Innovation Management In Luxury

Luxury brands conventionally put an emphasis on carefully benefiting from their heritage. Due to most brands’ rich history and treasured famous previous customers, iconic products, and illustrious founders, heritage assumes a central position in many luxury brands. However, putting “yesterday” on the center of the brand stage can introduce challenges when steering a brand into the future. Thus, combining strong heritage with innovative offers becomes an important challenge that luxury managers are faced with continuously.

There are three core strategic challenges in order to keep the brand attractive and interesting: uniqueness of positioning, the creation of customer experiences and the management of innovation. Building on the foundation of these three strategic topics, luxury brands usually push forward on introducing new and ever more challenging products. However, some sections of the luxury market have ceased to create substantial functional innovations that would allow to escape from the mass markets. On the other side, iconic luxury products are not immune to being both celebrated as record breaking, but at the same time considered as technological dinosaurs. Externally induced innovations such as digitalization as well as new competitors providing highly priced wearable technology are only met with hesitation, and are subject to skepticism.

Changing customer demands and lifestyles, technological development and dynamics of the marketplace have required organizations to increasingly pay attention to innovation as a multi-stage process whereby they transform ideas into new or improved products, services or processes, in order to advance, compete and differentiate themselves successfully on their marketplace. We find cases where innovation helps entrepreneurial luxury businesses to combine their high-end positioning with sustainable approaches, cases where luxury fashion companies benefit most from innovation in their supply chains, and cases where smart combinations of luxury, sustainability, and supply chain allow potential for disruptive step change in the luxury market.

Two elements are key success factors for the luxury businesses. First, managers in the luxury field who are smartly steering their brand through a range of external innovations they will have to react to and, and second, decision makers who are carefully leading innovations inside the business.

Managers of luxury brands still find themselves hard-pressed when faced by external innovations pushed upon their businesses. An example for this is not only the late adoption of digital marketing or sales, but indeed the whole range of luxury business challenges with manifestations of younger generations’ consumer behavior: customer co-creation, sharing, greater emphasis on individual style, sustainability, and an overall decreasing awe with respect to iconic brands. Particularly with regard to the increasing importance of millennials as a growing target group, the relevance of insight on how luxury brands can avoid being threatened by external innovations and instead benefit from them will continuously increase.

With regard to internal innovation, we find that luxury brands have largely bowed out of the race of generating functional innovation and are rather focusing on increasing artisan or technical complexity, illustrating savoir-faire and creativity. With an ever more thinly spread increase in functional advances in luxury offerings, the risk of weakening luxury brand’s positioning at the top of the market becomes more real. The luxury market is split in terms of ownership with substantial parts of the industry being aggregated by either financially conservative corporate holdings or distributed in individual businesses that are less financially potent – both settings are suboptimal for efficient research and development. However, given the increasingly interlinked structure of the luxury market, there is arguably much potential in jointly advancing research and development portfolios with common ventures throughout the luxury business ecosystem.

The key to success is how luxury managers deal with external innovation by developing a set of tools such as, potentially, monitoring, evaluation, selection, and implementation supports for deciding which external innovations they would like to react to. Future success also depends on the ability to profit from novel impulses and substantial innovations from inside luxury brands.

Creating a unique positioning built upon the key role of customer experience and keeping re-inventing the brand by substantial innovation are the two strategic fields of challenge that will determine the future of luxury brand management. Both domains have a decidedly strategic connotation. 

Adapted from: Luxusmarkenmanagement, Toward a Research Agenda in Luxury, Springer Fachmedien Wiesbaden GmbH 2017, p 547ff

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