Interview with Daniel Langer: The New Rules of Managing Luxury Brands

We are living in times of massive disruption. Focusing only on the pandemic’s effects and hoping everything will go back to “normal” soon would be myopic. The pandemic's impact is brutal for many brands, but the changes that are happening beyond that will be even more drastic. Most brands are barely prepared for that.

Daniel Langer is one of the world’s most renowned experts on luxury in a digitally disrupted world, and with Millennials and Gen Z. He was named one of the global “Top Five Luxury Key Opinion Leaders to Watch 2021” by Netbase Quid. He founded the luxury strategy firm Équité and is also the adjunct professor of Luxury Strategy at Pepperdine University in Malibu. With his team, he consults some of the world’s most admired and iconic luxury, lifestyle and consumer brands. Daniel is the author of several top-rated luxury management books in English and Chinese and is frequently featured in leading global media publications, including The Economist, Forbes, New York Times, Nikkei. His education includes Harvard Business School, and he holds an MBA and a Ph.D. in luxury management.

Daniel recently presented the need for luxury brands to change their strategy to cope with the unprecedented disruption to 200 leaders of luxury brands including Gucci, Audemars Piguet, Cartier and Chanel. We interviewed him about the most critical findings.

Q: When you presented the latest development in the luxury industry and the rapid change underpinning it, what were the reactions?

Langer: My observations and predictions were thought-provoking, eye-opening, even shocking to some of the participants. And it initiated a deep reflection about the need for radical change among most brands. We are in unprecedented times, and the magnitude is just going to increase drastically. The only easy day was yesterday. But there is hope: if brands make the right strategic moves now, audit their brands with brutal honesty, question their luxury experience strategy, and learn to connect with Gen Z, then they have a future. If not, they won’t survive this decade.

Q: Is the pandemic the main cause of disruption?

Langer: The disruption through the pandemic has rattled the luxury industry at its core. With a handful of exceptions, most luxury brands were negative in 2020, and most saw – in part drastic – declines in their core regions Europe and North America. To assume that this was just a result of closed stores in lockdowns underestimates more profound shifts going on. The market is changing. Consumer behaviors change. Expectations change. Most importantly, consumer preferences change. The rapid growth in China during 2020 was in its magnitude a one-time effect, driven by travel restrictions which meant that many Chinese customers purchased their luxury goods in Mainland China and not abroad. It also meant redirecting budgets normally reserved for overseas trips towards purchases of jewelry, handbags, fashion items, and cars, to name a few. Once travel is possible again many of these one-time effects will vanish. While I predict China to continue being the clear growth driver of the luxury industry in this decade, we can’t expect growth rates in the magnitude of 2020 to continue.

Q: Can you describe what is changing for luxury brands?

Langer: With our strategic partners at IMS we conducted a study titled, “What do women want?”. We focused on women because they contribute to 75 percent of spending on personal luxury goods in the critical Chinese market. Over the course of the pandemic, we had our proprietary Artificial Intelligence tool analyze the rapid changes in consumer sentiment. The result: four critical trends that luxury brands need to prepare for: health as new luxury, quality of life as new luxury, much more drastic expectations towards sustainability and corporate social responsibility, and digital super acceleration. Luxury brands will need to find solutions to these. An example: The era of digital has just begun. What brands experienced so far in terms of digital disruption is nothing to what is to come. Also on sustainability, luxury brands need to address the sentiment shifts with aggressive and ambitious measures. Brands that are not taking the magnitude of change seriously will disappear within the next 3-7 years. Change is accelerating at accelerating rate. Gen Z will be a major change driver. And most brands are still ignoring them. We are at different times. Luxury is a different game with different rules. It’s a call to action.

Q: Why is the Generation Z so critical?

Langer: Generation Z, consumers up to 25 years of age, has become the most influential consumer group. They already contribute 5 to 15% of luxury sales, depending on where you are in the world. By 2030, they will dethrone the millennials as the number one customer group for luxury. Already today, they influence the purchase behavior of millennials, which in turn are trendsetters for the elder Gen Xers and above. Generation Z are the smartest luxury consumers ever, and they scrutinize every purchase, they do their (digital) homework, they know more about categories and brands than any other generation before. They are the most difficult to convince, and they are the most value-driven. I hear many brands saying, “we don’t need to focus on them now, they don’t buy us.” My response is that this is similar to the captain of the Titanic not seeing the iceberg ahead and driving full steam forward. If your brand does not have around 10% Gen Z customers today, you may already lack relevance for them. Neglecting Gen Z now means your brand has no future.

Q: Do brands underestimate them?

Langer: The answer is a clear yes for many brands. I often hear the wrong assumption that “they don’t have the money,” or “that we would need to launch cheaper lines for them.” In contrast, they are the wealthiest generation ever coming into a market, in particular in China. They are also much more optimistic and like to spend their money. However, no generation before was as empowered as they are. I want to refer to them as super-empowered — Smart, sophisticated, highly educated, digital, and experience seeking. If your brand does not give them memorable, superior experiences, they will not show you loyalty.

Q: Why are Gen Zers more critical when it comes to luxury experiences?

Langer: First: don’t try to be young at all cost. This is not what Gen Z is looking for. They look for superior, authentic experiences, which are distinct. Hence, providing the same experience your competitor is offering does not work for Gen Z. Second: Providing memorable experiences has never been as important. Because Generation Z is a generation that spent more time on social networks and digital platforms than any prior generation, they value interpersonal experiences even more and expect them to count. Brands that do not provide superior experiences, online and offline, are not relevant for them. And they will never be. Don’t expect them to like you as they grow older. Preferences are formed young. And your youngest customers are the most discerning, it’s not the other way around.

Q: You said in your presentations that there is new game of luxury with new rules. What does it mean?

Langer: Gen Zers are unbelievably smart. They learned how to process information and data more efficiently than any other generation. This leads to shorter attention spans. And they have no time to waste. They see themselves as a brand, and consequently, brands they buy have to match their values. This changes the game of luxury most profoundly: Already today, 95% of purchase preferences are decided during the digital journey. 95%! This means that luxury brands either win or lose along all digital touchpoints, much before a customer even comes into a store, whether it is a physical or a digital store. To win the digital game requires a digital competitive advantage. This, in turn, requires sophisticated digital infrastructures that allow measuring consumer sentiment and competitive dynamics in real-time.

Q: But aren’t brands already digital?

Langer: Most are far behind what is needed today, let alone tomorrow. When I asked leaders of luxury brands during recent luxury seminars if any of them could tell me how the brand perception of their brands has shifted over the last week or the last month versus their competitors, no one could. This is an indicator that most brands from market leaders to small brands are not equipped with the right tools and insights to have digital competitive advantage. This will be deadly if not addressed immediately. The new game requires thinking in digital leadership, not in digital transformation, otherwise brands will not know how consumer sentiments are shifting. They will also underestimate competitive activities towards their customer base. And there are real-world implications. A leading luxury brand asked me to optimize their store traffic - pre-pandemic - of a particular Asian flagship store, their largest and most costly to operate. Within just three years, they lost about 30 percent of their traffic inclusion some of their best customers. When we analyzed the root cause, it hat nothing to do with the service delivery in the store. Despite spending millions of dollars in digital advertising, the brand did not achieve a competitive breakthrough, and the content did not resonate strongly enough with their audience. Traditional tools did not show that, but with sophisticated AI technologies dramatic gaps in digital competitive relevance could be uncovered. Digital competitive disadvantage led to tangible losses of store traffic. Recently, another leading luxury brand was suddenly faced with the reality that Chinese customers did not travel to some of their essential regions. Suddenly the store staff was not prepared to address the changing demographics in a relevant way. And they had no tools to identify consumer sentiment shifts early enough—the result: higher losses during the pandemic than other brands. We are in a new game with new rules. Many brands still play according to the old rules. This does not work.

Q: What was the most striking example last year?

Langer: I visited a luxury food and delicatessen service brand in Europe in 2019. I discussed with the CEO the necessity to retool their brand and make it future-ready. They had significant deficits in brand storytelling. Everything was vague. Simply stating “we have the best quality” does not work anymore. There was no emotional storytelling and too high complexity to achieve any critical digital journey breakthrough. I could also convince the CEO to rethink his entire business model to shift to digital distribution, something the brand had long resisted. One week after the meeting, the CEO had second thoughts. He felt he had the time and did not want to change his traditional business model that worked well over several decades. He told me he would postpone the project for a year or two. During the pandemic, his brand went into insolvency. It was too late. If he had acted early enough when the gaps were identified, the company would most likely still be alive. I still see too many people who underestimate how fast and profound the change in consumer sentiment is. There is no time for complacency. Besides, competition is heating up further. Focusing on current competitors means underestimating the new ones emerging faster than ever, more digital than ever, more financially backed than ever.

Q: You mentioned brand storytelling. Why does it need to change?

Langer: Luxury brand storytelling is a massive weakness of many brands. To reach younger customers, the storytelling needs to be drastically improved. There is still too much focus on features, not enough emotion, and huge neglect on the clarity of the brand equity aspiration. To reach the most sophisticated, most discerning young customers, brands need to be authentic and convey relevant content and messaging. This again requires real-time insights to be on point. Otherwise, brands tank millions and millions of dollars in advertising that does not break through, while brand equity and sales go down the drain. When we audit brands, more than 90% have insufficient brand storytelling. Even worse, this then translates to the service experience leading to undifferentiated experiences. And an experience that is not memorable and magical in luxury does not create value.

Q: What would you recommend brands to do?

Langer: Ask yourself a couple of simple but powerful questions: How many stories does your brand have? We typically find even among the top leaders of brands huge inconsistencies in storytelling. In other words, if I ask five leaders of a brand to describe it, I get at least five answers. And most of them describe the brand with an undifferentiated “category story”. Example: “The company’s extraordinary cars have always been designed and built by exceptional people using only the finest of materials.” This is a category story, not a brand story, as there is zero specific information allowing me to identify or distinguish the brand. Yet, most brands still tell stories like this. It will be deadly. Then ask: Is the customer journey and luxury brand experience before, during, and after the purchase connected and centered around the customer, independent of the access to your brand? If the answer is yes, congratulations. Be brutally honest when you answer these questions: if gaps are not addressed, you risk competitive advantage and your brand’s future.

Q: Describe the best practices to manage the new rules of luxury.

Langer: Start with an unbiased brand audit, identifying opportunities and gaps, and build a game plan for growth that really addresses all gaps systematically. As a result of this exercise, you should develop a much more robust brand positioning and storytelling that significantly differentiates you from competitors. This is critical because it defines the DNA of your brand. The story has to be told from a customer perspective. And it is only relevant if it is understood and perceived by your customers and when you can tell it in less than five seconds. A fancy brand story in a beautiful brand book means nothing, when it’s not played back by your customers. This is why you need to audit your luxury experience as a next step and ask yourself if it represents your brand story. If the brand experience is similar to other luxury brands, you don’t create value. This needs support by a sophisticated digital infrastructure that helps you analyze data in real-time and identify competitive dynamics and consumer sentiment shifts, which should fuel the creative process within your company. Lastly, make your employees your primary brand ambassadors through rigorous training in luxury and in your brand storytelling. If the top management teams of brands are inconsistent in how they perceive and tell the brand story, how can you expect your staff to tell the story consistently?

Q: Why is consistency in brand storytelling so critical in luxury?

Langer: Digital requires a dramatically increased precision in storytelling. Gen Zers choose the brands through the compatibility of their stories with their own personal brand positioning. And Added Luxury Value, the core value driver of luxury brands, depends on the story. If there is no perceived and differentiated brand story, there is no luxury value. It’s that simple. Storytelling deficits and breakdowns will prevent you from growing and limit your pricing and profit potential. It’s what sets successful and unsuccessful brands apart. The new game requires brutal honesty on gaps – from brand storytelling to luxury experience delivery – online and offline. It will not help brands to talk themselves into believing internally that they are great. If they don’t perform in customers' eyes, and those who have the brand in their relevant set, they have no future. The next five years will see many established brands strongly lose relevance as Gen Z will take over. Many new brands are ready to launch, with much deeper insights into younger customers and local cultures and a digital savviness that many established brands miss. Only a reinvention of their value creation models will protect incumbents to not only stay relevant but to gain a competitive advantage.

Thank you.

Daniel Langer is CEO of the luxury, lifestyle and consumer brand strategy firm Équité, and the adjunct 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 and contact him at dl@equitebrands.com