The Boston Consulting Group released an article way back at the end of January 2014 entitled “Shock of the New Chic: Dealing with New Complexity in the Business of Luxury”. Now, apologies to those who have already seen this, but I think this article is as relevant today as it was more than two years ago – perhaps more so, as experiential luxury continues to be increasingly important.
Experiential Luxury > Possession
In a 2013 survey, BCG found that $1.8 trillion dollars was being spent around the world, every year, on ‘luxuries’. Of that total, nearly $1 trillion is being spent annually on experiences rather than possession: In BCG‘s words, “…from private airline services to five-star restaurants”. If we consider the significance of this, it means that the luxury market is spending more than half of its total annual expenditure not on assets, or possessions, but on services and – effectively – memories.
Now, I do query some of that figure. Looking that the data BCG have cited, they count Technology and Home and Furniture among their experiential luxury items. I would argue that now, as much as when the report was published, that technology – iPhones, Vertu mobile phones, high-end audio systems – would all be better classified as personal luxury goods than experiential. So it may be that the $1 trillion total is somewhat inflated, but it’s not an easy area to pigeon-hole spending. Of that number, however, $460 billion is being spent worldwide on travel and hotels, which eclipses spending even on luxury cars ($440 billion).
What does it all mean, though? As part of my day-job I get to contemplate this sort of thing, and I arrived at a conclusion: The experience of buying a product, and how it makes you feel, is as much as important – if not more – than the product offering itself. We can’t simply rely on a compelling set of features to make a product luxury anymore, nor should we ever have done.
Consider this: If I took the entire staff of, say, The Dorchester, and replaced them with those from a Premier Inn, would The Dorchester still command the premium it does today? Is it still a luxury hotel? Picture Le Manoir aux Quat’Saisons staffed entirely with McDonalds servers – would you still feel comfortable paying £159 per person for a 7-course tasting menu?
There’s a big piece of an even bigger pie out there – nearly $1 trillion if you believe the figures – and to get a bit of it, you need to sell a lifestyle. You need to make people feel special – whether they are buying an $85 million yacht, a £20,000 Patek Philippe, or a £1,500 suit. If you don’t, don’t expect those big premiums and margins to last long.