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The Phygital Dilemma Of Luxury Businesses

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Margaret Herde, Founder & MD of EMBARR GROUP.

In the previous century, the majority of well-known luxury houses were established based on the family business model. The quality of their products, vision, uniqueness and passion were key factors in creating what ended up becoming some of the most powerful brands today.

But the methodology was also driven by desire; they utilized niche business models based on limited access to serve the needs of the upper class, royalty and celebrities. Celebrities as a form of royalty have long played a key role when it comes to luxury, and together with media’s portrayal of them, has helped build awareness and exclusivity for many brands.

Based on my 15-year journey with the luxury industry and connections with more than 30 luxury brands, I have seen how the last decade has challenged the status quo as the digital world has become more important to the industry. Brands are now creating their entire marketing strategy based on digital resources and deepening their understanding of a more direct brand-to-consumer relationship.

The phygital dilemma refers to brands attempting to straddle and master the combination of the physical and digital space. There can be a paradox in attempting to be both exclusive and available, timeless and innovative. According to the lasted Business of Fashion interview with Balenciaga designer Demna Gvasalia, who oversees the brand that made its comeback with the “ugly snickers,” the strong presence of the digital world with its unique content is a game-changer (paywall).

The New Era

Over the last 10 years, social media has played an instrumental role in the growth of luxury brands. This is true for both well-established brands, as well as relatively new and obscure ones that seemingly came out of nowhere. A McKinsey & Co Luxury Report found that luxury is increasingly relying on consumer ambassadors, and the consumer is becoming more central to the process.

Successful luxury brands need to possess a deeper understanding of customers’ needs and engage with them directly. In return, some customers may show their appreciation by becoming brand ambassadors. These ambassadors are the new royals in the industry. The whole concept of being a brand ambassador is definitely a key strategic point for the majority of luxury brands. However, brands should remember that most of their customers these days are industry aware and the relationship should benefit both sides.

Brands should consider highly engaging content, with both the offline and online content complementing each other. In today’s world, fashion is less about what you wear but how you wear it and what it represents. While price and exclusivity are still important aspects, there is a democratization happening in the access to luxury brands. A$AP Rocky, one of the many musicians who has also become an opinion leader for luxury brands, said, “luxury isn’t just for elite anymore.” 

Lost In Translation

This new phygital era is a challenge for the luxury industry that is used to serving products or services with limited access. In the past, luxury brands used to select their customers; nowadays expansion to emerging markets and wealthy customers serviced digitally doesn’t always follow the old guidelines.

Digitalization opened the door to the luxury world for everyone who can afford it. At the same time, brands discovered new audiences and collected powerful data. We should consider the phygital transformation when meeting the new customer needs of Gen Z and Millennials, for research shows that among Generation Z, “60% of shoppers purchased items after seeing influencer content online while 46% admit to making a social media purchase at least once a month.” The phrases which seem to work well with this audience are “limited time offer” and “exclusive collection” where FOMO (fear of missing out ) comes into play.

With the influence of social media, there is no way of going back to the old way of doing things. Brands need to utilize the data they gather from these interactions with consumers to drive their success and deliver a strategy that implements their brand’s essence into the phygital world.

Allocating higher budgets into the new technologies will definitely pay off by increasing brand awareness, engagement and sales. Since purchasing luxury goods is a way of showing off, and social media has become a sort of digital catwalk, the luxury sector needs to master these digital tools to truly serve its audience. In fact, as the world continues to move digital, I see virtual commerce technology as the next challenge to the retail sector, which gives customers a unique way to purchase products and services with the help of virtual augmented reality technology.

Despite many challenges and even some stumbles, powerhouses like Chanel, Balenciaga and Louis Vuitton continue to succeed in the phygital world by understanding and executing data analytics and dedicating millions of dollars to content creation and an aggressive online presence. Even as some of the fundamentals stay the same, luxury brands that wish to stay successful must evolve with technology and contend with the newly created phygital landscape. 


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