With the fast-changing needs and tastes of today’s consumers, how would luxury brands keep their products relevant and desirable? In this article, the author sheds light on the dilemmas facing the luxury sector and poses questions accompanying each dilemma, which are designed to help brands as they devise options that will give them more flexibility and versatility during these turbulent times.
Since 1990, the luxury industry has grown spectacularly thanks to brands’ strategic initiatives and the rise of new demand from emerging markets, especially China. But the slowdown of Chinese consumption has exposed the vulnerability of luxury brands across sectors to disruptive change. They are at a crossroads. Digital trends, consumer shifts and new business models have been shaking the traditional paradigm of luxury. And it is still unclear what the next paradigm will look like. In an attempt to gain insights, I interviewed 16 executives from 10 companies in the luxury automobile, fashion, watch and hospitality sectors. I discovered that they are grappling with seven dilemmas, or tensions that require more than either/or decisions. The questions accompanying each dilemma are designed to help executives consider a broader set of complementary options.
Dilemma #1. Targeting customers: Exploring the new vs. exploiting the core
Any good strategy begins by defining what you want to be, and to whom. A current trend is to target millennials – they accounted for 85% of the total growth in the personal luxury market in 2017. In this quest, some houses have revolutionised their collections; but they risk alienating traditional buyers who might no longer identify with the brand and/or the consumers it attracts. Yet, non-millennials represent 55% of the overall market. The industry has also focussed heavily on high-spending Chinese consumers. To close the price gap between China and the rest of the world, most brands have radically inflated their prices in Europe and North America. But these decisions have priced out an increasing proportion of traditional buyers in these countries.
Although it is vital for brands to rejuvenate, executives need to consider the risk of simplistic customer segmentation. For instance, if luxury becomes increasingly irrelevant to Europeans because it is out of reach, it won’t be long before new-market buyers discover that they are no longer buying an aspirational European lifestyle. This could boost the emergence of non-European competitors or open wide the door to substitutes. This is how Prosecco outmanoeuvred Champagne. Over-reliance on one group of customers can be risky: the Swiss watch industry suffered during the recent Chinese downturn for this reason. The first dilemma to reconcile is: How can we rejuvenate our brands without alienating our traditional consumer base? How can we attract new consumers and nurture the traditional ones?
About the Author
Stéphane J.G. Girod is Professor of Strategy and Organizational Design at IMD. Professor Girod’s sectoral expertise is in luxury goods and services, retail, retail banking and consumer goods. He is the program director of the IMD strategy program “Reinventing Luxury: Strategic Conversations” that will take place at IMD on October 10 and 11, 2018.
 According to IMD research, the average sales of the 12 publicly-listed personal luxury good companies has grown six times since 1990, from €2m a year to €12m a year.
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 “Prosecco: How the Italian sparkling wine knocked Champagne off its pedestal.” Independent¸ May 24, 2017.
 In the 2000s, especially in fashion, many brands killed their entry price brands (e.g. D&G, Versus, Yves Saint Laurent Variation, Kenzo Jungle, etc.). By contrast, Daimler has positioned four brands for different luxury consumers: Mercedes as modern luxury, EQ as progressive luxury, AMH as high-performance luxury and Maybach as utmost luxury. Source: Interview with Bernd Stegman, Daimler Director of Brand and Marketing Strategy.
 Williams, Oliver. “The Case for Mass Marketing: How Non-Luxury is Winning HNWI Consumers.” Luxury Society, March 28, 2017.
 Interview with Patrick Pruniaux, CEO of Ulysse Nardin.
 Kapferer, J.N. “The Artification of Luxury: From Artisans to Artists.” Business Horizon, Iss. 57, No. 3, May 2014.
 Ellison, Jo. “Chanel and Farfetch Team Up to Reshape Luxury Retail Experience.” Financial Times, February 19, 2018.
 For instance, Lamborghini sold 200 cars online at $300,000 in 18 seconds in China. Source: Jean-Claude Biver during IMD Program “Reinventing Luxury: Strategic Conversations,” September 8, 2017.
 Interview with Nathalie Seiler-Hayez, General Manager of the Beau Rivage Palace Lausanne.
 Interview with Arnaud Champenois, SVP Brand and Marketing of Belmond Ltd.
 Interview with the one of the brand’s senior executives.