The dynamics of the luxury market are shifting. Customer expectations are changing fast, and the way luxury brands deliver their products has to align with those expectations if they’re to remain relevant in the new luxury landscape.
The Covid pandemic has caused luxury customers to reconsider what they truly value. They want products personalised, bespoke or totally unique, services to be curated. Self-expression is replacing status.
These factors are layered on top of the environmental imperative and growing inequality, which have driven a new level of social awareness among luxury consumers. As a result, consumption is becoming conscious rather than conspicuous. And brands must increasingly have cultural credibility. People want brand experiences; even the sales process should be experiential.
A new luxury paradigm is emerging.
Asia Drives The Changes
The challenging economic conditions of the last two to three years have done little to inhibit wealth – unless you’re one of Putin’s oligarchs. The number of ultra-high net worth Individuals (UHNWIs) globally is forecast by Knight Frank to grow by 5% a year in the period from 2021-26, and high net worth individuals by 9%. In both cases the steepest growth is coming from Asia Pacific, which now accounts for almost a third of UHNWIs.
That’s important, because the Asia factor is accelerating the changes in customer expectations. The typical Asia-Pacific luxury customer is younger than western counterparts. Asian luxury customers are more open to new brands. The proportion of women is higher, and female UHNWIs engage with a wider range of luxury assets than men.
That combination of relative youth and the female contingent is helping drive a new behaviour, and nowhere more than in the luxury automotive sector. Luxury cars are the single biggest component of the $1.38tn luxury market, accounting for revenues of $566bn in 2022 according to Bain & Co. The sector is forecast by McKinsey & Co to experience a compound annual growth rate of between 9% and 10% to 2031 for cars in the $150,000-$500,000 market segment, and by 14% for models costing over $500,000.
Even in the car industry, where massive R&D costs mean relatively low margins, there are big profits to be had here. It’s somewhere the incumbent automotive groups and specialist companies need to exploit.
However, the new luxury customer expects the same experience when buying cars as when buying other luxury goods such as fashion and jewellery – highly personalised, with continual engagement, a seamless service experience, and a blending of digital and physical environments. Research by McKinsey reveals that 60% of Chinese luxury customers want customised service throughout the buying process, and for that service to be on demand, with 83% expecting immediate engagement and 70% wanting new channels and ways to get products and services.
A New – More Personalised – Customer Journey
What all of this means is that an entirely new luxury sales journey is required.
That’s not an easy task for the auto industry. The traditional OEMs are largely locked into a franchise dealer model – they can’t own the delivery and experience, and McKinsey research found that fewer than 2% of customers consider the dealer approach to be “ideal”.
However, going DTC (direct to consumer) entails a huge cultural and organisational shift from wholesale to retail. Some OEMs have developed a number of their own outlets, but the bricks-and-mortar model is expensive and increasingly out of kilter with a tech-savvy new generation of the ultra-wealthy born into the digital age. These customers expect to be able to engage online. And they definitely don’t expect to wait in line, let alone at a franchised dealer. This can leave the traditional OEM without the ability to truly serve either the older demographic or the new luxury customer.
Then you have the new OEMs and the disruptors. There are many new entrants – remarkably, McKinsey has identified at least 10 new ‘attack’ brands planning to launch vehicles priced at over $1m – who have realised the potential of the fast-growing market for rare, ultra-luxury or hyper-performance cars. Some of these are hoping to take advantage of the relative simplicity and reliability of electric vehicles or the power of additive manufacturing technologies to make bespoke or limited-run vehicles more viable. Others remain focused on conventional combustion-engined vehicles, often re-engineered or ‘reimagined’ coach-built versions of iconic cars.
But, whichever their specialism, the far more limited resources of boutique companies are inevitably weighted towards engineering – satisfying increasing customer expectations of technologies like connectivity and advanced driver systems, perfecting the ride and handling or body shut-lines, or homologating for sales in the key UHNWI markets of the USA, Europe, Japan and China. That makes it extremely hard to resource building a brand and driving sales. And also, critically, to deliver that new luxury customer journey.
The obvious answer is to partner with a specialist which can design and deliver the customer journey. Some larger European OEMs have already started to use commission-based sales agencies on top of dealers in order to target and manage elite customers. But luxury customers don’t like to haggle. And for smaller and newer manufacturers it makes sense to eschew the dealer model altogether – why compromise your product and nascent brand by putting it, typically, on the showroom floor of a multi-franchise dealership in a non-optimal location and alongside inferior or competing products?
Boutique Means Bespoke
As a result, new companies are beginning to emerge to meet this need, and may be best placed to deliver the bespoke service which the wealthy crave. One based here in the UK but operating globally is Casmin Group, co-founded by Ian Smith and Nick Campolucci, two senior auto industry executives with experience in high-end sales.
Its business model is different from a traditional sales agency way of operating, and they appear to be the first mover in the provision of an outsourced end-to-end sales and customer journey offering.
In this new luxury landscape where customers expect personalisation at every step, from what may be first awareness of a brand, through ownership and perhaps an ongoing relationship with that brand, manufacturers and retailers have to respond. As Casmin say, “In luxury it’s all about the customer.”
Author: Mark Carbery