News & Views

Opinion / The Great Luxury Divide

by Contagious Contributor
Fara Darvill, head of marketing communications at Conran Design Group, on the stratification of luxury brands

‘The best things in life are free. The second best things are very, very expensive.’ Coco Chanel.

Luxury by definition should be niche, exclusive and expensive. The concept of luxury is how a brand/product/service makes you feel: that intangible something that only others in the ‘club’ know. Historically, luxury was almost unattainable yet deeply aspirational – exclusivity and unaffordability only increased desirability.

Jonathan Anderson, of LVMH-owned Loewe, suggests that the idea of luxury no longer exists. The counter point to his view is that with a global revenue of €253 billion in personal luxury goods (fashion, leather accessories, fragrance and cosmetics), it definitely still exists, but it is the perception of luxury and the way it is consumed that has certainly changed. What we are in fact witnessing is the stratification of luxury – layers from inclusive to exclusive.

Changes in the path to purchase

Stratification is a result of what has been happening to the luxury sector over the past ten years. There’s been an evolution across the sector – albeit unintentional to some extent. During a decade of increased demand and growth (through a global recession), the simultaneous growth of digital changed the visibility and accessibility of luxury brands. In addition, the onslaught of celebrity culture, embracing social media and its global reach, also impacted the sector. These factors have led to changes in customer behaviour and attitude in how products are consumed and purchased–this has forced luxury brands to rethink their marketing strategies.

In line with Anderson’s thinking, the ubiquitous use of the term luxury across random products and services has devalued its meaning. Stratification has introduced the term ‘affordable luxury’ with entry-level products (e.g. perfume, scarves, small leather goods). People may not be able to afford Louis Vuitton luggage at £1,000+ ($1,270) (starting point), but they can buy a leather cardholder for around £130 ($165) and potentially move on to a matching laptop sleeve at £465 ($590). These levels of strata maintain exclusivity for primary customers and provide accessibility for prospective ones. The function of entry-level products is to allow luxe brands to start conversations with new customers who have brand aspirations and high-earning potential.

However, not all luxe brands want to play the inclusivity game. There are those that want to remain firmly exclusive and those that are making strategic horizontal moves into new categories. Retailers such as Louboutin and Vertu employ exclusivity, rarity and scarcity strategies to drive desire and create a very select club. This year we saw luxury goods brand Hermès collaborating with global tech giant Apple to create the Hermès Apple watch collection. This horizontal move by the brand is interesting because at a £1,200+ ($1,500) price point Hermès managed to maintain exclusivity (with a limited addition appeal) but also tap into Apple’s reach and fiercely loyal customer base – willing to spend at that price point for an exclusive product.

Shaping the luxury sector

Deloitte cites four key forces shaping the luxury market in the next four years – millennials (globally), travel (from emerging markets), wealth (in new geographic regions) and digital (existing and emerging markets). Millennials are more likely to spend their money on luxe experiences like travel, which accounts for 40% of the personal luxury market, rather than products.

Astute brands have already recognised this, and we are seeing brands curate experiences to allow for more personalisation and customization. Designer brand D&G is changing store formats with the millennial traveller in mind. Visitors will not see the same store format around the globe, but instead a store that reflects the cultural cues of the city in which it’s located – e.g. the heritage of Milan or the vibrancy of Tokyo (above).

Deloitte also reports that there will be a remarkable difference in the luxury sector by 2020. As digital continues to grow and change the way people behave along the customer journey; luxury brands will need to think carefully about their strategic response to these changes. It has been well documented that luxury has come very late to the e-commerce, social media and digital party. But luxe consumers have not, and they expect responsive engagement across all devices including desktop, tablet and mobile. This means having the best profiling, data collection and CRM systems in place will be critical to create personalised communications and connected experiences to engage these customers along the path-to-purchase.

The future of e-commerce now sits with m-commerce, 15% (and growing) of all searches globally for luxury brands come from mobile devices, this is where brands will have to focus their future engagement strategies and perform well. As we move into 2017, the next four years are going to be fascinating to watch to see what is going to happen next in the luxury sector and how stratification will develop further… we wait with bated breath.