The luxury market is facing enormous challenges. It doesn’t follow trends, because trends are ephemeral by nature, and true luxury has always been and remains timeless. But it keeps pace with the evolution of society, as this is the only way to maintain relevance.
The main challenge for luxury brands will perhaps be the change in mindset that the younger generation has brought to society and the market.
A portion of Generations Y and Z have high purchasing power, ways of thinking, and lifestyles different from those of their parents and grandparents, and they prefer brands that understand them and share their values. The consulting firm Bain & Co. confirms that these generations represent about 65% of luxury consumption for personal use worldwide.
The Nine-Step Formula
Luxury brands have understood this evolution and are investing in the Nine-Step Formula to seduce Millennials and Gen Z.
In the last decade, luxury brands have perfected digital communication. Chanel’s Instagram Stories Live and Jacquemus’ Bambino Bag campaign are examples of how to do it well.
The Phygital revolution, the interaction with technology within physical space, has also reached the luxury sector. Burberry stores have smart mirrors and digital displays, IWC in its Zurich store offers virtual reality interaction and live streaming to see watch production in real time, and Ferrari accepts cryptocurrency payments.
Increasingly, brands are providing experiences that allow customers to live the brand’s lifestyle and thus develop feelings of belonging. Armani and Bulgari have hotels, Gucci has invested in restaurants, and Dior offers spa treatments on boats sailing the Seine.
Unlike their parents and grandparents, young customers value the opinions of celebrities. Thus, Dior invited Lewis Hamilton to be a brand ambassador, and Chopard partnered with Julia Roberts.
Collaborations between brands that share the same values communicate the desired image better and win over customers. Lancôme and the Louvre Museum or Tiffany & Co. and Netflix are collaborations that seduce the new generation.
Luxury and art both result from creativity and, together, generate value. Porsche holds art exhibitions with emerging artists, Vuitton showcased products at Art Basel, and most luxury hotels have art on display.
Millennials and Gen Z value moral principles of diversity and inclusion, pressuring brands to adopt them. At Expo 2020 in Dubai, Cartier presented the Women’s Pavilion to discuss the role of women in society, Chanel appointed a Director of Diversity and Inclusion, and Bentley announced its goal of being the most diverse automotive producer.
In a Nielsen study, 73% of Millennials admitted a willingness to pay more for sustainability. Therefore, Panerai developed a watch with 98% recycled materials, and Prada has jewelry made from 100% recycled gold.
Young customers buy used or rent products, leading luxury brands to adopt the circular economy. Pre-Loved Luxury shops are proliferating in airports, and after decades of intransigence, Rolex is finally accepting authorized distributors to sell pre-owned watches.
As they have always done throughout the centuries, I believe that luxury brands will know how to overcome the challenges to maintain relevance and move forward.
Article by António Paraíso, Luxury Marketing Consultant and Program Director of the Advanced Program in Leading the Luxury Business.