Luxury brand managers want to see luxury as the capacity to provide exceptional value for customers, rather than concentrating on status and price points.
After doing many strategy workshops with teams from luxury brands over the past few weeks, one issue kept coming up: What exactly is luxury? Not even in the case of luxury brands does the phrase have a consistent usage. Some firms would rather refer to themselves as “premium,” perhaps due to discomfort with the term “luxury.” Some classify the competitive set based on price, ranging from entry level to premium to luxury. In essence, the term is ambiguous and varies depending on the brand.
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While defining the term in terms of price points can seem like a practical quick cut, the problem is that high costs are only one of many characteristics that constitute luxury. The majority of other companies could not sell a single handbag at that amount, yet Hermès is able to sell them for at least $50,000. Therefore, even if something’s price may be seen, it does not define what makes something luxury. Furthermore, it gives managers little guidance on what to do after that.
It was suggested in one debate that items and companies with a lot of eye-catching logos are not luxurious. Additionally, this is subjective and only an assessment of particular visual expressions that some clients may or may not find appealing.
To approach luxury with high managerial significance, it is advisable to see luxury as the capacity to provide extraordinary value for customers. As a result, a brand needs to change the narrative and adopt the viewpoint of the customer. Extreme value is formed when a customer’s desire for a brand is tenfold higher than that of other brands in the same category, and this results in a non-linear willingness to pay.
Therefore, luxury does not exist if there is no extreme value perception. Years of academic research at Pepperdine University, my luxury strategy center, supports this. It shows that, from a psychological perspective, desirability is created through the anticipation of an individual perception shift across dimensions like perceived expertise, attractiveness, and feeling safe in a social setting.
Because status is something that businesses cannot directly control, it is far more helpful to consider a collection of psychological aspects that consumers hope their purchase will improve, together with the event that would cause the anticipation. Therefore, the brand story—an aspect that far too many businesses still ignore—creates appeal.
In a highly competitive market, there is no possibility to generate extraordinary value for customers without a distinctive and authentic story that, when told correctly, conveys with precision the one thing the brand should be recognized for. However, over 90% of brands nowadays don’t have one of these. The tale is optional, despite popular belief. It’s what produces tremendous value in luxury. Whether a brand refers to itself as premium or luxury, there is nothing without it.
The concepts of the new definition of luxury
1. Sharing as opposed to possessing
Business models such as sharing and second-life illustrate that an item should not be thrown away just because it is temporarily in one’s ownership. Conscious customers may prolong the life of high-quality products by choosing to lend, resell, or donate them on platforms where pre-owned and beloved items are exchanged. This movement includes ideas like automobile sharing as well.
2. Associations & Background
Sharing ideas is intimately tied to the idea of a community. These days, being pampered involves establishing social capital through an exclusive network and interacting with influential people. This implies that luxury must be both experienced and consumed. In summary, luxury is the ability to enter exclusive clubs and have unique experiences.
3. Clarity and understanding
Brands must adopt extreme transparency as part of a sustainable attitude. Customers want to know precisely which commitments premium firms make because they are becoming more conscious of social and environmental issues. Making informed purchasing decisions is made possible by transparency and the knowledge it provides. It is therefore possible to address issues related to the environment, health, and individual product preferences.
4. The democratization of luxury
The democratization of luxury is referred to as “luxury casualization” or “public luxury” in the Luxury Business Report by INLUX. This indicates that luxury is becoming more widely accepted in society, more easily attainable by a wider range of individuals, and less associated with elitism. Cooperations is one of the most evident trends that challenges the conventional notion of luxury. Collaborations between established companies and more recent, niche firms are common, as seen by the partnership between the luxury fashion house Louis Vuitton and the streetwear brand Supreme.
5. Health and work-life harmony
Holistic wellbeing is included in the contemporary definition of luxury, in addition to physical health. Spirit, soul, and body need to coexist peacefully. People who prioritize their well-being in our fast-paced environment, take time for themselves, practice mindfulness, and define luxury in an increasingly sustainable way. A well-known illustration of this is the work-life balance, or the harmonious coexistence of personal demands and professional responsibilities.