What does the future hold for luxury?

Jean-Noël Kapferer, Professor of Marketing - July 15th, 2015
What does the future hold for luxury? by Jean-Noël Kapferer

Like other markets, the luxury sector must cope with the inexorable shift toward digitalization, the challenges of sustainable development, and an explosion of demand from new consumers in emerging countries especially from China. At the same time, the luxury market is different from other markets, with highly specific management. Luxury brands must therefore come up with novel ways to deal with the technological and social changes that are creating a new world order.

Jean-Noël Kapferer ©HEC Paris

HEC Paris graduate and Ph.D Kellogg Business School (USA). Jean-Noël Kapferer is a renowned expert in brands, recognized worldwide for his work on brand identity, strategic brand (...)

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The luxury market is a very particular sector. Its business model is based on rarity, which guarantees exceptional quality and an associated sense of privilege. In luxury, success is not measured by volume of demand and rate of growth, and these factors can even be problematic. Indeed, making people dream can be good for sales, but in luxury sales dilute the dream. Both rarity and the sense of privilege are destroyed by mass production and booming sales. In such conditions, luxury products can no longer be classified as luxury but rather as mass-prestige or "masstige", meaning prestigious products sold to the masses because of their high-end image. You cannot apply traditional marketing principles to luxury. It depends on subtle mixtures of presence and absence, inclusion and exclusion, past and future, tradition and avant-garde. In the best-selling The Luxury Strategy  (Kogan Page, 2012), authors Vincent Bastien and Jean-Noël Kapferer say that luxury abides by "anti-laws" of marketing. This is the context in which to consider the ways that luxury brands are dealing with the technological and social evolutions that are in the process of changing the world irreversibly.

New markets, new buyers

The first major sociological disruption is that luxury brand customers are increasingly from emerging countries, and China in particular. The buying habits and aspirations of these new consumers are different from those of their predecessors. Regardless of their country of origin, they are buying in duty-free shops in world capitals like Seoul,or London, Paris, New York. This forces major luxury brands to close shops in certain areas and open others elsewhere; to adjust global pricing scales to country-specific circumstances; and to create omnichannel customer relations management tools (to identify the personal desires of world shoppers before their planes even take off). Shopping malls in Dubai and elsewhere are experiencing a veritable explosion, offering ultra high-end services and becoming tourist destinations. In addition to changes in buying practices, demand for luxury products is also evolving. Consumers in the Gulf countries, for example, still want extremely rare, expensive, and luxurious products, but they are a relatively small group of people. In contrast, the Chinese represent a huge market, but they are not willing to wait for months at a time to get the finest quality, individually-manufactured items. They are proud of their personal and national financial achievements, and they want their success to be visible; hence, their inclination for brand logos. 

True and false luxury

These new consumers seek first and foremost a brand before exceptional, timeless products, because brands are visas, which demonstrate their social ascent and membership in a worldwide community of affluent consumers, no different from Westerners. For them, the difference between fashion and luxury is tenuous. A luxury product is one that is expensive, bought by celebrities, and sold in prestigious shops located on select streets or in exclusive shopping centers. Their attitude is indicative of what can be expected of other new customers from emerging countries in the coming decades, which makes it doubly strategic for the luxury market to decide how to respond to these expectations and communicate the value of “true” luxury. What is more, not only are the countries of origin of buyers evolving, the arrival of the Millennial Generation (young people born in the 2000s) is also changing the game. These sociological changes will have all the more impact by being compounded by technological changes to which the new clientele are deeply sensitive: the digital revolution and sustainable development.

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Contrary to popular belief, the luxury industry is not afraid of digitalization

Luxury and digitalization

Contrary to popular belief, the luxury industry is not afraid of digitalization. In fact, they worry about its uncontrollable successes. Putting iconic Chanel handbags up for sale on the net would mean doubling sales, but would that be good for the brand? Another problem online is that it is very difficult to see the difference between real and fake luxury, or between luxury and mass prestige "bridge" brands (those situated between luxury and mass market brands). Anyone can create a beautiful website. If Chanel doubles its sales thanks to the internet, how can this great luxury fashion house sustain its uniqueness, given that its business model is based on rarity (genuine rarity, involving rare ingredients, handmade craftsmanship, and singular attention to detail)? Certain luxury brands will solve this problem by creating artificial rarity on the net in the form of limited collections, signature creations by artists called in for the task, or chrono-rarity (items made available for only a short period of time). And yet, the true mark of luxury is a rite of belonging to the universe of the brand. This is a ritual that engages all five senses and takes place within a particular selective store according to a particular decorum. Luxury does not want to be fashionable, for that would compromise its soul and value; indeed, the luxury model relies on iconic products that ensure a sustainable inflows of cash. In contrast to e-commerce, luxury boutiques can continue to offer extraordinary, semi-religious experiences that can attract even the new, hyper-connected generations. In Korea, Lotte and Shinsegae, department stores have established themselves as references for luxury in terms of fine taste and merchandise. Customers are as proud to carry shopping bags with these stores’ logos as of the logos of the precious brands within them. Kapferer urges other luxury firms to draw inspiration from this approach. Strategies should be revised to focus on shops that are fewer in number, but more exceptional in nature.  

The challenge of sustainable development

Digitalization has brought new players to the luxury market, like Tesla, Apple Watch, soon Google car. Tesla does not come from Detroit, the traditional base of the American automobile industry, but rather from California. The company has overturned the typical view of luxury by asking: is a polluting BMW really a high quality product? These kind of new players are forcing established luxury companies to face the challenging question of sustainable development, an issue that is increasingly important as the Millennial Generation reaches purchasing age. However, luxury and sustainability are not necessarily incompatible. While luxury tends to be associated with the notion of excess and hedonism, Kapferer stresses that in its essence, luxury shares also characteristics with sustainable development. It is fundamentally concerned with rarity and beauty and thus has an interest in preserving them. This is especially the case for major French luxury houses, which need to be able to access fine quality materials. Being able to affirm that products are made in France is vital for them. Luxury houses have such an intense need for creative and talented craftspeople that they have begun to vertically integrate them into their organizations by buying independent companies that would not otherwise survive and by creating schools.

Based on an interview with Jean-Noel Kapferer, his article, “The future of luxury: Challenges and opportunities” (Journal Brand of Management , vol. 21, 9, 716–726, November 2014), and his latest book, Kapferer on Luxury: How luxury brands can grow yet remain rare (Kogan Page , 2015).

Applications in the workplace
Applications in the workplace

There is no guidebook for the future of luxury: it lies in the hands of the brands themselves. Brands are turning towards increasingly vertical organizational structures. After integrating downstream processes by putting in place a system of selective distribution that enables them to select and get to know their clients, cultivate the customer relationship, and control customer purchasing experiences, they will need to invest in upstream processes to ensure the sustainability of their supply of rare, quality noble materials and know-how. Luxury requires it. In addition, the pressures of digitalization and the exploding demand from emerging markets call for protecting and highlighting the difference between true luxury and mass prestige or premium brands (intermediary brands between luxury and mass market that frequently started in an artisanal manner and tend to follow the example of luxury brands). According to Kapferer, luxury should highlight its particular strengths and value, accentuating its links to art and culture. Because, ironically, the greater the success of luxury, the more fragile its position. Hence the current trend toward the “artification” of luxury brands  (transformation of non art into art) .