What Matters Now: How Digital Can Boost Luxury Brands.
In a rapidly growing global luxury market, brands should put digital at the center of their strategies to attract new customers and retain existing ones.
While luxury brands have been slower than others to fully embrace e-commerce and new digital channels, most are now coming around. Some have feared the perceived threat to certain aspects of traditional luxury—such as exclusivity—posed by the openness and ubiquity of digital. But luxury brands should instead recognize the significant opportunities that digital creates, both in attracting new customers and retaining existing ones.
With the global market for luxury goods estimated to grow to $333 billion by next year (excluding travel and automotive)—spurred in large part by newly affluent consumers in Asia and parts of the developing world—brands need to start using digital to market to new customers who expect superior user experiences. Upstart digital companies are delivering those heighted experiences and redefining the meaning of “luxury.” Some of the same new digital tools also offer established luxury brands the opportunity to reinforce traditional aspects of the luxury experience, including service, both online and in-store.
At the same time, digital enables brands to offer entirely new forms of luxury—of time and individual expression. In turn, social media has dramatically increased the aspirational base for luxury, by offering new ways to share and generate social influence.
With the widening exposure of luxury brands through digital channels and social promotion, the potential market has broadened both within and outside of the traditional affluent core. In this context, luxury brands should consider whether they should take advantage of the new, larger audience by launching bridge lines that exploit the prestige of the original brand at a lower price point, or if they should push exclusivity further by creating even more restricted experiences to feed the higher end of the market.
In this report, we will survey the changing landscape of the global luxury market and make four key recommendations for how luxury brands can use digital to keep pace, including:
- Empower customers to be brand ambassadors by incorporating social media and review sites.
- Offer new luxuries--of time and personalized experiences--using digital tools.
- Create next-level in-store digital experiences that wow and delight shoppers.
- Develop a strong content strategy to tell a product and brand story and better manage and use visual assets.
A shifting luxury landscape & the digital opportunity.
Luxury brands should emulate new digital players offering heightened user experiences that are redefining what “luxury” means.
The luxury industry is undergoing a transformative moment. As brands expand into a global marketplace, accelerated by digital and social technologies, defining “luxury” isn’t simply a matter of citing price and quality, as it once was. Craftsmanship, sustainability, and exceptional service play an increasingly important role, and now more than ever, they are promoted and enabled by digital technologies.
Innovative digital and mobile experiences are setting new standards for what users expect. While Uber, Amazon Prime, and Google Shopping Express are not “luxury” experiences per se, the concept of (nearly) on-demand delivery has changed expectations for what constitutes a luxury experience. Increasingly, these kinds of on-demand services are becoming the floor for what consumers expect, rather than truly unique experiences.
For Uber customers, there is an emotional benefit to being able to skip long taxi lines at the train station—a sense of power bestowed upon the user. What was previously considered a luxury experience, namely a private car and driver, has become accessible to a wider potential user base. Uber’s model began by targeting affluent consumers with black car sedans such as Lincoln Town Cars and Mercedes-Benz s550s and SUVs such as Cadillac Escalades, eventually moving slightly downmarket with the launch of its rideshare service UberX.
Other startups have emulated this model, focusing on software solutions to build luxury experiences that are seamless, don’t require a point-of-sale transaction, and offer once highly exclusive services to a broader audience. One example is BlackJet, a subscription service (at $2,500 annually) that allows members to book a private jet via its app or web site. While private jets are still not within the domain of the vast majority of consumers, the service is bridging the potential gap between private jets and premium commercial airline travel. A more recent, if ridiculous (and most likely unsustainable), entry is Techcrunch Disrupt winner Alfred, which promises to bring butlers to the masses for just $99 per month. Then there’s Indochino, an online custom suit maker that recently opened a pop-up store in Grand Central Station in New York.
Traditionally, we have defined luxury by its limits—supply, availability, and exposure. Technology changes that equation, but also presents the opportunity for brands to redefine what luxury means to today’s affluent consumer by emphasizing superior experiences. How consumers quantify those experiences is shifting rapidly. What seemed like luxury just a few years ago, such as on-demand delivery, personalized customer service, or custom products, has become more commonplace. Luxury brands that want to stay ahead of the curve need to anticipate where consumer demand will head.
Digital can help luxury brands attract discerning customers who are no longer focused primarily on price.
Luxury consumers may have much more disposable income than the average customer, but that doesn’t mean they don’t want to get the most bang for their buck. Affluent consumers want value—not just quality—but how they define value may differ sharply from mass-market shoppers.
As outlined in an influential paper by Professor Klaus-Peter Wiedmann and others, there are multiple dimensions to how consumers perceive and define luxury in a globalized, growing and changing market. The traditional conspicuous consumption model of the luxury market is giving way to one that is more grounded in an “experiential [luxury] sensibility.” According to Weidmann, consumers factor social and individual value into their overall perception of luxury, not just financial and functional value. Unlike the latter, the former are fairly complex.
- Conspicuous Value. Luxury items play an important role for consumers in search of social status. Conspicuous value is heavily influenced by an individual’s peer group, and validated by a luxury buyer’s social relationships.
- Prestige Value. An individual’s desire to buy luxury brands serves as a symbolic sign of group membership. As a result, a consumer may use a prestige brand to confer professional status during the week, such as carrying a Tom Ford leather briefcase to work, and a more modest brand such as a J. Crew messenger bag on the weekends to conform to social standards in his neighborhood.
- Self-Identity Value. In contrast to the external or social dimensions of an individual’s sense of self, self-identity refers to the way individuals perceive themselves. Many marketing theorists have pointed to the way consumers use luxury brands to develop and reinforce their own identities.
- Hedonic Value. This is the emotional value and enjoyment of luxury products and services in addition to their functional usefulness. In other words, there are intangible benefits, such as sensory pleasure or satisfaction, associated with luxury.
- Materialistic Value. While there is no singularly agreed-upon definition, researchers agree that the acquisition of possessions is fundamental. According to Wiedmann, material value is “the degree to which individuals principally find possessions to play a central role in one’s life.” Consumers tend to rely on their possessions as a means to project identity and status.
Taking these social and individual dimensions to how consumers define luxury into consideration doesn’t mean that they disregard price when comparison shopping, just that there are other factors at play. Luxury consumers still compare potential purchases—Porsche vs. Ferrari, Four Seasons vs. Ritz Carlton, Gucci vs. Louis Vuitton—but their evaluation criteria go beyond price. A superior customer experience, service that goes above and beyond to make the buyer feel special, an easy way to socially validate the luxury experience and small, unexpected touches can make an enormous difference. Digital can help enable all of these “extras.”
At the same time that luxury consumers are considering other, sometimes intangible factors when shopping, they are becoming much less loyal to particular brands. According to The Survey Of Affluence and Wealth, fewer and fewer luxury consumers have favorite brands in retail, fashion or hotels. For instance, in the 2007-2008 survey, 47 percent of the top five percent of US households by income had a favorite retailer. Today that number has dropped to 28 percent. Likewise, just a few years ago 67 percent had a favorite hotel, while today that number has dropped to 37 percent.
In a marketplace where there is intense competition for customer loyalty, it is high-quality user experiences and unexpected moments of delight—easily enabled by digital—that denote luxury, instead of more old-fashioned notions of material quality or even logo. The luxury consumer still comparison-shops, even if price is less important to him. The declining loyalty of luxury consumers to particular brands is a troubling trend, particularly because a small group of brand enthusiasts and repeat customers generates the majority of sales in the luxury category. As a result, luxury brands need to work harder to encourage loyalty in their customers.
Four recommendations for seizing the digital opportunity.
- Incorporate social networks and review sites to empower consumers to become brand advocates.
Not surprisingly, considering some of the intangible factors—like individual and social values—that affect the modern consumer’s perception and definition of luxury value, these potential buyers regularly seek advice from their social networks. In fact, the percentage of affluent consumers who rely on peer-to-peer online comments to shape their opinion of a brand is increasing, from 65 percent in 2012 to 72 percent today. Likewise, 65 percent rely on online comments from experts, up from 55 percent just two years ago. Four Seasons has already incorporated Tripadvisor reviews into its own site. Anticipating how luxury consumers are already shopping online validates their purchasing decisions and helps luxury brands promote the intangible aspects of their product or service.
Not just providing VIP experiences but offering the opportunity to share those experiences while they’re happening or after is also now critical to building an ongoing relationship with a luxury consumer. Users are already turning in droves to share their high-end experiences—whether at a Burberry fashion show, exotic vacation or supercar test drive—a key role in the social validation that often motivates luxury buying.
These consumers are using any opportunity to #humblebrag their new handbag purchase, exotic vacation, or luxury spa experience to their social network and beyond. Social media has the ability to amplify the mythologies, narratives, and cachet of luxury brands, as well as act as a self-validating platform for purchasers. While luxury brands are currently catching up to digital-first businesses, they have the opportunity to curate products, content, and premium experiences that lend themselves to sharing. Understanding the underlying motivation (such as pleasure, seeking status, or a love for a product’s performance) behind luxury purchases is just an initial step.
More important within a digital ecosystem is offering consumers the ability to share their experience, whether that means posting a review online, tweeting a product shot, or sharing a photo of their purchase in context. Burberry has taken the lead here, launching the Art of the Trench in 2009. The standalone site encouraged fans of the brand to snap and upload pics of people wearing its iconic trench coat in the street. The site was originally populated by images taken by respected street style photographer The Sartorialist but grew quickly as users submitted their own photos. Users could not only “like” and share the photos but could also sort them by trench type, color, weather, popularity, and who submitted the photo.
The company’s digital initiatives were so successful, it had shifted 60 percent of its marketing budget to digital by 2012. As Burberry has shown, digital has the ability to enhance the emotional journey as a customer travels down the sales funnel, providing moments of not just desire and yearning, but also reassurance, both before and after purchase.
- Use digital to offer new forms of luxury to consumers—time and highly personalized experiences.
Even if digital disrupters in various sectors have commoditized certain aspects of the traditional luxury experience, there are two key luxury dimensions that digital can help brands enhance: increased time and more individualized experiences.
Time is money.
More time has always been a luxury: think of posh passengers shooting across the Atlantic in the Concorde at Mach 2. Virgin Airlines kept flights subsonic but saved first class passengers time by offering onboard amenities like haircuts, manicures, massages and a bar.
Digital opens up many more possibilities. Retailers like Apple and Nordstrom both use mobile checkout to eliminate waiting on line for a cashier—a trend that is now migrating towards mass-market retailers like JCPenney. In fact, luxury consumers have already indicated a preference for customer service aided by mobile technology. A recent report by Forrester Research found that 66 percent of luxury consumers were more willing to interact with a sales associate equipped with a mobile device. While from a customer’s perspective, mobile point-of-sale may feel like a luxury touch that speeds a sale, it also provides myriad benefits to the retailer, including expanded points of purchase without requiring additional floor space, better inventory management, and decreased abandonment rates.
Retailers that adopt a more mobile-centric strategy must integrate inventory management into new purchasing systems, allowing sales associates to check in real time for alternate colors or sizes for a customer. Developing the initial mobile POS ecosystem may require a high level of investment, but the potential financial benefits are appealing. According to a Yankee Group report released last year, large retailers will spend $20,000 and need around 75 square feet of floor space to install five fixed checkout points. In contrast, five “fully-loaded iPod touch devices to staff will cost just $2,500, with no loss of floor space.”
Personal attention to detail.
Digital also has the ability to address the individual luxury shopper, creating a more intimate, customized, and potentially less intimidating relationship with brands (and incidentally is another form of time-saving). According to The Affluence Collaborative, 34 percent of luxury shoppers expect customized products and services, and another third expect to be “surprised and delighted through once-in-a–lifetime luxury brand experiences.” This may mean having the ability to see which products are available near them in real time, or the ability to join a waitlist for a particular product or personalize a product. For Burberry, customers can order clothing straight from the runway for delivery within a nine-week timeframe. Additionally, customers also receive a personalized and engraved nameplate in their trench coat or bag.
The industry that has arguably led the way in creating customized experiences, enabled by digital, is luxury hospitality. For instance, hotels are increasingly greeting guests by name at arrival, delivering personalized welcome packets to guests tailored to individuals’ interests, and creating moments of surprise and delight for returning customers. Luxury hotels have always focused on flawless service and creating a VIP experience, from having the sommelier recommend a vintage based on a guest’s previous choices to knowing which flowers are a guest’s favorites to stocking the room with a guest’s preferred brand of coffee. It’s not surprising that Ritz-Carlton executives have been recruited to teach Cadillac dealers the “finer points of the luxury experience.”
- Create exciting, unique in-store luxury experiences with digital.
As physical retail footprints shrink, digital plays a more important role in helping brands build and reinforce their mythologies. More and more, physical locations are becoming showrooms for brands, a space for highly curated product experiences. Innovative brands such as Burberry and Audi are finding ways to enhance the in-store experience with digital technology.
For instance, two years ago, Burberry remade its flagship London store, modeling it after its digital experience, Burberry World. The four-story shop on Regent Street not only includes a massive screen, hidden speakers and a hydraulic stage, but also “scannable tags,” similar to RFID microchips embedded into some of the clothes. As shoppers wearing the items approach one of the “magic mirrors,” the mirror becomes a screen to show video from the catwalk, or a film about how the item was made. Burberry’s investment in technology has paid off—the company just posted record results. The company’s total revenue in the first quarter of this year was £2.33 billion, up from £1.99 billion the year before and £1.857 billion in the first quarter of 2012. It’s not surprising that CEO Angela Ahrendts recently moved to Apple to head up its retail after Burberry’s eight-year digital transformation effort.
Likewise, Audi has opened digital showrooms in Beijing and London. The tiny showroom in London (just 420 square meters) features only four models. Yet according to Forbes, the showroom has been a huge success, drawing over 50,000 visitors in its first year of operation and selling an average of seven cars per week. Even though the display area is limited, the showrooms highlight digital tools for configuration and virtual test-drives on large wall screens that display the car on a 1:1 scale. Fully half of customers in the first half of last year bought their car without first taking it on a physical test drive, having only experienced the car virtually.
While many retailers are experimenting with digital integration into the brick and mortar experience, too often that means simply adding digital displays into the retail environment. True innovation requires using digital to enhance the shopper’s experience, not just project higher fidelity video. A large swath of luxury shoppers will always want the ability to touch and see products, and get the one-on-one attention that in-person retail allows.
- Adopt a strong content strategy and invest in digital-specific assets and systems to manage them.
A large part of the mystique of digital has always been backstory, how a particularly well-crafted item made it from fine material into beautiful object. Realizing this, luxury retailers like Barney’s have created content sites attached to their e-commerce sites that tell the story of a brand or piece. With so much rich history and heritage, luxury brands have the unique opportunity to create entertaining and informative, multimedia content to reinforce their brands.
Luxury brands should also embrace the potential of high-quality product photography, animations and other media to replicate the touch-and-feel experience shoppers get in-store online. Too often, digital assets such as product photography tend to be an afterthought, the B-roll tacked onto photography sessions for marketing collateral or catalogues. However, one of the benefits of digital is that it allows shoppers to become immersed in a product in ways they can’t be in the physical world. For instance, a Rolex shopper can’t pull apart the components of a watch to see its internal mechanics. But the Rolex web site offers the ability to explore, in high definition, the individual pieces of its chronometer. Rolex is able to tell a story about its craftsmanship digitally in a way it couldn’t at a retailer location.
One of the challenges is that doing photo shoots specifically for digital assets is expensive. While it’s tempting for a luxury company to simply repurpose its offline assets, it’s critical to create digital-only assets in order to provide a 360-degree view of the product. Consumers want to be able to see close ups of the stitching and materials. They need to be able to see how it might look on a model or move on a runway, and want to explore the minute details virtually—the grain on a leather bag or the seam detailing on a trench coat, or the way a silk skirt moves when it’s worn.
For luxury brands, particularly global ones, digital assets mean more than simply images or video. Creating a content management system that includes large amounts of metadata, such as text, catalogue information, marketing materials, and the ability to translate content into multiple languages comprises a comprehensive digital asset strategy. Creating a strong content strategy requires investing in multiple components. For instance, Chanel’s digital platform includes a digital asset management system, a product information management system, and a translation service system to serve global markets. These systems need to be equipped to manage short but intense bursts of activity, as many of the assets are created via events such as runway shows and seasonal collections. Within luxury fashion and retail, one fashion show alone can result in thousands of images and will almost certainly be distributed far beyond its original site.
- Incorporating social media and review sites into their own digital presence and encouraging consumers to become brand ambassadors through social media should be a key digital priority.
- Brands should use digital to offer luxury consumers two new luxuries: more time and highly personalized experiences.
- Marketers must embrace an integrated mobile strategy that includes inventory management to provide seamless transactions for customers eager for individual attention that doesn’t require a wait in line.
- Building the in-store infrastructure to deliver a higher end customer experience may mean upgrading the brick-and-mortar wireless infrastructure or installing iBeacons, improving visibility into inventory, and creating more robust customer profiles.
- Brands should create robust and highly visual and multimedia content to convey the heritage and backstory of their unique products and services, especially to help replicate the touch and feel customers can get in-store online.
- Luxury brands must invest in digital-specific assets and systems to manage them.