With regards to luxury, bigger used to always be better. The history and heritage of top luxury houses were seen as assets that those brands could capitalize on until the end of time. But while that may have been true a decade or two ago, today, things have changed dramatically. Many of those so-called heritage brands are suffering, whether they’re in jewelry, fine wines, luxury cars, fashion, fine watchmaking, luxury retail, or bespoke shoemaking. A lot of brands — even after a century of growth and unbridled success — have suddenly started to lose ground, leaving management teams puzzled about what happened and what they should do about it. But there are recurring patterns that can be addressed when a heritage brand starts to fail.
We live in a time when business, communication, and technology have never moved so quickly. Luxury consumers have never been so young, their preferences are being shaped earlier and earlier, and there’s more competition for their attention than ever before. Because of these factors, disruption has never been so important.
But these market changes have mostly been problematic for big heritage brands. When those brands were first established, they set themselves apart by capitalizing on an area of expertise, like a uniquely refined production method or an unparalleled sense of design. Everything was focused on the product. Brands led because people aspired to own the best of something. This model worked when there were few market players, as the few exceptional ones were known and considered true luxuries.
Looking at today’s reality reveals why this model no longer works. First, in almost every category, the quality of lesser products has increased dramatically, shrinking the quality gap between all luxury brands. In many cases, cheaper products can even be technically superior because of digital and technological advancements. When it comes to function, luxury isn’t always better. Second, with way more competitors in the luxury market today, high craftsmanship has become an “expected” function, and no consumer will ever pay a premium for what’s “expected.”
Then there’s market “disruption,” which affects every business and even entire business models. For more than 100 years, the Swiss watch industry never had the idea to sell watch bands separately. Changing a band can be complicated with classic watches, but Apple changed this by making the bands an integral part of the revenue and profit model of its watches. Yet half a decade after the Apple Watch launched, no classic watchmaker adapted to this concept. Apple also changed things by offering a subscription model instead of the usual one-time-purchase model, allowing customers to change their watch every year or two. Because of this, many customers will pay more for Apple Watches over time than for Rolexes. As you can see, when an industry newcomer creates a more profitable business model, often incumbents are slow to adapt.
Social currency: product versus brand
Many heritage brands do not focus enough on brand storytelling. They become too product-driven, especially since millennials and Gen Zers tend to buy brands rather than products. Social currency is what rules brand choices today. For instance, when asked which luxury brands they admired most in a recent discussion, a panel of 14 to 16-year-old Gen Zers didn’t mention any established luxury brands. Instead, they longed for brands established by singers, like Rhianna’s Fenty or Pharrell Williams’ Billionaire Boys Club. Those brands resonate with young consumers, and they, in turn, influence older consumers around them.
When heritage brands ignore brand storytelling, they lose the ability to connect and create relevancy for their youngest consumers. Brand storytelling is not something “fluffy,” in fact, it’s quite the opposite. It’s the most fundamental task a brand must address. Storytelling is the result of a structured positioning exercise that defines how the brand creates value for consumers. Often managers say “this is not important for us. We have substance. We don’t need brand storytelling.” Those are the brands that are either declining or not reaching their potential.
A brand’s story determines how people will think about the brand and its products, whether they see the brand as relevant or not, and is generally the reason brands gain social currency (in other words, why they’re desired). The brand story is the most important element, and all the other aspects — including the products — are there to express that brand story.
Social currency mostly depends on storytelling, not the products. This is especially the case in China. Brand storytelling also determines the consumer buying experience. Many brands don’t have the knowledge or organization in place to develop a compelling brand story and bring it to life at all purchase touchpoints. Even fewer brands have developed dedicated training programs to ensure that each staff member understands their part in bringing the brand story to life. Without a story and a staff who can execute it, there’s no luxury experience. Period.
Operating in the dark and losing influence
For a brand to be perceived as luxury, it must be able to influence, inspire, and innovate. When brands are too stuck in their past heritage, they often lose their influencing role. In other words, they become boring, neutral, or less important for consumers. If they lose their power to influence, they then lose their ability to create added luxury value (ALV). When people don’t feel that a brand provides extreme value, then it’s not seen as luxury, no matter how important the brand name was at one point in time.
Brands usually lose their ALV because of a lack of insights, as most brands don’t have sufficient visibility on how consumers see them in the marketplace. In the digital age, when most luxury consumers in China are 35 years old or younger, preferences tend to change all the time. Brands that don’t have a state-of-the-art digital infrastructure with digital tools allowing the CEO and leadership team to know how the brand is perceived in real-time, know what topics are trending with their target groups, or see how they perform against their competitors are operating in the dark. By doing so, they are gambling on their future.
Transforming brands into data-driven companies and implementing an A.I.-supported digital infrastructure with the ability to create highly personalized customer conversations are central in aligning a brand with its target group. Also, conducting a thorough brand audit will help a luxury company see what it needs to change structurally so it can gain a competitive advantage.
Disruption can be good if used correctly
The luxury market leaders of the future will not necessarily be the bigger brands — they’ll be the ones that have the cultural sensitivity to understand what consumers want at any moment. It sounds simple, but it’s not. It requires real-time insights, and the ability to influence and innovate based on those insights. It also requires brands to look far beyond their product. Craftsmanship is important, but today, it’s expected in luxury. Brands must go beyond craftsmanship. They need to center themselves around the customer, provide them with value, and redefine themselves as providers of luxury experiences (not just products). We are only at the beginning of disruption. More change will come, and customer expectations will continue to rise. Heritage isn’t enough for brands, and the time for them to act is now.
Courtesy : Jing Daily