By Laura Elmiger
Luxury is everywhere today. According to the global luxury study carried out by Bain & Company last year, the personal luxury goods market ballooned to more than €250 billion in 2015. At the same time, the market has witnessed a process of democratization (Silvenstein and Fiske, 2003; Tsai, 2005). This enables its constantly growing target group of customers a better access to luxury than ever before (Kapferer and Bastien, 2009). But it is also threatening the exclusivity of luxury brands. Due to the luxury market’s high degree of cultural complexity and inner differentiation, a profound understanding of the luxury concept and its underlying values within multicultural market places has become essential (Tynan, McKechnie and Chhuon, 2010; Seo, Buchanan-Oliver and Cruz, 2015). Despite these emerging challenges, the luxury goods industry has refused to accept the shifting circumstances for a long time (Wittig, Sommerrock and Albers, 2014). This makes it even more difficult for luxury brand managers to ensure that customers are compensated for the high prices by sufficient value. But what does really make up luxury today?
The new perspective of value creation as a co-creation of customers and brands focuses on individualized brand experiences.
The notion of buying luxury goods to signal wealth, power, and status is no longer enough. A widely accepted approach today is that both socially and personally oriented reasons of luxury consumption should be considered (Tsai, 2005; Eckhardt, Belk and Wilson, 2015). Successful luxury brands must accordingly foster a close relationship with their customers and develop an integrative understanding of the multifaceted desires a customer pursues through consumption (Hennigs et al., 2015). This new perspective of value creation as a co-creation of customers and brands focuses on individualized brand experiences (Tynan, McKechnie and Chhuon, 2010).
The mega trend of individualization has internationally a strong impact. It leads to an enormous differentiation of personal lives, careers, and market concepts. The new luxury consumer is confident and makes its individual choices independent of the dictate of a social milieu (Kondert et al., 2012). As Jean-Claude Biver, chairman of the board of Hublot, states: “These are people who have so much confidence in themselves that they wear what they like and drive the car that they enjoy most.” (Wittig, Sommerrock and Albers, 2014). On an economic level, the trend increases the differentiation of markets and products. But the reasons for luxury consumption differ a lot around the world. While the desire for material possessions is still very high in the emerging Asian markets, these ambitions are considered as largely fulfilled in the mature Western economies (Wittig, Sommerrock and Albers, 2014). The presentation of short best practice cases followed by the deduction of managerial recommendations will outline how inevitable the adaption of successful luxury brands to local, market-specific dynamics and demands is.
Western markets have undergone a value change: Autonomy, self-determination, and personality became more important (Kondert et al., 2012). Consumers see themselves as prosumers wanting to be involved in the value creation process. In this context, some luxury brands have recognized the potential of social media as a facilitator of conversation in society. Leon McLean, digital account executive at SIS Digital, confirmed that brands today play host to conversations surrounding events “to both bring consumers closer to the brand and the brand closer to the consumers” (Jones, 2014). With #ArmaniTweetTalks, introduced in 2014, Italian luxury brand Armani actively invites its customers to share their beliefs on topics closely related to the fashion industry and thus to indirectly contribute to the brand’s future. The brand skillfully combines life events and digital transmission: Some of the most influential minds in fashion discuss a specific subject with Armani as the moderator in each session. The followers can participate via Twitter.
Customization of products means another opportunity for luxury brands to reposition themselves after a period of luxuries becoming easily accessible. In order to meet individual customer demands, British fashion brand Burberry introduced Burberry Bespoke in 2011. The full-scale mass customization service enables customers to design and order trench coats online. The fostering of customer engagement is clearly more important here than the sales number of coats. “You want them to engage with the brand” commented Angela Ahrendts, Burberry’s former CEO (Sonne, 2011). Meanwhile, customers are offered to get their purchased coats, scarves and backpacks monogrammed. As having developed a comprehensive customer database, Burberry is also able to react to special events in a customized way. Expecting a large number of Middle Eastern tourists buying luxury goods when visiting London to celebrate this year’s end of Ramadan in July, Burberry is offering limited edition merchandise and bespoke items alongside with a range of services tailored to the affluent Middle Eastern customer (Barras-Hill, 2016).
Time is valuable in this fast-moving age and thus makes flexibility more relevant. Private aviation brand NetJets offers custom-made services and has leveraged its travel expertise to help consumers devising complete vacation plans. Since many of NetJets’ customers are too busy for being bothered with travel details, the brand enables them to make educated choices. Chris Herbert, former PR manager at NetJets once said: “The NetJets customer experience is core to our business and service model” (McCarthy, 2015). Customers literally buy an experience built around them: After choosing one of the many available destinations worldwide, NetJets takes over the whole organization and secures everything from take-off and landing slots up to security assessment and catering.
Whether it is selling products in the Eastern continent or supplying new customers for the Western markets, the future of luxury industry is Asian (Wittig, Sommerrock and Albers, 2014). While the performance across Asia varies widely, Chinese customers account for the largest portion of global purchases, 31% in 2015 (D’Arpizio et al., 2015). With a growing middle class, rising household incomes and an ever-increasing number of millionaires that redefine luxury and approach the luxury brands with their needs, Chinese market potential must be classified as high. The pride of heritage and the understanding of own traditions and culture are growing which also promotes the demand for domestic brands and products. However, Chinese brands are struggling to establish their own luxury goods. French high fashion luxury brand Hermès has recognized this potential and founded Shang Xia, its independent Chinese brand, in 2007. The new brand brings together contemporary design with Chinese heritage crafts such as porcelain, furniture, jewelry and clothing. And it transfers a part of Hermès’ philosophy to China. As Jiang Qiong Er, Shang Xia’s CEO, puts it: “The finest touch of craftsmanship, innovative design and contemporary lifestyle are all linked by a personal touch” (Wittig, Sommerrock and Albers, 2014).
Customization of products means another opportunity for luxury brands to reposition themselves after a period of luxuries becoming easily accessible.
Also the Indian consumer structure is changing. With a significant jump in the number of high net worth individuals over the past six years, the emergence of second and third tier cities, an improved customer accessibility by the internet, and the growing importance of young professionals and first-generation entrepreneurs, new key consumers are entering the stage formerly dominated by traditional wealthy (Bovensiepen, 2015). This entails a shift in the understanding of luxury and makes the market promising for luxury brands. Hermès, among other luxury fashion brands, launched a limited collection of high-quality saris inspired by traditional colors and patterns to tap into the Indian market in 2011. The traditional garment is still one of the favorite outfits for most Indian women, worn in daily life but also at special occasions such as weddings.
As the best practice examples show, individualization must be considered as a global trend demonstrating various local impacts. Luxury brands need to take the individual needs of customers into account when entering new markets or launching products. This means that customers’ real needs have to be identified and implemented in the value creation process. Today’s democratized luxury market makes a differentiated understanding of how luxury consumption behavior is shaped within multicultural market places indispensable. Thus, individualization also means the emergence of confident customers that want to have the possibility to make individual choices.
However, there are major differences between the distinct regional markets. As the desire for material possessions is considered as largely fulfilled in Western economies, intangible assets such as custom-made experiences and high quality services gain importance. Seeing themselves as prosumers, luxury customers should be given the possibility to share their opinions and become part of the value creation process, be it by customizing products or participating in future related discussions. Conversely, brand strategies must be carefully aligned when entering Asian markets. According to Joydeep Bhattacharya, partner in Bain & Company’s New Delhi office, luxury brands need to make the right investments „in awareness and in brand-building in order to generate demand” (Tandon, 2013). As actual examples show, this strategy needs to be well planned and takes some time to be completely implemented.
A company must not step into a market without having a profound understanding of the domestic values and traditions. The launch of limited editions inspired by local traditions is a promising tool for brands to get direct insight and customer contact in the local market. However, the feedback gained should be used to refine the strategy for increasing the customer value and being established as a brand. Individualization and its manifestations must nevertheless be critically evaluated. The trend itself is merely one aspect of a range of other developments affecting the global luxury goods market. Luxury customers should by all means be given the feeling of exclusivity. For one thing is certain as Marshal Cohen, chief industry analyst at NPD Group, once stated: “Luxury isn’t luxury if everyone has it.” (Sonne, 2011).
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