Innovation in the Luxury Market

At a time when the political agenda has increased its focus on social inequality, it was illuminating to hear from senior practitioners and researchers from the luxury goods market, at Warwick Business School (WBS)’s Luxury and Innovation Hub, last week.

Over 100 international participants in this wide-ranging event, hosted at WBS’s London base in The Shard, by Professor Qing Wang and Warwick University's Professor Giorgio Riello, clearly took a lot from the day, learning what the future may hold for this essential, fast changing, and digitally transforming market.

The social inequality/morality issue was tackled head-on in an apposite contribution from Southampton University professor John Armitage. In the ancient world luxury was condemned; to St Augustine it was associated with lust and thus a sin. By the time of David Hulme and Adam Smith, in the late 18^th Century, the moral discourse had separated from an economic discourse. Luxury was seen as neither good nor bad. It was part of a growing sense of individualism and a source of economic dynamism.

Today the aspiration for luxury – to fulfil our desires rather than just our needs – is a part of all of us, and the basic foundation for a global luxury goods and services market which grew by 4% to an estimated €1.08 trillion in retail sales value in 2016, according to a recent Bain & Company report.

There really is no link between luxury and social inequality. The steady growth in the luxury goods and services market is due the democratisation of luxury. This is not about the top 1%, the super-rich who have always had luxury. It is about the recent burgeoning growth of Asian markets, particularly China, and about a marketing universe of 330 million people in 2014, which is set to rise to 500 million by 2030 as more people become wealthy in Asia, Latin America and Eastern Europe.

Qing Wang, Professor of Marketing and Innovation at WBS, introduced the event by establishing a key theme – although luxury brands still depend on their heritage, today more than ever, they need to innovate and adapt as the customer base changes both demographically and in its desires and attitudes. Brands need to engage with growth markets in China and India, adapt to trends in worldwide luxury tourism, and cater for the ‘state of mind’ of the millennial generation which by 2025 will represent 45% of the market.

Several speakers considered the younger generations – Gen Y and Gen Z. Research has revealed that these ‘digital natives’ see luxury brands not as status symbols or as a way to show off. They use brands to reinforce their personal identity. They ‘live the brand’, choosing brands that identify them with their peers and with celebrities and social media influencers – a theme emphasised by L'Oreal's Senior Product Manager Tom Stone.

Much of the debate at the Hub was around how to improve customer experience in the context of digital transformation. Lyon University professor Wided Batat pointed out that customers take it for granted that a luxury product will be perfect, so the key to customer satisfaction was customer service strong on ‘empathy’. Technology can play an important part in the customer experience, but technology can sometimes disappoint. Luxury customers expect a smooth continuum from product choice for delivery. Technology can greatly aid choice and customer/vendor communication but complex online booking or ordering processes can be very off-putting. Empathetic connection with customers is essential.  

Jason Smith, a director at Exponea, highlighted the power of digital advertising with an example from Alibaba.com, where Maserati sold 100 cars in just 18 seconds as part of the 100,000 vehicles sold in 24 hours on Alibaba Group’s Taobao and Tmall sites during Singles’ Day in China, the world’s largest online shopping festival.

Chris Donnelly, Founder and MD of Verb Brands, said that luxury had been behind mass market brands in digital exposure but was catching up. Both he and Jason agreed that the key to success was drilling deep into audience data analytics to understand customers and not, for fear of being left behind, rushing out ill-conceived digital communications.

Yasmin Sekhon, a professor at Southampton University, considered the value of digital as a means of gathering information. Her research found that millennials in particular appreciate the ‘social distance’ allowed by digital. Not only because it allows for comparing products but because through sharing it can bring to bear the opinions of peers as well as wider considerations such as whether a product is manufactured in a socially responsible way. One statistic mentioned was that while currently only circa 9% of luxury goods and services are bought online over 50% are researched on line.

Professor Robert Li, of Temple University, spoke about his research into top-end tourism – ‘luxury on the go’. In luxury overall there has been a shift away from goods towards experiential purchases, what Li categorises as ‘out of home’ consumption. Again, nowhere is this more pronounced than in China where growth in luxury travel is growing at a rate 6.2% higher than overall global tourism.

As with so much in the luxury market the values influencing the purchase of high-end tourism (which Li saw as: hedonic, functional, financial, and expressive) are complex and hard to pin-down. And, according to Liverpool University’s Ming Lim, they will be getting more complex with artificial intelligence and robotics set to add to the mix. In a busy life, the purchase and experience of luxury exerts a ‘cognitive load’ – the acquisition of new knowledge and skills – and this is where robots and AI come in.

WBS’s Hub event went some way in getting inside this complexity and setting out the future – a valuable contribution, as the luxury goods and services market is a major driver of the global economy and its health and growth is important for us all.