The new luxury strategy
Creating buyer value at scale through curation, craftsmanship and product portfolio
In the past decade, luxury brands enjoyed quick growth (from 2019–2023 sales grew thirty percent), and did not think what will happen when this growth slowed down. It inevitably does: markets get saturated as new entrants and legacy players set to capture the opportunity and grow through entering new markets, targeting wide audience, and opening new stores.
Paired with market saturation is the loss of luxury’s soft power. Luxury’s soft power — desirability of items that protects luxury’s high prices and powers demand — is tied to its social and cultural capital. To regain its desirability and rebuild this capital, luxury industry needs to modernize its approach to product, merchandising and brand communication.
Producing less, and making items less available, is a way to increase their value and justify high prices. But, as Diane Rovel, a fictional character at the top of the world’s biggest luxury conglomerate in La Maison TV show, said, “please don’t talk to me about de-growth.”
Failing that, in economies where supply exceeds demand, best way towards long-term growth is to increase luxury market not in volume, but in buyer value. Aspirational markets are not a zero-sum game. Buyer value protects pricing power, as consumers are willing to pay premium for value they think they cannot get anywhere else.
To create buyer value, luxury brands create and nurture their differentiation in the eyes of consumer.
In the period of luxury’s rapid growth from 2019–2023, brands in the sector offered value at the price level accessible to the majority of buyers in the market. This value-creating strategy backfired once the price increased and aspirational shoppers stopped spending.
Now, luxury brands need to try something different. They need to create a new market (e.g. for pre-loved items, for NFTs, for art or gastronomy or hospitality); a new use scenario (e.g. sports collaborations, PRADA’s space suit); or to redefine what consumers are ready to pay for (e.g. hand-crafted product, superior service, personalized communication, exclusive access, invite-only membership). All three revolve around creating buyer value through product, merchandising, and cultural influence.
Product
Craftsmanship in luxury is a must-have, not a nice to have. It is the product truth, not a marketing activation. Luxury brands grew out of the exceptional product design, and the enduringly profitable luxury brands pursue product-led branding. It is not accidental that luxury brands who kept growing amid wider industry slowdown are those that have stayed close to their product creativity (Prada and Miu Miu), craftsmanship (Bottega Venetta, Hermès), or quality (Brunello Cucinelli).
All of them still influence how people dress, and put forward low-tech displays of human originality, ingenuity and creativity. To save this creativity, luxury brands have to radically reimagine it, and to modernize the organization around it. The model
Read the rest of this analysis on The Sociology of Business.
