Why Luxury Brands Need to Embrace Big Data to Connect with Customers and Drive Growth
The luxury industry is facing many unique challenges in the digital age. As millennials move into their prime earning years, they form the generation that will contribute the most (130%) to the luxury market's growth over the next six years, accounting for 50% of what is forecast to be a $1,469 billion market by 2024. Appealing to this increasingly important cohort requires a big rethink of traditional marketing strategies.
Luxury Is Moving Online
The millennial generation is much more comfortable with buying luxury goods online compared to previous generations. Historically, traditional luxury brands have largely shied away from online retail, considering it to be a distribution platform for selling low to mid-range goods, and therefore a threat to a luxury brand's image. It's also been assumed that affluent consumers wouldn't be willing to pay premium prices for high-end goods that they weren't able to see and touch before purchase.
Millennials are changing this. According to research by mOONshot digital and McKinsey & Company, the contribution of online luxury sales to the global high-end market will more than triple by 2025, reaching $86 billion, and accounting for nearly one-fifth of all luxury purchases made. It was also found that at least 80% of all luxury purchases made today are in some way influenced by consumers' online experience.
(Image source: mckinsey.com)
As such, it should come as no surprise that luxury digital pure-play brands are not only surviving but thriving, and are indeed setting trends that are reshaping the luxury industry. Online sales of luxury items across high-end categories such as beauty, perfume, footwear, jewelry, watches, and leather goods now account for 8% of the $295 billion global luxury market.
Luxury online fashion retailer Net-A-Porter, for example, has shown that digital retail works and that luxury consumers are willing to pay an undiscounted price online that is on a par with offline retail premiums. In 2017, the retailer saw its sales increase by 20%, ending the year at $2.61 billion.
This growing importance of digital in luxury is driven mostly by the generational shift that is taking place in luxury sales. At present, millennial and generation Z consumers make up more than 30% of all luxury spending and generated 85% of the global luxury growth in 2017. Digital-first retailers like Net-A-Porter, Farfetch, and others, are rapidly taking market shares from more established traditional brands - and big data is at the heart of their success.
Embracing Big Data
Big data - a concept that refers to the technologies and processes used to collect, analyze, and generate actionable insights from large amounts of consumer information - is indeed transforming the business of luxury. This information largely falls into two categories - structured, and unstructured.
Luxury brands already have a wealth of structured data available to them on their customers - purchase histories, exclusive memberships, and customer profiles which include name, age, sex, income, etc. - all of which can be collected and processed to drive sales. However, high-end brands are often under-utilizing this data, and, furthermore, are ignoring the vast reams of unstructured data - such as consumer comments on social media, affluent influencers' photo feeds on Instagram, and engagements across multi-channel customer journeys - which can now be mined to glean invaluable insight into customer lifestyles, shopping preferences, and purchase behaviors.
According to a new study by The Boston Consulting Group (BCG) and Altagamma, "For the first time, social media is the first source of information and the channel of primary impact used by true-luxury consumers, followed by magazines and brand websites."
As a result, big data professionals with the skills to analyze all the unstructured data now being created online and on social media are in high demand, and luxury brands are competing to hire the best digital talents available.
Creating Personalized Experiences
By analyzing the data available to them, luxury brands can gain insights into how to improve and personalize the customer experience both online and offline. For example, Montblanc, a German manufacturer of high-end watches, leather goods, and writing instruments, deployed video analytics in its offline retail spaces to generate heat maps that showed where customers spend most of their time while browsing items in-store. The company managed to increase sales by 20% by using the data to identify the best places to position their product lines and sales staff.
Elsewhere, British fashion house Burberry turned to its digital channels, including Facebook, Twitter, Pinterest, Instagram, and YouTube in combination with its traditional brick-and-mortar stores as a method of gathering customer data. The company also enabled customers to digitally share their shopping preferences, experiences, and buying history, so that when they visited an offline store, sales representatives could access this information in real-time via a tablet, and thereby make better-informed recommendations to increase sales.
In another innovation, Burberry revamped its flagship store in London to make it a digitally integrated showroom that resembles its website. Customers can pick up a garment that is fitted with an RFID (Radio-Frequency Identification) tag and trigger an interactive video that shows how the product was made and what other items are available in the store that would complement it. The initiative allows Burberry to build customer profiles based on which garments they've tried on in order to tailor personalized experiences in the future.
Through these and various other digital initiatives, Burberry achieved 11% growth in revenue and 14% growth in retail sales year over year. With big data analytics, the fashion house was able to accurately map its market and identify the role that millennial customers would play in sales. Since millennials are a tech-savvy generation and spend a lot of time online - more people visit Burberry's website every week than walk into its offline retail stores globally - Burberry decided to overhaul its marketing department and deploy a creative content media team. The company has also begun to refer internally to its website as the "million square feet store".
The future success of luxury brands will be increasingly determined by their ability to collect, analyze, and generate insights from customer data, and turn them into actionable strategies that personalize experiences that drive loyalty and sales. As millennial and generation Z consumers start to drive larger shares of luxury brands' revenues, these brands need to provide premium experiences that meet their expectations across the entire customer journey - and for these younger generations of affluent consumers, those journeys are taking place both on- and offline.
"Millennials and Generation Z affluent consumers enjoy an increasingly abundant and readily-available offering when shopping for luxury goods," says Co-Founder and CTO of mOOnshot digital, Simon Beauloye. "While digital-first brands tend to be at the forefront of data collection and insights analytics, traditional luxury brands have a unique competitive advantage thanks to the sheer size of their offline retail presence. Brands who are capable of combining their online customer data with offline insights will gain market shares."