How should luxury brands embrace the internet?

Jun 29, 2016

Knowledge@Wharton staff

Through a special arrangement, presented here for discussion is a summary of a current article published with permission from Knowledge@Wharton, the online research and business analysis journal of the Wharton School of the University of Pennsylvania.

How does a luxury brand retain its extravagant feel while catering to the growing horde of consumers who love to shop online?

“Luxury is about scarcity, exclusivity. The internet is about mass and reducing those boundaries, and so it’s a real conflict,” said Barbara Kahn, a Wharton marketing professor and director of the school’s Jay H. Baker Retailing Center. “But of course, if people are shopping online, luxury is going to have to go in that direction.”

Research shows that only 10 percent of luxury sales happen online. Yet purveyors of posh are exploring how to harness the power of online channels in a way that augments their image, their customer service and, ultimately, their profits.

Luxury brands have a story to share, a legacy to maintain and an experience for the customer. That’s why many of them often don’t sell their products online or offer only a curated number of items for online purchase. Instead, they use their websites as a digital extension of the customer experience.

“If you do a good job online, you can actually use that channel to enhance the brand, and then you can have the luxury in-store experience going on in the physical store,” Ms. Kahn explains.

An attractive, engaging website and a well-fed social media account can add dimension that draws more potential customers to a brand. Chanel’s website, for example, features video clips from its runway shows, celebrities and legendary designer Karl Lagerfeld. More online customers mean more data can be collected, which can help hone a marketing strategy.

One downside for luxury brands trying to sell opulence online is price transparency. Posting different prices for the same item in different countries can lead to comparison shopping. Standardizing prices or selling specific items in certain countries can help but some luxury brands find posting prices is not part of the luxury experience.

“When you think about luxury pricing, you’re supposed to think about it like art,” Ms. Kahn said.

DISCUSSION QUESTIONS: Does online selling and its greater price transparency work against luxury brands? How should the approach to selling online for luxury brands differ from more mainstream brands?

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"It could be that due to its very nature, top-end purchases will always remain above the e-commerce fray."

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11 Comments on "How should luxury brands embrace the internet?"

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Lee Peterson

To me, this really proves out the research that shows that consumers consider online shopping to be very functional. Because obviously, the purchase of luxury goods is exactly the opposite of that. The overwhelming majority of people we talk to describe their e-commerce experience as “getting things done” or “not wasting my time going somewhere” or “shopping for necessities.” None one of those notions apply to a luxury purchase.

It could be that due to its very nature, top-end purchases (operative term) will always remain above the e-commerce fray. It’s also the category where customer service on the human level is very high, a double whammy to the “Amazon Can’t Do That” factor.

Lee Kent

I have a friend who is creating an online celebrity experience and it is all about getting up close and personal with your favorite celebrity. It seems like that is just the concept to go after here as well.

Let the customer get to know what thoughts went into the collection. Maybe even a video around the creation of the collection. Create Hollywood-quality runway shows that allow the fashion to be shown from all angles. Offer special previews to collections, in-store with a “champagne and caviar” experience.

While the online experience needn’t be about selling, maybe accessories but leave the good stuff out, it should be there to draw the customer closer to the brand and get personal with the designers.

And that is my 2 cents.

Joan Treistman

The Internet as a selling agent for luxury goods seems counter-intuitive. There are some luxury brands with mass appeal products — for example, hand bags and shoes. Those items on retailer or manufacturer websites will draw whoever they typically attract.

I can’t see those who are accustomed to the exclusivity of luxury brand shopping resorting to an egalitarian approach to purchases. Or is that my inner socialist coming through? It could be a matter of trust, questions about brand and product authenticity or simply the shopping experience (or lack of one) that creates barriers to luxury brand selling online.

Price transparency is probably less of a factor in keeping away those who regularly purchase luxury brands. Everyone loves a bargain. At the same time everyone wants to get what they paid for.

Dan Frechtling
6 years 7 months ago
As tempting as online sales are to luxury brands, there are stiff headwinds from price transparency and price competition. First, the internet is a low-cost channel. Buyers expect savings. It lacks the experience of physical retail and the social and self-expressiveness of conspicuous consumption. Price is inversely related to scarcity, yet the internet spells convenience and availability. Third-party sellers online are harder to control. This all grows worse when online pricing is transparent to in-store buyers through mobile. Second, luxury counterfeiting is rampant. Whether direct or via marketplaces, the vast majority of unit sales are fake. The ignominy of buying counterfeit goods is lessened by when the seller is an elegant-looking website rather than a street hawker. Unlike pharmaceuticals, the risk of lower quality is diminished. Brands can offset the impact of online pricing on offline sales with limited-edition items, flash sales and gifts with purchase. Countering counterfeit is mostly a legal challenge, but brands can create reasons to buy the real thing. Products with more technical ingredients, such as electronics and watches, fare better… Read more »
Ken Cassar
Ken Cassar
Principal, Cassarco Strategy & Analytic Consultants
6 years 7 months ago

Luxury brands are businesses, like others, focused on maximization of profits. Exclusivity is an inherent part of the business because prices are high enough that few can afford them. Exclusivity of supply, I believe, is more driven by the fact that it only makes economic sense for certain retailers to carry luxury goods. It is in neither Louis Vuitton’s nor Target’s interest for Target to carry a $1,600 bag. I believe that transparency of pricing isn’t the challenge of the Internet — whether the price is posted online or not, every handbag aficionado knows the price of the Louis Vuitton bag that they aspire to. The bigger problems are markdowns and knock offs. Luxury brand manufacturers need to use the rich tools that the Internet offers to tell their stories, showcase their designers and products and expand their followings. And they need to aggressively ensure that the channel doesn’t become the default means of disposing of market-down inventory, or a channel rife with knock offs.

Charles Whiteman

The web ought to be used by luxury brands primarily as a marketing channel to tell the brand’s story.

Ecommerce ought to be incorporated in a way that enhances the ownership experience — contributing to the exclusivity of the brand and helping the customer better illustrate his or her affinity for the brand.

Craig Sundstrom

I guess I was envisioning a different kind of “luxury brand,” i.e. a bespoke product controlled by the producer so that price competition doesn’t exist. If we’re talking about something like Chanel — a virtual commodity by comparison — then I don’t see how it can escape competition and transparency issues any more than a brand of detergent would. Once you give up your distribution to somebody else, the ball is out of your court.

Kenneth Leung

Luxury is about exclusivity of ownership, but not exclusivity of awareness. When a woman wears a classic Chanel purse, she wants her peers to know it is a classic Chanel. Luxury makers need to leverage the internet for awareness at the minimum; whether the shopping can be done online or not, I think, depends on the brand and logistics. Returns and security of shipment, I think, is a bigger issue for high end luxury. In this case, ship from store maybe a better option to help build relationship between the in-person sales and the customer for the future.

Christopher P. Ramey

Luxury is subjective. It is online depending upon your definition. A search on Amazon for Louis Vuitton in all departments yields 93,071 results.

To those of us in the category, luxury is a business model where scarcity drives desire. It is the point of view of the artisan at the top; as well as the brand that acts as a platform. You don’t sell luxury as much as you find appreciation from those who value and have the capacity to pay for what you’ve created.

As pointed out by Lee Peterson, online shopping is “functional” underscoring the dissonance between the internet and luxury. The internet has no soul. Luxury is about emotion as it is always beyond necessity.

You will find opening price points and categories that allow aspirational customers to try luxury brands online. But you’ll never find true luxury brands shilling their objects online. It’s inconsistent with a true luxury brand’s DNA.

David Slavick

Online is about convenience. Online is about comparative analysis. Sharing with friends on what to buy. Low risk, high reward. Luxury brands and the products/services they sell can most certainly sell online. That is without question. Perhaps a limited/exclusive set of products/services that engage the consumer in the allure of the brand and is balanced with content/experience/engagement that is entertaining as well as informative.

Margins on luxury goods dictate that price accompanied by potential fraud through online transaction is a concern. No brand should avoid e-commerce. The vision for the brand and what the online experience should be now and into the future, that is the challenge to be solved for.

Mihir Kittur

It doesn’t always work against them. One benefit to the age of information transparency is that luxury brands now have better ability to monitor their channel pricing and make sure that their MAP policy isn’t being violated on e-commerce sites and marketplaces. This is a key element of preserving the perceived value of a prestigious brand.

"It could be that due to its very nature, top-end purchases will always remain above the e-commerce fray."

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