Strategy

(Trends) Luxury Brands & Digital Marketing

As social technology began its foothold online, circa 2008-2009, the luxury market experienced recession driven declines across the globe. According to the L2 Think Tank’s latest Digital IQ Index – Luxury report, the resulting declines forced luxury brands to turn from wholesale channels to retail/direct channels, including the exploration of digital avenues for incremental revenues and greater ROI on diminishing marketing dollars.

“Many turned online, in search of incremental revenue and greater return from precious marketing dollars. Programs such as Burberry’s Art of the Trench, Gucci’s Digital Flagship, and Tiffany’s Engagement Ring Finder have cast a spell on the luxury press scoring millions in earned media impressions and infusing these heritage-heavy brands with innovation. As the industry rebounds top brands remain locked in a virtual arms race to acquire customers, fans and followers online.” [1]

In the past year, the luxury market has regained its positive momentum with full recovery, and positive growth, to return later this year. Bain and Company’s most recent Luxury Market Study, explains,

“Although 40% of the sales revenue increase stems from the depreciation of the Euro, even at constant exchange rates versus last year, the projected 2010 growth constitutes a 6% year-over-year increase. The final quarter of 2009 saw an end to a six-quarter long decline in year-over-year luxury sales, and was flat compared to the same quarter in 2008. Starting in 2010, luxury sales increased 6% in the first quarter, 16% in the second quarter, 13% in the third quarter, and are projected to grow 5% in the fourth quarter. Bain further forecasts growth of 3% to 5% in 2011 as the luxury market returns to a more level growth rate.”[2]

Bain’s analysis also highlights the key drivers behind the 2010 rebound and luxury brand success moving forward. First to drive performance in 2010 and beyond will include the shift from wholesale to retail (direct to consumer). Bain reports retail sales increasing by 20%, while department stores and wholesale channels increased a mere 6%. In addition, other channels will also be key drivers for performance, including luxury sales online–outpacing total web sales growth at a rate of 20% in 2010. Off-price sales account for 30% of online, versus 70% of online purchases made at full price.

Current Digital Activity of Luxury Brands

Key findings from the L2 Think Tank Digital IQ Index: Luxury report, highlight[3] the application of digital as key driver for continued luxury brand success:

  • Luxury brands can no longer rely on high traffic and inbound links to bolster their digital presence, once enjoyed from mass media, traditional marketing;
  • 78 percent of affluent Internet users are active on social networks (like Facebook, Twitter);
  • 66 percent of affluent Internet users conduct research online before making major purchases;
  • Limited digital presence has been shown to have a direct correlation and negative impact on offline sales;
  • 21 luxury brands who maintained active, digital presences have shown a 52 percent growth above their peers who did not;
  • 7 luxury brands who launched major, social e-commerce initiatives experienced an average traffic growth of 263 percent;
  • 41 luxury brands with a social sharing, integrated presence averaged traffic growth of 42 percent, compared to 18 percent growth by luxury brands without social sharing;
  • E-Commerce enabled luxury brands, tend to be present on multiple platforms, have larger communities and interact more with fans/followers;
  • Only 39 percent of brands are actively managing online reputation and search results, with department stores and authorized retailers dominating paid search results.
  • 13 percent of branded search results show discount and auction sites among the top three search results;
  • Email is still the highest ROI marketing channel for luxury brands;
  • 20 percent of affluent shoppers and 27 percent of high-net shoppers engage in mobile commerce on a regular basis, overwhelmingly through applications for the iPhone;
  • From July 2010 to September 2010 brand “likes” on Facebook increased an average of 11 percent per month, with luxury brands dominating the top leader boards;
  • Last year, on Twitter, brand followers increased an average of 15 percent from month to month, with luxury brands leading the pack;
  • Top luxury brands, leading in social media, have increased specific marketing activity to location and geo-based marketing (Foursquare, Facebook Places);
  • Facebook, with more than 500 million users, is listed third in terms of reach among affluent Internet users (only after Google and Yahoo!);
  • Facebook is listed as one of the top eight traffic sources for 73 percent of brand websites, up from 50 percent in 2009; and
  • Amount of traffic from Facebook has increased an average of 7.3 percent for brands.
  • For luxury brands, Facebook engagement is one of main drivers in online equity, not offline equity.

Consumer and Luxury Online Trends

Consumer trends moving through 2011 have also indicated favorable conditions for luxury brand online growth. Highlights from top consumer trend reports by TrendWatching.com and BrandKeys.com include:

Urbanomics

TrendWatching.com[3] has highlighted a long-term trend of the urbanization of consumers.  “Catering to city-citizens in these vast urban entities requires a local, dedicated approach in products, services and campaigns that mirror if not surpass the usual country-specific approach. To cut a long story short: In 2011, go for products, services, experiences or campaigns that tailor to the very specific (and often more refined, more experienced) needs of urbanites worldwide, if not city by city. And don’t forget to infuse them with a heavy dose of ‘URBAN PRIDE’.”

Value and Expectations

Both TrendWatching.com and BrandKeys.com highlight consumer trends that bring to light the necessity for brands to realize value is in the eye of the beholder. This trend is a major focus in the BrandKeys.com forecast[4]:

  • Excessive spending will continue to be replaced by a reason-to-buy at all. The appearance of ubiquity will be trouble for brands with no authentic meaning, whether high or low-end.
  • Brands will increasingly become a surrogate for “value.” What make goods and services valuable will increasingly be what is wrapped up in the brand and what consumers believe the brand means.
  • Marketers will have to comprehend what drives their category, know what consumers expect, and where to focus both process and brand efforts. Zappos sells shoes, but their brand equity lies primarily in the emotional driver of “service” (how they get shoes to customers and accept returns).
  • Differentiation remains critical to brand success as the proliferation of products and services available to consumers continues. While true innovation exists when it comes to the offerings available, differentiation will come from what the brand offers emotionally to consumers.

Technology Drives Consumer Demands

An inarguable trend, highlighted by both TrendWatching.com and BrandKeys.com–consumers’ online behaviors are driven by technology adoption. Consumers are making it increasingly difficult for brands to keep up with their expectations of digital experience, as they adopt technology and innovation at increasing rates.

  • More consumers are constantly connected, and when they hear about new deals online can quickly and easily spread them through their social networks.
  • Increasingly, consumers will be part of exclusive networks or groups to either receive special deals or demand them.
  • Mobile devices increasingly enable consumers to find or receive dynamic deals right at the point of sale, or to compare prices online. Case in point: Amazon.com just released an iPhone App that allows users to compare prices by scanning the product’s barcode, photographing it or saying its name.
  • Always-on connectivity is changing consumer spending habits in myriad ways. For example, coupon clipping required planning and dedication hence wasn’t that popular with consumers more interested in the here and now, but now is a near-effortless online activity. Furthermore, whipping out one’s smartphone at the counter, getting the latest deal via GPS, or barcode scanning is well, smart. And therefore a source of status rather than shame.
  • It is increasingly handheld technology that facilitates transactions. Brands that make it hard to buy on the small screen will suffer. Watch for promotions and coupons to continue to explode, especially if the brand can customize that experience.
  • Brands are barely keeping up with consumer expectations now. Every day, consumers adopt and devour the latest technologies and innovations, and hunger for more. As app technology becomes more entrenched, brands will be expected to deliver in that space. Look for more apps in 2011.

Consumer Curation & Mixology

As technology adoption spreads, consumers are increasingly empowered–savvy consumer content curation and mixing will continue to develop. Consumers are not only creating their own content (reviews, updates, videos, blogging), their active content curation and influence of each other continues to grow. Both, TrendWatching.com and BrandKeys.com highlight critical trends of hyper, consumer empowerment that will continue to alter the balance of digital power between consumer and brand.

  • Social Networking and DIY media-exchange of information outside of the brand space will increase as consumers become more comfortable with their power to get the true story on products from total strangers. Brands will need to drive positive feedback out in the virtual world like never before.
  • Influence by friends will also increase. If consumers trust the community, they will extend trust to the brand. Not just word-of-mouth, but the right word-of-mouth is what matters. Look for more websites using Facebook Connect.
  • It is the way today’s consumers do business. Marketers will continue to use engagement methods like the right platform, program, message and experience. But there is only one objective for the future: brand engagement.
  • In the next 12 months, you can’t go wrong supplying your (online-loving) customers with any kind of symbol, virtual or ‘real world’ that helps them display to peers their online contributions, interestingness, creations or popularity.
  • Indeed, one extra element to watch out for is new status symbols that straddle the ‘real’ and ‘online’ worlds. From physical manifestations of digital status (think personalized Facebook and Twitter memorabilia), to online recognition of physical activities (status updates or badges based on real-world visits), consumers will seek to display their online status symbols in all arenas.
  • In 2011, word of mouth and recommendations will be even more dependent on P2P dynamics. If TWINSUMERS* (consumers with similar consumer patterns, likes and dislikes, and who are hence valuable sources for recommendations on what to buy and experience) are all about improving ‘search curation’, SOCIAL-LITES are all about discovery, as consumers become curators; actively broadcasting, remixing, compiling, commenting, sharing and recommending content, products, purchases, experiences to both their friends and wider audiences.

An additional indication of luxury brand online growth includes the rise in luxury, branded content. Google purchased Boutiques.com last year–one of many steps the biggest online brand is taking to tap into the luxury, lifestyle markets. Celebrities, like Gwyneth Paltrow, have ventured into luxury and lifestyle branded content–her Goop.com (Get the Scoop with Goop) has recently launched with a growing list of active subscribers and digital social-lites.

There are also numerous marketing studies indicating the rise of social and mobile technology use among affluent Internet users, most recently Unity Marketing’s latest report [5]  showing 80 percent of affluent consumers actively engaging in social media, with 40% reporting heavy use. In addition, virtually all of the respondents to the survey also reported using the Internet for personal activities, including those related to shopping.

Opportunities for Luxury Brands

Initially, many luxury brands were hesitant to venture into social-based digital initiatives, believing a dichotomy between luxury branding and social technology existed.

Luxury Brands and Social Technology

Early adopting luxury brands have seen tremendous success by tying e-commerce and social technology in a manner that embraces the core principles of luxury branding.