Fact or Myth? The Luxury Institute deciphers the most relevant luxury myths to empower brands for the future
Author: House of Eden
The last time the Luxury Institute published its luxury myths was in 2019. In 2023, the luxury market is now in another one transformation phase. The global economy remains volatile, and technology threatens to disrupt as much as it improves. In times of change there is so much hustle and bustle in the system that it is very difficult to focus on the true signal.
There are many myths about the definition of luxury and about luxury’s best customers. In the luxury media and at events, many luxury myths make the rounds of experts who have no empirical basis for their statements. To debunk these myths, The Luxury Institute continuously conducts insightful interviews with its global network of leaders and experts, as well as HNW and UHNW consumers. So high net worth and ultra-high net worth.
Myths are the greatest obstacle to high achievement. Accordingly, research, advice and insights into these myths and the real needs of HNW and UHNW customers are extremely relevant for finding innovative solutions today. Here are the 7 luxury myths that are currently prevalent.
Luxury Myth #1: Time is the ultimate luxury
Return on Invested Time (ROIT) is the ultimate luxury. That was true in 2019 and is still true today. But many luxury brands are still not acting according to this reality. When HNW customers invest their precious time, they demand an exceptional experience with optimized functional and emotional elements. Soulless splendor and opulence are not enough. Sometimes simplicity reigns. Whether online, in a resort, in a shop, on a yacht or in a restaurant - luxury brands need to make their customers feel very special.
Exceptional customer experiences require great venues and the highest level of expertise in the brand's product or service category. However, these are only basic requirements. When luxury experiences don't convey a pure, unmistakably human delight in the precious time invested in the brand, HNWs call them a failure.
Myth #2: A compelling brand purpose and storytelling are differentiators
Simon Sinek has motivated luxury brands to uncover their purpose. In turn, luxury brands hired agencies to create and communicate their why. Whether it's authentic or not. Today, the "why" and "purpose" of a brand have reached the status of commodities. While they're a nice touch, they no longer differentiate a luxury brand. Even goods or service brands that deliver cheap goods, sub-par products, and poor service can tell a story that brings customers to tears.
HNWs report to the Luxury Institute that luxury brands can no longer tug at their feelings with brand history unless they also offer exceptional, high-quality 360-degree experiences. HNWs are willing to dive into the why of a brand, but they are far more interested in what and how a luxury brand delivers.
Luxury Myth #3: Brands nurture deep relationships with their HNW customers
When luxury goods or service brands are premium goods in disguise at best, HNWs have no interest in building long-term relationships. Many luxury brands today just aren't differentiated enough to merit relationship status. HNWs may buy, but they are not committed. Only luxury brands that have a high quality, unique value proposition combined with highly qualified, emotionally intelligent people who make customers feel special will inspire a desire for a lasting relationship.
Brands need to constantly innovate to remain vibrant and compelling. And they need to attract, select, educate, reward and retain people. This is the only way they can awaken genuine, deeply positive emotions. The bottom line: Brands need to reality check their HNW customer relationships.
Myth #4: HNWs are unwilling to share detailed behavioral data
HNWs are the most educated, sophisticated, and technology-savvy people in the world at any age. They are aware that luxury brands have their demographics. And they also know that there's not much that can be personalized with demographic data. With behavioral data such as location data and travel history data, as well as other important real-time data, personalization and customization can be scaled. HNWs are very willing to share their behavioral data for personalization and even customization. But only if they fully trust the brand.
They therefore not only trust, but also check. You want solid guarantees. Cybersecurity is the be-all and end-all. First, they insist that luxury brands only access the insights necessary for personalization. And only if necessary. Second, they want luxury brands to guarantee that their data will never be shared, sold, or given to any third party. After all, they expect luxury brands to reward them with truly personalized, unique, exceptional, real-time experiences and other perks for accessing the data. Otherwise, they say, it's pointless.
Myth #5: Our Customer Lifetime Value metrics are accurate
Unfortunately, even in 2023, most luxury brands still use frequency, novelty and monetary value (RFM) to define customers and extrapolate from there. If they measure such an important metric at all. Luxury brands tend to leave out a large part of the equation. First, luxury brands assume that HNWs will stop buying as they age.
Second, lifetime value (LTV) calculations never factor high-value customer referrals into the equation. They fail to measure the key driver of luxury goods or service outcomes and connect them to the right customer.
Third, behavior-based proxies are highly predictive, accurately measuring LTV based on behaviors such as: B. Detailed engagement on a website and other brand loyalty behaviors. Measuring LTV in today's dynamic world requires rapidly evolving science and data access. Unfortunately, most luxury brands are still living in the LTV Stone Age.
Luxury Myth #6: Generative AI offers a competitive advantage
The hype surrounding Generative AI and ChatGPT is such that misguided executives can be forgiven for imagining illusions. But it's still the job of a luxury brand team to separate myth and reality. Generative AI at its latest and greatest will be available to everyone, everywhere, all at once. It will be a commodity. Now that it's available as open source, it will be even more ubiquitous. The real competitive advantages lie in access to the most important customer data, the ability to use it creatively and the innovation of extraordinary experiences.
It is crucial for luxury brands to develop direct, ethical and legal relationships with their HNW and UHNW customers that provide them with important insights. Whoever has the best access to data and uses it creatively wins, and big time, says Milton Pedraza, CEO of the Luxury Institute. The AI competitive advantage myth is currently being forcefully sold by every tech company looking to hype their stock market value. The mission of a luxury brand is to protect, enhance and promote the best interests of its customers and shareholders, not those of the mythologists.
Myth #7: Training programs teach teams how to master HNW relationships
Most luxury goods and service brands excel at product knowledge and sales training. But luxury brands fail when it comes to educating their employees on long-term, consistent, and creative building of relationships that bring joy, make customers feel cared for, and create lasting emotional connections. The luxury industry, because of its high-quality goods and services, should lead the way for all other industries in terms of emotional intelligence skills that increase the lifetime value of HNW customers.
Instead, it lags behind even B2B firms when it comes to investing in the critically required human emotional intelligence skills. Great luxury products and services can lead to short-term transactions. In stark contrast, relationships can create human connections, precious memories, and lasting joy that lead to lifelong loyalty, word of mouth, and referrals.
Luxury free from myths - chance for innovation and future success
Luxury myths are rampant today, and most experts who propagate these myths lack empathy. For example, because they've never experienced luxury from the perspective of HNW and UHNW customers, says Milton Pedraza, CEO of the Luxury Institute. Luxury is and remains one of the greatest opportunities for innovative brands to bring the best of something to people with humanity and joy. If you don't serve the rapidly evolving stated and unexplained needs and wants of your HNW and UHNW customers, who make up 70-80% of your sales, you are destined to become a commodity and irrelevant. Especially in the age of generative AI.