|By Marketwired .||
|January 30, 2014 12:00 PM EST||
NEW YORK, NY -- (Marketwired) -- 01/30/14 -- Today The Boston Consulting Group (BCG) launches its newest report on the global business of luxury, Shock of the New Chic: Dealing with New Complexity in the Business of Luxury.
The report -- the third in BCG's series of flagship reports on the luxury sector -- introduces BCG's proprietary Metroluxe Indices to track the luxury status and growth potential of the world's richest cities. The three indices help brands answer pressing questions such as which cities should be priorities for their luxury goods and services, where brands should optimize existing retail footprints rather than opening new stores, and where tourists spend most freely on luxuries.
The report also flags the importance of finely detailed segmentation of customers and markets and of the value of analyzing markets at a city level rather than by region or nation. In combination, these approaches enable brands to cluster cities together and develop sophisticated, localized go-to-market strategies that better serve local customers and tourists.
Furthermore, the flagship report highlights BCG's projections that the sales of luxury goods and services are far greater and far more robust than widely thought. BCG's latest study found that consumers spent more than $1.8 trillion worldwide annually on items they defined as luxuries -- far beyond the $390 billion usually cited as total global sales of luxury goods such as apparel, cosmetics, watches, and jewelry.
"Luxury experiences are by far the most powerful driver of luxury spending everywhere. Collectively, they make up nearly $1 trillion of the annual global total," said Jean-Marc Bellaïche, a BCG senior partner and coauthor of the report. "As older consumers realize that they have all the 'things' they want -- and as younger people favor experiences they can share with their friends -- consumers are spending more on everything from dining at five-star restaurants to exotic vacation travel."
Inside BCG's New Index of Luxury Buying
Although global luxury markets are growing steadily, BCG research finds that luxury providers risk lagging behind the markets they are meant to serve. Such providers, the report explains, must adapt to new levels of market complexity, accommodate new kinds of purchasing behaviors, push into new geographies and cities, evaluate different business models, and do more with digital technology.
Luxury players must anticipate such changes by focusing not on regional-level strategies -- often their conventional market lens -- but on city-level approaches or at least on strategies that target a cluster of cities whose inhabitants have roughly similar buying behaviors. "Brands must become much more specific in sizing and scoping markets," said Sarah Willersdorf, a BCG principal and coauthor of the report. "While creativity, quality, and brand protection will remain paramount, brands need to plan their go-to-market strategies more systematically -- including marketing, assortment, merchandising, and pricing -- at the city or city-cluster level."
To begin to explore these issues, BCG has developed its "Metroluxe" family of indices (collectively called the BCG Metroluxe Indices) to measure the current luxury status and growth potential of the world's 550 richest cities as defined by GDP per capita. Collectively, the cities in the index drive nearly 50 percent of global GDP.
The first of the three indices is the BCG Local Metroluxe Index, which gives some eye-opening city-by-city snapshots of the intrinsic potential of local luxury demand. The second is the BCG Total Metroluxe Index, which builds on the local index by overlaying the local propensity to spend on luxury with tourists' luxury spending and with supply-side factors such as the maturity of distribution networks and the impact of customs duties. The third is the BCG Metroluxe Growth Index, which provides a dynamic perspective of the growth in total luxury demand from 2012 through 2017.
Together, BCG's family of indices balances both demand and supply factors. It takes into account not only local demand from high-net-worth individuals and mass-affluent demographics but also the overlooked tourist factor -- tracking the impact of domestic and international tourism on luxury spending in the city.
Insights to Help Brands Succeed as Demand Patterns Shift Worldwide
BCG envisions three ways in which the family of indices can help brands and retailers.
1. Conduct deeper market analyses at the city and cluster-of-city levels. Brands and retailers armed with a deeper understanding of local demand and consumer behaviors can cluster cities beyond the geographic boundaries of countries. Brands need to continue to market locally and also market effectively in tourists' countries of origins. From a retail perspective, assortments need to cater to demand from locals as well as tourists.
2. Localize go-to-market strategies. It is no longer enough for brands to target the elites in emerging markets with splashy ads for existing "Western" products and retail assortments. Now, astute brands are developing highly localized approaches to marketing, assortment, and merchandising.
3. Develop aggressive strategies for reaching tourists. The proliferation of tourism will continue to drive growth for brands. Travelers from Brazil, China, India, and the Middle East have been especially keen spenders while vacationing abroad. Luxury brands and retailers must understand the tourist mix at a city level and develop strategies that create brand awareness before tourists' journeys begin.
For more on BCG's Metroluxe Indices and the other findings in the new report, please visit www.bcgperspectives.com.
To arrange an interview with one of the authors, please contact Eric Gregoire at +1 617 850 3783 or [email protected].
About The Boston Consulting Group
The Boston Consulting Group (BCG) is a global management consulting firm and the world's leading advisor on business strategy. We partner with clients from the private, public, and not-for-profit sectors in all regions to identify their highest-value opportunities, address their most critical challenges, and transform their enterprises. Our customized approach combines deep insight into the dynamics of companies and markets with close collaboration at all levels of the client organization. This ensures that our clients achieve sustainable competitive advantage, build more capable organizations, and secure lasting results. Founded in 1963, BCG is a private company with 81 offices in 45 countries. For more information, please visit bcg.com.
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