The Importance of Digital Strategy in the Luxury Industry

Who’s Driving change in the Luxury Industry?

From L2 to Gartner to the LMI, the theme for three years running (if not more), has been that ‘digital is the next frontier’ for luxury. It’s been constantly said time and again, yet, the industry itself is holistically reticent to change. Of course, the luxury market itself has a wide swath, and because of this, statements like ‘Luxury companies need to go digital or suffer a quick death’ are often misleading and bluntly oversimplifying a more nuanced shift in the market.

For one, luxury brands themselves aren’t created equal. Luxury brands exist in ultra-commoditized industries – such as the retail and apparel space, in pseudo-competitive industries such as in the vehicle and automotive space, and as conspicuous consumption industries such as the jewelry and art marketplace. These nuances are enough to know that preaching a ‘Digital or die’ mantra isn’t a one-size-fits-all type of solution.

That said, interestingly enough, the long-term future looks bright for digital in the luxury industry. Bain & Co. & Farfetch recently completed a study which showed a growing trend of younger buying audiences dramatically preferring digital luxury engagement.

luxury buying trends

Figure 1

While still not overall high, the data is telling. Gen Y and Gen Z customers are purchasing luxury product at a rate orders of magnitude above and beyond Gen X and earlier. This shift marks a departure in the overall mindset about where digital fits into the luxury buying experiences, especially amongst emerging customer-bases.

So where is this leading the luxury industry? Does the industry have to abandon the current course of experiential-selling? Of course not; but it does need to figure out where to fit digital as a growth-enabler. Here are two places where the future of luxury is heading.

Experience First:

Mobile commerce continues to grow and, for the first time, mobile devices are expected to make up the majority of both shopping traffic and orders. A recent report by Salesforce predicts that more orders will occur on mobile than on desktop (46% vs 44%). Additionally, 68 percent of all the traffic for the 2018 holiday season will come from smartphones, up 19%. This means that luxury brands need to identify opportunities to create better experiences across all of their marketing, sales & client services channels.

 

This is nice – but only represents a diminishing channel moving forward

Furthermore, the shift in convenience of buying low-margin commodities from the likes of Amazon and big box retailer digital presences has created higher expectations about the ‘experience’ of buying from a luxury brand. Idiosyncrasies/quicks/lapses in the digital shopping experience can’t (and shouldn’t) be tolerated, because the ‘experience’ of buying can often be a driver towards comparison shopping and marginalized brand-loyalty. That’s how critical it is to be experience-first, even for luxury brands.

Personalization, at Scale:

The industry has been notoriously effective at creating customer loyalty through personalization. This has primarily come in the form of the physical nuances of retail layouts, service amenities provided during the buying process, and superlative customer service support. The ongoing discussion is often about how digital impersonalizes the buying experience, but the reality is that digital experiences provide the ability to personalize at-scale. Large-scale data analysis through machine learning and predictive modeling allow luxury brands to enable the customer experience to not only the top 10% of customers, but also to the remaining 90% of ‘bargain’ luxury shoppers. Net-on-net, this enables luxury brands to create more distinct customer segments that drive higher lifetime customer value. Even more so, it gives brands the ability to harness insight about their customer-base that can’t be captured at the retail level, from better understanding ‘halo’ products that trigger chain-reaction purchases to identifying implicit desires in the form of customers’ search and discovery habits.

Why is good Digital Strategy Critical to this?

The next generation of luxury companies — like Millennial consumers — are digital natives, built for web with social engrained in their business models. They cultivate a reputation of prestige do so with a digital-first mentality. These brands are innovative and agile; they understand the value of community management. They understand that digital channels are not only a way to disseminate messages to their customers, but also a way for their customers to counter-engage.

Case in point, take AllSaints, the UK luxury clothing manufacturer. Before embarking on an awareness campaign in global markets, they went through a digital strategy that identified social as an ROI-effective method of gaining more mindshare. The output of this led to a campaign in which customers were invited to share their personalized AllSaints identity with a unique hashtag, thereby giving them unique insight into how customers ‘wore their brand’. They experienced incredible results: Effectively an influencer strategy, this campaign created 323,000 net-new interactions with 82% of all visitors subsequently returning to their digital properties.

This is one such example of compelling results through a focused digital strategy: a scalable insights engine. By analyzing customers’ UGC, they were able to identify non-obvious trends and product usage to help determine attacking markets outside of the UK.

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