Lux Advertising: How are luxury brands using and adapting to digital media?

Fast cars, high fashion, elite travel and fine jewelry. What was once an industry focused on catering to the rich and famous is now competing for increased market share, as America’s affluent audience continues to transform into a blend of millennials, Generation X and baby boomers who are working to earn high incomes. Wealthy shoppers in the U.S. spend more than $6 trillion per year, which equates to almost half of total U.S. consumer spending. With changes in the identity of who the affluent consumer is, luxury brands need to adjust their media strategies to create meaningful relationships with these new groups, and place an increased focus on cross-platform engagement.

Luxury market forecast

According to Mintel, the luxury goods and services market has shown positive growth on both a domestic and international level. What used to be a market dominated by legacy brands interested in old money is now being inundated by those catering to millennials and Gen Xers with technology, customization and innovation. That said, premium brands in the luxury automotive, fragrance, beauty, fashion, watch and jewelry categories are facing increased competition.

In May 2016, Zenith released its second annual Luxury Advertising Expenditures Forecast, revealing the outlook of the luxury advertising industry on a global scale. The report, which looks at trends in 18 luxury markets, forecasted that luxury ad spend will grow 3 percent in 2016—an improvement from the slowing 1.9 percent growth in 2015 and 2.9 percent growth in 2014. Although the report does show that luxury industry ad spend is bouncing back, it is still pacing behind the total advertising industry’s growth rate, which comes in around 4.5 percent. In essence, luxury’s dominant challenge in the coming years will be to cut through all of this advertising clutter while maintaining a seamlessly integrated brand experience across multiple platforms.

Who is considered affluent?

There are many ways to define the affluent audience using both net worth and household income (HHI) qualifiers. Most sources define the luxury consumer using three key segments: Affluent ($100k+ HHI), Hyperaffluent ($250k+ HHI) and Wealthy ($500k+ HHI). According to the 2014 Ipsos Affluent Survey USA, there are more than 9.4 million Hyperaffluent adults and 1.9 million Wealthy adults living in the U.S. Moreover, these affluent consumers are no longer being labeled as “idle rich” or coming from old money. Instead, around 72 percent of millionaires in the U.S. are working, according to United Marketing and the American Affluence Research Center . Knowing that this population is working, it will be crucial for luxury brands to adapt their media strategies to reach this population outside of normal leisure activities, like watching TV or reading magazines.

Using offline media to reach the affluent consumer

Historically, luxury brands have relied on offline channels to generate brand awareness and engagement with affluent consumers. Magazines in particular have been praised for their ability to reach the affluent consumer network with their glossy covers, high-quality editorial content, relaxed atmosphere and exclusive content behind subscription paywalls. Luxury brands that fall into the subcategories of high-fashion, accessories, watches and jewelry particularly gravitate toward print due to its highly-visual inventory.

Print also has a proven track record in reaching the high-income audience. In 2014, the Ipsos Affluent Survey USA noted readership of magazines and newspapers increased significantly when comparing Affluents to the Hyperaffluent and Wealthy. The report noted that “compared to Affluents in total, Ultra [Hyper] Affluents read 20 percent more publication titles and 28 percent more issues, while Wealthy read 38 percent more publication titles and 54 percent more issues.”

While print is certainly the dominant medium for luxury brands right now, there are drawbacks to making it the primary, if not sole, medium for a campaign. Print’s limited data reporting, older-skewing audiences and inability to create engagement between the brand and consumer make it a difficult medium for luxury brands to reach Affluent millennials and Gen Xers. In addition, print is also a broad-reaching medium which poses a problem for brands that have a small target universe, such as a company trying to sell private jets or $100,000 watches. Though publishers have made a push into the online space in recent years through tablet readers and online publishing apps like Texture and Issuu, it remains to be seen whether these efforts will help luxury brands blend the benefits of print with those of online media.

Embracing online media platforms

Many luxury brands are just now realizing the value in online media as a way to create multiple touchpoints with the consumer—something that other industries realized years ago. According to Zenith forecasting, print’s share of total luxury advertising spend will fall from 31.9 percent in 2015 to 28.6 percent in 2017. Meanwhile, digital will increase its market share from 26.3 percent in 2015 to 32.1 percent in 2017, making it the single largest medium for luxury advertising.

A premium customer experience is what gives luxury brands credibility. These executions are often created in-store or with a tactile product experience. It’s understandable then why entering into the digital space is daunting for those that have relied heavily on offline and boutique experiences to carry their image of heritage and exclusivity. Should these brands be engaging with customers via e-commerce, social media, corporate websites or mobile? And how will they be able to use online media to replicate the level of service provided in-store?

Inhibitions aside, many changes on the consumer side have already taken place. According to eMarketer, the Affluent population has taken well to e-commerce and online shopping as they spend a considerable amount of time researching on their digital devices before making a purchase. In the same vein, the changing standards for who qualifies as Affluent is also impacting the success of digital. As more millennials and Gen Xers start earning higher incomes and falling into the Hyperaffluent and Wealthy segments, it will be imperative for brands to find a way to connect with this internet-loving target.

In addition to reaching the Affluent audience via mobile or display advertising, social media could also become a key player in the luxury advertising category. For starters, social is a prime platform for brands to tell their story to new, younger audiences in a highly visual atmosphere. Instagram in particular has seen a surge in luxury advertisers in the past year. Lipika Ganguli, head of marketing at Reliance Brands recently told the Economic Times that “Instagram being a visually led medium is a preferred choice for our brands operating in the lifestyle and luxury space where it becomes imperative for us to showcase our brand stories, campaigns and collection capsules.” The opportunity for brands to work with influencers who have greater consumer credibility than typical advertisements is also a benefit of social media. According to a study by McKinsey, “Marketing-induced consumer-to-consumer word of mouth generates more than twice the sales of paid advertising.”

Burberry is a prime example of a long-standing luxury brand that has successfully leveraged digital media to not only elevate its trademark into the 21st century, but also reinstate its luxury status globally. Established in 1856, Burberry is a British fashion house that rose to great prominence in the 20th century as notable people like Winston Churchill, Humphrey Bogart and Ronald Reagan were seen sporting the iconic coats and check-patterned clothes. In the early 2000s however, the brand began quickly losing its premier status as it gained popularity among the non-elite in the U.K. To turn around the brand in 2006, former CEO Angela Ahrendts announced Burberry would become the “first full digital luxury company,” harnessing online media to share the brand’s stories and revive Burberry as a key player in the luxury fashion space. Soon after this announcement, Burberry aggressively reallocated marketing efforts into digital. They did so with an enhanced focus on e-commerce and a corporate website refresh inclusive of online heritage features to further support the history and trust in the brand.

Another key to Burberry’s success online is the brand’s fearlessness in adapting to new technologies and platforms. According to Digiday, “Burberry was early to turn user-generated content into its own social media platform (the Art of the Trench), which it launched in 2009.” Following that, Burberry became a leading luxury player in the digital world, opting to be one of the first to test Snapchat, Periscope, Instagram video ads and Twitter buy buttons. In 2014, the company’s upgrade of its mobile site led to a tripling of its mobile revenue. But perhaps most importantly, Burberry showcases how a brand can best integrate multiple online and mobile platforms with its in-store experience to create one seamless brand image.

Looking ahead

Despite digital being a relatively new environment for advertising, it is already experiencing massive amounts of clutter. With ad spend only predicted to tick upward, companies must be able to distinguish which digital elements will help them further propel their brand’s image forward and set them apart from competitors. Luxury advertisers must also be careful not to walk away from print, a medium that has worked extremely well thus far. Ultimately, understanding exactly who a brand’s customer is, and what their changing media habits are, will be essential to determining the most effective luxury media mix in the years to come.