Today’s consumer spending pattern has shifted. As high-end consumers everywhere have suddenly curtailed their appetite for luxury goods, what was once considered a recession-proof industry has been hit hard. Early this year, in Tokyo, Louis Vuitton canceled plans for what would have been its largest and most glittery store anywhere while Chanel announced the layoff of 200 temporary employees – which the daily newspaper Le Parisien called the latter news a bombshell.
No category in the luxury domain has been spared a significant drop in sales including fine spirits, watches and yachts. Suddenly, the perception on the street is that – luxury goods are considered a sign of immorality, superficial and ostentatious. Restraint and modesty are in.
On the indulgence services side, lifestyle spending rose on health and wellness but dropped on luxury travel.
Wealth has dropped everywhere
The wealth of the world’s richest people fell by almost a fifth last year to $33 trillion, according to the 2009 World Wealth Report from Merrill Lynch and Capgemini. Their wealth declined by more than 20% in North America, Europe and Asia, but by a bit less in Africa and the Middle East. Latin America’s rich were the least affected: they lost 6% of their wealth, and the number there fell by less than 1%. In North America, which had a large proportion of people just above the $1 Million threshold, the ranks slimmed by 19%.
Luxury versus Premium
Luxury goods are needlessly expensive – their price is not related to performance. Instead, the price is related to scarcity, brand and storytelling. Premium goods, on the other hand, are expensive and higher grade versions of commodity goods. You pay more to get more – most notably, quality.
“We are seeing the consumer move away from the prestige purchase, the blingy, the flash, to quality,” says Mary Beth Whitfield, senior vice president of the consulting firm Retail Forward. “Consumers will still resonate with something that is marketed as premium or classic.”
Dilemmas bring new opportunities
Plenty of brands are in trouble right now because they’re not sure which one they represent. One suggestion is to find your heritage, your traditional values, as well as your commitment to craft and quality or simply make up those attributes if you have to. Michael Silverstein of the Boston Consulting Group believes that luxury brands traditionally have competed on three dimensions – technology, function, and emotion—and says that the battle is now shifting more toward technology and function, away from “lifestyle and mystique.” “The best companies, Silverstein explains, “are investing in technical and functional capability.”
Redefining the brand and its allure
Brands are moving beyond just logos and packaging. They should be equally perceived as practical. Core luxury consumers are evolving towards seeking for a more meaningful story and some luxury brands are beginning to hear this clearly. Instead of “self-indulgence” their clients prefer “sharing the pleasures of life” and replacing “conspicuous consumption” with “conscious consumption”.
Prestige brands need to take immediate steps to develop plans to regain lost customers. Effective planning requires a detailed understanding of how consumer behavior and attitudes have changed. The feasible strategy should then be executed in a timely manner. Luxury purveyors need to recapture the sales volume that has been lost when the economic circumstances have forced consumers to reconsider their purchasing priorities. Luxuries items which are perceived as “nice-to-haves” (or non-essential) seem to be frowned-upon as consumers need to cut spending.
Put away those price cutting scissors
What high-end brands should not do is get into a panic and start discounting prices simply for the sake of surviving the downturn, because consumers often look to price as a signal of quality. By cutting prices a brand may undermine perceptions of quality. Lowering price should be the tactic of last resort. By cutting prices, companies encourage customers to regard the depressed price as normal, making it very difficult to return prices to previous levels when the economy eventually recovers. As an alternative, offer a gift item (of lesser value) with the purchase or complimentary tickets to an attractive arts event or perhaps a gift certificate to a fine restaurant.
Customer service and the shopping experience
When a customer walks into a prestigious boutique, his/her service expectations and shopping experience are quite high. It’s anticipating that “feel good” moment. Disappointment is not an option but rather excellence in store service plays an integral role in communicating the culture of the brand. Hence, the salespeople in the boutique play the role of ambassadors of a prestigious brand and are in the forefront of the client relationship. It all starts with training, occasional re-training, including the necessity of staying informed of industry trends/evolution and thorough product knowledge. Moreover, it goes without saying that a positive attitude, grooming, pleasant gestures and apparel worn all reflect the essence of the brand. These criteria should be standard but often overlooked – so are listening to the client and personalizing each relationship. Post sales should include building loyalty, continuous customer engagement and staying in touch with the patrons via newsletters, birthday cards, special invitations to previews/store events etc..
A prestige brand should be perceived as worth paying more while making certain it has an emotional connection. Luxury will survive, as long as there will always be those wealthy who are willing to pay to possess an exclusive product they can admire. Conspicuous consumption will always exist, though not in the same degree as we have witnessed prior to the recession.
For luxury brands to thrive, as they have been this past, they need to look beyond just the elite demographic. They need to start focusing and catering to the mass affluent who are a group much larger than the super-rich and who have been most affected by the recent economic upheaval. The mass affluent today are defined as clients with investible assets of US$100,000-$1 Million. This category is willing to trade-up for items that are emotionally important to it.
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