• by Milton Pedraza , January 28, 2008

First, the story was that luxury was omnipotent and luxury consumers were immune. Even affluents were trading up, they said, and luxury could do no wrong. Now, the story is that luxury has lost its luster and even the wealthiest are bailing out.

The reality is that luxury is cyclical, and always has been--as are all industries--and that luxury winners take a long-term view and business approach. Here are seven "tough-love" steps from the independent Luxury Institute to ensure that your brand not only survives, but thrives, in an economic downturn.

1. Eliminate the Hobbies

Many luxury brands have entered into categories where they have no expertise because they want to be "lifestyle" brands. Some categories are logical extensions for a luxury brand, but most are not a good fit and will be marginally profitable. Fashion brands are notorious for pasting their logos on anything they think will generate growth regardless of the impact on the long-term brand equity, and the long- term bottom line.

Wealthy consumers are highly discerning, educated buyers. Several years of Luxury Institute empirical research shows that wealthy consumers prefer--and are willing to pay a significant price premium for--brands that are specialists. Leiber in handbags, Harry Winston in jewelry, Christian Louboutin in women's shoes, and Berluti in men's shoes are brands that wealthy consumers rate highest as category specialists. Conduct a rigorous assessment of your brand's category portfolio and unflinchingly eliminate marginal "hobby" categories. Renew your focus on what you do best and innovate within those categories.

2. Go Up-Market Right Now

One of the great ways to kill a luxury brand, albeit slowly, is to move down-market. Gucci was a great comeback story because someone had decimated it before Tom Ford saved it. It is the "boiled frog" syndrome. The warm water feels so good that the frog doesn't know it's being made into soup till the water starts to boil. By then, it is too late to bail.

If you are a luxury brand that really aspires to be a mass brand, then create and execute a strategy to be distributed in as many mass market outlets as possible. You have lots of choices. If you aspire to be a top-rated luxury brand, then our research says that you must serve high net-worth consumers, be unique and exclusive, limit your distribution and maintain impeccable service.

Great quality is not enough. Focus on going up-market with bespoke, one-of-a-kind, custom-made, made-to-order, limited edition products and deliver service to match. Only then will the new, growing multimillionaire consumers globally be willing to pay a premium for your products long-term. That's your growth strategy. Period.

3. Innovate and Dare to Be Different For a Change

Luxury firms have commoditized luxury--63% of wealthy consumers feel luxury is being commoditized. Walk down most high streets, such as Fifth Avenue, Avenue Montaigne, and Bond Street, and you see the same look and feel in store designs and products to the point that you can take away the signs and logos, and wealthy consumers would probably not be able to identify who is who. Same is true for services.

It is time to stop emulating your competition and begin to innovate such that you are creating never-before-seen products and categories that are relevant and that revolutionize your industry. Apple is beating luxury at its own game by creating great products and services, innovating features and benefits, and charging a premium. Its stores have become high-tech/high-touch destinations. If luxury has any claim to fame, it is in innovation and novelty. Demand innovation and you will get it.

4. Leverage your PR, not your Advertising

Especially in challenging economic times, every communication dollar counts. Public relations is a far more effective and credible vehicle for persuasion of key constituents than advertising. Give your agency the opportunity to communicate the authenticity, the rich history of your brand, your brand icon, your brand integrity, your brand's corporate citizenship, your knowledge of the category via your internal data, and most importantly, your breakthrough innovations.

5. Deliver Extraordinary Experiences

The truth about extraordinary customer experiences is that they are delivered not with gimmicks and props, but by talented, caring people who connect with customers one-to-one.

How much extra does it cost you to staff your company with people who are expert in your products, and even your competitors' products? Who are trustworthy? Whose interests are aligned with your clients? Who are genuinely interested in helping people with a smile?

Great people are the most difficult resource to scale, yet companies such as Ritz-Carlton and Nordstrom are consistently rated by wealthy consumers as delivering extraordinary customer experiences despite their size. Apple now has better experiential stores than many luxury firms. And it is not the bricks and mortar that are delivering that. When will your brand be rated at the top of customer experiences by the only constituents that count?

6. Innovate Online

Luxury brands have been in perpetual debate as to whether to be present, and sell, online or not, and if, and how, to advertise online. Reminds you of the dotcom era when so many "experts" were vigorously debating whether content was king on the Internet, and whether technology would become a commodity.

Thankfully, the Internet debate is over for most luxury brands. Now is the time to use this rich channel to reach global wealthy consumers no matter where on earth you happen to be located. If a luxury brand asks whether it should spend scarce funds on opening another store, launching a print advertising campaign, or investing in a great Web site and online advertising, the Internet wins every time as the fastest, cheapest, and most effective way to leverage a luxury brand in today's world.

7. Let the Voice of Your Customer be Your Guide

Strategy meetings are great, but you will find yourself in circular group think in economic downturns. Everyone will want to play defense, when you need to have a great offense.

Inject the voice of the wealthy consumer into your strategy sessions. Use internal and external quantitative research, create an online community, mine your transactional database, engage customers one-on-one at point of purchase, etc.

In effect, do whatever it takes to understand what consumers are thinking right now and why they are behaving the way they are. Find ways to immediately put consumer feedback into practice. They will guide you not only to survive, but thrive, in any landscape, including a downturn. This too shall pass, and you will be the stronger for it.

Milton Pedraza is CEO of the Luxury Institute, the uniquely independent and impartial ratings and research institution that is the trusted and respected voice of the high net-worth consumer. More information is available at luxuryinstitute.com.