Underestimating Moments of Truth: Why Many Luxury Brands Fail with Millennials

    How luxury brands can fail with Chinese millennials by underestimating the importance of brand positioning and the perception of Added Luxury Value.
    Luxuries are not normal products. They’re the ones creating the highest perceived consumer value, and when things go wrong, customers feel cheated. And rightly so! Photo: B. Zhou/Shutterstock
      Published   in Hard Luxury

    More than any other product category, luxury is where people pay significant premiums for the intangible value that a brand or service creates. I called this “Added Luxury Value” (ALV). ALV makes luxury enticing because its intangible character allows the best brands to generate significant profit margins. On the flipside, its intangible nature leads to an immediate collapse of ALV when a brand makes a mistake.

    Unfortunately, in luxury, branding mistakes are plentiful. After a recent meeting with the top management team of a well-known luxury brand in China, I asked them about what keeps them up at night. They said that “almost all brands do exactly the same thing.” In short, that there was not enough differentiation. This confession is remarkable because luxury is by definition extreme value creation. And in my experience, extreme value can only be created and maintained if a brand has distinct brand properties. If a brand is exchangeable, then it does not create a defendable extreme value. High price points and customer love won’t be sustainable. I see this in a lot of my brand audits — the need for luxury brands to become much more distinct, differentiated, and relevant.

    Perception is not reality, especially internal perception. This is another important pitfall. We have conducted a series of perception mappings for our clients using sophisticated AI-supported social media listening and consumer sentiment measurement methods, practically always producing shocking results: managers see how their perception of their own brands is flawed. Because management teams of brands are very close to its core positioning, they often take for granted that consumers see the brand in the same way they do. In many cases, especially in China, they are wrong. To make matters worse, most brands underinvest in real-time data-driven consumer insight tools. And the moment they realize that their internal perception is not reality, it’s probably too late. They’ve lost valuable time and millions of dollars in lost profits. As a result, very few luxury brands are profitable in China. Underestimating consumers, brand perception shortcomings, gaps in communication content, and competition can prove to be deadly.

    Another common mistake is not perfectly executing the consumer journey. Most brands plan for the best case, few have contingencies in place on how to build brand equity when things go wrong. A week ago, I had to fly from Hong Kong via Shanghai to Los Angeles. I booked the flight in Delta One, a first-class cabin, which Delta priced for accordingly. Due to bad weather, I missed my connection to Los Angeles, which happened to be the last flight out to the U.S. that day. Any experienced traveler understands that flight delays are part of the travel experience, but after many lost hours at the airport trying to rebook my connecting flight, the airline finally dropped me off at an airport for the night. And that’s when my trip slid into a horror show. The hotel was in the middle of nowhere with a defunct air-condition, a dirty bed, and not even a bottle of water was offered, nor were any Western credit cards accepted. As a result, what should have been a very pleasant first-class luxury experience with a culinary selection in the sky and proactive, helpful staff, ended in a complete disaster, not wanting me to ever board a Delta plane again.

    Don’t get it wrong. This experience happens all the time across all brands and categories. A dish improperly plated and served in a Michelin-star restaurant, a sales person in a luxury fashion store who’s having a bad day and is snappy at the customer, a front-desk staff who wrongly tells the person wanting to check-in at a luxury hotel that he forgot to make a reservation to the service manager in a Lamborghini car dealership to have a loaner car ready when the client brings in her car. The list goes on and on and on. In luxury, every-touch point counts. Every negative interaction can make ALV collapse, even if the interaction initially seems small. Luxuries are not normal products! They’re the ones creating the highest perceived consumer value, and when things go wrong, they feel cheated. And rightly so!

    Managers of luxury brands need to rethink their approach. Starting with a rigorous assessment of how well-positioned and differentiated their brand is. Because (internal) perception is not reality, this should be done utilizing data-driven insight tools. If the brand is not strong enough, it must be repositioned and strengthened. I hear too often from Chinese teams of global luxury brands, “We can’t change anything, the brand is defined in Italy (or France, or the U.S.).” Good luck with that. If there are gaps, they need to be addressed! Competition is too strong; consumers too impatient and weak brands will not survive (or only survive as halo brands that produce huge losses). Lastly, the customer journey needs to be scrutinized, audited, and optimized, so that what happened to me on my flight hopefully happens to no one else. Luxury is not just an excellent customer journey. It’s something that has to be maximally differentiated from the journeys of all competitors, so that a customer bonds emotionally with the brand. And finally, if branding is dependent just on logos, colors and uniforms, then it’s not enough. The time for complacency is over.

    Daniel Langer is CEO of the luxury, lifestyle, and consumer brand strategy firm Équité. He consults some of the leading luxury brands in the world, is the author of several luxury management books, serves as a regular keynote speaker, and holds management seminars in Europe, the USA, and Asia. Follow @drlanger

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