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Luxury growth needs entry-level products

News, 31 May 2016

NEW YORK: Luxury brands need to consider creating a range of "entry-level" products to attract some 50m new consumers in younger age groups and emerging markets over the next four years a new report has said.

According to consulting firm Bain & Company, not only will Generation Z be entering the luxury market for the first time, but a growing number of middle class Millennials in China will reinforce the importance of that country; by 2020, Chinese shoppers alone will make up more than one third of all global luxury consumers, Luxury Daily noted.

"The future market scenario will be inevitably shaped by luxury brands' strategic decisions across various levels," said Claudia D'Arpizio, Bain partner and lead author of the study.

"While customer strategy, branding and story-telling, omnichannel distribution and pricing remain at the top of the CEO agenda for luxury companies," she added, "the best brands also implement 'locally global' value propositions."

The report noted that price-conscious shoppers are "struggling to reconcile the price of luxury products with their real value", while e-commerce and tourism have exposed major differences in pricing around the world.

Consequently, luxury brands need to co-ordinate pricing and markdowns across markets and channels.

So, for example, rather than waiting for affluent Chinese tourists to shop while travelling, brands could consider "democratising" pricing internationally – as Chanel has done with some of its handbags – in order to encourage local spending.

Bain also suggests investing in personalised in-store experiences and creating local value propositions to attract new consumers as well retain existing ones.

Part of this strategy will entail the production of less expensive, smaller items that an emerging middle class and younger consumers can afford as a way to "initiate" them into the brand while at the same time maintaining the higher priced portfolio of products that creates the brand desire in the first place.

Data sourced from Bain & Company, Luxury Daily; additional content by Warc staf