I’ve been wanting to post an entry regarding an interview with luxury brands consultant, businesswoman and author Uche Okonkwo over on the Mass Customization website (Link), but as I’ve been out of sorts lately I’m only now getting back to it. It’s not a very long entry, but it introduces something I’d not considered an issue. From the post:
What are the main challenges in mass customization for the luxury industry still ahead?
The major challenge lies in changing the orientation and thinking of luxury companies. The majority of luxury brands have a pessimistic view of mass customization. Luxury brands need to recognize customization as a core aspect of their corporate strategies and a booster of brand equity.
I’d have thought luxury brands would consider themselves more at risk by not entering the customization market and providing those additional services to consumers than jumping in ahead of the eventual competition. Surprising that they see this so differently; so defensively. Reminds me of mass media’s reluctance to embrace new technologies and adapt while they had the chance instead of being overtaken and overwhelmed.
Well, speaking as a designer for a luxury brand, one of the issues is maintaining the quality that needs to be a reflection of the brand promise. One man’s meat is another poison etc.
However it can be done, but we need to be clever about it. Furthermore good product planning and logistical practices need to be employed as well.
You see, luxury brands operate on a simple premise, low volumes high margins. mass customisation means slicing their already meagre volumes into even smaller pies.
At the end of the day it has to be weight carefully, most luxury companies do seek and embrace, new marketing trends, provide additional services and unique materials just to increase their product’s margin multipliers. But when it comes to mass customisation, the methods currently available just don’t make financial sense. The best they can do are more about providing a fixed range of purchasing options instead.
I understand, but as you say “low volumes high margins”. With the increasing ability for non-luxury brands to (and I’ll paraphrase here) slice their volumes into smaller pies and thus encroach on traditional luxury brand turf, it seems to me that a company like yours should at least be following these developments very, very closely; and other luxury brands – especially those in the fashion industry – should already be experimenting.
Additionally, low volumes were usually an indication to consumers that quality was higher, only I’m not sure consumers equate the two anymore; at least not to the degree they once did. There have been too many media reports of how a “luxury” brand is actually coming out of the same factory and manufactured to the same standards as lower-cost goods. And where it still applies (e.g. Rolls-Royce), the public has no feel for that kind of thing… especially when mass-market vehicles like those from Toyota or Honda are of a quality that rivals Mercedes and BMW.
Consequently, with so many changes both in manufacturing and in the market, I can’t imagine luxury brands not taking cues from other industries – as earlier stated: the music business – and trying to get out in front of what’s happening.
And while it may sound self-serving, I don’t see DIY customization as the answer so much as I see designers (who are often passionate about their work) being the ones who actually engage in “conversational marketing” (for reference – reLink) and providing “service customization”.
For sure, such developments as very closely watched by me. We look for any means to stretch that margins.
Unfortunately as far as I can see volumes and pricing have no impact on the consumer’s purchasing decision at all. In fact I will go as far to say as they don’t care. As long as the perceive value is there people will buy.
Oh yes consumers are not stupid. Check out this link B&O got caught out: http://www.smarthouse.com.au/TVs_And_Large_Display/Industry/P5V6F4R2?page=1
In reality, this is the paradox of manufacturing. Volumes talk, but consumers are starting to demand customizations which is by nature, unpredictable, small runs and go against all the values of mass manufacturing standardisation and accuracy. It is pretty easy to also see why services, software and digital media is the first to succome, they are intangiable.
Eventually though, manufacturers have to submit as it is a chain gang. I am starting to see more and more manufacturers focusing of small runs, in the region of 50-100K as a strategic competitive advantage. With cheaper labour in asia it is some what viable.
However full customization is still far away. And will only happen when rapid prototyping and manufacturing technologies combine.
“pricing have no impact on the consumer’s purchasing decision at all”
Can’t agree with you there. I’d say pricing has a significant impact… with the caveat that too-easy credit has lessened its obvious influence. Maybe you don’t see it in luxury brands, but in consumer staples it’s still the primary factor, if just not to the degree it was during the previous decade.
But wrt your observation that consumers don’t really care about price so long as they perceive sufficient value, the question for us must be: What is the additional incremental value in purchasing a customized product versus a non-customized product?
Don’t forget we are discussing luxury here. For sure in commodity brands price is an issue. This does not play as much a role in luxury. Look at the $20K+ USD Hermes Birkin bag, it has a waiting list of5 years!
Regardless you are right to say on a luxury level, customization is only but an incremental value, almost expected on some levels, but the cost to do so at this time takes chunks off the bottom line.
“This does not play as much a role in luxury.”
I was actually responding to your assertion it had “no impact”. And I’d agree it doesn’t play “as much a role in luxury”, relatively speaking. But I’d still qualify that role as “significant”.
Citing an example of a $20k bag doesn’t really prove anything. We can’t know the trade-offs people are making. And we can’t assume that just because someone is wealthy, they don’t think about price. Some of the biggest tightwads are ultra-rich; haggling over prices middle class consumers would be embarrassed to challenge.
I’d venture even Nakamichi marketing has a methodology for setting prices. Where’s the $100,000,000 set of speakers? The $500,000,000 television? If price is not a factor, then why not a billion dollar stereo system? Because price matters.
That’s off the topic though.
The issue I’m getting at is that customization – by its very nature – is a potential threat to luxury brands. That these brands don’t seem interested in exploring the potential as a means to either add value or fend off potential competition is still a surprise to me.
I think you misunderstand where I am coming from. We price something based of a perceived value. If we can develop a $100Million speaker that customers can value at that price, we will price it!
However I agree, and you are right to say that pricing has an impact. But I like to add as long as it can reflect a perceived value. Consumers have a thresh hold and logically we would not price a $100K sound system simply because people do not valued at that level. It all adds up, branding, design, specifications, this all adds up to a percieved value that determines the selling price.
The problem is many consumers are smart enough to know that they are all made of the same components and same factories anyway. Furthermore you are also right, we have found people buying expensive DVD players but bitching because it cannot play pirated discs!
Going back to your point, I do feel, like you, that luxury brands are stupid to not consider customization, as its just another “perceived value” equation that can add up to that selling price.
“We price something based of a perceived value.”
Ah. And here’s the Catch-22: price is part of perceived value. So what goes round, comes round. :)
Just as the logo of a desirable brand raises perceived value, so does the exclusivity imparted on a luxury product by its high cost. (And for an interesting side note, the Barbie virtual world is using this very mechanism to drive sales of their arguably over-priced mp3 player – Link )
Same goes for consulting services. Anyone who’s been around the consulting block knows that underpricing services can lead to the perception that what’s being offered has less value. And slightly higher charges often suggests that the services are more valuable, thus feeding even higher charges until some equilibrium is achieved.
Again, price influencing perceived value. So price has an impact beyond registering an acquisition threshold.
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“The problem is many consumers are smart enough to know that they are all made of the same components and same factories anyway.”
Which is, again, why I see customization as so critical to the future of luxury brands. And by customization, I don’t mean it in the sense that everyone will get a perfectly fitting shoe. I mean it in the sense that (as indicated above) customization tied to designer/expert service increases perceived value.
There will almost certainly come a day when shoes (and other items) will be custom-made on an individual basis. At which point, it’ll become commodity. It’ll be considered a necessary feature at some stage of some businesses; a requirement of doing business.
But customization tied to designers or artists or writers or musicians… now you have the makings of the future’s luxury brands; the desirable differentiator reinforced by higher prices.
This will work imo because there is one thing that will likely never be commoditized: Time. And when a consumer is paying for Time – the time of a consultant or a specialist to attend to their needs or the needs of a small group – then you get into a market not served by scalable processes.
Those hand-made urban vinyl toys are interesting for that reason alone.
I propose we’re returning to an age when we’ll see more craft, only this time augmented by a whole new set of tools (including the Internet). And part of the value equation will be the craftsmen themselves.
I think so. The recent re-appreciation of craftsmanship is just scraping the top of the customization ice berg. I think at this current time hand-made is the best form of customization. But its interesting that the perceived value of hand-made only works with certain products, strangely not with electronics.