Our recent work has revealed four significant challenges facing luxury brands as they strive to align their digital commerce experiences with the (ever-evolving) needs and expectations of their customers, but also that turning these challenges into opportunities will require a whole new approach to customer engagement, with community at its core.
The luxury market remains an attractive place to be
At the FT Business of Luxury Summit in May, BCG forecast that the overall size of the luxury market would return to pre-COVID levels by the end of this year before growing by over 8% for the next three years at least. The sector appears resilient to today’s macroeconomic headwinds and continues to be an attractive place to be.
But it will also face challenges. Forthcoming legislation to mandate more sustainable practice in the fashion industry is expected to have a significant impact, geopolitical volatility and uncertainty over China will continue and the transformative impact of generative AI needs to be considered.
These are, of course, very real, complex issues, and brands will be confronting them against the backdrop of another period of real change, as millennials and Gen Z customers come to dominate luxury spending. They bring a whole new worldview and a new set of demands that we all need to understand and adapt to.
Customer expectations are evolving quickly
Change is nothing new of course. Ever since we helped Burberry create their first digital commerce channels in 2006, we've been fortunate enough to work with a host of luxury brands. We've seen first hand that customer needs, motivations and behaviours never stand still - what is new, is the sheer pace of change.
Our most recent work has reinforced that view. Yes, today’s customers still perceive luxury brands in much the same way as those who came before - they expect the best without question. However, the way they engage with brands, how they expect brands to respond, and how they ascribe value to that engagement is changing immeasurably.
In brief; providing experiences that meet customer expectations for exceptional service is no longer a route to differentiation. They have become mere table stakes. Today’s luxury customers expect much more, and there is also much more that brands can do to satisfy those expectations.
The four key challenges facing luxury digital commerce
No two brands are the same of course, but based on our recent work, here are the four biggest challenges facing luxury brands as they seek to align the digital commerce experiences they provide with the needs and expectations of their customers:
1. For customers - luxury is convenience
For customers, luxury products are about self-expression, quality and timelessness - but in luxury digital commerce, offering easy, convenient experiences is now the cost of entry.
Luxury is convenience for today's customer. They are impatient and will gravitate towards digital experiences that are simple and effortless - quickly rejecting those that are not.
Brands need to create personalised experiences that meet the specific needs individual customers have each time they engage with their digital channels
This means it’s essential that brands understand the needs a customer has each time they engage with them and ensure their digital channels meet these needs quickly and smoothly. Any friction in the customer journey could prove terminal.
2. Customers are omnichannel - digital commerce is not
Customers still place a great deal of value on the store experience and see it as a natural complement to the convenience provided by digital commerce. The majority engage with both channels and move between them often, but there’s significant friction when they do this that causes frustration.
Brands have an opportunity to do much more to engage with and enable these behaviours. Providing simple and useful tools to support customers as they transition between channels in their journey from inspiration to purchase can make the entire experience not just convenient, but pleasurable and enjoyable too.
3. Post-purchase experiences fall far short of expectations
The quality and convenience of the post-purchase experience is front of mind for most customers. However the delivery, returns and exchange services provided by many luxury brands (that dictate compliance with a host of rules) fall far short of both their expectations and their experiences elsewhere.
The post-purchase experience will be the new battleground for luxury brands [*]. It’s not easy to improve, but those that strive to provide premium services that are effortless and convenient and that make clients feel valued and trusted will be the long-term winners.
4. The luxury customer is changing
By 2026, Millennials and Gen Z customers will account for 75% of the luxury market [*]. This will herald a profound shift in attitudes, influences and motivations and change the way brands need to act and communicate.
Brands must fully embrace this shift and the fundamental change it is already driving. That means working harder to understand the needs and expectations of the customers of tomorrow and ensuring their digital experiences satisfy them.
Crucially, younger customers are looking for brands with a clear sense of purpose that they find meaningful and which resonates with them. Brands must communicate in ways that are authentic and credible, that are respectful of different worldviews and feel relevant.
How luxury brands can respond to these challenges
So how do brands understand these challenges and seize the opportunities they present? Quite simply, none of them can be tackled without first understanding customer responses to current experiences, identifying unmet needs and mapping out a future vision that they can start stepping towards. Design-thinking in practice.
But in a way that's the easy part, because addressing some of these challenges (omnichannel and post-purchase experiences in particular) have massive implications for logistics, systems and processes - areas where progress is possible, but typically takes quite a while. All the more reason to get going now.
The personalisation conundrum
To make matters worse though, a fundamental requirement for addressing every one of these challenges will be to identify individual customers, understand their status, needs and behaviours, then deliver personalised experiences that respond to these. And quite frankly that's not possible today.
Here's the ultimate irony - luxury customers place a high value on experiences that respond to their individual needs, yet behave in a way that makes creating these experiences almost impossible.
Today’s time-poor customers are in too much of a hurry to identify themselves during their digital commerce interactions - relying on search to find products, using guest checkout and third-party wallets to purchase them and avoiding email subscriptions. Tomorrow's customers won't use email at all.
As long as this continues (and it will), any meaningful personalisation in digital commerce will remain a pipe dream and the experiences brands provide for their customers will be the opposite of individual and personalised - anonymous and generic. The old processes of customer engagement are broken.
The answer lies in community and belonging
To address this and create the two-way relationships that will be fundamental for addressing the challenges outlined above (and make the sort of personal service that customers value actually possible), luxury brands need to take things to another level.
We are all drawn to brands with values that align with our own and we have a deeply human need to feel a sense of belonging - these are the foundations on which brand engagement are built. In luxury this is everything.
Brands must understand the emotional motivators, customers have when they engage with them and respond to these by engendering a sense of community and shared values built around the concepts of engagement, membership and loyalty [**].
Belonging to this community must provide benefits that customers find compelling enough at a single glance to make them pause (just for a second) and engage, such as offering exclusive access to products, providing differentiated levels of service, rewarding loyalty and building mutual trust. The benefits that matter to customers will be different for every brand.
Embarking on this journey (as well as starting to solve the tricky logistics problems) opens up the potential to seize the opportunities implicit in the four challenges set out above, but also create digital commerce experiences that are as unique as customers themselves.
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References
[*] BCG, FT Business of Luxury Summit, Monte Carlo, May 2023
[**] Harvard Business Review - The New Science of Customer Emotions, November 2015