Commentary
How To Make Luxury Relevant Again
- by Pam Danziger , Columnist, March 23, 2017
The luxury industry is at a tipping point. Both Euromonitor and Deloitte, global firms that study the luxury market, testify to it. They predict growth slowing in the global luxury market, with particular weakness in the Western Europe and North America.
Further, Bain & Company, in association with Fondazione Altagamma, reports the personal luxury goods segment contracted 1% from 2015-16. More troubling, Bain reports the Americas declined 3% and Europe by 1% in 2016.
Bain says, “It represents a new normal in which luxury companies no longer benefit from a favorable market and free-spending consumers.”
Why these formerly free-spending consumers have put the brakes on their spending is revealed in a survey among over 600 luxury industry executives we conducted with Luxury Daily. It’s because the very foundation of the luxury industry has shifted. Luxury doesn’t mean the same thing it used to. “The definition of luxury is so watered down, we need to completely redefine the category,” explained a luxury industry executive.
Today a gap is growing between what the customers believe luxury is and what the industry thinks it is. Luxury brands must bridge that gap, as this insider said, “There is an opportunity for luxury brands to re-examine their roots and re-think their offerings and messaging to reflect what the consumer is looking for.” Until they do, that gap is being filled by new disruptive competitors unbound by the traditions prevalent in the luxury industry, and which increasingly hamper established brands.
The solution: Luxury brands need to become relevant again. “With the consumer leading the way, the idea of the luxury market will evolve, and in the process, redefine the very definition of luxury itself,” as this insider expressed it.
Jim Blasingame, author of The Age of the Customer, has much to say about the “moment of relevance.” He explains that the rules of marketing have shifted because marketers no longer control the information about the products for sale through carefully-crafted advertising and other marketer-generated messages. That power has shifted to the consumer thanks to the internet. He writes:
“The age of the customer is upon us. After centuries of markets driven in large part by those who sell, today’s competitive environment is driven by the customer. This means marketers can’t go forward with their marketing plans without deep consumer insights about motivations, not just behavior or demographics.”
What’s made this new age of the customer so disruptive to luxury brands is that much of the allure of luxury has been its mystery and intrigue. But the internet has pulled back the curtain. Luxury brands can no longer hide behind the traditional myths of luxury.
Today the images that the luxury label conjures up have taken on a negative taint, now associated conspicuous consumption, indulgence, exclusivity, elitism, extravagance, status seeking and the wealthy 1%.
Luxury brands must reset by accepting that the consumers, not the brands, are now in control. Shifts in the demographics and mindset of today’s luxury consumers mean luxury brands need to abandon the old ideas of luxury and bring in new ideas aligned with today’s consumer mindset and value. In the LD/UM insiders’ survey, an insider shared:
“The change in how consumers define luxury and the new path to purchase is dramatically redefining the marketing strategy. Luxury brands must be very agile and innovative to gain the favors of the new luxury consumer.”
Luxury brands with their longstanding heritage and tradition face unique barriers to change, as this insider expressed, “Finding the right balance between innovation and tradition is a challenge for many brands.”
Confronting the need to balance innovation and tradition, many luxury brands opt for small ‘baby steps’ and modest tactical shifts, rather than the dramatic reinvention and innovation called for by the rapidly changing priorities and mindset of today’s luxury consumers.
Luxury is a mindset, not a brand or a price point. To established heritage brands’ frustration, the chances of getting traditional luxury back are nil. The very foundation of the market, its customers, have irreversibly changed. As a result, traditional luxury brands must adapt to the new style of luxury that their customers are hungry for.
It would have been more helpful if Pam had actually defined how industry and the consumer define luxury instead of just saying industry needs to change.
Always the problem.
Linda, Problem with defining luxury is that it is totally subjective, re 'luxury is a mindset.' As a result, companies that compete in the industry are self selecting, i.e. they decide they belong to that 'group.' Bain, Deloitte and Euromonitor tend to define the industry by company profiles, but many folks argue that Michael Kors doesn't belong in the same group with Hermes. Murky world. But for the Luxury Daily/Unity Marketing study we surveyed industry insiders, i.e. executives that self select by subscribing to the Luxury Daily newsletter. I invite you to visit my website www.unitymarketingonline.com where I write much about luxury from the perspective of affluent consumers, which I can more precisely define as the top 20% of U.S. households based on income. Now whether they see themselves as 'luxury customers' is another question.
Linda and Paula are exactly right. Without an objective and quantifiable definition of "luxury" by category, research and statistics about market size are virtually worthless and potentially misleading.
The true luxury products are facing 2 primary obstacles beyond their control. The affluent baby boomers have, by this age, acquired about all of the material goods they want and can use. The younger generations have been hit hard by economic conditions and changes in opportunities. Fewer of them can afford true luxury.
The true luxury consumer is largely limited to the wealthiest 1%. The aspirational affluent consumer, who made up a sizeable portion of the luxury market before 2008, is now largely gone. Not even the top 10% of the wealthy, based on the more important criteria of net worth, are very good prospects for many of the true luxury categores.
Ron, I'm with you. A much better approach is to define the market according to consumer dimensions with income/wealth being quantifiable measures of Who can AFFORD to buy. But there still is another critical variables: Who has the WILLINGNESS to buy.
We shouldn't discount the lower income HENRYs, for example, as they can trade up to luxury on occasion, but they don't like luxury as everyday lifestyle. But then who really does these days??? It simply isn't cool.
I hear you Pam, and you are right about willingness. However, it may be that true luxury is not understood or appreciated by many rather than it not being cool. The affluent, especially the younger generations, need to be educated about true luxury and the "value" it represents. Pretty photos and limited text may be good for image, but not for education.