Luxury Study: Boston Consulting Group
A new luxury study by the Boston Consulting Group (BCG) reveals important shifts and the related implications in the luxury sector. Based on what consumers identified as luxury spending, the BCG forecasts that the luxury industry will continue to grow in the next two years, despite the lack of growth in many other sectors of the economy.
However, there are both challenges and opportunities facing the luxury sector. Consumer behavior has shifted and introduced an element of complexity in the market. There have been increases in the prominence of emerging-market buyers, and in the growth of experiential luxury. BCG proposes that in response to complicated demands, luxury brands need to embrace four areas of change:
1. New consumers, different sectors and complex buying behavior
It is increasingly common for consumers to indulge in luxurious experiences that are tailored to their particular needs and preferences. Within experiential luxury, the technology sector has grown the most.
Brands need to expand their experiences into consumers’ everyday lives. This includes enriching the selling experience and adopting new business models that embrace the experimental trend. The luxury market is becoming increasingly complex and greater segmentation and customization is necessary.
2. Understanding new geographies and specifics of cities as unique markets
BCG notes that many leading brands are revising their emerging market strategies to align with changes in macro-economic factors, government policies, urbanization, development and tastes.
The implication is that brands would do well to replace their country-level approaches with city-level strategies. To this end, the BCG Local Metroluxe Index forecasts local luxury demand in cities across the world. The BCG Metroluxe Growth Index and the BCG Total Metroluxe Index also provide important information and analyses for brands.
3. Alternative and innovative business models
Companies are benefiting from new approaches that blur the lines between competition and collaboration, and that foster openness and embrace cultural changes.
Luxury brands need to embrace this change by forging stronger relationships with retailers. An effective way of achieving this is through joint ventures. Various leading brands have also adopted different approaches to virtualization.
4. The effects of new digital technologies
The digital domain is of great importance in all sectors, including the luxury market. The boundaries between digital and conventional paths of sales and communication are becoming increasingly blurred.
Luxury brands need to develop their e-commerce competence and take cognizance of the full range of channels that is available to consumers. Brands need to increase their social engagement with consumers and encourage the advocacy of their products and services.
BCG advocates 10 tips for luxury executives:
1. Increase understanding of consumers
2. Adopt city- or cluster-city- level approaches
3. Have a clear travel and tourist strategy
4. Embrace experiential luxury
5. Invest in emerging and long-established countries
6. Use simple, consistent brand architecture
7. Build new relationships with retailers and suppliers
8. Improve e-commerce
9. Devise channel strategies
10. Develop advocacy marketing