Why Your Luxury Brand Will Fail Without Gen-Z Customers

Key Takeaways: Around ten percent of luxury purchases worldwide are made by Generation Z, but that share is significantly higher in China at roughly 15 percent. And the best brands already get up to 20 percent of Gen-Z customers today. Brands find many Gen-Z traits challenging: They are extremely smart, question everything, and, most importantly, are looking for extreme value in luxury. Many brands will continue to do what they have always done while gradually adding more digital capabilities. But that is playing by the rules of the old game, which is a recipe for failure. In recent conversations about luxury strategy, I have been asked why it is important to connect with Gen Zers (people below the age of 20 to 25, depending on the definition you use). That's because there seems to be a stigma against Gen Zers that they are not luxury customers. One manager of a brand told me that “they are weird,” another said “they don’t have money,” and a third even told me they “don’t have taste.” When I challenged those assertions, their answers were consistent: “They are not relevant for us right now, don’t buy us, can’t afford our products, and most of our customers are 40 and older anyway. Therefore, it would be wrong to include them into our strategy.” If these are thoughts you observe inside your organization, I urge you to think differently. If you don’t have Gen-Z customers, it may be a signal that your brand is already irrelevant to them. And if it’s irrelevant now, it won’t ever be relevant — unless you make it so. In other words: If your luxury brand doesn’t have Gen-Z customers, it may be too late already. Around ten percent of luxury purchases worldwide are made by Generation Z, but that share is significantly higher in China — around 15 percent already. Remember, this is the market average, which includes brands that are not or barely relevant to the target group. That means the best brands already get up to 20 percent of Gen-Z customers today. So if your share is below that, rigorous action plans are needed. Why is it that people are disrespectful — even dismissive — to this upcoming generation? Why are they so drastically underestimated? And why is this attitude endangering the future of many brands? The answer to these questions lies in the way Gen Zers grew up. You see, they belong to the first generation of digital natives who grew up with smartphones and social media. No previous generation had ever grown up so digitally, connected through devices, overwhelmed with data: information, tutorials, or advice. Nor have any had such transparency with brands, companies, and influencers or grew up with so much wealth, stability, and education. And none have grown up witnessing the effects of global warming firsthand or understand how animals and the environment are desecrated for the sake of fashion. As a result, brands find many Gen-Z traits challenging: They are extremely smart, question everything, and look for real value. They do their homework before choosing a brand, and they want to make sure that brands are taking sustainability seriously. But, they are also very optimistic — especially in China — because they did not witness the hardships of previous generations and feel like they can positively shape their futures. Since they grew up in a globalized world, they value local traditions and local talent. They are more patriotic than any generation before and like to support homegrown businesses. They know that digital interactions don’t have the same level of emotion as human connections, so they look for even more feeling in their real-world experiences than any generation before them. But perhaps the most critical trait brands must understand about Gen Zers is that they are looking for extreme value in their purchases and the services. It’s not enough to own a famous brand and a shiny object. They will scrutinize the multiple values a brand can offer and will judge it by the total overall experience they receive. And if there is too little perceived value? They drop it and move on — fast. And when they move on, they don’t come back. Therefore, to be attractive to Generation Z, it’s not about trying to be “young at all cost,” as I’ve heard some proclaim. This approach is not attractive to them because it is not authentic. It is not about pretending to be something you are not. On the contrary, it is about inspiring and creating value by being what you are. Hence, your differences from other brands make you attractive — not doing what everyone else does. And a brand must regain their interest in this way again and again. The dilemma is that most brands don’t have clarity about their value creation model. Most brands lack quality brand storytelling, and if there is no perceived story along all its touchpoints, a brand cannot create any distinct perceived value. Without value creation, there is no desire, inspiration, or memory created. And if you don't have that clarity, you might never attract Gen Zers because preferences are built early in life. In other words, they won’t revisit you later. The problem is that most brands are too focused on products and product development and don’t dedicate enough resources, talent, time, effort, or training toward creating end-to-end brand experiences. In a digital luxury world, forging powerful emotional connections and continuously nurturing them while differentiating from your competitors is critical. It’s a new game that requires a much different approach. Many brands will continue to do what they have always done while gradually adding more digital capabilities. These brands have no future, as they are playing within the rules of the old game. The new speed of change is unprecedented, and consumer sentiment and expectations are changing faster than ever. And it's all fueled by the expectations and behaviors of Gen Zers, who are now key influencers for the older generations. Meanwhile, competition has never been as intense, with new digitally-native brands launching in every category every week. When Gen Zers become the top purchasers of luxury goods sometime this decade, their love for homegrown brands will lead to the emergence of hundreds of new local luxury brands. And these agile companies will be able to connect with local communities in a much stronger way than global brands. That’s why I predict that at least three of the top-ten luxury brands will be Chinese or Asian by 2030. Brands can approach this shift from two angles: They can choose to wait and see, gradually adapt, and become irrelevant within a few years. Or they can switch gears and ask themselves how they can immediately become relevant to Gen Z. That does not mean losing your brand identity. It probably means developing a real rational and emotional identity for the first time. Do that, and your customers will be wowed by your phenomenal luxury experiences. Daniel Langer is CEO of the luxury, lifestyle and consumer brand strategy firm Équité, and the professor of luxury strategy and extreme value creation at Pepperdine University in Malibu, California. He consults some of the leading luxury brands in the world, is the author of several luxury management books, a global keynote speaker, and holds luxury masterclasses in Europe, the USA, and Asia. Follow @drlanger

Why Your Luxury Brand Will Fail Without Gen-Z Customers

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Published February 15, 2021

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Why Your Luxury Brand Will Fail Without Gen-Z Customers