Experiential luxury is gaining a stronger foothold in the minds of consumers than discretionary spending on high-end goods just for the sake of ownership.
That’s the conclusion of a study on “Luxe Redux: Raising the Bar for Selling of Luxuries” from the Boston Consulting Group.
According to Jean-Marc Bellaiche, a senior partner at BCG, experiential luxury now makes up almost 55 percent of total luxury spending worldwide and, year over year, has grown 50 percent faster than sales of high-end goods.
The change is due to four trends:
• Consumption patterns: The newly affluent tend to first focus on accumulating material goods, drawn initially to long-lasting products from reputable brands before transitioning to buying new experiences.
Emerging markets, due to their higher percentage of middle-class consumers becoming more affluent, have a higher concentration of shoppers seeking branded goods.
• Demographics: Consumers from the developed countries, such as much of Europe, the U.S. and Japan, who drove the luxury boom in the Nineties, no longer need new things and are spending on experiences.
• Gen Y: This group defines themselves more by what they have done than what they own, and are drawn to instant pleasure.
• Satisfaction: Luxury experiences fulfill the wishes of consumers who are seeking a greater sense of purpose and satisfaction.
China remains the luxury growth market due to the growth in the number of millionaires, noted Bellaiche, who said the nation’s 50 million millionaires will nearly triple to 145 million by 2020.
“This is a changing market…. The recipe for success in the last few years is not the recipe for success for future years,” Bellaiche said. He emphasized that companies must reinvent themselves.
He pointed to the U.S. market where luxury firms are still missing many sales opportunities. Bellaiche also noted that Amazon has 20 percent of the U.S. e-commerce business, yet many luxury brands that BCG works with are surprised by how big a player Amazon is.
One area that should be top of mind is the merging boundaries of offline and online shopping patterns, given the digital revolution that is taking place.
Moreover, the presence of designer capsule collections in the mass- or fast-retail sector that feature similar product to their full-price counterpart makes it harder for consumers to justify paying the higher price points.
Given these changes, luxury brands need to improve on their marketing message, whether it’s a clearer differentiation from competitors based on heritage and authenticity, or providing a more seamless multichannel experience when launching their integrated-media applications.
BCG projected that global sales of personal luxury goods will grow 7 percent annually between 2012 and 2014, provided there are no major new economic crises. Luxury experiences are projected to grow 12 percent a year over the next two years.
The study concluded that luxury brands should prioritize their actions to ensure that experiential luxury includes identifying the emotional levers that matter, as well as evaluating and developing new delivery models such as co-branding and exclusive arrangements with select retailers.