The New Luxury … “something rare and hedonic, authentic and experiential, and socially engaging”

February 19, 2018

My recent work, and articles, on the changing nature of “luxury” have attracted much attention … in particular the shift from tangible to intangible, product to experience, iconic to personal. Working with Cartier, one of the key insights was that luxury brands have become some of the most social, because they are built on reputation, build a perception of inclusion, and bought through relationship.

Take a brand like Channel. Is it the product that is luxurious (the finest materials, quality craftsmanship, iconic design) or the brand identity (which reflects an idea, and through it an aspirational concept, or lifestyle)? It is probably both, but which comes first, and matters most? If it is the brand, then how does that apply to other products and sectors (where the new attributes of luxury, such as time and authenticity) have most relevance?

As luxury brands are besieged by new consumers with different values and aspirations, new channels and business models, new competitors and luxurious alternatives, brand owners and their marketers need to rethink “what is luxury?” in today’s world.

A new white paper published by The Economist Intelligence Unit examines the problems facing luxury brands, and how they can adapt. Here is an edited excerpt of the report …

Managing luxury is more difficult than ever. The luxury market has become truly global. The majority of sales for traditional European luxury brands is coming from Asian consumers now. New brands are entering the market, building on local ways of living and celebrity trends. What people wear on Abbot Kinney Boulevard in Venice, California, the Bund in Shanghai, Tverskaya Street in Moscow, Shibuya Crossing in Tokyo or on the London Underground has more influence on the expression of luxury than ever.

About a decade ago, most luxury managers I spoke with were not only ignoring digital channels, they fundamentally believed that luxury and e-commerce would never (!) go together. They pointed out that the experience of going into a luxury-brand store was critical and couldn’t be replaced. How different reality is today. Many newer luxury brands don’t even have store fronts any more but focus instead on selling through the internet. Augmented reality will boost this trend even more.Consumers have become more sophisticated and knowledgeable and now expect more.

Ethical shopping is no longer a buzzword that is high only on the agenda of Millennials—many others are looking for authenticity when they spend enormous amounts of money on luxury brands. Lifestyles change. Wellness has become the new luxury for many, with more and more people becoming concerned about their health and wellbeing. And this is not only a new segment. Wellness influences almost anything: changed behaviours, with more rigorous exercise schedules for many; changed expectations regarding the comfort and design of car interiors; different views on what a hotel or spa experience should be; and increased demand for healthier options on restaurant menus, to name just a few.

In this already dramatically changing context for luxury brands there is further disruption from several trends that will play a major role for luxury managers over the next few years. If left unaddressed, these trends will not only challenge the success of incumbent brands but endanger their very survival. Many previously iconic luxury brands are already suffering and are in steep decline because they did not change early enough and not radically enough.The time for complacency is over. Luxury managers need to leave their comfort zone and make their brands future-ready. This includes strict brand-equity thinking by defining and sharpening brand positioning. It entails optimising the customer journey, and it requires something that has been lost for many luxury brands: offering a truly authentic experience. An experience that is so memorable and unique that consumers pay the enormous premiums that luxury brands can charge.

Luxury is difficult
Managing luxury is not only more difficult than ever, it is actually one of the most difficult managerial tasks. This is deeply embedded in the nature of luxury. Langer (2008) and Langer & Heil (2013) define luxury as “something rare and hedonic, difficult to acquire or use, that provides a perceived unique experience in combination with a perceived enhancement or reinforcement of the social position. It is an emotional social marker and differentiator”.This definition underlines the difficulty connected with luxury in four dimensions (see above): being rare and hedonic by nature, luxuries are difficult to create. They are difficult to consume because of the difficulty in acquiring (price, availability, scarcity, waiting times etc) and using them properly (a sports car is difficult to drive, really appreciating a rare wine needs expertise, not everyone can wear an haute couture dress, a bag made of sophisticated leather may be very receptive to scratches and stains and may not be practical in day-to-day usage, etc). Providing a unique experience is difficult to repeat by nature. Finally, being in an enhanced social position and a social marker and differentiator is difficult to maintain: perceptions change over time and new brands, tastes and expectations evolve.While managing luxury is difficult, very few tools exist to guide managers in a proper way. I developed some of those tools (luxury index and non-linear pricing, category potential and segmentation, brand equity and positioning tool for luxury brands, luxury customer journey tool, brand acceleration tool for luxury brands) when I discovered that luxury managers are basically left alone with mass-marketing methods. Tools and strategies that are common for mass brands are not only inappropriate for luxury brands, they can ultimately lead to the destruction of luxury brands. Luxury managers tell me all the time how much they regretted growing their brands too fast with too cheap line extensions. Once the perception of a luxury brand is weakened, it is difficult to come back.

Luxury managers need to change their thinking and tap into the true potential of luxury: strict brand-equity thinking, customer journey optimisation, brand storytelling and limited editions. This is where good is not good enough anymore. This is where past strategies to master the future won’t work—especially since disruption will change the face of luxury further.

Leading the change

To lead the change starts with the understanding that a change process is difficult and needs the full commitment and dedication of the management team. When we conduct brand audit workshops, we typically interview the leadership teams beforehand. And most of the time we discover that different leaders of the same organisation see different challenges, different solutions and different approaches. And we often find a disconnect between how C-level managers talk about their brand and how sales people, store managers or brand ambassadors talk about the same brand. This is the worst that can happen, and we find that this is the rule rather than the exception. Helping to channel those different viewpoints towards one thinking and one approach is crucial in leading the change.

Most organisations pay too little attention to their most important asset: their brand. Especially in the luxury space, too many brands rely solely on the creative input of the designer, but they don’t do the most fundamental exercise: to ask themselves who they are, what they sell. This is not about the physical products they produce but what they sell as a brand. What is their purpose, and how do they inspire their consumers? Thinking short-term only, about the next collection or the next hype, can work for a limited period of time. But when there is no strategy, success will be limited and short-lived.

A sharp brand positioning is a must, and brand-equity thinking needs to be at the centre of what everyone does in the organisation. Creating a common understanding of what the brand is and where the brand should go, clarifying the role of each individual in the company, and specifying how each employee should and can contribute to the brand-equity vision. It is surprising how few brands do this exercise regularly (we recommend every three years at a minimum). Clear and differentiating brand strategies are missing. There is little perceivable differentiation between many luxury brands that operate in the same segment.

This creates missed opportunity in terms of pricing, which is the true driver of revenue and profit growth of luxury brands. In our research, we find that many luxury brands are too cheap. They could price higher, but they lack the experience and tools to understand the full potential of pricing. Lack of differentiation limits pricing moves further. Hence, brand-equity thinking, a clear brand strategy and pricing opportunities are closely linked.

Luxury brands need a story to create a myth, a unique emotion. Here is where creativity and strategy unite, because the story is so important that it has to be part of the brand strategy—expressed in everything the brand does, with clarity and high precision in visual and verbal storytelling.

When we ask luxury managers about the last time they made a rigorous audit of the customer journey, we often get a surprised look. In our experience, a customer journey audit and optimisation are crucial to create experiences that consumers value and come back for. The brand strategy needs to be reflected in each and every touchpoint a customer has with the brand. Every touchpoint matters. Every touchpoint should enhance the brand. Failing at only one point can destroy the entire experience.

Managing luxury is difficult. Luxury itself is elusive by nature. Managers face a context that changes faster than ever before and requires precise strategies and a comprehensive game plan. It is important to move organisations out of their comfort zone and challenge the status quo. Because the status quo no longer exists. Those who pursue past strategies will not survive. And those who think differently and implement strategy and change throughout the organisation have the opportunity not only to lead the change but also to be the driver of the future of luxury.

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