The future of luxury management – 5 megatrends that are here to stay: guidance for researchers and managers

The luxury industry has undergone significant changes over the years, and said changes have tremendously impacted how luxury is managed. We take this opportunity to explore the most recent research findings to highlight how luxury management should be practised in the future to successfully address the challenges the industry is facing. Only managers applying this knowledge will be able to create value for their clients whilst also creating economic benefits for their companies, and ultimately securing their survival. Supported by the research presented in this special section, we highlight the key trends and the shifts in luxury management in terms of focus, client roles, brick-and-mortar stores, online channels, and consumer behaviour, and what drives the decision-making process of luxury clients today and in the future.

The luxury industry is one of the most vulnerable to crisis and is often described as adapting more slowly to change than other industries. Innovation, embracing of technology, and catering to new, convenience-addicted luxury customers (Klaus & Zaichkowsky, 2022), who want to buy and experience goods and services how and when they want, are just a few of the trends where luxury is lagging (Klaus, 2020). Other trends, such as sustainability, seem to be (according to luxury consumers) insufficiently addressed (Klaus et al., forthcoming). The pandemic exposed these shortcomings in an accelerated way to show how the luxury industry needs to address the existing needs of its target segments. The following introduces the contributions to our special section. Next, we look at the trends highlighted, discussing and detailing how luxury managers can turn these challenges into opportunities.

Luxury research focuses primarily on the five pillars of exclusivity, hedonics, product quality, authenticity, and price. Despite the increasing importance of luxury customer experience (CX) among luxury managers (Berghaus et al., 2014) and scholars (Klaus & Tarquini-Poli, 2021), research on the topic remains underdeveloped. In response to the criticism that most luxury CX research is conceptual by nature (e.g. Ko et al., 2016), explores only the antecedents and the consequences of the experience and its related concepts (e.g. Shukla et al., 2016), or focuses on the experience’s experiential aspects rather than on a holistic conceptualisation of CX (Lemon & Verhoef, 2016), the framework provided by Shahid and Paul (2022) below links the antecedents of CX to the consequences of revisit intention and word of mouth. In responding to the lack of guidance for managers in addressing luxury CX noted by Piotrowicz and Cuthbertson (2014), all three papers selected for this special section contribute to the managerial literature by offering empirically grounded insights.

The special section contributions

Of all the luxury experience sectors, the global luxury hospitality industry has been disproportionately impacted by the COVID-19 pandemic, recording a decline of 55% to 65% largely due to lockdown measures and restrictions on international travel (Bain & Company, 2021). Despite staging a post-pandemic recovery, the challenging global hospitality market makes (Shahid & Paul, 2022) work particularly timely. Their research examines the factors influencing the customer experiences of guests in luxury hotels in the emerging market of India, providing a comprehensive framework of the CX of luxury hotel guests.

The authors adopt an experience-centric approach, reviewing the luxury hotel experience literature to develop and test a conceptual model of the luxury customer experience. They note that the hotel sector offers a particularly appropriate context for such research as the use of experiential marketing to promote hospitality has increased substantially in recent years, driven by the hotel sector’s increasing reliance on experience rather than product features.

The researchers collected data from 15 luxury hotels (i.e. heritage, 5-star deluxe, 5-star, and 4-star hotels) in Northern India, yielding over 400 responses from business and leisure guests. Their results indicate that federalism, ambience, escapism, personalisation, and convenience influence the experience of customers in luxury hotels. In turn, this CX influences consumers’ positive word of mouth and revisit intention. Finally, whether guests are visiting the hotel for leisure or business purposes has a moderating effect, indicating that the needs of guests differ between these two motivations to visit. They conclude that high-quality, personalised, individualised treatment is key for hoteliers to provide a high-level customer experience.

The central role of craftsmanship in the marketing of luxury is widely accepted. Taking a company- rather than customer-centric perspective, Tarquini et al. (2022) empirically examine the importance of craftsmanship and craftspeople in creating the luxury experience, identifying it as a strategic asset for luxury experience management. They note that exposing consumers to the experience of craftspeople at work, either directly or vicariously, can enhance the luxury experience and create emotional connections. Thus, the authors highlight the lack of attention paid by luxury marketing managers to its human aspects, and specifically to the lack of research on how this important resource can be preserved while maintaining a steady supply of craftspeople.

The authors adopt a methodology of expert interviews with executives and stakeholders alongside narrative interviews with craftspeople to explore this aspect of CX. Their findings indicate the importance of the touchpoint between craftspeople and consumers of luxury experiences. They further highlight the dearth of skilled craftspeople and the difficulties experienced in attracting them, as variously reported in Italy, France, and the UK. Informants attribute this situation to a lack of awareness of careers in luxury craftsmanship and its low social status. Findings suggest luxury companies should provide more varied craftsmanship experiences to consumers and potential future craftspeople to stimulate their interest and passion. By promoting a career in luxury craftsmanship, managers can secure the future supply of craftspeople to enable the full use of this vital yet neglected touchpoint.

In the categorisation of luxury, above democratised and aspirational luxury is elite or absolute luxury. Targeted at the segment of ultra-high-net-worth individuals (UHNWIs) (i.e. those with a net worth in excess of $30 million), this small but impactful category accounts for one-fifth of all luxury sales (Klaus et al., 2022). UHNWIs are particularly important to the luxury industry as their expenditure is largely buffered from economic turbulence. They also tend to value luxury experiences over acquiring products and possessions. However, difficulties in accessing UHNWIs for research purposes mean they are a largely under-researched segment, especially regarding luxury experiences (Klaus, 2022). Mrad et al. (2022) address this gap with their empirical paper on elite luxury experiences. Adopting Bourdieu’s social capital theory, they explore notions of distinction, belonging, and socialisation.

Their study takes an abductive qualitative approach and explores elite luxury experiences from consumer and managerial perspectives. Based on extended interviews with UHNWIs and senior managers of luxury companies based in Dubai, their research reveals that UHNWIs seek extraordinary, exclusive, bespoke experiences. As luxury consumers, UHNWIs are driven by a need for status affirmation, entitlement, and distinction. To fulfil these needs, elite luxury experiences are characterised by providing social exclusivity through access to rare and customised services, fulfiling a sense of entitlement through service unavailable to others, providing rare emotional experiences and offering distinction through physical and digital distancing. Based on these results, Mrad et al. (2022) provide detailed managerial advice while stressing that in delivering successful luxury services to UHNWIs, fulfilment of their sense of entitlement is crucial. However, managers need to think carefully about how to manage customer expectations in this segment.

Based upon these findings and recent trends, alongside the Editorial team’s observations of (and work with) luxury companies, we propose a framework focusing on how luxury customer experiences should be managed to lead to the desired customer behaviour and, ultimately, the luxury brand’s profitability.

The future of luxury CX management − 5 megatrends

Our luxury customer experience management framework (Figure 1) provides needed guidance for luxury and customer experience researchers and managers. It highlights the changes in luxury CX management by emphasising five megatrends shaping the future of luxury brand management. In the following section, we take a closer look at these megatrends.

Figure 1. The future of luxury CX management − 5 megatrends.

Trend 1 – seamless customer experience: the new focus

The shift from luxury possession to the luxury customer experience (often confused with experiential marketing, the latter the stimulation of senses, which can be part of the experience without being its emphasis) has been the main industry focus, especially prior to the pandemic. While we see an increase in the shift from purchasing to experiencing luxury goods and services, the pandemic added an even more challenging component: the digital customer experience. This requires an integration leading to seamless customer experiences, which now need to meet and engage the customer in their now more ‘natural habitat’ – online. This leads us to the second trend: the need for accessibility anytime, anywhere, to match the customer experience the affluent customer seeks.

Trend 2 – any channel, anywhere, anytime

Luxury customers require convenience and seamless experiences across all channels and communication tools more than ever. Luxury customers are just as, if not more, addicted to convenience (Klaus & Zaichkowsky, 2022) than other customer segments. Luxury managers need to demonstrate to their customers the benefits of data sharing to deliver seamless, tailor-made experiences in exchange for giving up some of their privacy. Luxury customers expect a smooth experience tailored to their needs and channels, and luxury brands need to deliver to avoid them switching to competitors, which is easier than ever. Be it by developing desirable phygital experiences or the integration of new technologies and platforms, luxury brands must deliver. This is especially relevant in the post-purchase experience through, for example, seamless and non-complicated exchange, trial, and return policies. Moreover, the new generations of luxury customers are progressively looking for entertainment and engagement in their shopping experiences, such as delivery on social platforms (TikTok, WeChat, etc.).

Trend 3 – online, from afterthought to cash machine

Online luxury sales will continue to overtake all other channels. We state that it is not a question of whether online sales will pass all other channels as the dominant one; the question is when online will inevitably become the #1 luxury channel. We are confident that, for part of the industry, this will be true as of 2028. This shift towards purchasing online luxury goods isn’t new but has been dramatically accelerated by the pandemic (Klaus, 2020). The pandemic also exposed that luxury brands still have an uphill battle to wage before they deliver the desired online experiences and return and exchange policies needed to gain customer trust. The growth of online purchases isn’t solely driven by multi-brand online retailers, but luxury brands themselves are investing heavily in their own e-commerce capabilities to become more independent from multi-brand platforms. Given that online is the preferred channel of the new generations of affluent customers, this simply mirrors the change in what drives growth in the luxury industry. More changes are needed to address the new luxury segment.

Luxury brands need to embrace new technologies, such as Non-Fungible Token (NFT) collections, to diversify their offerings. These NFT offerings allow targeted, exclusive access to either standalone digital assets or alongside their existing offerings. The same is true for other metaverse-driven offerings, which most certainly have the potential to enhance both the online and offline luxury customer experience. The question, then, is where that leaves the brick-and-mortar store in the future of luxury CX management.

Trend 4 – brick-and-mortar stores, from temples to on-demand advice centres

Given the megatrends we discussed previously and the overall shift towards the more ‘natural habitat’ of the future growth driver luxury customer segments, it shall come as no surprise that the role of the brick-and-mortar stores will need to change to deliver the experiences new luxury customers desire. We envision that the new brick-and-mortar store will, of course, integrate new technologies, such as offering NFTs connected to physical goods and the integration of augmented reality in the store to enhance in-store and post-purchase experiences.

More importantly, we believe that the new ‘hybrid’ channel physical store will shift from ‘selling product’ to ‘experiencing the brand’. We envision the store becoming the equivalent of an experience and advice centre focusing on two main themes: education about the brand and its products and experiencing them in personalised sessions. This, of course, requires a different skill set from that of standard personnel, who will be more equivalent to brand ambassadors rather than salespeople, with a focus on facilitating an authentic ‘brand experience’. This in-store experience also reflects what we see as the fifth megatrend: the shift from conspicuous to conscious consumption.

Trend 5 – future luxury consumer behaviour driver, from conspicuous to conscious consumption

To compete successfully, luxury brands must understand how to relate to and win over new luxury customer generations. Thus, their practices must reflect the changes driving consumer behaviour in the luxury segment. We detect a shift from a conspicuous to a conscious mindset – in other words, moving from self-indulgence towards elevated essentialism. It should come as no surprise that the new luxury customer segment values authenticity and integrity regarding brands’ demonstration of sustainability. This includes the clear communication of a brand’s stance on environmental, ethical and social issues. These communications must be delivered. Because actions speak louder than words, brands’ actions must match the new luxury customer mindset. Examples of how this can be achieved include addressing the demand for a more circular economy (such as platforms’ facilitation of sales and purchases of pre-owned and vintage products) and the use of localisation and corresponding sourcing and supply chain activities, such as km zero and using local suppliers and craftsmen rather than relying on outsourcing.

Conclusion

In summary, these five megatrends that will change the way luxury is being managed are driven by a new way to experience luxury rather than consume it, per se. In this brand-new luxury world, the digital native, conscious-driven luxury customer expects luxury brands to deliver seamless experiences in terms of what, where, when, and how they desire in a sustainable, ethical, and socially conscious way.