“Because the purpose of business is to create a customer, the business enterprise has two—and only two—basic functions: marketing and innovation.”
Innovation is the critical driver of economic and societal growth. It is through innovation that we extend existing brands, invent new products, create entirely new industries, and solve even the most intractable of problems. And as Peter Drucker pointed out, innovation is one of only two ways that a business can create a customer. So, it turns out there is some truth in Jack Matson’s trendy saying that businesses must “innovate or die.”
From the legacy brand stalwarts (e.g. Coca-Cola) to the recent disruptive innovators (e.g. Uber), every leading brand should commit to continuous innovation – or risk creating a future where their brand will decline, decay and ultimately disappear from the market. If you doubt that, just consider the many examples of brands that were once held in such high esteem that no one thought they could ever fail (e.g. Kodak, Pan Am, Toys “R” Us).
Because of the chaotic cycle of trends, the general fickleness of customers, and the dynamic global competitive frame for unique, high-end luxury products, the need to innovate is particularly important with luxury brands. A 2017 state of the luxury industry study surveyed over 600 industry leaders and the respondents identified innovation as the critical business priority for the future. So, with that in mind, here are three ways that luxury brands can innovate:
1. Extending the brand
Consider the recent innovative moves by luxury brands Armani, Versace, Bulgari, and Ferragamo to stake their claims in the hospitality industry by extending their brands to hotels and resorts. All of these companies possess very high brand equity and are relevant to customers in a luxury niche that could succeed in the hospitality industry. Yet their potential for success might also be questioned. One of the key reasons? All of them are strong fashion brand operators, but operating hotels is clearly not their core competency.
Bulgari is the exception. They have formulated a different strategy which sets them apart from the pack and increases their likelihood of success. The difference? The company created a joint venture with a hospitality expert: Marriott. This innovative strategy reduces their operational risks and increase the probability of luxury brand extension success.
Beyond offering new sources of revenue, a successful brand extension can diversify a brand portfolio, drive marketing efficiencies across categories, increase brand equity, enhance brand associations and accelerate speed to market in a new category. But it’s not for the faint of heart. Luxury brand extension can be risky, but of course, it’s just one form of innovation that a luxury brand can embrace.
2. Transforming through technology
When most people hear the word “innovation,” the first image that usually comes to mind is something to do with technology. What revolutionary digital technology will disrupt the current customer experience and transform how a brand creates value? As technologies impact people’s lives, so too does it raise the bar for customer expectations. Social media, for instance, has completely transformed how customers expect to interact with luxury brands.
Chanel has capitalized on this trend and positioned itself as one of the most social of all luxury brands. Early on, marketers at Chanel recognized the power of using social media to tell their brand story and enable their customers to tell their own stories of interaction with the brand as well. Social marketing also increases notoriety, online visibility, and conversion rates for the brand. Video became the primary vehicle for telling the Chanel story, helping the brand garner a significant loyal following to drive advocacy for the brand.
While many luxury brands understand the power of social media to build brand awareness and attract followers, few are truly capitalizing on the power of e-commerce. What many luxury brand marketers fail to realize is that while an exclusive and traditional retail experience is great, it only hits a very narrow sliver of their target market. The luxury watch market is a great example where innovations in online shopping could generate outsized returns for brands.
Consider that the American market for luxury watches has underperformed in the rest of the world markets for many years. The primary reason for this is that American customers have grown accustomed to “gray market” buying opportunities. Gray markets occur when retailers and even luxury watch manufacturers themselves sell their product to third-parties, who in turn, sell the watches at a steep discount. Challenges in the American luxury watch market also include severe micromanagement and underinvestment in marketing from luxury watch manufacturers.
However, Swiss-retail group Bucherer 1888 is about to shake things up with their purchase of Tourneau. Tourneau has operated in the USA for over a hundred years and has established a sophisticated e-commerce platform for selling certified, pre-owned watches. Access to this innovative platform could enable Bucherer to regain control of the luxury watch market from the “gray market” that has plagued watch retailers. Bucherer has a reputation for partnering with the most recognizable luxury retail watch brands (e.g. Rolex), so their move to acquire an e-commerce platform is innovative. Bucherer exemplifies that a greater focus on online selling, personalization, and marketing automation are critical success factors for the luxury watch industry going forward.
3. Embracing sustainability and social impact
Luxury can be defined by several factors. It is marked by the quality of the material and the standard of the finish. It can also evolve into a lifestyle statement. Luxury fashion brands have enjoyed decades, if not centuries, of dressing the richest clientele. Luxury brands have been at the forefront of design, taste, and style. Traditionally, they have dictated the next season’s trends and lead the way when it comes to fashion as an art form, rather than something solely meant to “cover the skin.”
The world of luxury, however, is changing.
People from across the globe are voicing their concerns about environmental protection, the ethical treatment of animals, and the conservation of natural resources. Consider the sustainable development goals embodied in the recent Paris Accord—people are demanding more from businesses to assure that the production of their clothing and accessories does not harm the environment or society, including the actions of any of their trading partners up and down the supply chain. For luxury brands, this dilemma is magnified because when people pay more, they expect their clothes to be created to the utmost quality at every single stage of production. Today’s socially-conscious luxury customer expects not just the highest quality, but also for the brand to adhere to the highest standards set for sustainability around the world.
The fact is that the fashion industry is the second most polluting industry on the planet, and the luxury fashion industry is at the forefront. Most luxury brands have a long way to go to demonstrate innovation around the sustainability of their production processes and full transparency up and down their supply chain. However, there are transformative and innovative leaders emerging in the industry.
Consider Kering, the fashion conglomerate that is partnering with many top brands around the world. Kering is not only helping to change the practices of the industry, but also the mindset of the people who work in it. They have created an awards and grants program to support fashion design students who adopt and demonstrate sustainable practices. By recognizing students who develop the most innovative ideas to protect the environment, animals, and natural resources, they are attempting to showcase and elevate future leaders who embrace sustainable practices. They have also partnered with the London College of Fashion to create a free online course about the luxury fashion market and the specific actions that leaders need to take to support sustainability. Kering is taking the lead as an innovative brand steward, exemplifying long-term sustainability for the next generation of designers.
It’s important for transformative and innovative luxury brand marketers to remember that they never have the final say over what luxury is and what it isn’t. Customers define “luxury” and they make purchase decisions with their own definition in mind. Brands have to adapt to customer expectations based on people’s experiences across multiple categories and in the context of their social consciousness. An “Amazon-like” customer experience may not exactly fit the mold for “luxury,” but once a customer experiences that level of convenience, they will compare it to all other purchase experiences they have in the future. Thus, the bar has been set and other luxury brands are now challenged to raise that bar.
Innovation has always been the “secret sauce” for brand success. It’s the best way to move your brand up and forward to corner the markets where you chose to compete. In the luxury market, you must innovate continuously with a compelling brand story, a clear strategy, and the systems to deliver a remarkable customer experience with ruthless consistency.
Learn how to create innovative Stories, Strategies, and Systems in my new book Marketing, Interrupted.