The fundamentals of luxury lie in the combination of highly skilled craftsmanship and valuable materials. But creating an entire industry of luxury has required the scale-up of ateliers, the diversification of product categories and the global development of owned boutique networks, as well as massive investment in communication and branding, all while preserving and capitalising on each house’s heritage, expertise, values and desirability (intangible assets).
Effective communication has played a pivotal role in the industry’s global development, requiring substantial resources and long-standing investments. In contrast, the strategic utilisation of client data is a more recent phenomenon.
With advancements in technology and the availability of extensive customer information, luxury brands now have the opportunity to leverage data to refine their marketing strategies and deliver personalised experiences.
Let us explore the evolutionary journey of these two elements over time, examining their consequential impact on the luxury industry and raising pertinent questions for the future of the industry.
“GOOD COMMUNICATION IS JUST AS STIMULATING AS BLACK COFFEE, AND JUST AS HARD TO SLEEP AFTER” Anne Morrow Lindbergh
When it comes to communication in the luxury industry, we can observe that developments have been far from linear.
Media spending by luxury brands has undergone a significant shift over the past 20 years, to the benefit of digital channels and key opinion leaders (KOLs).
It is worth taking a step back here to understand the wider context. Historically, the media landscape for luxury goods was relatively simple, involving television (mainly broad luxury), press (mainly high-end luxury) and outdoor advertising (see chart below). Between the 2000s and 2010s, however, the emergence of digital channels disrupted the luxury industry’s approach to media, for both broad and high-end luxury.
MEDIA SPENDING BREAKDOWN DEVELOPMENT BY CHANNEL
This digital media environment is much more complex than the original media landscape, with many different sub- channels co-existing: e-mailing, social media posts, video platforms, search engine requests, and posts by KOLs redirecting shoppers to commerce platforms, among others.
Moreover, it has constantly been shifting from one online platform to another, driven by new generational behaviours.
Another factor complicating further the digital environment lies in the geographical segmentation: China has translated the Western ecosystem to suit its own needs and then outperformed it locally (see chart below).
This makes it difficult to monitor return on investment (ROI) and allocate commercial investment budgets accurately.
CHINESE AND WESTERN SOCIAL NETWORK ECOSYSTEMS
The latest major complicating factor concerns the emergence of key opinion leaders, who have become critical intermediaries for luxury brands in that they can provide unique appealing content showcasing a brand.
KOLs are private individuals, whether a famous singer or top model (KOL) or an everyday consumer (key opinion consumer – KOC), who win loyal fanbases thanks to their genuine experiences and closer interaction with users.
KOLs have emerged as a powerful force in driving consumer behaviour and brand engagement; they boost product sales and even co-design products with brands. They are trusted trendsetters, and their followers often look to them for guidance on what to buy and how to style it.
KOLs are particularly important in China due to the country’s unique digital landscape, where live video platforms such as WeChat, Weibo and Douyin dominate. In 2022, around 10 million KOLs and KOCs were active in China across all industries, and 70% of Chinese consumers declared being influenced by KOLs when making purchasing decisions (see chart below).
To leverage these influencers effectively, luxury brands need to manage their KOL portfolios carefully, selecting the right influencers and the right platforms that align with their brand values and target audience, getting to know them, and managing their different promotional actions.
For example, if we focus on the Red platform in China, luxury brands collaborate with a significant number of KOLs, in some cases over 100 (see chart below), combining a number of small KOLs with a few top celebrities.
Companies leverage the social influence of top KOLs and celebrities to create buzz around a brand or product; they work massively with small KOLs to expand consumer coverage and enhance brand reach and credibility.
Over the past quarter of a century, the luxury industry has experienced the continuous development and growing fragmentation of its communication channels towards digital media and KOLs.
This growing complexity has captured the attention of the top management of luxury houses over the past decade, with issues such as: What is the segmented return on our media investments? Is there an optimal investment mix? Should we explore new emerging channels? ( TikTok vs Instagram vs Facebook)? What is the marginal profitability of incremental investments? To what media channel(s) should a client order be allocated to compute a proper ROI if several channels contributed to the order?
THESE QUESTIONS HAVE SOMETIMES TRIGGERED COMPLEX EXPERT DEBATES, AND THERE IS STILL NO CONSENSUS ACROSS CORPORATE TEAMS.
Although important issues, with real impacts on the company, they fall more under operational excellence than under business strategy. And they have now become secondary issues for luxury house C-suites, falling behind the overwhelming emergence of client data and the major opportunities and differentiation levers it can offer.
When considering client data, one should keep in mind than luxury groups have conscientiously invested over decades to fully integrate their retail networks. This strategy of downstream integration covers both mono-brand boutiques and direct-to- consumer online boutiques, and its objective is to fully control and enhance the client in-store experience.
In addition to marketing and communication, establishing direct and qualitative relationships with clients has become a primary driver for intangible value creation.
This is all the more true as luxury goods clients prefer to ultimately purchase in-store, even if primarily influenced by digital channels (ROPO effect – Research Online, Purchase Offline).
With such a powerful client interface in place, collecting and leveraging highly qualified client data (e.g. client detailed preferences, client historical purchases, client interaction with brand) has now become the new frontier for luxury houses.
It has now become achievable to get to know each client personally, welcoming them and offering them a dedicated treat anywhere in the world.
PROPERLY COLLECTED AND MANAGED, CLIENT DATA MAKES THE FOLLOWING STEPS POSSIBLE:
- a) Determine precise customer segmentation to define a personalised set of commercial actions by client;
- b) Identify the most promising clients in advance through predictive modelling;
- c) Identify and manage occasional buyers, who tend to represent a significant share of the total sales for luxury brands, and convert some of them into “more
valuable” customers; - d) Ensure the identification of top customers at each point of sale to offer a consistent customer experience worldwide (global CRM);
- e) Identify and develop new territories for brand expression (new categories, augmented services);
- f) For multi-brand luxury groups, enrich the customer journey smartly across more categories and brands, while respecting houses’ DNA and avoiding
cannibalisation.
These steps are ultimately the enablers to drive up Client LifeTime Value (CLTV).
CLTV is the most appropriate performance indicator to measure the value potential that should be generated from one client.
Given the capacity of luxury houses to manage client relationships directly and their efforts to improve client knowledge over time, implementing and monitoring CLTV becomes critical.
It opens the door to the proactive and dynamic management of client relationships within the brand universe – or beyond within a luxury group’s portfolio of universes. It also enables luxury houses to put a figure on the value of “client relationships”, which, together with the value of “brand”, makes up a major share of their intangible assets.
Until very recently, most brands and retailers struggled to analyse and calculate a one-off spot CLTV at one brand level.
But the achievable objective today is clearly to monitor and pilot CLTV on a forward dynamic basis and within an extended perimeter, across categories and across brands.
The combination of client data with CLTV contributes to tackle “taboo” matters such as questioning client exclusivity and ownership for/by one specific luxury brand, setting up disruptive collaborations, developing unexplored categories, augmenting the offer with services and assisting clients over their life cycle.
WE COULD CALL THIS “AUGMENTED CLTV”
“THE PROFOUNDEST AFFINITIES ARE THE MOST READILY FELT”
George Santayana
This strategic play is vital for the luxury industry: personalisation to mitigate massification. Client data stands right in the middle of this strategic path.
However, personal data exploitation carries significant risks.
- Personalisation from data should not lead to manipulation or alienation of the customer in order to extract maximum value.
- It should enable a better understanding of each individual in order to establish a high-quality relationship that matches the promised and billed luxury experience.
- Ultimately, this enhanced relationship must be consensual and interpersonal, contributing to the enrichment of brand desirability.