THE FUTURE OF LUXURY

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THE FUTURE OF LUXURY

The future of luxury

FOREWORD

We are fortunate to be able to call upon voices within the industry. In this article, we are pleased to
introduce Dr. Langer, an authority on premium, luxury and beauty brands and regular speaker on
strategic branding.
Perhaps counter-intuitive at first glance, strategies for luxury brands can particularly benefit
fast-moving consumer goods and premium brands, too and even value brands. This article looks at
the key challenges and what luxury companies can do to overcome these. In fact, many of Dr. Langer’s
most successful innovations and brands in the value and premium beauty sector were developed with
insights from luxury in mind. Luxury products can be seen as the most desired (and therefore highest
valued and highest priced) items within a segment. The understanding of what makes these items
exceptionally valuable can help brands with a more accessible price positioning to increase their
relevance, become more desired and more unique. This enables companies to capitalize on the higher
brand value with premiumization strategies to increase competitiveness, revenue and profitability.
We hope you enjoy the read.
Stefanie Siraghi
Director, EIU Consumer practice

The time for complacency is over

Managing luxury is more difficult than ever. The luxury market has become truly global. The majority
of sales for traditional European luxury brands is coming from Asian consumers now. New brands are
entering the market, building on local ways of living and celebrity trends. What people wear on Abbot
Kinney Boulevard in Venice, California, The Bund in Shanghai, Tverskaya Street in Moscow, Shibuya
Crossing in Tokyo or on the London Underground has more influence on the expression of luxury than
ever.
About a decade ago, most luxury managers I spoke with were not only ignoring digital channels,
they fundamentally believed that luxury and e-commerce would never (!) go together. They pointed
out that the experience of going into a luxury-brand store was critical and couldn’t be replaced. How
different reality is today. Many newer luxury brands don’t even have store fronts any more but focus
instead on selling through the internet. Augmented reality will boost this trend even more.

Luxury consumers around the world

(Average annual growth in the number of AB consumers(a) (2017-2022)

(a) Socioeconomic levels are defined using a variant of the AMAI methodology for Mexico, applied to all countries. AB consumers are defined as the
upper level including multi-milllionaires and those living in luxury.
Source: The Economist Intelligence Unit.
About a decade ago, most luxury managers I spoke with were not only ignoring digital channels,
they fundamentally believed that luxury and e-commerce would never (!) go together. They pointed
out that the experience of going into a luxury-brand store was critical and couldn’t be replaced. How
different reality is today. Many newer luxury brands don’t even have store fronts any more but focus
instead on selling through the internet. Augmented reality will boost this trend even more.

Personal luxury goods

Consumers have become more sophisticated and knowledgeable and now expect more. Ethical
shopping is no longer a buzzword that is high only on the agenda of Millennials—many others are
looking for authenticity when they spend enormous amounts of money on luxury brands. Lifestyles
change. Wellness has become the new luxury for many, with more and more people becoming
concerned about their health and wellbeing. And this is not only a new segment. Wellness influences
almost anything: changed behaviours, with more rigorous exercise schedules for many; changed
expectations regarding the comfort and design of car interiors; different views on what a hotel or spa
experience should be; and increased demand for healthier options on restaurant menus, to name just
a few.
In this already dramatically changing context for luxury brands there is further disruption
from several trends that will play a major role for luxury managers over the next few years. If left
unaddressed, these trends will not only challenge the success of incumbent brands but endanger
their very survival. Many previously iconic luxury brands are already suffering and are in steep decline
because they did not change early enough and not radically enough.
The time for complacency is over. Luxury managers need to leave their comfort zone and make their
brands future-ready. This includes strict brand-equity thinking by defining and sharpening brand
positioning. It entails optimising the customer journey, and it requires something that has been lost
for many luxury brands: offering a truly authentic experience. An experience that is so memorable and
unique that consumers pay the enormous premiums that luxury brands can charge.

Importance of sustainability and ethical brands to Millennials when purchasing high-end fashion or
luxury items worldwide in 2017

Luxury is difficult

Managing luxury is not only more difficult than ever, it is actually one of the most difficult managerial
tasks. This is deeply embedded in the nature of luxury. Langer (2008) and Langer & Heil (2013) define
luxury as “something rare and hedonic, difficult to acquire or use, that provides a perceived unique
experience in combination with a perceived enhancement or reinforcement of the social position.
It is an emotional social marker and differentiator”.

This definition underlines the difficulty connected with luxury in four dimensions (see above): being
rare and hedonic by nature, luxuries are difficult to create. They are difficult to consume because of the
difficulty in acquiring (price, availability, scarcity, waiting times etc) and using them properly (a sports
car is difficult to drive, really appreciating a rare wine needs expertise, not everyone can wear an haute
couture dress, a bag made of sophisticated leather may be very receptive to scratches and stains and
may not be practical in day-to-day usage, etc). Providing a unique experience is difficult to repeat by
nature. Finally, being in an enhanced social position and a social marker and differentiator is difficult
to maintain: perceptions change over time and new brands, tastes and expectations evolve.
While managing luxury is difficult, very few tools exist to guide managers in a proper way.
I developed some of those tools (luxury index and non-linear pricing, category potential and
segmentation, brand equity and positioning tool for luxury brands, luxury customer journey tool,
brand acceleration tool for luxury brands) when I discovered that luxury managers are basically left
alone with mass-marketing methods. Tools and strategies that are common for mass brands are not
only inappropriate for luxury brands, they can ultimately lead to the destruction of luxury brands.
Luxury managers tell me all the time how much they regretted growing their brands too fast with too
cheap line extensions. Once the perception of a luxury brand is weakened, it is difficult to come back.
Luxury managers need to change their thinking and tap into the true potential of luxury: strict
brand-equity thinking, customer journey optimisation, brand storytelling and limited editions. This
is where good is not good enough anymore. This is where past strategies to master the future won’t
work—especially since disruption will change the face of luxury further.

Disruption has many faces

Several trends are disrupting luxury, and mastering them will be critical for luxury companies if
they want to survive. I believe that they are so powerful that they will create tectonic shifts that will
impact the luxury industry at large. The driving forces are digitalisation and the personalisation of
technology, which give consumers real-time access to brands and change expectations along different
dimensions. Technology also offers newcomers the opportunity to change industries fast.
Disruption #1: Dichotomy between the short term and the long term
Disruption #2: Dilemma of ethical shopping
Disruption #3: Hacking luxury
Disruption #4: Outsiders challenge luxury’s status quo
Disruption #5: Share of engagement and attention

Dichotomy between the short term and the long term

The focus of many luxury brands today is on the long term, with little to no innovation and many
reinterpretations of a luxury brand’s category or heritage. This business model is no longer sustainable.
Agility and reinvention are needed, because consumers seek ultimately the immaterial versus the
material. They look for experiences and for offers that fit their life now. It’s a paradigm shift in luxury.
The challenge is to create a lasting brand experience, but to combine it with carefully identified
elements that can be refreshed and updated regularly. In the luxury space this is crucial. Because
luxury is about creating a unique experience, ideally perceived as “once in a lifetime”—the realisation
of a dream.
Hence, managing the dream is crucial: creating it and recreating it, providing a consistent brand
experience and adding unexpected elements. Elements that positively surprise and cater to the
customer’s need of “short-term” and context-sensitive surprises and experiences as part of a longterm brand strategy.

Dilemma of ethical shopping

Everyone in the luxury industry is talking about the importance of sustainability. But let’s face it,
ethical shopping is complicated. I recently presented this aspect in a keynote speech at the Luxury
Fashion Management Conference in Milan and in a book chapter about sustainable luxury. I call it the
“sustainability paradox of luxury”.
From a consumer perspective, it’s extremely hard to make truly sustainable choices and have the
transparency that the product is really crafted with the highest standards. And for companies it’s hard
to fulfil their promises and provide more than just lip service. Truly sustainable solutions provide a
chance to disrupt markets and price for it.
In many categories I see a truth gap. There is barely any offer that puts sustainability into the
focus, actively communicates around it with a truly eco-centric business model that is priced for. The
opportunities are tremendous—the key is to identify strategies that lead to competitive advantage.
Sustainability can no longer be an afterthought, and pure “lip service” does not work with today’s
consumers. A relevant and compelling “sustainability story” is needed.

Hacking luxury

Hacking business models has become the buzzword in the start-up scene. Hacking luxury is both—
opportunity and risk—for luxury players. What does “hacking luxury” mean?
It’s about understanding what a product really is and providing a new and different, more
convenient and exciting approach. To give an example: a self-driving car is not a car. If companies
apply the same thinking, they miss out on the opportunity to “hack”. Instead, if you see a self-driving
car as a different product, you suddenly have the opportunity to disrupt and create a new market:
instead of being only an additional feature, a self-driving car can be seen as something completely
different—an automated chauffeur service, available at any time. This provides tremendous new
revenue and service opportunities. New opportunities for pricing. Almost no luxury car company has
embraced this viewpoint so far. Reacting to this shift is crucial as their traditional business model is
hacked and may soon be made obsolete by start-ups out of California or China.
The luxury industry has a tremendous opportunity to “hack”, as consumers are willing to pay for
unique experiences. But today many brands are too myopic. They focus on what they believe their
traditional business model is and don’t see the opportunity to create a differentiated, “hacked”
approach.
Why does a hotel need to think like a hotel in terms of providing a room, a restaurant, a spa and
a fitness centre etc? All those amenities are expected by now and offer little to no opportunity to be
special and price up. The true question is: how can the hotel experience be hacked? What do consumers
really look for when they visit a hotel? How can we create something memorable and different?
It is a tremendous opportunity to disrupt. But also to be disrupted and become irrelevant fast. And
becoming irrelevant means to be out of business fast or not being able to sustain luxury pricing.

Outsiders challenge luxury’s status quo

Because incumbents are rarely those who reinvent a business, luxury is disrupted by newcomers.
Airbnb clearly made a dent into the hotel business, especially in luxury hospitality. For many, it
has become an alternative to booking a hotel room—not because of the price but because of the
experience it provides. There is something to be said about having an apartment in New York, San
Francisco or Paris versus staying “only” in a hotel.
The “own apartment” experience may not have all the amenities of a hotel, but for some travellers it
can be an experience and a memory they can’t have by any other means. To live like a local; to go to a
grocery shop and buy like a local; to ask the host where she takes a yoga class and try that studio “as a
friend of a member”; or to dine in the restaurants the host would go to. And there is a different level of
privacy between renting a luxury house and staying at a hotel.
Luxury brands have an extraordinary growth potential if they disrupt their own business model
and come up with services that create unexpected experiences for their guests. The opportunities
are almost limitless. And if the incumbents don’t reinvent their business models, outsiders will do so
instead.

Share of engagement and attention

Luxury is different for everybody. But ultimately it is about a unique and memorable experience. A
life experience. An emotion. The realisation of a dream. In a quantitative luxury study I could show
that luxury signals to the owner of a luxury item—and also to others around him or her—significantly
enhanced opportunities of life: the ability to break out of the daily routine; opening yourself up;
gaining access to beautiful things, to art, to culture. The perception of adventure. Creating a memory.
Even enhanced attractiveness and self-esteem.
To tap into this, luxury companies need to shift their focus from volume thinking to thinking in
terms of share of engagement and attention.
And the great news for many luxury brands is that they are already today in the business of
engagement of attention. But only few brands get everything right. Customer journey thinking is
crucial. And although many things that create tremendous value don’t even cost much, they can make
a dramatic difference and allow for higher-priced services. But it requires innovative thinking, agility
and processes in implementing engagement and attention throughout the organisation.
In speaking with luxury managers, I get regular feedback that disruption causes major headaches
across all luxury categories. While trends threaten established companies, they also allow for
opportunities to disrupt and grow for those luxury brands that embrace and master the challenge.

Leading the change

To lead the change starts with the understanding that a change process is difficult and needs the full
commitment and dedication of the management team. When we conduct brand audit workshops,
we typically interview the leadership teams beforehand. And most of the time we discover that
different leaders of the same organisation see different challenges, different solutions and different
approaches. And we often find a disconnect between how the C-level talk about their brand and how
sales people, store managers or brand ambassadors talk about the same brand. This is the worst that
can happen, and we find that this is the rule rather than the exception. Helping to channel those
different viewpoints towards one thinking and one approach is crucial in leading the change.
Most organisations pay too little attention to their most important asset: their brand. Especially in
the luxury space, too many brands rely solely on the creative input of the designer, but they don’t do
the most fundamental exercise: to ask themselves who they are, what they sell. This is not about the
physical products they produce but what they sell as a brand. What is their purpose, and how do they
inspire their consumers? Thinking short-term only, about the next collection or the next hype, can
work for a limited period of time. But when there is no strategy, success will be limited and short-lived.
A sharp brand positioning is a must, and brand-equity thinking needs to be at the centre of what
everyone does in the organisation. Creating a common understanding of what the brand is and where
the brand should go, clarifying the role of each individual in the company, and specifying how each
employee should and can contribute to the brand-equity vision. It is surprising how few brands do this
exercise regularly (we recommend every three years at a minimum). Clear and differentiating brand
strategies are missing. There is little perceivable differentiation between many luxury brands that
operate in the same segment.
This creates missed opportunity in terms of pricing, which is the true driver of revenue and profit
growth of luxury brands. In our research, we find that many luxury brands are too cheap. They could
price higher, but they lack the experience and tools to understand the full potential of pricing. Lack of
differentiation limits pricing moves further. Hence, brand-equity thinking, a clear brand strategy and
pricing opportunities are closely linked.
Luxury brands need a story to create a myth, a unique emotion. Here is where creativity and strategy
unite, because the story is so important that it has to be part of the brand strategy—expressed in
everything the brand does, with clarity and high precision in visual and verbal storytelling.
When we ask luxury managers about the last time they made a rigorous audit of the customer
journey, we often get a surprised look. In our experience, a customer journey audit and optimisation
are crucial to create experiences that consumers value and come back for. The brand strategy needs
to be reflected in each and every touchpoint a customer has with the brand. Every touchpoint
matters. Every touchpoint should enhance the brand. Failing at only one point can destroy the entire
experience.
Managing luxury is difficult. Luxury itself is elusive by nature. Managers face a context that changes
faster than ever before and requires precise strategies and a comprehensive game plan. It’s important
to move organisations out of their comfort zone and challenge the status quo. Because the status quo
no longer exists. Those who pursue past strategies will not survive. And those who think differently
and implement strategy and change throughout the organisation have the opportunity not only to lead
the change but also to be the driver of the future of luxury.

About the author


Dr. Daniel Langer is founder and CEO of Équité, a leading global branding and
brand strategy firm that elevates brands to increase their revenue, profitability
and brand valuation. Daniel is an authority on premium, luxury and beauty
brands and serves clients in many sectors, also including fashion, luxury,
accessories, hospitality and services (B2B, B2C). He holds a PhD in luxury
marketing, is author of several top-rated books on luxury management in English
and Chinese. He held top management positions in the beauty industry in USA,
Japan and Europe, where he developed several triple digit million dollar brands
from scratch and managed billon dollar businesses. He lives in USA, works all around the world, speaks
seven languages and enjoys yoga. For more information visit equiteconsulting.com.
Équité partners with EIU Consumer on strategic branding projects.

About EIU Consumer

The Economist Intelligence Unit’s consumer practice – EIU Consumer – provides industry award
winning, data-driven business analytics and strategy solutions, working with senior management of
the world’s most dynamic consumer-facing companies. From macro to micro we connect our forward
looking view of the world to what it means for your business today and tomorrow by category, product
or channel. Part of The Economist Group, we share the principles of independence and intellectual
rigour leveraging our unique network of 900+ analysts and contributors globally, to provide you with
independent evidence-based insights through applied intelligence.
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