By Manuel Steger
Today, the luxury market and the enterprises operating in it are very much caught between conflicting priorities (Berghaus, Wittig and Sommerrock, 2016). Traditionally, luxury enterprises concentrate on strong resource orientation within the framework of their value creation strategy. Key factors here are one’s own manufacturing competence, the complexity and quality of the product, as well as the scarcity of supply. Similarly, the luxury enterprise’s identity and tradition is much more prominent than, for example, the needs of the market and customers. This contrasts with a growing number of trends to which the luxury market and the enterprises operating within it find themselves exposed. Because luxury too cannot survive without innovation and the market and conversely (Berghaus, Müller-Stewens and Reinecke, 2014): “Recognising and exploiting trends generates competitive advantages!”
Today, the luxury market and the enterprises operating in it are very much caught between conflicting priorities.
But why is trend research important in the luxury market? Luxury is a global market – in its annual publication, the consultancy Bain & Company quantifies the market volume for luxury goods over € 1 billion with stable annual growth rates of around 5% (D’Arpizio et al., 2015). Above-average growth in 2015 is found in the segments of automobile (8%), the hotel trade (7%) and in art auctions (6%). The luxury market has also proven to be very crisis-resistant. Following the crisis years 2008/09, the luxury goods business has recovered at an extraordinary pace (Müller-Stewens, 2013), and companies like LVMH, the Swatch Group or Richemont have also raised their sales volumes and margins thanks to strong demand from Asia. The “core” of the luxury market is formed by “personal luxury goods”, comprising clothing, jewellery, watches, accessories, perfumes and cosmetics, which alone account for market volumes in excess of € 250 billion in 2015 (D’Arpizio et al., 2015).
Looking at the development over the past twenty years, according to figures from Credit Suisse, the market for personal luxury goods has tripled in this period (Enskog, 2015). The industry is of particular relevance for Switzerland, too (Müller-Stewens, 2013). Around 16% of the European personal luxury goods production volume of € 25 billion is made in Switzerland. The producers include large corporations, such as Richemont and the Swatch Group, but also independent family businesses, such as the St. Gallen fashion house Akris or the Geneva watch brand Patek Phillipe.
Only those luxury enterprises will be successful that are in a position to rethink these fundamental assumptions in relation to their own product and service and keep up with the change accordingly.
How can players be successful in this attractive market? Müller-Stewens sees the business models of the luxury goods manufacturers confronted by substantial change and hence identifies the three hitherto essential fundamental assumptions of the luxury market, which are imperative to reconsider: the luxury consumer define themselves through what they possess; luxury can only be purchased in a store; luxury and sustainability are a contradiction in terms (2013).
Against this backdrop, only those luxury enterprises will be successful that are in a position to rethink these fundamental assumptions in relation to their own product and service and keep up with the change accordingly. To be in a position to stay abreast of this change, it is essential for enterprises to understand which trends this paradigm shift will bring about in the luxury market. In this regard, Meurer and Manninger (2012) identify the most important mega-trends the luxury market is currently faced with. These mega-trends in their entirety describe this development of a new extended concept of luxury, which is dealt with in this study under the term Luxury 2.0.
Which trends are behind the change in the fundamental assumptions cited by Müller-Stewens (2013)? Meurer and Manninger (2012), like Müller-Stewens (2013), describe a “democratization” of luxury. In the past, the consumption of material luxury was reserved for society’s elite. Through the increasing affluence of the social middle class and, above all, through advancing industrialisation in the manufacture of luxury goods, luxury goods have also become accessible to the general public. Consequently, this makes it hard for luxury consumers to identify themselves through the possession of a product. According to Müller-Stewens (2013), there is also a change in attitude among luxury consumers with regard to property. Today, luxury consumers do not want to own more, but would rather prefer to gather new experiences. Thus, there is a shift in the modern luxury consumer’s understanding of luxury away from possessing a product and towards a “luxury experience”, whereby the material luxury product is relegated in favour of the services surrounding the product. This trend is shown in the above-average growth rates mentioned earlier for experience-dominated luxury segments, such as the luxury hotel trade.
This change in the concept of luxury is also investigated and described by the study Der nächste Luxus (“The next luxury”) from the Swiss Gottlieb Duttweiler Institute (GDI) (Kühne and Bosshart, 2014). Kühne & Bosshart (2014) make the comparison between a changing concept of luxury and the different phases in the life of a person. The high growth potential of emerging countries like China, India or Brazil (2013) is representative of the consumers’ only emergent concept of luxury. This is characterised by social advancement, a “hunger for consumption” and a certain need to catch up in regard to western luxury (Kühne and Bosshart, 2014). A further, more mature concept of luxury is characterised by the consumption of luxury goods with a signal effect, mainly serving to keep up in comparison with the social peer group. This “keeping up with the Joneses” phenomenon is found in the broad middle class of the USA. The phenomenon of “luxury experience” constitutes the last phase in the lifecycle – the maturity phase. On the one hand, exclusive, luxury experiences offer the luxury consumer the possibility of segregation (Meurer and Manninger, 2012), i.e. the mutual differentiation from luxury consumers of different milieus.
Especially because of advancing democratization of luxury goods, luxury experiences offer the means of differentiation from “normal” luxury consumers. On the other hand, luxurious experiences can be infinitely enhanced (Kühne and Bosshart, 2014): “From a simple restaurant visit, to a luxurious wellness weekend, culminating in the ultimate adventure trip” – and the saturated European luxury markets are just in this mature phase.
Journeys and holiday experiences are perfectly suited as luxury experiences. Luxury consumers spend over three times more on travel and hotels than on consumption of fashion articles (Kühne and Bosshart, 2014). This not only includes exclusive 5-star hotels, but also meaningful experiences. The modern luxury consumer wants luxury experiences in the sense of an expedition to the Antarctic or building wells in Africa. Kühne (2014) also describes a CHF 1.3 million expensive UNESCO trip in which 96 UNESCO World Heritage Sites are visited in two years. Adventurous luxury cruises are booming and traditional luxury enterprises like LVMH or Bulgari are responding to this trend by establishing their own luxury hotel chains (Cheval Blanc, Bulgari Hotels & Resorts) (Müller-Stewens, 2013). But digital additions to the traditional luxury product can also convey a “luxury experience” – For instance, Louis Vuitton, as a traditional manufacturer of luxurious luggage, offers an app with which personal travel experience can be shared with the relevant community.
Moreover, there is a series of other trends associated with the development of this new, experience-based concept of luxury – Luxury 2.0. Demographic change means societies are becoming increasingly older and the most important target group of luxury consumers, affluent babyboomers, finally have time to spend meaningfully by gathering “luxury experiences” (Kühne and Bosshart, 2014). Then there is the future target group of the “millennials” who grew up with and internalised new technologies.
So the areas of digitalisation, e-commerce, and Web 2.0 also play an important role for luxury enterprises. The times in which luxury goods and e-commerce were for a long time considered contradictory are definitely over (Müller-Stewens, 2013), as impressively demonstrated by luxury portals like Vente-Privée or Net-a-porter (Meurer and Manninger, 2012). Also in relation to Web 2.0, luxury enterprises have recognised that digital media and, above all, social media offer major opportunities for luxury brand management – for instance, as cited by Kühne and Bosshart (2014), the communication of knowledge with regard to the style of luxury products, e.g. with short videos on Instagram, generates a luxury experience. Here, Müller-Stewens (2013) stresses the importance for enterprises to differentiate themselves with unique product ranges, exciting contents or interactive community elements.
Generation-specific, the future target group of millennials displays a strongly pronounced awareness for the issue of sustainability (Kühne and Bosshart, 2014). Müller-Stewens (2013) emphasises that in this perspective, luxury must not be viewed as “wasteful”, but rather that luxury products with the product characteristics of quality, long service life, and a certain timelessness are perfectly suitable for the concept of sustainability. Hence, “ecological luxury” can also offer the luxury consumer a new kind of luxury experience. Here it is important, however, that there is absolutely “authentic” sustainability, which encompasses the entire lifecycle of the luxury product and service.
Key innovations in luxury, or “Luxury 2.0”, touches many departments of today’s luxury brands. Knowledge of these trends will likely have a key impact on the number of opportunities that luxury businesses can benefit from.
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