01/03/2008

The last few years have witnessed a veritable boom in expenditure on experiential luxury: whether hiring a personal trainer, learning how to cook with Michelin-rated chefs such as Jean-Christophe Novelli or going on a life-changing adventure trip, the concept of spending on self-enrichment has become a widely accepted feature of our lifestyles. Increased demand for experience, as opposed to hard luxury goods, has benefited the luxury travel and spa sectors enormously. For instance, the US spa sector has grown from being a cottage industry to one with annual sales of US$9.4 billion; there are more spa outlets in the USA than there are Starbucks outlets worldwide. Luxury tailor-made travel operator Abercrombie and Kent has seen its turnover almost double from £17 million in 2002 to £30 million in 2007. What has driven this expansion and what, if any, are the implications for traditional luxury goods marketers?

(Quality) time is of the essence
A survey recently published by the Henley Centre found that most consumers in developed markets believe that they already have everything material they need, and that time and energy are more important to them than money. Consumers in these markets are therefore looking beyond the tangible benefits of consumption to the intangible, such as improved wellbeing, self worth, education or novelty in experience. Furthermore, a big proportion of luxury expenditure in developed markets is accounted for by the baby boomer generation, which has never been healthier, wealthier or had more free time to explore new passtimes. This is in stark contrast to developing markets where the main trend is still towards “keeping up with the Chengs”, favouring displays of material wealth over shared experiences.

Knowledge/shared experience is the new status symbol
As luxury goods have become increasingly available to wider audiences, experienced luxury consumers have looked to other means to differentiate themselves from merely affluent consumers. Shared experiences, such as holidaying in remote fashionable destinations, or knowledge of fine wines or complicated watches, have become status symbols, allowing people to identify themselves as connoisseurs as opposed to simple consumers.

An opportunity or a threat to traditional luxury goods?
Certain sector observers argue that growth in experiential luxury expenditure has been at the expense of more traditional luxury segments. We would argue that the two trends are separate. The risk of a slowdown in traditional luxury expenditure growth in developed markets is driven by wider macro-economic factors: the sector may have become more cyclical as a result of its increased exposure to affordable luxury items. The growth in experiential luxury to date has been fuelled mainly by demand from the more affluent segments of the population, who are largely immune to cyclical downturns and continue to consume traditional luxury goods as well as spend on luxury experiences. This argument seems to be supported by a number of leading luxury retailers, namely the former CEO of Barneys, who stated in a recent interview that: “they are not replacing luxury products with luxury services. The trend isn’t about replacing one thing with another. It is not a zero-sum game.” The key for traditional luxury marketers is therefore how to bring elements of experiential luxury into the traditional luxury purchasing process or how to extend their brands into this new segment.

Capturing the experiential luxury customer
Certain sectors, such as the travel, spa and wellbeing sectors, lend themselves naturally to experiential luxury. Some traditional luxury brands have decided to extend into these categories. For example: Bulgari, Versace and Armani have all launched hotel formats, either in partnership with an operator or alone; Hilton Hotels signed a deal in 2007 with luxury spa operator Spa Chakra to roll out luxury spas at its flagship locations; Sonia Rykiel launched a yoga range, Rykiel Karma. This is the first obvious step but it carries the risk of overextending the brand into areas where it may not have much legitimacy.

Perhaps more fundamentally, luxury brands also have invested in enhancing the experience of purchasing their products and continue to do so. This had traditionally come through creating an “owners club” such as the Sotheby’s New Collectors Club or the Ferrari Owners’ Site, or through the offering of bespoke services. Now it can be in the form of novel and stimulating shopping environments, such as Prada’s epicentres which not only feature innovations such as time-delayed mirrors, but also host cultural events such as concerts and art exhibitions. The key here is to enrich the brand-client relationship, creating a sense of ownership and fostering customer loyalty.

Luxury brands will increasingly seek to strengthen the brand-client relationship by making it closer and more intimate, involving top-tier customers in the production process, promoting factory and brand museum visits with one clear goal: getting customers to share in the myth behind any true luxury brand, and in doing so, to own a piece of it.