Priorities, myths and realities of AI in the luxury sector

Experts from the Luxury Institute shed light on the most important applications, expectations and myths surrounding AI in the luxury sector

By Expert Milton Pedraza "Luxury Institute"

Artificial intelligence

Author: House of Eden Luxury Institute

AI is here to stay. That's a fact. The luxury industry requires careful consideration of the use of AI because it has always stood for providing the best products, services and customer experiences. The Luxury Institute recently conducted a qualitative survey with 22 personalities from its Global Luxury Expert Network (GLEN) and asked them to weigh in on the top initial business applications of AI and the myths luxury brands should address when working with vendors to implement AI.

Senior executives and consultants from the Luxury Institute's Global Luxury Expert Network (GLEN), representing the entire spectrum of luxury goods and services categories, responded in detail and openly. Their expertise and wisdom offer reliable guidance in a world of AI hype and an evolving AI landscape. Morals, values ​​and respect for digital assets are not only important but essential. For confidentiality reasons, we agreed to maintain the anonymity of the respondents. Here are their collective answers to critical AI questions:

What are the key priorities when implementing AI for luxury goods and services brands?

GLEN experts told the Luxury Institute that historically, winning brands rarely do extraordinary things; instead, luxury brand winners execute the fundamentals of their respective business models exceptionally well. They adopt innovations in a timely manner and with a sharp, realistic perspective, not rose-colored glasses. As with CRM in the 1980s, e-commerce in the late 1990s, and programmatic advertising in the 2010s, GLEN experts at the Luxury Institute warn that the promises of technology providers always far exceed the ethical and financial results . Technology providers are not fiduciaries; they serve their own interests. As with all innovation, our experts emphasize that luxury leaders must pay attention to how AI supports and enhances human beings, and what work will never be replaced by AI.

The experts warned against viewing AI as a novelty. Leaders must move past the euphoria and engage in the arduous daily work of testing, measuring, and learning in rapid cycles to figure out what is AI hype and what is real. Here are the four key business model areas that the luxury industry must address to achieve the most effective and efficient use of AI:

Business intelligence

First, GLEN experts at the Luxury Institute expect that AI will finally help luxury brands get to grips with the vast, unused amounts of data sitting in silos across the company. They expect AI to help analyze consumer trends and demand patterns with greater intelligence and discrimination. This can lead to optimization of production and warehouse management. Second, experts expect AI to help analyze large amounts of descriptive and predictive consumer data as they build legal, trustworthy direct data and relationships through insights with their customers. In this way, AI can provide valuable and action-oriented information for decision-making as well as targeted marketing and relationship-building strategies. Finally, AI tools can monitor and analyze social media sentiment, allowing luxury brands to actively manage their online reputation and interact with consumers in real time.

Customer experience

When it comes to innovation, GLEN experts expect AI to help discover customer needs and wants, which are often unspoken but appear in behavioral data inside and outside the company. AI can drive innovation and creativity, enabling luxury brands to create unique and customizable products, services and experiences to further differentiate themselves in a competitive luxury market. AI should also help design and deliver far more personalized recommendations and experiences for luxury customers to increase satisfaction and relationship loyalty. It should put insight into the hands of relationship builders while empowering frontline employees to develop and use their relationship building skills to add value. However, GLEN experts warn that brand AI must be used carefully because all real-world luxury customers are unique people, not audiences, segments, personas or cohorts.

Operational efficiency and effectiveness

Automation through AI should optimize internal processes and increase efficiency in areas such as supply chain, warehouse management and customer service. A unanimous expectation is that AI can lead to significant cost savings by automating routine and repetitive tasks and optimizing resource allocation. This will enable luxury brands to allocate resources, including people, far more efficiently and effectively. AI-driven security measures should help protect luxury goods and services from counterfeiting and fraud and maintain brand integrity.

Environmentally friendly sustainability

AI can be used to improve sustainability efforts, e.g. by optimizing supply chains to reduce waste and energy consumption, in line with the values ​​of environmentally conscious consumers. However, GLEN experts at the Luxury Institute point out that the environmental cost of AI itself, with its voracious need for continuously updated data, massive computing power and even more massive storage power, needs to be accurately calculated to prevent deception when brands and luxury leaders strive to be more sustainable and responsible corporate citizens.

Luxury Institute's GLEN experts say the specific benefits in each of these critical business functions will vary depending on the type of luxury brand, its target audience, its categories, its inherent economics and the implementation capabilities of AI technologies.

What myths are spread by vendors/partners/media related to implementing AI for luxury goods and services brands?

Myth #1: AI guarantees success for all luxury brands

GLEN experts at the Luxury Institute recommend being wary of exaggerated claims that implementing AI will produce successful results for all brands. A brand's individual success depends on many factors beyond technical implementation, such as team member composition, team culture, team trust, and other performance factors outside of AI. Small to medium-sized luxury brands are most vulnerable to limited results due to small data sets, limited capabilities and limited resources. There is no guarantee that a rising tide of AI will lift all ships.

Myth #2: AI automates ethical decision-making

The claims and suggestions that AI has firm ethics and legal boundaries built into its algorithms and implementations are false. Ethics considerations and decisions in AI implementations are extremely risky and require continuous and rigorous evaluation by experts. For example, the data currently used to train Large Language Models (LLMs) may be illegal and unethical. There are so many lawsuits in this area that luxury brands must be careful not to become complicit in illegal activities that expose themselves to significant liability risks. AI training data and algorithms are biased and unfiltered, so their recommendations can cause legal, reputational and economic harm to brands.

Myth #3: AI transformation is a seamless experience

Claims that adopting AI will lead to rapid and seamless business transformations within specific departments or functions within the company are exaggerated. Adopting AI is as much a human endeavor as it is a technological one. Acceptance and adaptation will take time. AI makes a lot of mistakes and currently has a high “hallucination rate”. The data is never real-time or current. Many AI projects will result in dead ends, high costs, failures and reputational risks. The providers will not be there to fix these errors.

Myth #4: Successful personalization is a given

Promoting AI as a tool for personalization without addressing important challenges such as privacy concerns and data security issues is not based on fact. The efforts and successes of personalization are only as good as the impetus, the data, and the downstream execution. Personalization recommendations will continue to require human oversight and monitoring for the foreseeable future. GLEN experts at the Luxury Institute suggest that any brand that fully trusts AI to personalize for its HNW and UHNW super customers, without boundaries and a system of human checks and balances, will be in for unpleasant surprises.

Myth #5: AI as a replacement for human creativity

The claim that AI can often completely replace human creativity in the design and creation process or in any process is false. AI is a tool that complements human creativity and sensitivity, but does not replace it. AI can help with creative tasks such as the functional generation of art or music, but it has no real creativity, emotional intelligence, or consciousness. The Luxury Institute's GLEN experts insist that human input and interpretation will remain essential to all creative endeavors for the foreseeable future.

Myth #6: AI provides accurate customer information

Claims that AI enables accurate and precise knowledge of customer needs, wants and desires are a false assumption. AI systems are only as effective as the data used to train them. Many luxury brands have outdated, inaccurate and incomplete customer data. Much of the data is descriptive but not necessarily highly predictive. Real-time insights are often only available to the relationship manager in the moment and require an immediate response or resolution based on nuanced human judgment. AI is limited in such situations. Furthermore, luxury customers, particularly HNW and UHNW super customers, are dynamic and complex in their emotions, needs and desires. If a brand does not continually keep its finger on the pulse of these VIPs, there is a risk of misinterpreting or judging their motives and behaviors.

Myth #7: Luxury customers will readily accept AI-driven experiences

The assumption that luxury customers will readily accept AI-driven and recommended experiences without considering potential resistance or preferences for human interactions may be overstated. The luxury industry thrives on providing exceptional human experiences that lead to trusting, long-term relationships. The expectation that AI data will be used to generate welcome or even accepted, emotionally intelligent, empathetic, trustworthy, friendly and creative customer experience recommendations and actions is challenging. This is particularly true when it comes to demanding HNW and UHNW super customers. AI will play a role, but Luxury Institute experts believe exceptional customer experiences will remain in the realm of human interactions for a long time.

The Luxury Institute and the Global Luxury Expert Network (GLEN) experts who participated in this research project believe that AI has great potential to help the luxury industry improve its functional performance. Experts urge luxury leaders to realize that they and the AI ​​they bring into the business will work for the people who can best humanize their customers. Luxury brands must conduct their experiments with AI with eyes wide open, a solid understanding of the myths surrounding AI, and no illusions about what is truly achievable.

In the final analysis, Luxury Institute GLEN experts believe that it is the combined effects of unique human creativity, human relationships, emotional intelligence skills and enduring trust relationships that will touch the hearts and minds of valued customers and determine the future of the luxury industry.

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Milton Pedraza

Text: Milton Pedraza

Milton Pedraza is a renowned luxury expert and CEO of the Luxury Institute. He acts as a keynote speaker and consultant for international premium brands with a focus on personalization, customer relationship management and innovative data-based technologies such as artificial intelligence. The Luxury Institute is an international research and consulting institute in the luxury industry, known for its neuroscientific high-performance educational system based on emotional intelligence.

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