see that they tend to be vertically integrated, with responsibility for design, manufacturing and retailing. Italian brands, on the other hand, tend to prioritize design and manufacturing, working with selected suppliers, but there's a trend towards full integration in the value chain as well.
Fashion designer brands
Compared to luxury companies, designer brands are primarily represented by their designer, who drives the creativity behind the collections and sets the direction of the organization. In principle, they focus on designing clothes to generate income. Initially, designer brands were small and unknown, with the designer taking the creative role of art director and using licensing to manufacture and distribute the collections. As the business developed and fashion labels gained recognition, designer brands began to take full control of their lines. However, licensing is now mainly used in the beauty and eyewear segments. Some designer brands also launched a second, more casual and affordable diffusion line alongside their ready-to-wear line. Initially, second lines were quite successful as they were generally aimed at a wider audience. This has certainly changed as the mass market retailers have grown and become more competitive. That's why a number of designer brands decided to close their diffusion lines, such as Versace's Versus Versace. Other brands decided to strengthen their second line by giving it an independent identity. Miu Miu, for example, founded by Miuccia Prada, granddaughter of one of the most prestigious Italian fashion houses, was originally Prada's diffusion line. However, since its creation in 1992, the label has managed to establish itself as a designer brand and has developed its own distinctive style.
Premium brands
Premium brands, also known as contemporary brands, have a strong entrepreneurial vision and a strong focus on manufacturing and distribution. They often have an imaginative name and design mainly for the bridget segment, yet sometimes they are designer brands with a more affordable concept. You could say they are the best of all worlds. They are less perceived as a commodity than the mass market and more affordable than high-end brands - creating a compelling balance between price and quality. In addition, they place great emphasis on implementing great customer service and having an effective communication strategy.
Vertical retailers
Finally, we've come to vertical retailers, whose importance has grown rapidly in recent decades. Some of them are quick to adapt to emerging trends and keen to launch trendy items - the so called fast fashion retailers - while others focus less on fashionability and more on designing basics - the mass basic retailers. As the name already suggests, vertical retailers don't just take care of retail and distribution, they also get involved in the design phase and communication activities to create a brand image. However, the infrastructure of different vertical retailers still varies, as there are some that are fully vertically integrated (manufacturing, design, distribution, retailing) and others still work with suppliers as they don't own factories.
Luxury brands
Firstly, luxury brands are the oldest business model of all, originating in France. They focus on hard luxury and typically include fine jewelry, watches, leather goods and silk accessories. As these product categories suggest, the value proposition includes exclusivity, excellence, uniqueness, craftsmanship, timelessness and a long history of the brand marked by heritage. If we look at French luxury companies, we can see that they tend to be vertically integrated, with responsibility for design, manufacturing and retailing. Italian brands, on the other hand, tend to prioritize design and manufacturing, working with selected suppliers, but there's a trend towards full integration in the value chain as well.
Fashion designer brands
Compared to luxury companies, designer brands are primarily represented by their designer, who drives the creativity behind the collections and sets the direction of the organization. In principle, they focus on designing clothes to generate income. Initially, designer brands were small and unknown, with the designer taking the creative role of art director and using licensing to manufacture and distribute the collections. As the business developed and fashion labels gained recognition, designer brands began to take full control of their lines. However, licensing is now mainly used in the beauty and eyewear segments. Some designer brands also launched a second, more casual and affordable diffusion line alongside their ready-to-wear line. Initially, second lines were quite successful as they were generally aimed at a wider audience. This has certainly changed as the mass market retailers have grown and become more competitive. That's why a number of designer brands decided to close their diffusion lines, such as Versace's Versus Versace. Other brands decided to strengthen their second line by giving it an independent identity. Miu Miu, for example, founded by Miuccia Prada, granddaughter of one of the most prestigious Italian fashion houses, was originally Prada's diffusion line. However, since its creation in 1992, the label has managed to establish itself as a designer brand and has developed its own distinctive style.
Premium brands
Premium brands, also known as contemporary brands, have a strong entrepreneurial vision and a strong focus on manufacturing and distribution. They often have an imaginative name and design mainly for the bridget segment, yet sometimes they are designer brands with a more affordable concept. You could say they are the best of all worlds. They are less perceived as a commodity than the mass market and more affordable than high-end brands - creating a compelling balance between price and quality. In addition, they place great emphasis on implementing great customer service and having an effective communication strategy.
Vertical retailers
Finally, we've come to vertical retailers, whose importance has grown rapidly in recent decades. Some of them are quick to adapt to emerging trends and keen to launch trendy items - the so called fast fashion retailers - while others focus less on fashionability and more on designing basics - the mass basic retailers. As the name already suggests, vertical retailers don't just take care of retail and distribution, they also get involved in the design phase and communication activities to create a brand image. However, the infrastructure of different vertical retailers still varies, as there are some that are fully vertically integrated (manufacturing, design, distribution, retailing) and others still work with suppliers as they don't own factories.
Conclusion
In conclusion, the fashion market segmentation provides us with an overview of how the fashion industry is structured in terms of price, quality and the amount of creativity that fashion brands incorporate into their collections. The different business models, on the other hand, illustrate how specific organizations operate, what decisions they make and how they strategically position themselves in the market. Thus, a company's business model implies where it is positioned in the fashion pyramid and hence allows us to see the degree of exclusivity and craftsmanship a fashion brand maintains.
Course: Management of Luxury and Fashion Companies - Università Bocconi (via Coursera)
