Innovation in the Luxury Industry

Part One

1. What are the two most important innovations in the history of the luxury goods industry? Classify these innovations and their developments to the best of your ability.

To a certain extent, the industrial revolutions, the mechanization of production and the diversification in luxury products lines, new ways of manufacturing and economic globalization have deeply changed the luxury sector in the last century.

However, it occurs to me that the two latest innovations that had a substantial impact on the luxury sector in the past ten years are, on the one hand, the rise of the internet along with e-commerce, and, on the other hand, social media, which allow luxury firms to evaluate their impact on the market and create communities of millions users loyal to their brands.

E-commerce and social media obviously go hand in hand, but it seems fair to say that they are two completely different innovations.

In fact, while the internet has been around and spreading for over 20 years, social media as we know it today only really started with the rise of Facebook starting in 2006, and Twitter later on, although websites such as Myspace or Friendster did exist before, they hardly were used by businesses in the luxury sector to observe consumer behavior and acquire new customers.

The stock-exchange value of firms such as Facebook or Twitter proves how important they are to companies. In the luxury sector, the key point in a highly competitive and ever-growing market is to stay on top of minds, especially the minds of people living in developing countries which are gaining more and more access to the internet and wealth.

What is interesting to observe is that companies across the world still seem to have a lot to learn from each other and are not equally talented when it comes to interacting with customers online.

Although the luxury sector applies not only to tangible products, it seems impossible that luxury hotel rooms or spa treatments could be sold online. However, consumers will easily be able to book a room, to look at photos, to get online discounts, etc. A well-designed website can attract a broader range of customers than a store window.

A new trend in luxury e-commerce is the different offers to personalize products, i.e. BMW or Aston Martin cars, Rolex watches, etc.

2. How and why were these innovations developed?

With the ever-ending expansion of the Internet across the world, companies in the luxury sector had no choice but to get onboard and start selling their products online. Even the most reluctant ones who thought or still think that a luxury purchase experience cannot be intact on an online platform have come to the conclusion - or will, eventually - that it is the most convenient, cost-efficient way to reach a market that is only as big as the network itself.

Social media is an incredible tool for market research and promotion. It provides the brand with an insight on the consumers' wants and needs, on their opinions and therefore helps us making the right decisions, avoiding scandals or conflicts, but above all, it allows them to make the right products for the right target market.

Percentage of people who have shopped online by Area (source: blogoergosum)

3. How long did it take before they succeeded on the market?

E-commerce only started to really boom in the past 5 years, yet companies such as Ralph Lauren, Armani or Net-à-porter started to sell online in the early 2000's (2000 and 2001 respectively) which has now lead them to the top of the pyramid when it comes to online luxury shopping.

A successful social-media strategy can be measured thanks to figures - or tools -such as the number of likes a company receives on Facebook, their number of followers on Twitter, etc.

4. How long did it take for them to be copied?

As mentioned before, some companies slowly started in the early 2000's. However, other luxury brands started following their example by launching their own e-commerce websites, hiring community managers, web designers, and re-thinking their marketing strategy. From only a few companies selling online 10 years ago, a wild guess would be that 99% of luxury companies have an official website, among which 70% of them would sell some of their products online.

5. Did these innovations displace any existing products or services? If so what happened to the latter products or services?

These innovations did not displace any existing products per se, they merely have changed the way they are sold. People clearly are more informed, more aware of what's going on around them when it comes to news or other people's life, but also about the trends, the prices, etc.

The after-sales staff will consequently have to grow bigger in order to cater to the growing demand from online buyers which have not traveled to the store in order to get their product, and who allegedly won't be bothered to go if there is any kind of problem.

Online selling also implies for companies to work with new suppliers, i.e. for their data servers, for delivery, etc.

Social media has created new jobs in the luxury industry, such as positions for community managers, online marketing experts, luxury web designers, online after-sales assistants, etc.

6. Identify at least one further extension to the product or services in the industry.

What the luxury and digital-world specialists have been talking the most about in the latest years is the importance of mobile devices such as tablets and smartphones through the use of apps, which the most forward-thinking companies have already made available on the most widespread operating systems, i.e. Apple's iOS, Google's Android and Windows Phone.

Since 2007 and the launch of Apple's iPhone, smartphones have flooded the market and their share do not stop growing. Specialists have also noticed that consumers tend to make more and more