The Impact of Social Media on Luxury Goods

22 Sep,2014

 

Presenting excerpts from Deloitte Touche Tohmatsu Limited (DTTL)’s  1st annual report on ‘Global Powers of Luxury Goods’

 

Controlling all aspects of business has been the hallmark of luxury brands. From product design to sourcing of raw materials, to distribution and marketing, luxury brands have kept tight control, thus guaranteeing brand-appropriate quality and service levels. While companies serving the mass channel took to outsourcing manufacturing and sourcing of materials to support more rapid growth, purveyors of luxury goods continued to do it the old-fashioned way, satisfied with their healthy profit margins, although perhaps with muted revenue growth.

 

The internet has changed all that, forcing executives to rethink the tight control typical of luxury brands. The internet leveled the playing field, putting more power in the hands of the consumer with a platform that enables them to shop on their terms, when and where they want, while providing price transparency. Consumer expectations regarding price, value, and brands have all been elevated by increased information and access, and this ubiquitous access undermines one of luxury’s core tenets-exclusivity. The lack of intimacy in the virtual world can diminish brand loyalty, and the ease of comparison shopping and the fluidity of pricing further exacerbate the control issue. What follows is a closer look at the challenges and opportunities that this digital revolution presents to luxury brands.

 

 

The Indian luxury goods market appears to be on a lower growth trajectory as pointed out in the Deloitte Touche Tohmatsu Limited (DTTL) 1st annual report on ‘Global Powers of Luxury Goods’. In 2012, India once had the fastest growing luxury markets in the Asia pacific region. India grew much faster than China but lost steam due a lack of sustenance of the growth which once made the country an attractive market.

 

“The entire luxury goods market in India has seen a significant dip in the growth rate and is likely to see a couple of more turbulent years. However, the long term outlook remains positive and India’s luxury market is expected to rise with a strong performance. To supplement this long term growth trajectory, holistic implementation of new reforms and initiatives by stakeholders and regulators would only facilitate the vision,” said Gaurav Gupta, Senior Director, Deloitte in India.

 

‘Global Powers of Luxury Goods’ highlight the fact that along with Indian markets, many emerging markets like China, Brazil and Russia have seen deceleration of growth in the past year. This follows a period of rapid growth that was driven by several factors. Going forward, the emerging world is likely to have a year or two of disappointing growth while imbalances are unwound.

 

In the last five years, the expanding global middle class in the emerging markets has supported growth in the luxury sector and is continuing to grow through 2018. According to Euromonitor the emerging markets like Asia Pacific, Latin America, Middle East and Africa combined together accounted to 9 per cent of the luxury market in 2008 these figures spiked to 19 per cent in 2013 and is expected to leap up to 25 per cent in 2025.

 

The developed economies like U.S. and Europe benefits from the emerging markets. Over the 2012 to 2017 Euromonitor projects China to lead the tourist expenditure growth followed by India and the other emerging Asian countries. The appetite for American and European brands in the underpenetrated markets is strong and growing many luxury companies to expand its international presence hence creating opportunities in emerging markets like India.

 

Ubiquity versus exclusivity

E-commerce is the fastest growing retail channel, accounting for up to 20 percent of a retailer’s or brand’s total volume. According to WWD (December 16, 2013), industry sources estimate Amazon’s fashion business at $95 billion in global revenues in 2013; it is considered one of Amazon’s fastest growing businesses, with an expanding portfolio of aspirational brands. Luxury brands, however, were late to e-commerce, with many assuming that the aesthetics of their selling experience in the designer’s atelier or the flagship ‘maison’ would be difficult, if not impossible, to replicate on the internet.

 

The potential loss of exclusivity and the prestige associated with luxury brands’ bricks and mortar locations are hurdles that can be difficult for luxury brands to overcome, but they are surmountable, and some brands have clearly embraced the technology-one can shop Louis Vuitton’s website for selected handbags, accessories, and shoes and its social media tab connects the user with Louis Vuitton on Facebook, YouTube, Google+, Twitter, Instagram, Pinterest, and Foursquare.

 

Ultimately, luxury brands, like most consumer-facing brands, need to deliver an interactive, exciting and efficient shopping experience to all their customers regardless of channel, from flagship to mobile and everything in between. Many luxury brands reluctant to sell online have begun to use their websites to house brand stories, fashion shows, celebrity product sightings, and the like.

 

Social media

With the advent of social media, consumers had a new voice, increasing their individual and collective power, and communities of both brand advocates and critics sprang up. While this erodes message control for luxury brands, the internet, along with mobility and e-commerce, is one of the most effective means to introduce new products globally and provide instant gratification to shoppers in any part of the world. Moreover, social media can be used effectively as a vibrant storytelling medium for luxury brands, communicating brand heritage and iconography to a new audience of potential clients.

 

The visual nature of Instagram, the social photo and video sharing app purchased by Facebook in 2012, makes it a natural platform for luxury and fashion brands. Users have been known to spend hours tracking their favorite brands, looking for a particular fashion silhouette, or posting pictures. With 150 million monthly users, Instagram is a powerful new social media platform: according to Pew Research, most of its users are between the ages of 18 and 29, and about 17 percent have incomes of $75,0001 and above.

 

Michael Kors ran the first company sponsored advertisement on Instagram on November 1, 2013 and, according to Nitrogram, which ranks the most popular brands on Instagram, the brand’s increase in followers was 16 times more than it would have been following a non-sponsored post. Nike, Gucci, and Louis Vuitton all have official Instagram presences and each company has millions of followers on the platform.

 

Omnichannel

As retailers and mass brands have adopted omnichannel or channel agnostic distribution strategies to keep pace with consumer expectations, luxury brands would be wise to acknowledge that the internet has radically altered the path to purchase with shoppers nimbly navigating from cyberspace to store visits in pursuit of their desires. The virtual world is vital in the discovery and path to purchase. According to a recent Deloitte U.S. study, during the 2013 holiday season, omnichannel shoppers- defined as consumers who shopped online, on their smartphones, and in-store-spent 76 percent more than store-only shoppers in total2.

 

Consumers are spending increasingly greater portions of their day online and are connected with smart phones and tablets. As uncomfortable as this change may be, for luxury players, it is participate or perish. While an entire brand’s assortment needn’t be available for sale on the internet, a luxury brand can offer, for example, a select group of accessories that help promote its brand story and keep the customer happy.

 

To remain relevant, luxury brands have to go where their consumer and new consuming audiences are-social communities. Consumers have extremely high expectations for luxury brand sites, from design layout, functionality and ease of navigation, to brand iconography, and strength of overall brand presence. A brand strategy that encompasses the internet holistically can be successful generating interest, brand affiliation, and, ultimately, evangelism, where a customer feels compelled to share ‘brand good news’ with others through social media or word of mouth. Aspirational or premium brands such as Coach, Kate Spade, Michael Kors, and Tory Burch have been quick to adapt to the internet, as well as to social media and omnichannel strategies, and increasingly we see the most exclusive luxury brands joining the ranks.

 

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The internet has created new distribution channels for luxury fashion brands to keep up with consumer demand for the latest fashion at a value price. In addition to ebay.com, where individuals and businesses bid on used and never-worn fashion items, flash sites such as Gilt.com provide discounts up to 60 percent off original prices, while Rent the Runway allows for temporary ownership of designer apparel and accessories, and TheRealReal.com is an online consignment shop of designer and luxury products.

 

Custom and bespoke initiatives

Luxury brands can retain exclusivity while still broadening their client base with the expanding market for luxury goods with custom made products, limited editions, and exclusive assortments for the internet, wholesale and flagship locations. These efforts create demand, drive store/site traffic, and elevate exclusivity while sustaining the distance between a luxury brand and a mass fashion brand. Moreover, client involvement in product design, from Van’s and Nike’s $100 sneakers to a Louis Vuitton bag for $60,000, creates an emotional attachment with the brand, driving loyalty and brand advocacy.

 

From communication to conversion

According to Elizabeth Canon, founder and president of Fashion’s Collective, luxury brands have spent the last few years exploring the risks and opportunities that existed for them on social media and e-commerce: “should a luxury brand have a Facebook page? How should they collaborate with bloggers? How should brands translate their offline store experience to an immersive web store?” It is likely that going forward such brands will increase their focus on how big data can increase conversion and on tracking global consumers, with return on investment and data metrics supporting branding and marketing decisions.

 

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