How can luxury brands survive the downturn?
There are worrying signs in the US marketplace, not only for companies that cater to ordinary consumers but also for those who cater to luxury tastes and needs - a market that has always been more protected from economic downturns because its consumers tend to have larger cash reserves to call on. But luxury retail sales are now declining, according to Milton Pedraza, CEO for the Luxury Institute.
Indeed, Pedraza warns that luxury retail sales are not alone, and that other important economic indicators are also declining: consumer confidence, job availability, the housing market, and real estate prices.
Changes in the luxury market These changes are now affecting luxury firms. For example, Neiman Marcus reported that year-on-year comparable sales in February 2008 had fallen by 7.3% - the first monthly decline in five years.
The "aspirational luxury consumer" is clearly under some stress, too, making it imperative for top-tier luxury firms to distinguish themselves by deepening bonds with their core of truly wealthy customers. The danger of going-mass market now, according to Pedraza, is that the middle-market is crowded, largely undifferentiated, and extremely price competitive. Elevating luxury brand status means re-focusing attention on processes that ensure impeccable service and product quality, as well as limiting distribution channels to prevent brand dilution through ubiquity and inconsistent selling environments.
Luxury consumers go online Effective online sales and marketing strategies need to go beyond the web's obvious utility value as a conduit for presenting products and taking orders. Most wealthy consumers view the web as a place where they can socialise with friends, share information and opinions, and share photos and videos.
The Wealth Report from the Luxury Institute has observed that 60% of wealthy web users belong to at least one social networking web site (more than double the 27% found in 2007). More than three-quarters of wealthy consumers aged 21-44 belong to at least one such web site, while 38% of this group belong to three or more such sites. Almost 10% of the wealthy who earn at least US$300,000 per year also publish their own blog.
In general, usage of such 'Web 2.0' applications rises sharply at higher levels of wealth and income, shattering the common notion that wealth and technological skills are mutually exclusive. Predictably, younger wealthy consumers are the most avid users of Web 2.0 services, but adoption rates even among those aged 55+ are surprisingly high, having grown by 500% in one year.
The new battleground Luxury firms must understand, therefore, that their customers can and do learn a lot about them on the web, so it pays to know something about where they go to get their information and how they share their stories and opinions.
The institute found that the wealthiest web users flock to social networking sites. Whether it's YouTube, MySpace, Facebook or other sites geared toward content sharing and user interaction, nearly two-thirds of individuals worth more than US$5 million, or earning more than US$300,000, belong to at least one of these.
Wealthy web usage trends Nearly one in four (23%) of the wealthy said that they were members of Yahoo! Groups. Reconnecting with old high school chums was also popular, with 21% being members of Classmates.com. YouTube is also widely used by the 20% of the wealthy who said they were members of the video site. Other sites claiming a good share of the wealthy as members included MySpace (16%), LinkedIn (13%), and Facebook (11%).
Just as important as where the wealthy go on the web is how frequently they visit those web sites. Yahoo! 360 was the leader, with 54% of its wealthy members visiting at least daily. And, with an average of 110 connections or friends online, most wealthy consumers (69%) said they had sent e-mail to other site members, and many said they send instant messages (41%).
Membership in social networking sites by wealthy consumers follows a predictable pattern of overlap. Based on survey data, members of one site are likely to be members of certain others, too. For example, 72% of Wikipedia members are also members of YouTube, as are some two-thirds of the members of both Yahoo! 360 and Flickr. Some 78% of LinkedIn members said they use the site to maintain professional relationships.
The wealthy resistance? Interestingly, 40% of wealthy consumers are not yet fans of social networking. The most commonly cited reason from 82% of the non-participating wealthy for not joining such a site is that they have other ways to communicate. Almost three-quarters cited reasons of privacy, and 45% said it is a "lack of familiarity" with these web sites that has prevented them from joining.
And, while it is not yet a mainstream way to get daily news, the impact of blogs as sources of information (and their value as soapboxes for their authors) cannot be overlooked by luxury firms. Almost one-third (32%) of wealthy consumers said they regularly read a blog, with 30% doing so on at least a daily basis.
Establishing credibility However, the credibility of the blog depends on the blogger. While 80% of wealthy readers agreed that blogs are effective for communicating different thoughts and ideas, and 63% said that they are informative and educational, 62% said that they read them purely for entertainment.
A good way for a luxury firm to stay informed about what is being said about it on the web is to subscribe to real simple syndication (RSS) feeds. Some 20% of wealthy consumers use RSS feeds to receive syndicated web-based content in their news, business, entertainment, sports and specialised headline searches.
Another sophisticated way for sharing information and ideas on the web is to share "bookmarked pages". Some 65% of wealthy web users have shared their bookmarks, but only 9% do so frequently. Only 4% of wealthy consumers have used "social bookmarking" web sites, with the most popular of these being Del.icio.us (65%), Digg (49%), and Redditt (29%).
Leading customer experiences From the web to the catalogue, or to the salons of its flagship New York store, Bergdorf Goodman manages to provide a seamless and impeccable customer experience across all of its sales channels. In the Luxury Institute's 2008 Luxury Customer Experience Index retail survey, wealthy consumers with average net worth of US$3.7 million, and average annual income of US$349,000, ranked Bergdorf Goodman as the top brand for delivering the best customer experience.
And, in the automobile market, by consistently delivering a superior customer experience from the showroom to the service department, Lexus has turned its customer base of wealthy drivers into its strongest advocates. Wealthy owners of Lexus vehicles said that the Lexus brand delivers a better experience than ten other high-end nameplates under consideration. Beyond its now well-known product quality, Lexus also commanded high regard as a brand that will "do anything to please its customers".