In this Admap article, Dr. Martina Olbertova explores the lessons luxury brands can learn from Amazon to keep them competitive in a global marketplace.

How to grow via premiumisation

When we’re thinking about luxury experiences and e-commerce, we must inevitably feel the tension that this thought produces as these two worlds are based on very different principles. On one hand, the online world is based on efficiency, measurement, predictability, complexity, functionality and utility. On the other hand, we have the world of luxury where the human essence meets the best that life has to offer – beautiful dining experiences, lavish lifestyles, impeccable design, hand-crafted products and the great legacy of both big international houses and small bottegas whose heritage dates back centuries.

“Online” isn’t an entirely different discipline or domain to luxury experiences, it’s just an extension of experiences helping us achieve things we aspire to through adopting different sets of channels and behaviours. Luxury e-commerce still needs to be centred on the one thing that matters most in consuming any products and experiences: human beings. They need to develop an understanding of whom these people are, what they value and why and how they prefer to consume the things that they value in a way that makes the experience most enjoyable and salient to them. To create and deliver real value, you need to start looking at the value you create holistically.

As the world around us is changing beyond recognition today, it is harder for brands to stay relevant. This is twice as true for the luxury brands whose very existence is tied to their cultural and symbolic value. Due to the speed and scale of global cultural change, many industries are undergoing a massive erosion of meaning. They are therefore struggling to create, deliver and maintain their value. This makes it more difficult for brands to create meaningful experiences that matter to consumers and make them tick.

They find themselves in an environment where, largely thanks to Amazon and now DTC brands, consumers are becoming accustomed to fast, cheap and now as a new norm. Especially the more conservative and traditionally minded luxury brands are struggling to adjust to this altered reality as their new normal and continue to look towards the past where their past glory resides, instead of embracing this new situation and learning to master it to their own benefit.

Creating premium value in the age of Amazon

Every brand seems to be in competition with Amazon today as its threat erodes our perception of what value means across the global marketplace. Yet, this is at odds with the luxury sector whose essence and the very reason for existence are tied to completely opposite principles of value creation. After all, Amazon is the antidote of luxury as we’ve traditionally become accustomed to perceiving it: as something of an inflated symbolic value over the victory of mere functionalism. It doesn’t make much sense why luxury brands should compete with Amazon. Unless, the threat isn’t Amazon, but what Amazon represents. In other words, the meaning of Amazon to global consumers and the consequences of this shift in consumer perception and behaviour is now impacting and weakening profits in other brand categories.

What Amazon represents to more traditional brands today is a complete turnaround of the consumer mindset and expectations that shifts attention towards immediate gratification, functionality, utility, comfort and predictability. And if these are the new intrinsic motivators ruling our consumption today, it is easy to imagine why luxury brands are finding it so difficult to remain relevant and resonate with the 21st-century consumers wired towards living the now.

Luxury brands aspiring to compete with Amazon are trying to measure themselves with the wrong benchmark. What they actually want is to be relevant to consumers’ needs and the consumption patterns of the 21st century. They want to be successful like Amazon and not to be like Amazon, and that is a completely different thing. Much like Amazon, luxury brands need to develop the strengths of contextual and cultural relevance to keep them competitive in the global marketplace, but the ways in which to go about both creating and delivering value to their audience must be much different. The task at hand is actually to become even more unlike Amazon in the strategies that luxury brands develop – they need to choose the path of meaning.

If luxury brands want to compete directly with Amazon by adopting the same operational principles such as utility, functionality and speed, it is a game they cannot win because they’re not in the game of efficiency, but effectiveness. The job of luxury isn’t to cut costs and optimise, it is to create and inflate its symbolic value and make people feel better about themselves. Luxury is intrinsically linked to scarcity – if it’s everywhere and doesn’t saturate our scarce needs, it is not luxury anymore. Luxury brands without meaning will turn into commodities which will no longer be able to justify their high price because they will no longer be considered luxury.

Instead of asking how to compete with Amazon, ask yourself this: What lessons can I learn from Amazon and adopt in my own brand strategy so that I don't have to compete with it anymore? That's the right question to ask. Or consider these questions: How do we create value for our customers today in a way they see as relevant, accessible and easy to consume? How can we better embody the essence of luxury value – meaning, heritage and experience – to justify to our customers spending money with us instead?

Luxury brand managers need to reframe the Amazon question to let themselves thrive in a new environment instead of putting themselves on the losing end of the conversation. Luxury brands are value creators, not the passive bystanders. They should not follow Amazon and be defined by their external circumstances. They should adapt to this redefined situation and lead from their unique essence to add more value. Aspire to be like Amazon in terms of creating a new and more competitive model to deliver unique value to your customers, so that you don't have to compete with Amazon anymore. Use Amazon not as your goal, but as the guiding principle for your own success.

Five lessons that luxury brands can learn from Amazon

1. Coherence of the brand’s role and identity

Amazon is masterful at brand and message consistency. It clearly embodies the utility and functionality end of the value spectrum in a way that is salient to the customers. It is safe, fast, predictable, easy to consume and satisfying. In this new era of authenticity, knowing who you are and maintaining your own integrity is everything. Your job is to develop a strategy that like Amazon will help you succeed in the crowded online marketplace, not to replicate Amazon's own success. Becoming like someone else and compromising who you are and your own key assets to achieve success is the ultimate failure.

Amazon isn’t a problem to tackle. Not knowing who you are in the current cultural context, what your brand means to people today and why that should matter to your customers is the problem. In other words, your brand needs to have integrity, be relevant and have a cultural strategy. Stay true to who you are, what you have, what is authentic to you as a luxury brand and leverage these assets through channels, content, product and service offerings and experiences to reach your customers in the most relevant ways possible. Focus on creating experiences that will help your customers feel more of who they are. Create value for them. Then they will create value for you in return. It's not about you, it's about them. But you need to know who you are first in order to deliver this value to your customers.

2. Personalisation and embracing customers’ individual identities

Amazon anticipates its customers’ future needs by demonstrating it knows them, creating relevance at every step of the customer journey. This can be done via a simple nudge of “here are some items you bought in the past, so here are other items you might like” or by becoming more interactive to deliver personalised value. The message this sends is both “we know who you are” and “we value your business” which kicks into our subconscious feelings of security and appreciation. A powerful way to create personal relevance and a reminder that it is about them and their comfort is empowering your customers to feel free and in control, as a way to give future reassurance.

3. Ecosystem of diversified value feeds consumer loyalty

Amazon offers largely everything these days, which is no way the business model that luxury brands should replicate. However, the stream towards a greater diversification (where it makes sense and creates stronger brand synergies) is largely the way to go to create an ecosystem of luxury value. What Amazon sells will almost always be relevant to you personally because they now sell almost everything you want and need from A to Z. This is a great proposition for Amazon, but luxury brands need to be mindful of the fact that it is scarcity that makes them luxurious. However, here is an important lesson to learn about creating long-term value and giving the customer the comfort of knowing they’ll be taken care of completely in exchange for their brand loyalty.

4. Comfort and democratised access mirror our new cultural preferences

The value, level of comfort and functionality are very high while the entry barrier to start using the service is very low. This makes Amazon too convenient and comfortable for the customer to go anywhere else. It is an easy one stop shop for everything, which, given the great variety of product, cuts through the entire consumer life cycle. Something to think about in terms of luxury, is that the majority of brands continue to diversify their products, instead of diversifying for user occasions, customers, needs and life stages. Another point for luxury brands is that the ease of use, comfort and democratisation aren’t used just as assets to maximise efficiency and sales, they are the key pillars of Amazon making the experience feel authentic to the brand, which continues to impact and evolve how we consume. This makes Amazon culturally relevant in both brand values and the mode of consumption.

5. The relationship with your customer is your product

Thanks to understanding who Amazon is as a brand, the integrity of their role in customers’ lives and the consistency of their brand identity, focus on empowering choices when it comes to their customers and what they might like, continued focus on creating a diversified brand ecosystem that is equally democratised in its access as is it easy and comfortable to use, Amazon continues to master the game where the existing relationship with the customer becomes the core product. These are the lessons that luxury brands can definitely learn much from. But first, they need to take eyes off their competition and take the focus back on themselves and their own strategies.

Two streams of value creation: Move up, then move down

To stay competitive, luxury brands need to explore both ends of the value spectrum but in the right order:

1. Create authentic meaning, pay attention to how culture is evolving and what it means to your brand, understand your new role in consumers’ lives to create personal and cultural relevance, explore new avenues of inspiration and embody these insights through meaningful and transformative experiences that resonate with people to move up the value chain.

2. Then move down the value chain towards democratisation and focus on the supply chain, learn how to become more competitive and deliver accessible value through relevant channels in the here and now, based on understanding your physical context and the patterns of consumption of the new emerging generation of consumers.

First, you need to create something of value, then you can focus on how to deliver this value to people who will appreciate it. Focusing on channels and modes of delivery first by blindly following the Amazon example without having anything new, important or meaningful to say or sell is not a sound strategy.

If luxury brands are too accessible, they’re no longer considered luxury. If they’re not accessible or comprehensible enough, they are not seen as relevant. This means that luxury brands need to adopt a strategy that puts them somewhere in the middle to embody the luxury essence in ways that are seen as relevant today. They need to embrace both cultural relevance (having a strong voice and message) and contextual relevance (using the right channels in the right ways).

As the idea of 'see now buy now' is spreading fast, it is visible that the focus on utility and democratised access is coming to the forefront of the luxury conversation in order to keep luxury brands competitive. This is somewhat unfortunate as the focus should be the exact opposite. Instead of other sectors trying to emulate luxury and provide more value to their customers in order to differentiate, now the market is pushing luxury – the only remaining beacon of long-term value creation – to become more like the utility brands.

You need to master the game of meaning

Luxury brands have always been the champions of long-term value, where the idea of longevity has been one of their key pillars to justify the increased price. Luxury costs more because it means more. Not just to us, but also to other people. It’s a vehicle of social mobility, status signalling, a piece of cultural heritage, an enhancement to our own taste, values and identities, the list can go on. Luxury occupies many different roles and spaces in our society, that’s why we are inclined to pay more for it. Unless it doesn’t any more. When brands are at odds with culture, they can lose value even if their legacy stays strong. This affects the luxury and premium sectors far more than any other category simply because they have a lot more to lose. Meaning decides whether the brand thrives, plummets or faces unforeseen challenges.

Luxury is all about meaning: the very essence of luxury is based on the inflation of its symbolic value over the functional value of its goods and services. Meaning is not a mere add-on, it is an integral part of the brand, product, service or experience. We are willing to pay more for what matters to us: its personal relevance. We don’t value things; we value their meaning. This means what we actually consume are the meanings behind the products and experiences, what they represent and why they matter to us, rather than the products and experiences alone. This has huge implications for luxury as it becomes clear that luxury brands need to become centred more on people and what people value – their own needs, lifestyles, identities and untapped and unexpressed potential – rather than on luxury brands for us to look up to.

This is why luxury brands can no longer take their past prominence for granted and instead need to look for new avenues of relevance, value and growth in better alignment with the culture. Interestingly, the current political and economic turmoil across the world brings not only new challenges but also new opportunities. But it’s up to luxury brands to learn to navigate culture effectively. They need to discover their new place in society and respond to these changes proactively, rather than being passively affected by them, by choosing to keep living in the past. Brands who seize this opportunity will enjoy impressive growth. Those who don’t will continue to struggle.

If being your authentic self is the highest form of luxury in the world that’s constantly changing, then luxury brands should strive to help us connect back to ourselves, to our own essence and to the lasting values that matter to us.

Luxury and premiumisation are truly the sweet spots of value creation because this is where brands can create most value or lose most value if not careful. They need to rise above the clutter and define new ways to express their unique essence – which is tied to their brand value – to attract new and existing customers in culturally relevant ways. Technology is an enabler and catalyst when it comes to luxury. It’s not about technology, it’s about people.

What the traditionally-minded leaders don’t understand is that the continued industry focus on data and technology over meaning and people is the reason why we are caught up in this vicious cycle of cost-cutting, efficiency and immediate results, when the most sustainable way to actually generate short-term results is by creating long-term value. It’s the other way around.

And who else should lead the way in value creation other than luxury brands?

Parting thoughts: Redefining the future meaning of luxury

What luxury means today is something much different to what it used to mean in the past. Revitalising luxury brands means that we will need to redefine what luxury is, what it stands for and what it means today to match the needs and expectations of people living in the 21st century. This will help luxury brands regain their fading sense of relevance, restore value and create new and diversified offerings and experiences that will truly matter to people.

This article is part of a series of articles on premiumisation. Read more here.

You can download Martina’s new comprehensive The Luxury Report 2019