The Changing Nature of Luxury Customers - Markus Kramer
50715
post-template-default,single,single-post,postid-50715,single-format-standard,ajax_fade,page_not_loaded,,qode-title-hidden,qode_grid_1300,qode_popup_menu_text_scaledown,qode-child-theme-ver-1.0.0,qode-theme-ver-10.0,wpb-js-composer js-comp-ver-4.12,vc_responsive
Luxury Customers

The Changing Nature of Luxury Customers

When exploring what drives change (not just for luxury customers), it is often helpful to adopt an outside perspective. What provides the strategic canvas when looking at broader shifts on how customer, brands and their propositions evolve? One such approach is to take a seat in a helicopter and look at the epitome of branding: Luxury propositions sit outside the rationality of value for money. Luxury operates beyond rationality. Luxury promises to belong to an aspirational world, loaded with emotion, richness, depth and anchorage. I therefore suggest it serves as a great proxy to stimulate our perhaps somewhat contrived brand and marketing thinking of today. But can – or indeed does – such a long-established concept as luxury, full of heritage, history and legacy, change radically? No. However, it does evolve. It modernizes. Or better, the very nature of ‘who buys, how and why’ is changing in the 21st century.

For one, technology has led to an abundance of information and to fragmentation of (communication-) channels. Access to knowledge about luxury has never been broader. No surprise, many brands have been quick enough to jump on the wagon, offering anything from Skype interviews with their maison’s craftsmen to virtual 360° tours of their ateliers. Combine this with a new generation of consumers and the fact that more people have more money (wealth is traveling east: for instance, 80% of Millennials (Gen Y) in Asia will die richer than their parents) and what we get is an explosive mix: perhaps best termed as ‘the democratization of luxury’. But make no mistake, Luxury is more alive than ever. It only takes a different angle to recognize where the future potential in this sector lies.

Whilst digital is becoming more important for luxury brands, the evolving attitudes of luxury consumers signal that offline is today’s new luxury. The nascent no-logo preference (choosing brands that deliver with a higher purpose beyond the sake of promotion) of a certain segment of luxury customers points to one direction: upwards. Why so, and what are the deeper, underlying drivers that trigger this dynamic?

From Existentialism To Experientialism

For generations born before the 1950s, Tesla or Apple may not fully fit the definition of true luxury. However, the complex but romantic relationship between luxury and technology is gradually strengthening for the post-Baby Boomer generations. Rolls Royce, for instance, organized a free exhibition in Saatchi & Saatchi London in which visitors could interact with and experience the technological expression of their Spirit of Ecstasy. VERTU phones or upscale wearable’s are another indicator that technology and luxury are starting to build bridges.

For Millenials and the upcoming Gen Z, experientialism is already the new existentialism. Experientialist philosophy of life answers the top existentialist question raised by the great French existentialist philosopher Jean Paul Sartre who famously said: “Everything has been figured out except how to live.” The existentialist question of how one ought to live is being answered today by the experientialist philosophy of life. Or in other words: Status is changing. Status is a transitional concept. It evolves over time – this goes for generations as well as maturity of markets. What was once seen as demonstration of power (think of status as in Louis XIV – social power) morphed into a proof of status through the demonstration of wealth (as in “let me show you my shiny, super fast red car; a near F1 replica – and I own it”), to status as in demonstration of taste and sophistication. When Coco Chanel famously said over fifty years ago: “Some people think luxury is the opposite of poverty. It is not, it is the opposite of vulgarity”, I believe she was spot on. For a better understanding of this peculiar transition and its implications see Table 1.1.

Table 1.1. Changing Nature of Luxury Clientele

In a sense then, being in the know is the new way of showing. Let’s explore the implications further on and a bit more in depth.

Do you have L.E.G.S.?

In the US – the largest luxury market – we can observe that for the first time in history, generation X affluent Americans outnumber Baby Boomers according to Ipsos Affluents Survey. So yes, it is fair to claim that as the luxury consumer changes, so does the concept of luxury evolves – but it is not because of technology, digital or let alone social media. Luxury is still being bought offline, mostly. The underlying driver inherent in Gen X, Y and potentially Z is a craving for value; not as in value for money, but as in meaning, or value(s) of doing the right thing. Did anyone follow what happened after a citizen snapped a picture of a poorly treated animal at one of the many Florida crocodile farms last year? Within a few hours, the world of Hérmes became the subject of a global outcry to the point where Jane Birkin – the lady who gave her name for the famous Birkin bags – put forward a boycott: you can no longer call the Birkin bag a Birkin, until the supply chain is improved. 

This is about integrity turned inside out: transparent and visible to all, from the inside out and along your entire value chain. No hiding. This is about survival for the long run.

This dynamic becomes most evident when observing how new brands are being tested and tried by Millennials – and increasingly the post-millennial consumer, too. When they try a new luxury brand, product, hotel or a fine dining place, one of the first things Gen Y and Z will look for is: L.E.G.S – Lifestyle Enriching Goods and Services. For luxury (brands) it means going beyond function, beyond the aspirational brand worlds and beyond promises of status. LEGS in a nutshell is the customer’s search for meaning – the innate purpose and meaning of a (luxury) brand. And it is being tested, 24/7, transparently, without mercy. This is not about CSR initiatives looking nice in your annual report. This is about integrity turned inside out: transparent and visible to all, from the inside out and along your entire value chain. No hiding. This is about survival for the long run.

Sophistication & Taste

According to Airbus billionaires study, those new to wealth are generally more impulsive, but over time they become more discerning. The desire for silent luxury has been there for years in European economies and we started witnessing similar patterns in the Asian markets about five years ago. A well-known badge and a high price tag are no longer enough – discernment, sophistication and taste are the new norm. Remember, this is the transition from Show to Know. The implication?

Customers increasingly choose (luxury) brands based on their inner meaning and holistic integrity, rather than their outer shiny look.

 The speed of the shift from purchasing for demonstration of status as in “showing off wealth” into knowledge as in “I am in the know” is particularly apparent in China. A growing middle class, a strive for equality and access to information yield an increasingly sophisticated customers base, selecting brands no longer on their symbolic value alone, but on their inner meaningfulness. Russia and Middle Eastern markets are also traveling on this trajectory, but at a slower pace. However, in Russia, high net worth members of St. Petersburg’s intelligentsia stand out as a segment that tends to, more or less, avoid overstatement and meaningless ‘luxury’. Time will tell how a new generation of luxury consumers in emerging economies adopts the idea of sophistication and taste. Luxury customers in most mature markets have been choosing true luxury brands with an innate purpose. (See Graph 1.1.) New research by Dr. Stephen Kraus, SVP of Ipsos, also validates that today subtle and understated’ are among the building blocks of affluent luxury customers’ interest.

Graph 1.1. Sophistication and Taste

So what?

Every leader, every marketer, brand strategist, CMO (whether of a luxury house or not), every company small or large would be well advised to find clear, thoughtful and succinct answers to the following questions: Who am I? And if I am still stuck in product and existentialism: when, how and what does it take to transition to experientialism – perhaps for our entire industry? Does my product, my flagship store, my communications, service or boutique etc. have L.E.G.S – in other words, does it enrich lives, both within and for our clients? Do I take the macro-tendency towards sophistication and taste for granted? The psyche, the value consciousness, the very nature of luxury customers is evolving. The changing nature of the luxury clientele will not change the fundamentals of what constitutes a luxury brand. But the magic lies in finding the right balance of staying true to your roots and adjusting where needed: those luxury brands that recognize, acknowledge and internalize the implications of what is happening will emerge better, stronger and healthier. My take is that for the rest, the slope will mean a loss of independency over time at best, disappearance into oblivion at worst.

References:

Image: Regency dandies. Joseph Grego. England 1812, Courtesy of world4.eu