Luxury in the Digital Age

Luxury, a term that has always been fluid and adaptable, has undergone a profound transformation in the 21st century, largely driven by digital technology. The evolving nature of luxury has allowed its metamorphosis into a concept that extends beyond expensive physical products. It now encompasses personalised experiences, immediate accessibility, and both tangible and intangible exclusive elements. Luxury is not a new concept; it has been an integral part of various cultures throughout history. However, the introduction of the Internet in the 1990s marked a turning point in the marketing and distribution of luxury goods.

The digital transformation of luxury is not a sudden phenomenon but the result of continuous evolution. The 1990s introduction of the Internet paved a new avenue for marketing and distributing luxury goods. With the advent of social media and mobile devices, the relationship between brands and consumers deepened, facilitating a more personalised and dynamic connection. The integration of virtual and augmented reality, 3D printing, and tracking and analytical technologies has elevated the luxury experience to a new level, blurring the boundary between the physical and digital worlds.

With the rise of the Internet, luxury brands began to explore new distribution channels. According to data from Bain & Company, online sales of luxury goods increased by 50% annually between 2003 and 2007. This ushered in a new era where luxury was not just experienced in exclusive boutiques but also on digital platforms.

Post-COVID-19 World Transformation

COVID-19 has revolutionised our way of life in multiple spheres. This pandemic not only disrupted our daily routines but also accelerated digitalisation across various sectors, possibly changing, on a permanent basis, how we consume, work, and connect with others.

Effects on the Global Economy

From March 2020, the global economy has experienced significant fluctuations. All sectors have been affected, and the luxury products and services market is no exception. In fact, this sector has seen unique changes due to the pandemic.

Luxury in the Digital Era

Traditionally, luxury was associated with the in-person shopping experience. However, today, there’s a growing trend towards purchasing premium products via digital platforms.

• Redefining Shopping Experience: Brands now face the challenge of reinventing the purpose and function of physical stores.
• Market Agility: Swift introduction of new products and services, or “time to market”, has become essential.
• Redefining the Customer Journey: The customer journey needs restructuring in light of emerging habits and preferences.

To remain relevant, luxury brands must incorporate innovation and creativity into their strategies. Revamped value propositions are crucial in responding to the demands of new consumers and the shift towards digital channels.

Social Media

The proliferation of social media and mobile devices has intensified the relationship between brands and consumers. In 2020, 30% of luxury purchases were influenced by social media, according to a McKinsey report. The opportunity for more personalised and dynamic interaction with brands heralded a new paradigm in the luxury experience.

Technology

According to a study by the Altagamma foundation and Bain consultancy, driven by personal use items, the luxury sector will reach a market value of up to €570 billion by the end of the decade, doubling the figure recorded in 2020.

The integration of emerging technologies such as virtual and augmented reality, 3D printing, and artificial intelligence has taken the luxury experience to an entirely new level. The boundary between the physical and digital worlds started to blur. In 2019, investment in virtual and augmented reality technologies in the luxury industry reached $2.6 billion, as per Statista data.

Alpha

Generation Alpha, though still young as discussed in the previous chapter, has started to wield significant influence on the luxury market. According to a Nielsen study, over 40% of Generation Alpha parents consider their children’s opinions when making luxury product purchasing decisions.

Reevaluation

The digital luxury era has democratised the luxury experience, allowing a broader range of consumers. This has led to a reevaluation of what luxury means across different cultural and socio-economic contexts. According to a Deloitte report, online sales of luxury products in emerging markets increased by 20% in 2021, reflecting the increasing participation of diverse demographic groups.

Insight into the Sector’s Transformation

Four pillars of transformation in the Luxury sector:

1. Organisational Reconfiguration: The Rise of Digital Thinking

• Adoption of a Digital Mindset: The digital environment requires not just tools but also a mindset attuned to this new era.
• Asynchronous Working Models: Emphasising flexibility and autonomy, enabling a more agile and dynamic workflow.
• Horizontal Structures: Organisations are moving towards less hierarchical structures, promoting decentralised decision-making.
• Specialised Profiles: The demand for specialised digital skills is higher than ever.
• Sustainability at the Core: Brands are being driven to adopt more sustainable practices, aligning with increasingly conscious consumers.

2. Putting Customer Experience First

• Enriched Experiences: Through digital means, brands are offering unparalleled consumer experiences.
• Personalisation through Data: Customer information is an invaluable tool for tailoring and personalising offerings, aiming for loyalty.

3. Rise of D2C (Direct-to-consumer) Strategies

• Elimination of Middlemen: By selling directly to the consumer, brands have greater control over their products and the customer experience.
• Conversion Optimisation (CRO): Becoming a priority, integrated at the core of business strategies.

4. Data and Martech-Based Approach

• Power of Martech: Tools that optimise the brand-customer relationship through tech solutions.
• Strategic Combination: E-commerce platforms, CRM, and automation, working together, maximise the benefits of a customer-centric culture.

The current landscape can be described as a perfect storm, pushing the luxury sector into an increasingly digital dimension. This is evident with consumers who, without hesitation, opt for premium and luxury acquisitions online.