The marketing word of the moment has been “e-commerce.” Indeed, e-commerce has had a stellar performance and warranted such attention.
The top performing e-commerce companies achieved a monthly revenue 329% higher than other companies by the sixth month of business. Throughout the market, e-commerce is slated to have an annual growth rate of 15% until 2018, according to RJ Metrics.
This growth may have been fueled by the prevalence of smartphones and tablets: At least 90% of consumers own at least one device. Many brands have been filling up cyberspace, jumping on the e-commerce bandwagon.
The result, given the speed of e-commerce development, is that certain markets are already approaching a saturation point.
What does this mean for the luxury market?
Fortunately, it seems that the luxury e-commerce market may not be facing this situation anytime soon. Despite e-commerce’s brilliant report card, the luxury market has been slow on the uptake.
According to McKinsey & Company, in 2014, online sales represented only 4% of total luxury sales. This may be because some brands believe that luxury shoppers would not buy expensive things online, preferring to opt for personalised customer service and the physical shopping experience.
This belief is not unfounded.
Online shopping experience
When asked for what luxury means to them, 66% of the respondents indicated “exclusivity.” It seems this can be extrapolated even to the online space, where luxury consumers expect a standard of service similar to the in-store experience.
Luxury consumers prioritise the online shopping experience over everything else, unlike general consumers who typically shop online in search of cheaper prices. It may even seem intuitive that the high net worth luxury consumer would generally be apathetic toward the price tag.
It would then not be surprising to find that luxury consumers ranked Web site navigability and online customer care and quality higher than price discount when asked for factors they considered more important in shopping online, according to Boston Consulting Group (BCG)’s 2015 True-Luxury Global Consumer Insight.
This implies that, in deciding whether or not to engage a brand, luxury consumers place greater emphasis on how they are treated, rather than the product the brand offers.
There has also been a shift in luxury consumer’s preference for luxury items. In recent trends of luxury consumption, spending in the experiential market, which includes travel, spas, and technology, made up more than half of total luxury spending.
This trend is not set to change anytime soon; the experiential luxury market is undergoing a period of unprecedented development, growing at a rate of 14% annually.
So, luxury consumers now want to feel exclusive and are consuming more “experiences.” What, then, can luxury marketers make of this finding, and how can they leverage on it?
Jean-Marc Bellaiche, senior partner and managing director of BCG, proposed the need for luxury brands to “expand into new experiential categories versus traditional personal goods, and boost experiences as part of traditional offering.”
Indeed, many brands are stepping up to the plate, making use of creative campaigns to highlight the features of their products.
Some brands used products: Mercedez-Benz implanted strong, opposing magnets in toy cars for children, making them impossible to collide and, thus, highlighting the safety of their cars.
Others organised events: Diageo opened a Johnnie Walker House in Shanghai, offering visitors the opportunity to learn about Scotch whiskey as well as sample the product. Entry is exclusive, limited to ultra-rich businessmen, celebrities, and trend setters.
Why do events work?
Events tap into the concept of “exclusivity” in luxury, and engage consumers emotionally, by allowing them to immerse themselves in a brand. This engagement usually translates into long-term brand loyalty, and also spending.
Indeed, events generate the most ROI, with 58% of luxury brands surveyed experiencing a ROI of 50% from their events, which was higher than other marketing initiatives.
Spending in luxury categories is still growing, and there is increased consumer intention toward spending: 37% of respondents in BCG’s 2015 study indicated that they expect to spend more on luxury products in the next 12 months. This is an increase from 23% in the previous year.
Perhaps it is time for luxury goods brands to focus on the experience, taking advantage of the evolution of the luxury consumer’s needs and preferences, and immerse their audience completely in the brand with an unforgettable, exclusive encounter.