Betting Against Mass Luxury and Building a Niche DNA

The luxury market has undergone significant changes over the last couple of decades as investors have discovered the new gold mine: small and medium-sized luxury businesses with impressive profit margins. Totally lacking operational efficiency and appetite for big expansion, those businesses were focusing on one thing only: developing outstanding products. Family run for generations, these companies spent years building their small empires and refining their craft.

Often bought out by the “big guys” at fourth or fifth generation, they were turned into money machines with millions invested in operations and advertising. Consumers were a bit surprised to see stores popping up like mushrooms on every corner of each big city. Clearly, those companies had big shoes to fill in terms of revenue, so protecting the brand became secondary. Overexpansion led to overproduction, which killed scarcity, or at least the perception of it, at the root. Many brands were quickly tagged as “bad investments” as they turned into a commodity with no resale value.

Meanwhile, the customer for luxury goods has evolved as well. The new 21^st century luxury consumer is digitally savvy and very demanding. The new generation of high price point shoppers rejects “mass luxury” and is looking for more rare, special brands with a genuine DNA that they can relate to. Simply “owning” a product is no longer enough. This means that deliberately niche brands are the new winners.

So, what are the core elements of a strong niche brand, and what is the recipe for success?

Luxury market analysts argue that niche brands have more chances of building a solid and long–lasting business. As deliberately niche players are more “specific,” they have a deeper relationship with their customer. Staying deliberately niche certainly demands sacrifices — e.g., saying no to big contracts and turning down wholesale opportunities means that cash flow will suffer. In exchange, the brand can win on longevity, desirability and status which results in stronger brand equity.

One way of building a deeper relationship with your audience is through advocating beliefs. Beliefs are more specific than brand values, and as a result more segmenting. When you're not trying to please everyone, you end up narrowing your efforts. Making strategic investments to create a very focused experience for the narrow group of targeted customers is certainly one way of succeeding.

For quite some time uber-luxurious brands were building narrow, impossible-to-get-into communities. Therefore, true luxury became somewhat synonymous with exclusion. The customer of today isn't looking forward to experiencing this exclusion, but on the contrary, is seeking more information and participation. As a niche brand, you certainly want to be inclusive when it comes to your relationship with the customer. This means being very transparent about the creative process, about how products are made, where the materials are sourced … the customer wants to be included in every step. There are innovative digital tools available to enable this level of transparency, and it certainly has to translate in personal interactions with brand ambassadors when it comes to the in-store environment.

Another key differentiator is the personalized experience. When you relate less to “what I have” and more to “who I am,” you're placing a much greater value on the experience and feeling associated with consumption. Anything that involves the customer in the creative process or personalization of the product will generally be helpful in building this personal and intimate experience.

Olga Pancenko is the chief operating officer of Perrin Paris, a luxury leather goods brand.