Fact or myth? The Luxury Institute deciphers the most relevant luxury myths to empower brands for the luxury industry in 2023
Author: House of Eden
The Luxury Institute last published its luxury myths in 2019. Given the current developments in the luxury industry in 2023, which is characterized by ongoing economic uncertainty and the disruptive impact of technology, the industry is once again in one Phase of change. During this upheaval, it is difficult to detect the actual signal amidst the noise in the system.
The definition of luxury and identifying the ideal customers for the luxury industry are topics that are surrounded by numerous myths. Claims from experts are often circulating in luxury media and at events, which are often not based on empirical evidence. The Luxury Institute therefore continually conducts insightful interviews with its global network of executives and experts, as well as clients in the High Net Worth (HNW) and Ultra High Net Worth (UHNW) sectors, to debunk these myths.
Myths are the biggest barrier to performance. Research, advice and insights to debunk these myths and identify the true needs of HNW and UHNW customers are therefore extremely relevant to develop innovative solutions in today's world. Here are the 7 currently dominant luxury myths of the luxury industry in 2023:
Luxury Myth #1: Time is the ultimate luxury
Return on Invested Time (ROIT) undoubtedly represents the ultimate luxury, both in the luxury industry in 2023 and as early as 2019. However, there are still many luxury brands that are unaware of this reality. When high net worth (HNW) customers invest their valuable time in a brand, they expect an outstanding experience that optimally combines both functional and emotional aspects. It goes beyond pure splendor and opulence, because sometimes true luxury lies in simplicity. Whether online, in a resort, in a store, on a yacht or in a restaurant, luxury brands need to make their customers feel like they are experiencing something unique.
For exceptional customer experiences, outstanding venues and extensive expertise in the brand's product or service category are of great importance. However, these are just basic requirements. If luxury experiences do not reflect pure and unmistakable joy, they are viewed as inadequate by high net worth (HNW) customers. These customers value the joy they experience from investing valuable time in the brand.
Myth #2: A compelling brand purpose and storytelling are differentiators
In the luxury industry, Simon Sinek has inspired luxury brands to discover their “why” in 2023. In response, many luxury brands hired agencies to create and communicate a “why.” This happened regardless of whether it was authentic or not. Today, both the “why” and “purpose” of a brand have changed status and are seen as more of an add-on that no longer really distinguishes a luxury brand. Even brands that offer inferior products or services can tell stories that touch customers emotionally.
The Luxury Institute has heard from high net worth (HNW) customers that luxury brands can no longer rely solely on the emotional connection through their brand story. Instead, HNW customers are willing to delve into the “why” of a brand. However, they place much greater value on what a luxury brand offers and how it delivers it. Exceptional and high-quality 360-degree experiences are crucial for HNWs and are at the center of their interest when it comes to luxury brands.
Luxury Myth #3: Brands nurture deep relationships with their HNW customers
In the luxury industry of 2023, luxury goods and service brands, which are at best just premium products in disguise, are struggling to build long-term relationships with high net worth (HNW) customers. Many luxury brands today simply don't have enough differentiation to warrant real relationship status. HNWs may buy, but they don't feel a strong connection. Only luxury brands that offer a unique, high-quality value proposition have the chance to create long-term relationships. At the same time, these brands have highly qualified, emotionally intelligent employees who make customers feel special.
To stay relevant in the luxury industry in 2023, brands must continually innovate. You must be able to attract, select, train, reward and retain people. Only in this way can they awaken authentic and profoundly positive emotions in their customers. In summary: Brands need to reality check their relationships with HNW customers.
Myth #4: HNWs are unwilling to share detailed behavioral data
High Net Worth (HNW) customers in the 2023 luxury industry are among the most informed, sophisticated and technologically savvy people in the world. They are aware that luxury brands have access to their demographic data. However, also recognize that demographic information alone is not enough to enable personal customization. They understand the value of behavioral data such as location history and travel history, as well as other relevant real-time data that can enable scalable personalization and customization. HNWs are quite willing to share their behavioral data for personalization and even customization, but only if they can fully trust the brand.
They not only assume this trust, but they also check it carefully. They demand solid data protection guarantees and place particular emphasis on cybersecurity. First, they expect luxury brands to only access the necessary information for personalization and only do so when necessary. Second, they require luxury brands to guarantee that their data will never be sold or shared with third parties. After all, they expect true personalization, exceptional real-time experiences and other exclusive benefits from luxury brands in return for access to their data. Otherwise, they view data sharing as meaningless.
Myth #5: Our Customer Lifetime Value metrics are accurate
Unfortunately, even in the luxury industry in 2023, most luxury brands still rely on the classic metrics of frequency, recency and monetary value (RFM) to define their customers and draw conclusions from there. If they use such important metrics at all. Luxury brands often overlook a significant portion of the total bill. First, they often incorrectly assume that high net worth (HNW) customers no longer make purchases as they age.
Second, lifetime value (LTV) calculations rarely include the crucial component of high-quality customer recommendations in the equation. In doing so, they fail to measure the most essential influencing factor on the success of luxury goods or services and link them to the right customers.
Third, behavioral approximation models provide a highly reliable method for accurately measuring LTV based on behaviors such as: B. extensive engagement on a website and other engagement activities. Capturing LTV in today's dynamic world requires access to constantly evolving science and data sets. Unfortunately, most luxury brands are still living in the LTV Stone Age in this regard.
Luxury Myth #6: Generative AI offers a competitive advantage
The hype surrounding generative AI and ChatGPT is so immense that it is understandable if managers have illusions. But the responsibility of a team in the luxury industry is still to separate myth from reality. Generative AI in its latest and greatest iteration will become a common commodity in the luxury industry in 2023, especially since it is now open source, further encouraging its adoption. However, the true competitive advantages lie in access to critical customer data, the creative use of that data and the innovation of exceptional experiences.
It is critical for luxury brands to build direct, ethical and legal relationships with their High Net Worth (HNW) and Ultra High Net Worth (UHNW) customers that provide valuable insights. Milton Pedraza, CEO of the Luxury Institute, emphasizes that whoever has the best access to data and uses it in creative ways wins at scale. The myth of AI competitive advantage is currently being spread by technology companies that want to increase their stock market value through hype. However, the role of a luxury brand is to protect, enhance and promote the interests of its customers and shareholders, not to follow the mythologists.
Myth #7: Training programs teach teams how to master HNW relationships
Most luxury goods and services brands have excellent product knowledge and extensive sales training. But they often fail to train their employees to build long-term, consistent and creative relationships. Luxury brands are failing to train their employees to bring joy, give customers a feeling of care and create lasting emotional bonds. Given the world-class products and services that the luxury industry offers, it should actually serve as a model for other industries to develop emotional intelligence that increases the LTV of high net worth (HNW) customers.
Ironically, in 2023 the luxury industry is even lagging behind many B2B companies when it comes to investing in the essential human skill of emotional intelligence. While great luxury products and services may lead to short-term transactions, relationships have the potential to create human connections, treasured memories and long-lasting joy. These in turn lead to lifelong customer loyalty, positive word of mouth and referrals.
Luxury industry 2023 free of myths - opportunity for innovation and future success
Today, luxury myths are widespread, and many of the experts who spread these myths lack empathy. An example of this is that they have often never experienced luxury from the perspective of high net worth (HNW) and ultra high net worth (UHNW) customers, as noted by Milton Pedraza, CEO of the Luxury Institute. In the 2023 luxury industry, luxury remains one of the most significant opportunities for innovative brands to offer people the best of the best with humanity and joy. If you don't meet the rapidly evolving, spoken and unspoken needs and desires of your HNW and UHNW customers - who make up 70-80% of your revenue - then you risk sinking into a world of interchangeability and irrelevance. especially in the age of generative AI.