7 Rules of the Road for Online Luxury Success


Milton Pedraza | May 09, 2009

Milton Pedraza, CEO and Founder of The Luxury Institute provides some provocative recommendations for the wider luxury industry, encouraging us to exploit the latest internet technologies, especially in light of the economic crisis.

Milton Pedraza, CEO and Founder of The Luxury Institute provides some provocative recommendations for the wider luxury industry, encouraging us to exploit the latest internet technologies, especially in light of the economic crisis.

There is no doubt that luxury brands have been slow to embrace the Internet in all its dimensions. From search engine optimization and marketing, placing ads and e-commerce, the luxury industry is clearly not an online innovator. In fact, the industry lags mainstream retail by a wide margin. This is a reality the industry can ill afford in a severe economic crisis. Old habits die hard, especially when true luxury brands have been so successful without participating in the online revolution. Many Luxury Institute surveys, along with common sense experience, document the fact that luxury consumers have embraced all of the Internet’s benefits and are clamoring for more from luxury. Luxury must, and will, embrace the online world wholeheartedly, on its own terms. Here are 7 Rules of the Road that will help make the journey a profitable one. The rules are inspired by rich conversations with top executives at luxury conferences and one-on-one meetings with all the critical constituencies involved in online luxury.

1. The European luxury brand leaders must let the children lead for a change.
European luxury brands are mainly family-owned, or behave like family-owned enterprises. This has been a great source of strength and brand consistency and integrity for generations. Yet today, the rapid morphing of the Internet, its effects on the cultural and behavioral habits of the wealthy and a severe economic crisis all require that luxury icons behave like flexible, adaptable and sustainable organisms. Most European luxury firms are top-down, command and control organizations built for the industrial age. They are run autocratically, usually by the creative genius, who is the heart and soul of the brand, and a few trusted insiders. It is time for those leaders to open up, have the courage to relinquish a degree of control to the younger generations of leaders at the front lines across the world, and allow them to experiment with online innovations. In fact, these wise mentors should require that the young leaders of luxury not just copy, but significantly surpass, the innovations of Amazon and other mainstream web retail leaders. Luxury must, and will, deliver far more online than the average retailer.

2. The interactive and digital agencies that serve luxury need to innovate beyond the commoditized mainstream.

The interactive agencies, by and large, are encouraging the luxury brands to adopt exactly what the mainstream retailers are doing online. That is insufficient. It is true that it is hard enough to convince luxury brands to adopt and meet the standards of the best mainstream retail brands online. However, it is absolutely legitimate for luxury brand leaders to expect their agencies to innovate and customize for luxury rather than copy what best-in-class mainstream retailers are doing. Luxury requires a highly surgical level of differentiation in online customer experience, and luxury brands have a legitimate right to demand that level of performance. It is time for the irreverent 30 year-old geniuses at the Web agencies to prove they can go beyond commodity functionality in the luxury space. Commodity products may have worked for Bill Gates, but luxury is a different species, and a valued client such as Bill should get a truly unique and customized online luxury experience from any luxury brand.

3. The luxury media needs to innovate online beyond editorial plugs, banner ads and videos.

As the print world loses its momentum, luxury brands are asking what media is doing online to innovate its way out of a death spiral. Most luxury media brands are essentially online versions of their print brethren, only they get updated faster and have a few moving parts like all other mainstream media. Both wealthy consumers and luxury brands have the right to expect that luxury media deliver a breakthrough content and advertising experience that is beyond copy/pasting the print text, photos and videos onto a web site. And it is not enough just to aggregate wealthy consumers for a living. Instead, they should be generating extraordinarily unique and exclusive customer and advertiser experiences online that both consumers and luxury advertisers will find worthy of paying a premium.

4. Luxury CEOs and their senior management teams need a crash course on the fundamentals of the Internet.

On a scale of 1-10, today’s luxury CEO’s and most of their executive teams probably rate a generous 5 on Internet knowledge and expertise. In a high-growth environment, these executives were too busy growing the business via traditional channels. In a severe downturn, they are busy making sure the business survives. Internet innovation is not on the list of the top three most critical courses of action needed to run the business in a severe economic crisis. And yet, the Internet will become the flagship store and strategic centerpiece for most luxury brands (and, yes, there will be successful exceptions), although many executive teams do not yet realize this. What is needed is profound, objective, unbiased education on consumer habits and online selling and marketing options. Only then will senior luxury executives be able to make strategic and tactical decisions on the current and future customer experience. And only by educating themselves first, will they be able to lead their brands to innovation beyond the commoditized customer experiences one finds today on the Internet.

5. Luxury executives need to get over the “lack of control online” issue. The truth is that the only thing they control is their customer experience.

The heated discussions about controlling your brand online, especially what is said about your luxury brand online, are pure nonsense. In an open and transparent online and offline world, the only things you can control are your business values and ethics, your offerings, your business model and the customer experience that you choose to deliver. If you deliver extraordinary customer experiences, the natural “buzz” surrounding your brand will be overwhelmingly positive. The web will amplify your reputation, good or bad, among consumers and other constituents. While public relations tactics can help, the truth will eventually be known. If the truth is that you deliver extraordinary experiences, detractors will be drowned out and many advocates will come to your immediate defense. The opposite is also true. So, get over the “lack of control” issue online and start innovating. It’s a non-issue.

6. Rapid Cycle Testing and Learning is the only way to go with online innovations.

Beware of Internet gurus, especially the ones that tell you that everything online should be free while charging you $10k per day for their sage advice. They cannot predict the future or tell you what will work. You will need that crash course on the fundamentals, but you need to know that, ultimately, the only way to go in an organic online world is to experiment your way to success. Fail smart, fail fast and fail cheap is the mantra. Start innovating with the confidence that you can invest small amounts to test what will work. You also need to know that most things will not work. Learn to accept failure in order to achieve success. Finally, if anyone tells you that you have to bet big dollars on any one online innovation, fire them!

7. You have to be reasonable with Return on Investment.

Many luxury executives who have been spending significant sums on print, events and other non-measurable marketing spends over the years are now demanding that the Internet deliver instant measurable ROI. You have the right to expect concrete returns from any investment, but the reality is that the profit impact of most marketing investments cannot be measured to the nth degree. The Internet comes closest, but still fails the perfection test. Give Internet marketing an opportunity to prove itself and it should deliver solid results above print and other offline marketing investments. If you are committed to testing and learning you will control the dollars in a way that allows you to innovate economically and intelligently.

In many corners of luxury, there is optimism that perhaps the worst has passed, and, that while profound changes have occurred, we will once again become leading innovators who deliver massive value to our clients. Online marketing and selling is an opportunity we need to embrace with vigor and skill. We need to go beyond mainstream retailers into new breakthroughs. A few years from now, the friendly, heated discussions about luxury online will be seen as just another step towards the rapid evolution of the true luxury industry.

Milton Pedraza