Why Luxury Brands Need Artificial Intelligence

    Artificial Intelligence is a hot but confusing topic in business. Yet for luxury brands, it's quickly becoming an indispensable tool.
    Given the growing importance of influencers — especially in the Chinese social shopping environment — a brand’s ability to monitor and manage those influencers is indispensable. Photo: Prada. Illustration: Haitong Zheng/Jing Daily.
      Published   in Hard Luxury

    I’m often asked why I think Artificial-Intelligence (AI) tools are key for luxury brands’ success in the 21st Century. I think that’s because AI is one of the most overused buzzwords today, and many people use the term very loosely. In fact, most people discuss AI without really understanding it or what the benefits are.

    First off, one must know that AI is just a small part of what I call advanced data querying technologies. These technologies also include machine learning and advanced data analytics. AI is part of a state-of-the-art digital infrastructure that I suggest all brands implement. An advanced digital toolset is the game-changer for managing luxury brands. In my view, it’s not optional — it’s a necessity for luxury brands to remain competitive in a rapidly changing market environment.

    The frameworks in which brands operate have never evolved faster. Think about the beauty industry. A few years ago, large brands dominated the beauty market and mainly used classic above-the-line advertising to build brand awareness. But with the emergence of young, digitally savvy customers like Gen Zers (those nearing the age of 20 now) and young millennials (consumers below 30 at this time), the interest in more niche brands has increased significantly. As a single brand, smaller players may not be a threat to the large brands, but combined, they already take a significant market share and do a much better job at creating purpose, relevance, and authenticity for younger customers.

    In other luxury markets, we see trends shifting fast. We will see a dramatic shift in the luxury car sector over the next five years towards electrification, and the industry leaders will be new, technology-driven brands who play a different game than traditional brands. This has enormous disruption potential and puts many traditional business models at risk. In luxury handbags and fashion, there have never been such diverse offerings as now, both in terms of brands and items. For consumers, there were never more choices, and they’re dealing with more complexity than ever before.

    Meanwhile, a never-ending influx of influencers and key opinion leaders (KOLs) is assuming the role of providing customers with information and guidance. China is setting the benchmark in this industry, but other countries are following. And in this world of complexity, change, and ever-increasing digital brand access, luxury brand managers and top executives need tools to help them make better decisions. This is where advanced data querying methods that use AI become indispensable.

    Managers say to me, “We already have social media listening. Why do we need more?” To that, I say, “How often did you use it to make a critical strategic decision?” If the answer is zero, which is usually the case, then that infrastructure isn’t used enough. Brands need tools that provide automated real-time information about brand sentiment. In my view, this is the next best thing to a customer brain implant, as the most advanced technologies allow brands to follow what consumers are expressing about the brand in an automated fashion. It’s not simply to have this data but to make sense of it — and help steer your brand with it. This is where digital transformation becomes so mission-critical. Few companies are using its full potential now, but in an increasingly digital world, there is no better advantage.

    Knowing who influences your brand#

    Three very basic questions I have for brand managers is who are your key influencers, what messages are they sending, and who are they influencing. I am always surprised at how little information many brands have in response. Given the growing importance of influencers — especially in the Chinese social shopping environment — a brand’s ability to monitor and manage those influencers is indispensable. AI can identify and structure complex communication patterns and provide a real-time view of who the most important people who communicate positive messages about your brand are, or conversely if some people send messages that deteriorate your brand image. It also helps to understand competitive dynamics and generate insights about competing brands.

    Identify communication strategies, content, and priorities#

    It’s striking to me how many brands communicate without knowing what its target group is talking about at that moment. The assumption that consumer preferences are stable is completely wrong. For instance, we noticed that one brand’s specific digital advertising message was 500 percent more effective at a certain hour on a specific weekday than it was than just one hour earlier. The same goes for brand content. If topics are trending among target consumers, a slight modification of the message can yield dramatic effects. Doing any advertising without advanced digital tools is wasting money and making the brand weaker, especially compared to competitors that deploy those technologies already.

    Making the right decisions#

    Most importantly, an AI-based digital infrastructure helps brands to make data-driven decisions instead of gut-feeling decisions. An iconic luxury car brand was convinced of the way they thought their customers saw them — but it was really the way they wanted them to see the brand. To management’s surprise, AI and machine learning showed them that their experience-based belief was completely wrong. It also showed them how two competitors were better-positioned to lure customers away thanks to more precise messaging on core brand elements. AI helped identify those otherwise hidden patterns and changed their marketing strategy drastically.

    Don’t trust your gut#

    Examples like these show how there’s no room for gut-feeling in the fast-changing world where almost all categories are constantly being disrupted, especially for major decisions or large communication budgets. Managing brands without hard data that can be analyzed in real-time is like flying a plane without instruments — good luck doing that.

    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

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