Never run a promotion if you want success - What luxury brands must do instead after the pandemic to connect with Gen Z: Interview with Équité CEO Daniel Langer on how to accelerate luxury brands
Équité CEO Daniel Langer
The remainder of 2021 promises a silver lining for many luxury brands. The first quarter was a record quarter for top brands like Hermès, Louis Vuitton, Dior, and Gucci. We asked Daniel Langer, CEO of Équité and professor of luxury strategy at Pepperdine University in Malibu, California, named “Key Opinion Leader to Watch in Luxury” by Netbase Quid, about how to jumpstart luxury brands after the pandemic.
Q: How is the luxury industry doing at the moment?
Langer: There are two realities: first, some of the best-managed luxury brands show excellent resilience to the pandemic. They are clocking in record numbers. Hermès just posted record Q1 results, which defied expectations: revenue growth of 33 percent compared to the first quarter of 2019 — the period a year before the pandemic forced many countries into lockdown. LVMH’s increase of eight percent and Kering’s of 5.5 percent were excellent too, both groups home to major brands like Louis Vuitton and Gucci, respectively. Unsurprisingly, for these brands, China and North America were significant growth drivers.
Q: You mentioned a second reality
Langer: the second reality is much less rosy. Many brands performed negatively in revenue during the first quarter. This shows that the pandemic is far from being over and that - as it was to be expected - many brands applied strategies during the pandemic that weakened their brand equities instead of strengthening them. Countless brands promoted aggressively. The reason I hear all the time is that the pandemic created an environment in which “our competitors” promote. Many brands feel pressure from shareholders and markets to promote or lower prices. Maybe counterintuitive at first glance, it was the worst they could have done.
Q: Why is that?
Langer: In mass-market categories, promotions are the standard operating procedure. Everyone does it, and some brands have been thriving for years with repeated promotional activities. In luxury, this does not work. Promotions alienate the most loyal customers who are willing to buy at full price. And they destroy trust. In short, luxury promotions are deadly.
Q: What makes promotions so dangerous for luxury brands?
Langer: Luxury is about creating extreme value. Consumers see luxury as an object of desire, an asset that increases value instead of losing it. A promotion destroys this perception immediately. It should not come as any surprise that the most successful luxury brand never promote. I repeat, they NEVER promote. Instead, they are obsessed with creating brand equity over time, constantly, always building more desire. The increased brand equity translates into regular price increases. If you go to any of the leading luxury fashion brands and you contemplate buying a handbag or a shoe from them, you know it will never be as affordable as today. If you wait six or twelve months, the prices will probably increase. This also means you can buy an item from these brands, and while you use it, it serves as an investment. It also gives you the trust that no one else can buy an item of the brand at a different price than you. This builds up a reputation and increases desirability.
Q: This sounds logical. Why is it so difficult for brands to stop promoting?
Langer: Lowering prices is always the nuclear option. It may give you a short-term boost, however, this comes at a high cost - you trade-in brand equity for easy growth. The dilemma: the booster effects are short-lived if they ever materialize. Those promotions will quickly alienate any loyal customer, leaving brands with promotion seekers who don’t buy the brand because of its value creation but because of a “deal.” Over time, the dependency on promotional sales grows. The only way out is to refocus on brand equity building.
Q: What is the consequence for luxury brands?
Langer: The following 6-18 months will be a make or break for many luxury brands. There have been already many examples of brands filing for bankruptcy or considerably shrinking down operations during the pandemic. Many more will follow over the next months. We are living in different times than, say, even five years ago. The pandemic was an accelerator of more fundamental shifts: Gen Z, those customers who at this moment are 25 years or younger, are demanding transparency, inclusion, superior experiences, and sustainability in a way brands never faced before. And digital super acceleration calls for radical strategy changes to achieve competitive advantage. The times were just having a website or a social media presence, hoping for low-cost consumer connections, is over. Social media has become the new real estate, and brand content is the new shopping window. This requires a radically different approach than even a few years ago. Most brands, frankly, are still too reactive on this. The gap to the leaders is widening, not getting closer. It’s a stark warning and a wake-up call for many smaller luxury brands.
Q: What should brands do now?
Langer: It is critical not to stand still. Too many brands were applying a “look and see” approach during the pandemic. Now they pay the price with underperforming sales and too low profitability. We expect significant inflation in North America and Europe post-pandemic, with the first signs being visible already. Gen Z and digitization will further change the face of luxury. The competition was never as intensive as it is now and will further heat up. Across categories, there were never as many startups as now, offering consumers a greater variety of solutions. As a result, brands need to get their act together now, be brutally honest on their opportunities and gaps, and strive for competitive advantage. The name of the game is desire creation. This has to be the guiding principle.
Q: Can you give brands some specific advice?
Langer: The starting point has to be an unbiased situation analysis, what I call a brand audit. What is critical is not just to look at the status quo but also to consider how your category and the consumers will develop and how Generation Z will change the status quo. The key questions are: does the brand have a crystal clear and differentiated value creation model? Is the brand positioning authentic, insight-driven, aspirational, and creating a specific emotion? 90% of analyzed brands achieve only excellence in 2-3 of the proprietary 6-dimensional brand equity model we use to build brands. Less than 1% have clarity and differentiation on all six dimensions. In other words, most brands have significant deficits and are not future-ready. The longer they wait, the less breakthrough and success they achieve. It is critical not to assume that consumers see the brand in the same way as the internal view. Even for iconic and market-leading brands, I found in part significant gaps between internal and external perceptions. If they are not addressed, they won’t disappear.
Q: What is the outcome of such an analysis? A relaunch of a brand?
Langer: I don’t believe in brand relaunches. They often confuse without creating any value. They typically address the wrong dimensions and focus too much on symbols like logos or visual branding elements. While these are important assets, the most critical is to align the strategic brand storytelling with the intended brand positioning in a way that consumers perceive the brand to create extreme value and desire in a relevant and differentiated fashion. In other words, the task is to “translate” the vision of the brand into tangible elements that generate clarity of what the brand stands for rationally and emotionally. This goes far beyond typical buzzwords that I find all the time describing brands as “exciting,” “innovative,” or “best-in-class." To be relevant for Gen Z and Millennials, for 50% of today’s luxury customers, brands need to have full clarity on who they are. Very few have it. Most brands define themselves on a quality vector within the industry (“our passionate people build exceptional products with the finest of materials”). I call them “category stories". A brand story is entirely different. A brand story tells a customer what it enables them to do differently. The lack of brand storytelling of many brands creates an unprecedented sense of urgency.
Q: How does this lead to digital competitive advantage?
Langer: It’s all connected. Without a proper brand assessment, there is no clarity on gaps. If gaps are not addressed, the brand positioning will not be strong enough in most cases. Digital competitive advantage depends on the ability to convince through the brand story and its execution at the new moment of truth: when a consumer decides during the digital journey, which is now the case in 95% of purchase decisions. Without a superior brand positioning, there is no way to win in digital, which further underlines that decisive action is needed. Luxury is a new game. Those who play it with the old rules will have no future.
Daniel Langer is CEO of the luxury, lifestyle and consumer brand strategy firm Équité, and the 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 on Twitter.