Madeleine McCormick

What is Luxury Tourism?

Madeleine McCormick

What is Luxury Tourism?

When we ask, what is luxury, or what do we mean by luxury tourism, most of the time we find that even the companies that offer "luxury" and the users and customers do not answer in a similar or coherent way.

Some brands even prefer to call themselves "premium", partly because they are uncomfortable with the term "luxury". Some use their prices as an indicator and group the competitive set from entry level to premium and luxury. Fundamentally, the definition seems fluid and changes from brand to brand.

Using price points may seem like a practical shortcut to define the term, but the difficulty is that high prices are just one of the many attributes of luxury. While a brand like Hermès is able to sell handbags for $50,000 or more, most other brands would not be able to sell a single piece at that price. So, while the price is observable, it does not explain what makes something luxurious. Moreover, it does not provide any direction for managers on what to do next.

In one discussion, the suggestion was that brands and products with many flashy logos are not luxury. This is also arbitrary and nothing more than a judgement about specific visual expressions that may or may not be a preference of some clients.

A better way to approach luxury with high managerial relevance is to think of luxury as the ability to create extreme value for clients. Hence, a brand has to flip the script and take the perspective of a client. If an individual client feels extreme desirability towards a brand in a way that is exponentially stronger than other brands in the category, then extreme value was created which then translates in a non-linear willingness to pay.

Hence, if there is no extreme value perception, there is no luxury. This is backed by years of academic research at my luxury strategy center Pepperdine University, which indicates that desirability, from a psychological viewpoint, is created through the anticipation of an individual perception shift across dimensions like attractiveness, perceived expertise, and the feeling of being protected within a social setting.

So rather than thinking of status, which is not directly manageable by brands, it’s much more useful to think of a set of psychological facets buyers anticipate will be enhanced through their purchase, as well as the trigger for the anticipation. Hence, desirability is created through the brand story, an area that too many brands still neglect.

Without a unique and authentic story, which, when done right, describes with precision the one thing the brand should be remembered for, there is no chance to create extreme value for clients in a highly competitive environment. Yet, more than 90 percent of brands today lack such a story. The misconception is that the story is optional. In luxury, it is what creates extreme value. Without it there is nothing, no matter if brands call themselves premium or luxury.

We are living in times of acceleration. Not only do technology shifts take place faster and faster — just think about how quickly we adopted crypto, NFTs, and generative AI over the last decade, consumers’ expectations are also rising at an unprecedented pace.

Take the growth of sustainability. The expectations for sustainable luxury are not only coming from some of the sector’s youngest clientele (Gen Zers, or those under 25 years old at this time) but also its wealthiest clientele. 

In other words, many legacy brands are not just feeling the pressure to change from their future clients but also from their existing top clients. Which explains why so many heritage brands right now are underperforming and suffering. 

At the same time, luxury consumers are challenging the core values of brands and making purchase decisions based on how much a brand resonates with their own values. Suddenly, the brand ethos becomes a critical decision factor. However, many brands still over-rely on quality and craftsmanship as selling points, which are the bare minimum in luxury. What most forget is that the total experience counts, or in other words, maximum brand differentiation must take place through the brand story and services.

So, how can brands stand out? First, it all starts with the brand story. When brands are not clear on what they are really selling, what emotional response they want to evoke, and what their clients can do differently through the experience they provide, then there is no way to differentiate.

In the rapidly evolving landscape of the luxury sector, where discerning clients are constantly seeking extraordinary experiences, luxury brands must continually reimagine their strategies to stay relevant and engaging. In my experience advising global luxury brands on value creation, I’ve found there are five crucial questions that can act as compasses for brands seeking to elevate their client experiences.

Do we really understand our customers?

Understanding customers is essential for any business, but especially for luxury. That’s because — as my extensive academic research shows —  luxury is all about the anticipation of a personal perception shift. Fundamentally, it’s about the client. Luxury consumers crave personalized experiences and products that reflect their identity, core values, and lifestyle. Brands must not only know who they are but also harness sophisticated data analytics, investing time and resources to develop a deeper, more nuanced understanding of their clients. And, importantly, they need to make people feel valued on a human level.

Are We Creating Emotional Value?

In luxury, the value of a product or service extends beyond its physical attributes or functional utility. When I was able to discover Added Luxury Value (ALV) as the most critical value component for clients, it became clear that the only thing that matters in luxury is about how brands make clients feel. It’s opportunity and risk. For most brands it’s the Achilles heel, the reason they underperform.

The true essence lies in the emotional resonance the ALV creates. Luxury brands need to ask themselves whether they are crafting experiences that evoke strong positive emotions and building lasting emotional connections with their clients. The art of storytelling and creating brand-specific immersive experiences can help achieve this, making clients feel they are part of something unique and exclusive.

The main question you have to answer is, are we creating a positive emotional response that reflects our brand values? Before you answer, yes we do, ask yourself if your staff is trained enough and if you have the right incentive systems in place to reward behavior that leads to creating the emotional value you need. In my experience, less than 10% of brands do this deeply enough. 

Is our brand experience consistent across all touchpoints?

Consistency is key to creating a seamless luxury brand experience. Whether in-store, online or on social media, every interaction a customer has with your brand should reinforce your core values and identity. Evaluate every touchpoint in the customer journey to ensure they all contribute to a unified and consistent brand experience.

I wish I had better news, but a negative interaction at any touchpoint will negate years of positive interactions. And more importantly, your most loyal customers are the first to break with your brand if the experience they expect isn't the best. And when they do, they're likely to never return and will expend enormous energy to discourage anyone from buying your brand. 

How are we taking advantage of digital innovation?

In the age of digital transformation, you need to ask how you are integrating technology into the customer experience. Are you leveraging digital channels to deliver personalised, on-demand and seamless experiences? Luxury brands should aim to create a mastery of physical and digital experiences.

It's important to ask yourself the question: Are you wasting your customers' time when they decide to come to your shop? Or are you making the visit exceptional and worth the time and effort spent? Your customers will hold you accountable. 

Are we continually evolving with our customers - users?

As values change rapidly and new trends and technologies emerge, luxury brands need to adapt faster than ever before. It is essential to foster an organisational culture that encourages continuous learning, innovation and agility. For legacy brands, this is a particularly weak point. I keep hearing the mantra "this is how we've always done things". Complacency is a surefire way to be forgotten.

By reflecting deeply on these five questions and creating decisive action, luxury brands will gain insightful perspectives on their current customer experience strategies and identify areas where significant improvement is needed. I am always amazed at how many ideas can be generated for dramatic change through a single, simple brand audit.

More importantly, luxury brands have to find new ways to deliver extreme value, create stronger relationships with their customers and ensure their brand remains iconic in the ever-changing luxury landscape. Remember, in the realm of luxury, the extraordinary should be the norm, not the exception. To win, you need to go beyond the extraordinary.

Finally, I would like to thank my friend Antonio Santos del Valle, whose vision and knowledge of shopping tourism, tourist spending, luxury and cultural identity in artistic creations has allowed me to write this article and to develop my daily work in the consultancy and at the university.

The authors are responsible for the choice and presentation of the facts contained in this document and for the opinions expressed therein, which are not necessarily those of Tourism and Society Think Tank and do not commit the Organization, and should not be attributed to TSTT or its members.

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