I read a post last week on Brandchannel entitled “Are Luxury Watches Stuck in Time?” which triggered a few thoughts including: How many luxury industries are stuck in time and what is the level of risk for the upper end markets?

First, I would have to agree with Milton Pedraza, CEO and Founder of the Luxury Institute, who said that “the [luxury watch] industry is stuck in time in terms of its distribution and customer relationship building innovations.”

Secondly, I was particularly attracted by the four key questions that were posed by the Luxury Institute in its questionnaire of targetted high net-worth individuals.  These 505 individuals were asked to rate the luxury watch brands by category across four equally weighted components:

• Consistently Superior Quality
• Uniqueness and Exclusivity
• Making the Customer Feel Special Across the Entire Experience
• Being Consumed by People Who Are Admired and Respected

The winners were Blancpain (Swatch), Vacheron Constantin (Richemont) and Breguet (Swatch).  I can only but agree with Blancpain which I happened to nominate as a Lovemark, although it only has two other fellow lovers and 1 loser!  I would note that neither Breguet nor VC have been nominated…

Which brings me to the point about the Watch Industry being stuck in time.  The distribution channel, the advertising and the product, like the players themselves, seem to be too dowdy and inward looking.  The “Made in Switzerland” and “Since 1789”  labels seem to be about the only marketing angles that they can come up with.  The category needs some shaking up.  If time is going to move forward like clockwork, this does not justify the industry’s lack of creativity.  A few watch matchmakers have crafted a definitive “look & feel” to their product, but for many the differentiation between one brand and another is hard to perceive.  Just a quick review of the watch makers’ sites reveals a very strong level of web 1.0ness.  The sites are full of beautiful images and [flash] animations, but the brands are all about themselves.  Full of it in fact.  And nothing in the way of opportunity for engagement or community building.  Not that every luxury brand should or could do so, but surely there is room to create more engaging content and interaction, even if the members are not immediately clients?  The high end watch industry may not need to create a community, granted, but they certainly have opportunities to differentiate themselves via the new technologies.  What about creating educational experiences around time management, or helping to integrate time devices into our bio lifecycles?

Part of the galling problem for many of the luxury watchmakers is that the distribution channel is particularly old fashioned.  The high end watch industry is filled with niche players, some of who have very original products (one of my favourites in terms of creative out-of-the-box pieces is Romain Jerome).  The number of obscure, two word name brands (Patek Philippe, Audemars Piguet, Ferdinand Berthoud, Girard-Perregaux…) that litter the luxury watch market is, to the say the least, hard to keep up with unless you are an insider.  However, these smaller players often struggle to pierce the rather closed distribution system and gain access to the affluent customer.

I believe the Champagne industry is another sector which banks on [hides behind] its appellation “Made in Reims” and frequently needs to qualify itself with dates such as “since 1776” (like Roederer).  The differentiation on the product side is indisputably difficult.  The communication and industry codes are so rigid that the consumer will, at some point, question the additional value for which they are paying for the 6 glasses of sparkling wine per bottle.

Another luxury segment that has shown the effects of aging is, of course, the Haute Couture where there are now eleven “Maisons de Haute Couture” in the house including the now defunct Christian Lacroix and three newbies which were admitted in 2008.  If there is value in exquisite design, the industry has yet to espouse values to which the younger generations can relate.

So, what are the challenges ahead for the luxury brands and industries:

1. Getting the service right.  Focusing on the annex services around the product requires hiring and training qualified staff.  Service from start to finish involves a massive collaborative effort between the brand, its distribution and customer service representatives.  Increasingly, technology will provide solutions to track customers around the world in intelligent manners.
2. Encouraging innovation involves, not only finding great minds and hearts, but creating an internal corporate environment that allows the creatives to flourish.   How many of the luxury brands are run in dowdy, toffy nosed environment?
3. Maintaining exclusivity (ultra limited distribution) means figuring out economic models that are radically different from those in mass market segments.  If luxury brands belong to larger corporations which are not truly luxury-minded, then the threat of dilution (shared services, management and technologies) will become ever more real.
4. Transparency (without putting into question the exceedingly important notion of discretion) as an increasingly considered quality, will render the task of justifying the higher prices all the more difficult and, yet,  powerful if it can be mastered.
5. With walls between distribution models rendered entirely permeable thanks to the internet, luxury marketers must become even more inventive and open to collaboration.
6. Luxury brands should consider the internet an opportunity today to grandstand their level of innovation.  A website can no longer just be a pretty shop window.  How attentive are the luxury brands to creating great interfaces on smartphones?  And, if luxury brands want to crack the “emerging’ markets, they will need to be much more sophisticated than they currently are on the Internet.  Take China for example, where people in the 60 largest cities spend around 70 percent of their leisure time on the Internet, according to a McKinsey survey conducted in 2009.
7. Finally, on the product side carefully juxtaposed to the need for transparency, the constant risk of forgery and copycats means that brands will need to find ways to qualify the difference between the authentic and fake products as well as accept to work with the state-of-the-art new technologies for protecting their IP.

In conclusion, luxury products have a beautiful future as the baby boomers take to their retirement; but, if luxury must remain timeless in its DNA, it must also know to adapt to the times.  The recession has had, at the very least, an impact on the pocketbooks.  There is little reason to believe that the luxury markets will not see major shifts as more fleet-of-foot companies hire better talent, innovate with more original products and cater to a wider, more elegant cradle-to-the-grave customer service approach.

I have three key recommendations for luxury brands :

1. Luxury brands must avoid at all costs the temptations to discount (e.g. Louis Vuitton chooses to trash its excess inventory rather than to sell off at a bargain; another idea is to offer a “reward” to super loyal clients).
2. They must find ways to recruit a younger generation of clientele with more adapted offers, without debasing their high end offer.  First, an attractive and well managed social media strategy can broaden appeal and create aspiration.  Secondly, certain luxury brands might consider entry level strategies (eg Armani’s sub brands or in the car area, Mercedes, BMW and Audi have all created entry level products).
3. Finally, they must turn the product into a total experience, one that is highly personalised and meaningful.

What are your thoughts?