Disruption in Luxury: Special Report
Excerpts from the report below:
Luxury brands are facing a number of disruptive forces as new competitors, technology and changing consumers put pressure on them to rethink business as usual.
The traditional definition of luxury is being challenged, as exclusivity falls out of fashion for the affluent audience. In the midst of disruption, should luxury brands adapt or stay the course?
“We’re at a point where the industry needs to rethink the concept of ‘exclusivity,'” said Jasmine Bina, president of Concept Bureau, Santa Monica, CA. “The traditional notion of elitism has started to feel more like disconnect in today’s world.
“A growing number of luxury consumers take pride in being connected, in being activists with their dollars and consuming high-end experiences that transform them instead of reassuring them that they are of a different class,” she said. “What they increasingly want is an exclusive form of understanding about the world.”
“It’s so important for luxury to know the customers they have, and understand the customers that they don’t,” said Chris Paradysz, CEO of PMX Agency, New York. “The connection with the consumer and with audiences, more broadly, is a tremendous focus for luxury brands that are winning right now.
“The reason Louis Vuitton is doing so well is that they know their audiences, and they’re able to identify the changes happening with them,” he said. “They get the urban lifestyle, and they get the product development priority because they’re listening intently to their audience. And so they’re designing accordingly, and they’re actually able to raise prices because they’re making the product more exclusive.
“It’s not about price cutting – it’s creating the allure around a product that gets to the heart of who their customer is, and what they really want.”
Luxury has traditionally been tied to products and services reserved for a privileged few, with exclusivity a key component in the positioning of classic brands.
Evolving consumer tastes, however, are putting pressure on the notion of luxury as an ivory tower.
The vocabulary consumers use to describe luxury is evolving, with the term “exclusive” falling out of fashion, according to the Shullman Research Center.
The firm found that across all generations, consumers mention descriptors such as “quality,” “name-brand” and “expensive,” but different age groups show varied attitudes toward luxury, with boomers’ “overpriced” more negative than millennials’ “rich.” As brands increasingly target millennials, who represent 50 percent of all luxury buyers, they need to alter their language accordingly (see story).
Among all American adults, unnecessary popped as one of the top 20 words used to described luxury in another Shullman Research Center report. Among those with incomes of at least $100,000, this term dropped out of popularity, however these consumers still used the term “non-essential” (see story).
A 2015 Martini Media report similarly found that about two-thirds of affluent consumers think the definition of luxury is not the same as it was in 2010.
Nowadays, affluent consumers would much rather buy a luxury good that is elegant and minimalist over an item that is flashy or ornate. The same is true for experiences, with consumers seeking out rare, curated moments rather than something considered to be a prestigious or status-oriented event (see story).
“Many luxury buyers, especially the millennials, are now less focused on acquiring and owning luxury things,” said Bob Shullman, founder and CEO of the Shullman Research Center, Greenwich, CT. “They also are more likely to define luxury in a different manner than the older generations.
“They are more into wanting and buying luxury services, ‘experiences,’ which is very good for those luxury brands that sell luxury services,” he said. “Additionally, we are also noticing that many older luxury buyers are now less inclined to buy luxury products as they are telling us their homes are chock full of wonderful luxury things and now it’s their time to go out and enjoy the fun experiences they have earned, especially if they are now ’empty-nesters.'”
For many consumers, self-expression now trumps status, forcing luxury labels to meet this need with design rather than resting on a logo or name. For instance, a man might prefer to drive a Mini Cooper instead of a Mercedes-Benz because it is a better fit for his personality (see story).
Some brands have been more successful than others in courting the luxury consumers of tomorrow.
Best practices for luxury brands to navigate disruption:
- Jasmine Bina, Concept Bureau:
- “Don’t just study your consumer, empathize with them. It’s easy to say, ‘millennials want X,’ but a lot harder to actually feel that desire yourself. Only from that viewpoint can you create something of value.”
- “Remember that the story that matters isn’t about you, it’s about the customer. As other smart marketers have noted before me, saying, ‘This is what our product does’ is very different than saying, ‘This is who you can become with our product.'”
- Chris Paradysz, PMX Agency:
- “Although it’s disruptive, speed is crucial. Speed in everything –speed to market, speed to new product investing. Focusing on new product. But this doesn’t necessarily signal digital-first. It’s digital simultaneous. In luxury, digital needs to be as important as all the other distribution channels, including the stores.”
- Bob Shullman, Shullman Research Center:
- “Millennials are the largest generation in the luxury marketplace today and they are in many respects the force behind how shopping has been changing and is occurring today and how it will take place in the future. Notably many of them do not yet have the high incomes that tend to be associated with purchasing luxury products and services, but many of them undoubtedly will have high incomes in the future. How many of them prefer to shop matters and luxury marketers need to pay attention.”
- “Listen very carefully to your customers and address those customer annoyances that many times become problems from the customer’s perspective that over time will undoubtedly drive them away form your brand.”