Fri. Jul 1st, 2022

Luxurious items are more than just a product of fine materials, fine craftsmanship, and masterful savoir-faire. It’s the ability to provide tremendous value to the customer at its core. A high level of desirability, in turn, increases consumer willingness to pay to levels that defy logic.

It wasn’t until about a decade ago that anyone could explain or quantify the gap between the price people would pay for “normal to premium brands” and “luxury brands,” and that was when I began my first research projects on decoding luxury. When it comes to luxury, the willingness to pay goes non-linear at a certain point. An average brand’s worth comes from the fact that its functional and emotional attributes aren’t too dissimilar from those of similar, but less “normal,” competing brands.

Is it one-of-a-kind, insightful, current, and enticing?

For instance, consider Perrier or San Pellegrino sparkling waters. It will cost around $2 for a 750ml bottle from both brands. Only a few percentage points can separate them from each other when it comes to price. The willingness to pay rises in direct proportion to the functional value, which increases in size. If you compare one brand to another that does the same thing in a slightly better way, you may end up paying a little more for it. The “reference price range” or, as I prefer to call it, the linear pricing model for non-luxury categories, is where we will never pay anything significant.

To many, it appears that these rules do not apply to luxury, at least not immediately. Chanel’s No. 5 collection includes a water bottle priced at around $80. It was a teeny, tiny thing with no water in it. As a result, the product appears inferior in terms of utility. My comparison of apples and oranges may be seen as unfair by some. But in terms of pure product category, Perrier and San Pellegrino sell a glass bottle containing water, while Chanel sells a smaller glass bottle that does not contain any water. This huge disparity cannot be explained by a conventional value model.

Does your company have a narrative?

Chanel’s No.5 L’Eau cost $75, while the average bottle of water costs around $2.50. Chanel Weibo photo

This led to the development of Added Luxury Value (ALV), which I first published in 2008 and detailed extensively within my book on luxury marketing and management. A luxury brand can only offer this as a third value component, which explains why people’s perceptions of value can differ. The ALV of regular or premium brands is close to zero, whereas the ALV of luxury brands is enormous, often exceeding the functional and emotional values found in regular products by a factor of many orders of magnitude. Chanel’s water bottle has an ALV of around $79 and a functional/emotional value total of one dollar. As a result, luxury’s “intangibles” are far more valuable than its “tangible” components.

This combination of rarity and uniqueness was always the driving force in my analysis of hundreds of luxury categories and brands. These elements pique people’s interest and increase their desire. In order to create ALV, brands must place storytelling at the top of their priority list because it is responsible for the vast majority of customer value. The product is only a means to an end, not the end itself.

When it comes to luxury goods, rarity and a compelling backstory are always the most important factors in determining ALV (additional luxury value).

In this area, a lot of high-end brands get it wrong. Too much emphasis is placed on features and functions, and not enough on the unique, insightful, inspiring, and relevant stories that arouse interest in a brand’s products. As many as 90% of the brands we audit have major storytelling deficiencies, meaning they will never achieve their full potential as a brand. When brands don’t tell a compelling storey, they miss out on billions of dollars in potential revenue and profit. When demand and pricing are put under pressure, brands often resort to promotions and other short-term fixes that actually damage their reputation rather than help it (the so-called easy growth trap). Storytelling is even more important in our new metaverse reality, where customers and brands interact fluidly between digital and physical worlds.

Is your brand emotionally distinct from your competitors as a result of the storey?

As a result, it’s worth taking a closer look at some of the world’s best storytellers, such as Louis Vuitton, Nike, and Sotheby’s. Bringing together their individual stories and experiences creates an even greater level of uniqueness.

Virgil Abloh, the late designer of the Louis Vuitton and Nike Air Force 1, collaborated with these three companies on the Air Force 1. As a result of Abloh’s death, his collection has become one of a kind. Sotheby’s, a pioneer in digital metaverse auctions and a leading auction house, collaborated exclusively with us to auction off 200 pairs as a tribute to streetwear. Featuring Louis Vuitton’s iconic Monogram and Damier patterns, natural cowhide piping, and a specially made Louis Vuitton pilot case, these handbags are made of leather.
It was a collaboration between Sotheby’s and Louis Vuitton to auction 200 limited edition “Air Force 1” by Virgil Abloh sneakers from Louis Vuitton and Nike. Louis Vuitton in a photo

In the metaverse, many bids exceeded $60,000 for a pair of sneakers, with the size 5 leading the auction and selling for $352,800. An examination of this market is warranted. Between $150 and $200 is the price of a “normal” Nike Air Force 1. Because of this, people are willing to pay more than 200 times what they would normally. That’s a hefty upcharge for a shoe that’s already known for its hefty asking price.

It is undeniable that the shoe is a work of art, but the storey behind its sale is what really makes it worth its weight in gold. Because once-in-a-lifetime stories tend to rise in value, I don’t think a single pair will ever be worth less than $1 million. Keep in mind that this is for a shoe. It would be a commodity with little ALV if it didn’t have a narrative. However, when the brand storey is combined, its value rises in a non-linear fashion. Metaverse played a significant role in this storey. Auction participants ranged in age from 18 to 35 on average, with Asian Gen Z taking the lead. A glimpse into the luxury industry’s future.

It’s time for luxury brands to pay attention. Customer value can only be realised through crystal-clear storytelling in a metaverse that adds complexity and noise. Since 90% of brands have significant storytelling issues, their value in this more complex world will decrease significantly if they do not address their storytelling failings quickly. Consider this:   As an example: “We produce the best products with the highest levels of innovation and the most exceptional materials.” If that describes your storey, you’d better get moving because the metaverse will be harsh.

By Adam

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