Incomes and wealth in mature societies have more than tripled over recent decades. But are we getting happier as we are getting wealthier? Academics assert that once basic needs are met, additional income doesn’t do much to improve happiness.
Known as reference anxiety, most people judge what they have according to what others have. So instead of being content with our own needs being satisfied, we are only happy by being comparatively better off. People tend to measure their comparative wealth by, amongst other things, the consumption of positional goods like luxury products and services. Today, as social media makes our lives much more visible, and technology promotes a desire for more instant gratification, reference anxiety is on the up.
At the same time, brands are making luxury goods much more accessible, resulting in what some have called ‘masstige’ or ‘democratisation of luxury’. But if millions have access to the same luxury goods and brands, then these luxury offerings lose their relative value, as the entire raison d’etre for luxury brands is to offer something that others can not get access to. In other words, scarcity is becoming less scarce, and wealth is relative.
So if luxury is defined as a “state of great comfort or elegance, especially when involving great expense; an inessential, desirable item which is expensive or difficult to obtain; a pleasure obtained only rarely” (Oxford Dictionary), it follows that either the luxury market should be facing a bit of trouble, or that the definition of luxury is changing.
The answer is that both are true.
While traditional luxury categories enjoyed steady growth in the earlier part of this century, this is largely due to economic factors, mostly attributed to the rapid growth of BRIC nations (Brazil, Russia, India and China) and the associated boom in HNWIs (high net worth individuals). But this growth has more recently flattened, and in some markets retracted, posing challenges for traditional luxury brands.
This means we must revisit the definition of luxury, this time from the point of view of the customer, rather than the producer. In doing so, three important factors determining the new path and growth of luxury can be identified.
Hong Kong retailer Lane Crawford is experimenting with new approaches to luxurious shopping
The first often overlooked driver of luxury is associated with the pleasure we derive from sensory experiences. This includes all touch points both online and offline, and is easily undermined by the lowest common denominator. That is, a brand is only as ‘luxury’ as its lowest point, not its highest. For instance, if a luxury hotel has poor customer service or cheap looking toiletries in its bathrooms, the promise of a luxury experience is broken.
A luxury garment, when shoved into a plastic bag at generic point of sale, does not provide the sensory experience beyond that of buying a burger at McDonald’s. But some brands are getting it right. Department store Lane Crawford in Hong Kong offers a personalised DJ service while customers shop, the personalised music selection enhancing the shopping experience and therefore connection with the brand.
The second driver comes from the sense of comfort we experience through engagement with relationships. Successful luxury brands bring like-minded people together; they have a point of view, a story and create a personal connection, so much so that it becomes an extension of the customer. Together with the rise of personalisation, successful luxury brands offer a masterfully balanced sense of joining a tribe at the same time as allowing the customer to express their uniqueness and desire for individuality. Monogrammed luxury accessories and more recently, VIP customers making or labelling their own wine, are two obvious examples of this driver in action.
Luxury brands that incorporate ways for their customers to share time together, especially while learning something along the way (‘edusperiences’) can create very strong engagement. Often these brands capitalise on the fact that they are niche, small scale or local, emphasising the exclusivity, rarity (not just in terms of product, but also in terms of time) and sense of place as part of their story.
The third driver is the desire we have to make our lives feel more meaningful. This is very broad in terms of its application, and it is also the most significant departure from yesteryear’s definition of luxury. Until recently, luxury apparel and decorative items were often derived from the coveted and precious skins, coats, teeth and bones of rare beasts. Today, customers of luxury brands are consuming much more consciously and as such are demanding ethical, sustainable and authentic luxuries.
On a local level, the approach of Steven ter Horst Chocolatier aligns well with this shift in the luxury market (photo: Jonathan van der Knaap)
This is becoming more of an imperative, than an option, as customers demand transparency into ingredients, materials, country of origin and production methods. This is not unique to the luxury market, as customers in all segments are seeking transparency, but it is particularly challenging for luxury, a category traditionally characterised and defined by scarcity or rarity. Luxury products and services that help customers achieve their personal health and wellbeing goals are another result of the customer’s search for meaning, improvement and wellness.
Many luxury goods and services of the past focused on their product only, promised happiness, but delivered only short-term satisfaction. A luxury brand’s goal was once to create a superior, exclusive and aspirational product. Successful luxury brands today understand that luxury is not just product and price related. Luxury is critically about experience, community, story, authenticity and transparency.
The definition of luxury, through the lens of the customer, is changing and will continue to do so. What was a luxury yesterday is a necessity tomorrow, and many luxury brands now have a use-by date on their business. Small, niche, nimble brands with unique stories, which can connect and engage in a meaningful and personal way will be the winners.
Marni Ladd is Program Director of Wine Business at the University of Adelaide and was formally Program Director at Australian Centre for Retail Studies at Monash University
Header image: The designs of local couture label Paolo Sebastian respresents new luxury. Photo: Duy Dash
This article is drawn from the 2017 edition of LUXURY. Click here to read the full edition of LUXURY online.
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