Personalization in the luxury industry: the complicated economic situation following the spread of the Covid-19 pandemic has presented new urgencies to be faced in most sectors, urgencies that, from the production and distribution level, have had an inevitable impact on the relationship with consumers and have caused profound changes throughout the marketing funnel. Even luxury companies have found themselves having to quickly adapt their mentality, tools, and working methods in order to cope with these changes. The most effective response adopted by luxury marketing professionals has consisted of strengthening online and omnichannel strategies through the enhancement of all the assets that offer greater prospects for advanced personalization.
From Gucci’s DIY service, through which customers can personalize knitwear, tote bags, and sneakers with letters in different colors and materials, to Burberry Bespoke, which allows customers to choose the style, fabric, and color of their trench coat, brands are increasingly offering personalization options to consumers who want to express their uniqueness through what they buy, in a world where brands risk overexposure on social media and luxury consumption seems more subject to forms of standardization than ever before.
In this post, we’ll focus on three aspects of the personalization trend that, in the face of the current new normal, are transforming the luxury industry, particularly regarding the “last mile”, the final stretch of the path that materializes with the purchase:
- the shift from a global dimension to a local dimension
- the evolution of the digital ecosystem starting from a new conception of the store
- the complication and enrichment of the purchasing experience
Personalization in the new normal of Luxury Retail: more “local” and more virtual
As of April 2019, nearly one in five luxury buyers claimed that personalization, especially tailor made, was key. And this desire for individuality and self-assertion is not something that can go ignored.
“Bespoke styles have always been something important to me,” Mr Louboutin told the Financial Times. “It’s a way for me to keep an intimate connection with my clients and to have direct feedback on how they perceive my work.” In the same article, Thomas Chauvet, an analyst at the US investment bank Citi stated that “The return to some degree of product personalisation in luxury is an astute way for brands to offer additional customisation services to a more discerning clientele while continuing to grow overall volumes, particularly in entry-level categories.”
The personalized products segment has a high margin and is expected to grow faster than the luxury market as a whole.
Before the crisis, the tendency to design more and more personalized experiences for one’s target audience can be framed within the process of digital disruption that has revolutionized people’s buying habits in the last 20 years and that, in the case of Retail, has undergone an unpredictable acceleration during the Covid-19 pandemic.
In the case of Luxury Retail, to better intercept the needs of a very specific audience, personalization has taken on a series of distinctive qualities.
From global to local (and back to the consumer)
Giving importance to a local dimension — as complementary and not alternative to the global one — can help luxury operators implement programs of even greater personalization and thereby revitalize Retail. There are two reasons for this:
- Each consumer is a separate segment. With its complicated system of belonging – cultural, social, generational, geographical – the individual consumer becomes the point on which the brand must focus.
- From global traveler to local buyer. Today, creating tailor-made local experiences is indispensable for maintaining a lasting relationship with customers who visit from abroad, especially those from China. This is another way for brands to re-appropriate the local strategy for a new dimension.
In the 2018 annual report on luxury goods by Bain & Company, among the many findings reported, perhaps the most notable was that the majority of China’s luxury consumers — 58% — came from tier 2 cities and below. Luxury consumers from the top 4 cities, Beijing, Shanghai, Guangzhou, and Shenzhen, accounted for only 20% of total consumers. These figures make it clear that the modern luxury consumer cannot be mapped to a certain part of the world, a certain part of society, or even a certain age: each customer is a segment unto itself. This is especially true in the current moment where, because of the pandemic, the flow of tourists, especially Chinese tourists, has come to a standstill. Now, brands must work to win back local markets and close the distance that separates the customer from the purchase decision; this passes precisely through careful, accurate, and respectful contextualization.
The luxury industry has always catered to a global consumer: 20 to 30 percent of the industry’s revenues are generated by consumers making luxury purchases outside of their home countries. In 2018, Chinese consumers had made more than 150 million trips abroad for spending outside their home country, which was estimated to account for half of the total luxury spending that year. Asian shoppers were buying luxury goods outside their home countries not only to benefit from prices, which were lower in Europe, but also because shopping had become an integral part of the travel experience: purchasing goods in their place of production may in fact be perceived as more authentic. With recent travel restrictions, a major driver of luxury spending has stalled, and it is likely that even after restrictions are lifted, the increase in international travel will be gradual. That said, Chinese consumers remain the biggest growth opportunity for the luxury sector.
To reactivate and boost Asian shoppers’ luxury consumption in their home countries, brands will need to increasingly focus on (mckinsey.com):
- creating tailored local experiences;
- strengthening digital and omnichannel offerings;
- building deeper engagement with consumers, even in “smaller” cities
The store at the center of the digital luxury ecosystem
Effective personalization in the luxury industry intersects the increasing centrality of digital marketing with the need to correctly interpret increasingly precise profiling. In order to increase the results of personalization, there must be a willingness on the part of the company to invest in online channels, but also an awareness of the high standards that luxury consumers are accustomed to in stores. The emphasis is therefore all about creating a personalized digital experience that can match those levels of quality.
The function of stores is expanding. The traditional store incorporates new technologies that in turn redesign both its perimeter and its internal structure. It is no longer a “simple physical store”, but a center of experience, logistics, and services, with a fully integrated and seamless omnichannel environment.
Burberry has taken this seriously. In July of this year, it launched the first “First Social Retail” that combines physical and virtual reality in a digitally immersive retail experience in Shenzhen, China. Products are tagged with QR codes that unlock content and work to increase the amount of customers’ “social currency”. The more customers interact, the greater the opportunities to earn “rewards.” The store is designed to capture consumer interactions on social channels and give them a tangible dimension through traditional retail channels.
For years, Le Bon Marché, the LVMH-owned department store in Paris, has enabled and differentiated several spaces where it offers highly personalized services. According to president and CEO Patrice Wagner, ( in the “Financial Times” article cited above), personalization is a crucial and growing area. In Le Bon Marché’s equipped environments, customers can personalize products of more than 80 international brands, accentuating clothes or shoes with stones, studs, and sequins, or drawing T-shirts on a screen. Here, “the consumer becomes a designer”.
Also changing, inevitably, is the role of the sales team, which can connect with customers both inside the store and from outside through the various digital platforms available. In-store staff must focus more than ever on promoting and managing relationships both to ensure a more centered and valuable emotional connection and to rely on a systematic database that is easy and immediate to consult. Customers expect recognizable, accessible, efficient touchpoints that are available at all times. Leveraging a CRM where contacts are clearly and comprehensively organized will help streamline processes, improve customer relationships, and increase profitability.
How personalization evolves in the luxury industry: from product to experience
In 2019, Hermes was the fastest growing brand among millennials. The legendary Birkin bag, whose base price is $12,000, is almost impossible to buy due to the “artificial scarcity” created by the brand. There are dozens of adventurous stories circulating on the web about the fortuitous and reckless way in which young Birkin hunters eventually succeeded in purchasing the famed bag. At this point, we can ask ourselves, what is motivating such a quest? Is it the bag itself, a product of very fine craftsmanship, or rather the imagery that radiates from that object, the desire to experience the values that the Birkin embodies firsthand?
The “How I Got My Birkin” phenomenon is not simply a narrative functional for sales, it exemplifies a paradigm shift in Retail, which no longer revolves around the product and an exclusive and to some extent self-referential consumption, but becomes experiential, inclusive, and transversal across generations. There are many reasons for this transformation, but among them, the pervasiveness of digital communication (and social in particular) has certainly played a fundamental role. To build a distinctive and engaging online experience, omnichannel communication, online and offline, must be complete, fluid, and seamless.
Let’s take a further step forward: if luxury brands want to court consumers who are more critical and aware, they have no choice but to personalize the experience and the relationship that is traditionally based on care, attention, and listening. This model of interaction is typical of what usually happens in physical stores. New technologies and the use of the enormous amount of data available today can help replicate this same model of behavior within the digital ecosystem built by the brand.
New technologies and data at the heart of the Digital Luxury Experience
If luxury brands want to differentiate themselves, they have to systemize the information coming from their customers. They must be able to combine quantitative and qualitative data, obtained by questioning transactional touchpoints, collected on social platforms or coming from customer care.
François-Henri Pinault, chairman and CEO of Kering, recently stated that in order to be able to personalize its dialog with customers and optimize marketing efforts, the group is expanding its use of Artificial Intelligence (“Financial Times,” article cited). Currently, luxury e-commerce platforms such as Yoox Net-a-Porter, Moda Operandi, and Matchesfashion.com use data analysis tools to “train” artificial intelligence-enabled virtual personal stylists who are able to make recommendations to customers from stated preferences, browsing and purchase history, and purchases made by those with a similar profile.
In the near future, the customer may increasingly participate in the production and design process as well: product lines made based on the preferences of specific categories of customers; recurring elements of consumer relations incorporated into institutional websites to become integrated features available to the brand; useful and “trained” online chatbots replacing sales assistants to answer less complex inquiries.
Personalize content to personalize the luxury experience
Managing the personalization process in the luxury industry can be a challenge. The “recommendations” developed by the most advanced technological tools can sometimes be a double-edged sword if they are not filtered and recalibrated by people. They could be perceived as limiting the individual consumer’s ability to choose or as overly reassuring or even offensive.
In addition to migrating to digital platforms, employing sophisticated data analysis tools, and using machine learning techniques to mimic human behavior or build spectacular settings, luxury brands have other arrows in their bow, important arrows that have more to do with the human element than machines.
Experiential luxury is expanding the boundaries of the discourse on, of, and around the brand: a type of reflection that is gaining ground is the overlap between personalization and lifestyle, including no longer and not only cosmetic and purely exterior aspects but broader aesthetic experiences, such as artistic ones or emotional investment on social issues. In fact, a brand’s image can be greatly influenced by its stance on gender equality, responsible sourcing, and other sensitive issues. Many luxury brands are therefore placing even greater emphasis on the importance of corporate social responsibility.
To succeed in conveying complex messages that are received and acted upon in an absolutely personal way, it is necessary to immediately set up a careful content marketing strategy that can take into account, exalt, and channel these individualizing trends. In other words, the challenge is to establish a relationship of loyalty with consumers: personalize content in order to personalize products and experiences.
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