5. Customization in Luxury: The Case of the US market

By Anja Jeitziner

People have always associated individualisation with luxury, the pursuit of that which differentiates them from other persons and entire classes. Luxury goods confer on their owners the means of expressing their style. The limited availability of luxury products supports the goal of luxury-loving consumers the world over, that not everyone can copy their style with the same products. The luxury clientele wishes to remain among themselves. Nevertheless, every single luxury consumers wants to present themselves individually.

The trend towards customization has long contributed to this idea and to the wish for individualisation, uniqueness. In business management, customization means that an enterprise plans, steers and monitors its market activities such that individual fulfilment of customer needs, customization’s dictionary definition, is achieved and competitive advantages are thereby generated.

______________

An individualization process is currently observable in society, which is increasingly expressed in individualized buyer and consumer behaviour.

______________

The reaction of enterprises to this process may be manifested through customization; the result is that enterprises offer differentiated products and services. Customization in relation to individualised offerings is understood by the luxury brands on the US market to mean that foreign luxury enterprises rebrand and offer individualised products to specifically address the US market and to be in a position to emphasise the luxury status and the foreign origin of the brands.

What makes this interesting trend so relevant? The trend towards customization on the US luxury market is relevant in various respects. On the one hand, customization represents a promising option for luxury enterprises, and the US market is exceedingly attractive, on the other. One reason for this may be that customization becomes a competitive advantage and differentiation feature for luxury enterprises. So customization constitutes a possibility, on the basis of which the luxury enterprise can raise itself above its competitors in the customers’ perception.

Moreover, a luxury enterprise can serve discerning luxury customers with individualized services. Customers with high demands on quality and exclusivity who wish to distinguish themselves from other people through luxury products appreciate the potential of luxury goods to confer a personal touch through individualization. The products rebranded for specific local needs lead to a sense of identity among luxury customers – the US customers can better identify with the marketing and products specially adapted to US needs.

Generally, customization offers the possibility of adapting products and services to local conditions in such a way that the enterprise is more likely to satisfy the different needs and requirements with its range. By undertaking certain regional adaptations, a luxury enterprise appears open and flexible for the stakeholder groups. This has a positive influence on the brand image.

Wittig and F. Sommerrock in their lecture entitled “Introduction to the luxury goods industries” at the University of St. Gallen, 21 March 2016 described that a general tendency towards personalized luxury is discernible in the USA as a consequence of the economic crisis. This development also clearly highlights the relevance of the trend.

Even against the backdrop of the various worldwide crises and uncertainties, the possibilities customization offers may be illustrated: The luxury goods industry has to undertake the necessary changes in order to master the future challenges and remain successful (Doran, 2014). It is essential to address customers innovatively – with the aid of customization, for instance.

The USA is an important luxury market. The significance of the US luxury market can be demonstrated on the basis of various data. For example, the USA generates 20% of worldwide GDP. In addition, according to the BCG, 40% of all millionaires originate from the USA, as well as 40% of Ultra High Net Worth Individuals (UHNWI). The customer segment of Ultra High Net Worth Individuals includes those consumers with a wealth of over USD 30 million. Accordingly, the BCG considers the USA to be a very wealthy country. (Abtan and Achille, 2014)

In 2014, the number High Net Worth Individuals (HNWI) and also their wealth attained a new record level: The number of HNWIs in the US increased by 8.6% to 4.4 million persons, their available wealth by 9.4% to USD 15.2 billion. A further indicator for the significance of the US luxury market is the fact that the US HNWIs and their wealth has contributed 28.6% to the worldwide growth of HNWIs and their wealth since 2008. (Capgemini, 2015)

Within the USA – as in other industrial countries and in emerging markets – there are regional differences. The 12 biggest metropolitan regions of the USA alone encompass over USD 1 billion. in new HNWI wealth; this equates to 79.8% of the total increase in HNWI wealth in the USA in 2014. These metropolitan regions include the conurbations of the cities Seattle, Detroit, Dallas, San Jose, Philadelphia, Houston, Boston, San Francisco, Washington D.C., Chicago, Los Angeles and New York. The best represented here are the US state of Texas and the US West Coast. (Capgemini, 2015) New York clearly shows the significance single cities can have: Luxury goods purchases in New York City alone exceed those in the whole of Japan (D’Arpizio et al., 2015).

All these figures clearly show that the USA is the biggest HNWI market (Capgemini, 2015). But how significant in the US luxury market? 24% of the world’s luxury purchases are undertaken by US citizens (Aroche, 2015). In 2015, USD 78 billion. was spent in the USA on luxury goods and the USA has a 40% share of the worldwide market (Roberts, 2015). Over the coming 5 years, the USA will spend a further estimated USD 15 billion; the increase comes from the growing demand for designer clothing, luxury accessories, luxury leather products and jewellery. The figures quoted confirm that the USA will clearly remain the biggest luxury goods market in the world; the prognoses predict that the Americans will continue to spend money for luxury products in the future (Roberts, 2015). According to Bain’s estimations, the USA will remain the world’s biggest luxury market (D’Arpizio et al., 2015).

Of interest for the relevance of this trend is that luxury customers in the mature US luxury market tend to buy locally, i.e. in the USA itself (D’Arpizio et al., 2015). Capgemini, in its United States Wealth Report, recommends enterprises in the financial sector and asset managers to adapt their strategies stepwise to match changing customer needs. This is necessary, because younger HNWIs, i.e. those under 30, have different needs and expectations than older HNWIs (Capgemini, 2015). As luxury enterprises also serve wealthy customers, it may be assumed that an individualized or at least slightly customized treatment of customers and markets is also important and advantageous for luxury enterprises in the USA.

The trend towards customization in the US luxury market offers a variety of opportunities, both for luxury enterprises as well as for luxury customers. The saturated US market necessitates innovative ideas. Through individuality, customization enables innovative products or also services to be designed and in this way to differentiate oneself from the competition. Customization of the range of products and services offered can lead to competitive advantage for a luxury enterprise.

Additionally, customization allows the enterprise the tailored marketing of the respective products. For instance, European luxury enterprises can specifically market their products in the USA by adapting to the local conditions. This raises the probability of successful marketing. Marketing tailored to local needs enables enterprises to address US customers more effectively.

Another opportunity that customization offers the luxury enterprise is that the brand can stress its geographic and often European origin in the USA target market. This means that enterprises can underline the foreign origin of the brand with various individual elements. This in turn directs attention to an important factor in the luxury segment: “Made in Europe”, is considered to be a quality indicator, especially in France or Italy. So if the enterprise combines its European origin with customer-individual adaptation options, this is an example of attractive luxury offerings for potential customers in two respects.

______________

Through customization, luxury enterprises also have the possibility of adapting their products to the local needs. In other words, customization results in products and services tailored to local customer needs. The specific customer needs are consequently more clearly addressed.

______________

By customizing luxury products and services, enterprises react specifically to local customer needs. Luxury customers appreciate individualized products for various reasons. What advantages does customization offer the luxury customer? The big advantage of customization, individualization or exclusivity is that individually tailored products or services offer the customer the greatest possible relationship with the product or service from which a special emotional experience results (Wittig and Sommerrock, 2016). Individualization confers the luxury product additional personality and emotionality. Especially luxury customers, who represent buyers with high demands, love the possibility of conferring a product a personal touch through customization. Customization in the form of products that can be individualized also leads to more exclusivity – personalized products are perceived by customers as more exclusive. This perception from the customers is important, because exclusivity is a crucial characteristic and differentiating feature of luxury products.

Another opportunity exists for luxury enterprises in that (potential) US customers positively assess the adaptations to their own market. The fact that an enterprise makes the effort to address the US market is likely to be generally viewed by the local customer base as personable and positive. The interest in and affinity towards the brand may therefore increase, which in turn positively impacts the luxury brand. At the same time, for the enterprise these adaptations result in associations, such as flexibility, adaptability and openness.

However, there are also risks apparent in relation to the promising trend towards customization in the US luxury market. One risk may lie in the high additional costs arising through local adaptations. The extra costs may arise through setting-up the customization option, market research, adaptation of the marketing strategy and in the context of specific education and training of sales personnel. Accordingly, there needs to be an extensive analysis in advance of planned customization in the US luxury market, whether the necessary success potential exists for a luxury enterprise and the additional costs are justified.

In case of broad-based customization, as described above, quality losses also represent a potential risk. Luxury enterprises should ensure that the quality does not receive too little consideration alongside the individualization activities or is forgotten altogether. A luxury enterprise must ensure the quality of its products and associated services throughout the value creation chain.

Dilution of the brand core by too many adaptations is probably the biggest risk for the luxury enterprise. The luxury brand is defined from various values and properties. If these values or product properties are violated in the course of regional differentiation in the USA, this can damage the reputation of the brand or dilute the brand core. Under certain circumstances, this can also negatively influence the brand and the customers in other countries.

Three recommendations for action emerge from the discussion for luxury enterprises active in the USA luxury market. Firstly, it is recommended to offer individualized products, but to maintain the high quality of the offerings, as well as the brand identity, over the entire value creation chain. This also means not offering everything. This way the luxury brand is not diluted. Secondly, it may be advantageous for the luxury enterprise to especially stress the brand’s own geographic origin in the USA; this may be interesting linked with an emphasis of the brand history. The third recommendation ties in with the differences described within the American cities and suggests not only developing country-specific, but also city-specific strategies in the future (Abtan and Achille, 2014). If these recommendations are considered, luxury enterprises can successfully implement customization in the USA.

Author

Anja

 

Anja Jeitziner

LinkedIn

 

 

Bibliography 

Abtan, Olivier, and Antonio Achille. “Shock of the New Chic: Dealing with New Complexity in the Business of Luxury.” 2014. https://www.bcgperspectives.com/content/articles/consumer_products_retail_shock_new_chic_dealing_with_new_complexity_business_luxury/, accessed January 31st, 2017.

Aroche, Daniela. “6 Key Insights From The Luxury Goods Worldwide Market Monitor 2015.” 2015. http://luxurysociety.com/en/articles/2015/11/6-key-insights-from-the-luxury-goods-worldwide-market-monitor-2015/, accessed January 31st, 2017.

Capgemini. “The United States Wealth Report.” 2015. https://www.worldwealthreport.com/uswr, accessed January 31st, 2017.

D’Arpizio, Claudia; Federica Levato, Daniele Zito, and Joelle Montgolfier. “Luxury Goods Worldwide Market Study: A time to act: How luxury brands can rebuild to win.” 2015. http://www.bain.com/Images/BAIN_REPORT_Global_Luxury_2015.pdf, accessed January 31st, 2017.

Doran, Sophie. “2016 Luxury Industry Predictions From The Experts.” 2014. http://luxurysociety.com/en/articles/2015/12/2016-luxury-industry-predictions-from-the-experts/, accessed January 31st, 2017.

Roberts, Fflur. “Luxury Recap 2015: Past, Present & Future.” 2015. http://luxurysociety.com/en/articles/2015/11/luxury-recap-2015-past-present-future/, accessed January 31st, 2017.

Wittig, Martin C., and Sommerrock, Fabian. Introduction; Einführung in die Luxusgüter-Industrien. St. Gallen, 2016.

 

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s