Digital technology is steadily reshaping retail, and for luxury shoppers, online experiences will drive real-world decision making.
Consulting firm McKinsey & Company’s latest report, “Digital luxury experience 2013: Keeping up with changing customers,” produced in partnership with Italian luxury goods association Altagamma, said that digital is now influencing nearly 20 percent of luxury purchases.
According to the report, more than 70 percent of luxury shoppers own mobile devices, and more than 50 percent of them use those devices to research products before deciding what to buy, where to buy it and how much they are willing to pay. Consumers are insistent on interacting with brands digitally and brands must be mobile to keep up.
“Our research shows that shopping behaviors are changing almost as fast as technology. In 2013, digital interactions directly generated more than 13 percent of offline luxury sales and influenced another 28 percent of sales. Pure online sales doubled to four percent of the total market, growing twice as fast as the luxury market overall. If current growth rates continue for five years, annual online luxury sales could reach 20 billion euros. And since five years is an eternity in the digital universe, that number could be higher,” the report noted.
Three successful archetypes are arising in digital luxury markets, according to the report: brands need to understand their DNA, monitor performances along customer decision journeys, and then act consistently.
“Brands that reach luxury shoppers with the right experiences and information at the right moment will win a larger share of growth and outperform competitors,” the report noted.
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But maximizing digital impact is no longer as simple as building a better website or interacting on social media channels. “Companies that make digital investments wisely, based on their unique brand archetypes and categories, will see measurably better results and create more value. Knowing exactly what to measure and how to respond to rapidly changing shopping behaviors will help marketing teams deliver on the digital promise for years to come. Meanwhile, digital knowledge-sharing and data mining will help deliver impact within companies.”
According to the report, pure online sales still just represent 4 percent of the total luxury goods market, but e-sales are growing twice as fast as sales in the overall sector.
“We expect the share of pure online sales to keep rising, especially for perfumes, cosmetics and fashion accessories, which now represent about 68 percent of online luxury goods sales–about 6.2 billion euros [$8.6 billion]. By 2017, pure online sales should account for about 6 percent of the sector as a whole,” researchers noted.
The report also found that growth in the market varied by store format and geography. Mono-brand retailers saw growth almost double that of other formats in 2013. More than 70 percent of pure online sales take place in Europe and the Americas but the mobile channel is growing strongly across geographies. “Pure e-tailers are expanding in the Asia-Pacific region, for example, where players such as Kering and Yoox are consolidating and gaining market power, and new entrants are fueling competition and innovation,” the report said.
Today’s connected consumer wants product-oriented sources of information where they can compare brands, products and prices no matter the store format or geography. Some high-end retailers have invested in mobile applications to engage with customers, but only about 4 percent of shoppers surveyed reported downloading a luxury brand app.
To allocate digital investments wisely, according to the report, brands must choose the right metrics to measure and then determine which responses will have the most impact. Researchers said the most useful indicators come from four main sources:
- OMEX1 online marketing metrics along the “consumer decision journey,” from awareness and consideration to purchase and loyalty
- Social media and online mentions
- Customer feedback from surveys and other sources
- Economic performance, including revenues, earnings and digital traffic
“Retailers should use a unique, sophisticated dashboard to track dozens of digital metrics, from awareness through loyalty, and compare them to industry-specific benchmarks. Companies in each category can then identify which indicators correlate most closely to digital impact at each step in the purchase journey.”
McKinsey and Altagamma summed the report detailing the benefits digital prowess will hold for luxury brands. “Digital communication can create value across a company’s full value chain. Access to big data can provide powerful new insights to marketing and category management, for example, improving pricing, promotion and assortment to drive revenues and earnings.”
In addition, “Digital connections with wholesalers can allow sales force automation and collaborative forecasting. Digital tools like e-procurement, 3D prototyping and end-to-end traceability can improve operations functions.”
The McKinsey and Altagamma findings are based on research encompassing more than 300 luxury brands in twelve categories, 700 websites, 13 million online comments, 300 questionnaires and 3,000 interviews in six countries.