Introduction
Across the world, luxury fashion is a dominant sector in the luxury industry since it registers consistent growth in sales and profits. According to D’Arpizio et al. (2019), over decades, the growth of sales in the luxury fashion has increased by about 6% from 76 billion euros in 1996 to 260 billion euros in 2018. Comparatively, this growth confirms that luxury fashion is the most profitable sector the luxury industry.
Regionally, Europe, Americas, Asia, Japan and the rest of the world comprise 32%, 31%, 24%, 8% and 5% of the 260 billion euros (D’Arpizio et al. 2019). The growth of luxury fashion in the United Kingdom is moderate because it has ten companies that experienced a 3.2% increase in sales (Arienti 2018). In the United Kingdom, Dior is one of the leading companies in the luxury fashion sector because it ranks 26th globally. In this view, the purpose of this report is to examine trends in the luxury fashion sector and offer appropriate recommendations to Dior.
Industry Key Drivers and Trends
Social Media or Omni-Channel Drivers and Trends
Social media is a significant driver in the luxury fashion industry because it targets the digital generation and promotes omi-channel marketing. Conventionally, companies in the luxury fashion sector modelled their identity as prestigious, exclusive and limited in the mass market to keep their status high. However, the declining sales and the emergence of new generation with unique tastes and preferences, as well as the advancements in information technology has compelled companies of luxury brands to employ social media in their communication and advertising.
The use of social media is evident among leading luxury brands since Louis Vuitton, Gucci, Dior, D&G, Prada and Calvin Kelin have 22.4, 22.3, 18.8, 16.2, 14.9 and 11.9 million of followers in Instagram, respectively (Appendix B) (Arienti 2019). A similar trend of followers is evident in Facebook, but Twitter has significantly lower numbers. Furthermore, the analysis of advertising costs shows an increasing trend towards the use of social media.
Arienti (2019) reports that Burberry, a luxury brand with 11.2, 17 and 8.6 million followers on Instagram, Facebook and Twitter, correspondingly, uses about 60% of its advertising budget on social media. For the past three years, luxury fashion companies have focused their advertising strategy on social media and have yielded a substantial increase in sales and market share. However, the challenge is that the use of social media is likely to compromise the value of luxury brands and trigger negative viral messages.
Demographics of young consumers constitute an emerging trend that contributes to a significant proportion of sales in the luxury fashion sector. Generations Y and Z form approximately 55% of the population, comprise 47% of luxury consumers and contribute about 31% of the sales (Appendix B) (D’Arpizio et al. 2019). Consequently, the young generation forms an appropriate target market for companies in the luxury fashion industry.
As sales generated from the older generations decline, the growing number of young and luxury consumers compensate them. Since the young generations are tech-savvy, they seek personalised purchasing experiences, which fit with their tastes and preferences in both offline and online arenas. To understand consumer behaviours and purchasing decisions in the online platforms, companies of luxury fashion have integrated artificial intelligence and augmented reality in their websites to monitor consumers. Collected information regarding consumer behaviour and purchasing decisions aid companies to provide customised shopping experiences, widen target markets and build robust customer relationships (Arienti 2019). In essence, unique attributes and diverse demands of customers require companies to customise their services and products.
Dauriz, Remy and Sandri (2014) recommend luxury fashion companies to use versatile channels, such as mobile applications, websites and online stores, to ease the shopping experience of customers. Nevertheless, the challenges lie in the ability of companies to customise products, communication strategies and distribute luxury goods in a manner that matches the unique needs of luxury customers in the fashion industry.
An increasing number of customers who undertake their shopping online is a major driver of omni-channel marketing. Companies in the luxury fashion sector use omni-channel marketing in interacting with their customers via social media, mobile applications, websites and physical stores. These numerous approaches of interactions allow companies to market their products to the digital generation, which is relatively untapped in the luxury fashion sector. The proportion of luxury customers who carry out online research of preferred products before purchasing them in the United Kingdom is 54%, which is above the global average figure of 48%, followed by the United States (52%), France (51%), Japan (48%), Italy (45%) and China (33%) (Appendix B) (Dauriz, Remy & Sandri 2014).
These proportions imply that omni-channel marketing plays a significant role in driving sales in the luxury fashion sector. According to D’Arpizio et al. (2019), as the luxury fashion sector grew by 6%, the online shopping increased by 22% to about 27 billion euros, which constitute 10% of the total sales in the luxury industry. Nonetheless, the use of online shopping poses a considerable challenge to conventional trend because it eliminates personal experience and relies on online suggestions by devices and artificial intelligence data.
Luxury Adoption of Drivers and Trends
The luxury fashion sector has adopted the agendas of social media, targeting young luxury consumers and online shopping. The adoption of social media is an apparent agenda in the luxury fashion section since prominent companies have realised its effectiveness in the marketing of their products. For instance, the leading luxury brands in the fashion sector, Louis Vuitton, Gucci and Dior, employ social media in their marketing because they boast of 22.4, 22.3 and 18.8 million followers on Instagram with Gucci doubling its followers in the past three years owing to successful advertising (Appendix A) (Arienti 2019).
However, a bad example is a rapid decline in the market status following negative publicity. For example, Dolce & Gabbana made a racist and sexist marketing blunder regarding the use of chopsticks, which lead to a significant decline in brand health score by 14.1 in China (Lim 2018). Social media made the advert go viral, triggered negative publicity and severely affected the market stance of Dolce & Gabbana.
Targeting young luxury consumers is another agenda that has proved to be a major driver of the luxury fashion sector. Since millennials form 40% of luxury consumers and contribute 29% of the sales, luxury fashion companies target them to amplify their growth (Appendix B) (Arienti 2019). For example, by targeting millennials, Gucci managed to increase its revenues by 86% in 2017, as well as generate 50% of 6.2 billion euros (Arienti 2019).
Nevertheless, targeting of the young luxury consumers requires customisation of products to fit their unique needs. For instance, Gucci and other luxury fashion companies did not perform well when they focused on traditional attributes, such as exclusivity and craftsmanship (Primo 2018). Currently, Gucci has gained significant sales by customising its products to suit the modern model of luxury, focusing on purpose, crave, passion and authenticity.
To enhance the shopping experience, companies in the luxury fashion sector have adopted omni-channel marketing. In their bid to penetrate and dominate global markets, luxury fashion companies have adopted strategies of omni-channels. As an example of good practice, Gucci has enriched its omni-channel by integrating websites, mobile applications, social media, online stores and physical stores to create virtual reality experiences in shopping (Arienti 2019).
In contrast, the bad practice is the increasing fraudulent activities and counterfeits on online stores. Owing to increasing cases of counterfeits, Louis Vuitton spends 15 million euros in protecting its products using artificial intelligence and legal pursuits (Flows 2015). The advancement in artificial intelligence and the existence of robust regulations have enhanced the enforcement of counterfeit measures.
Brand identity is a major marketing issue that companies in the luxury fashion sector strive to achieve. To build their brand identities, these companies should employ social media in marketing their luxury brands. Since market segmentation is an issue that affects the customisation of products, luxury fashion companies have experienced difficulties in marketing their brands. In this view, luxury fashion companies need to target young luxury consumers because they are techno-savvy youth who use social media. Creating value is another issue that is common in the luxury industry because luxury products are exclusive and inaccessible to potential customers. As a result, luxury brands ought to utilise omni-channel strategies to allow customers to have access to preferred products and enhance their shopping experiences.
Marketing Mix of Dior
Dior employs elaborate promotion strategies in marketing its luxury products to diverse customers. As it targets high-end markets, Dior advertises its products through Vogue magazine (Borrelli-Persson, L 2019). In targeting a broad customer base, Dior captivates its target customers using endorsements by celebrities and placing attractive pictures of products on its website (Dior 2019). Through its decorative website, Dior promotes relationship marketing by allowing customers to register and get accounts for them to access customised emails and posts regarding new products. Arienti (2019) shows that Dior ranks third in the number of social media followers, comprising 18.8 million on Instagram, 16.1 on Facebook, and 8.3 on Twitter.
Comparatively, promotional activities of Dior relate to the agenda of social media as the primary trend in the luxury fashion sector. Therefore, the gap is that Dior is not competitive enough in the use of social media as a marketing channel.
In the distribution of its products, Dior deals directly with its customers through extensive boutiques spread across diverse countries globally. Dior has established boutiques in Europe, North America, Asia, and other countries. Denis (2017) reports that Dior has over 200 boutiques in more than 60 countries globally. Owing to increasing cases of counterfeits, Dior does not own online stores, and it sells a limited number of products via third-party online retail stores.
The analysis of the distribution indicates that it relates to the agenda of omni-channel shopping. In essence, Dior offers the traditional shopping experience where customers have to visit their boutiques for them to purchase their products. The gap analysis of the distribution shows that Dior does not offer a full range of omni-channel strategies. Consequently, lack of online shopping is a gap that hinders Dior from exploiting and optimising omni-channel strategies in the distribution of products.
Dior offers luxury products of various categories to meet the diverse needs of women, men, and kids. According to Dior (2019), its products are women’s fashion, men’s fashion, fragrance, make-up, skincare, household products and gifts. The diversity of products enables Dior to satisfy the distinctive needs of its target customers based on their demographics. The diversification of products relates to the agenda of targeting the young generation as a lucrative segment of the luxury market. However, the absence of customised product that targets the youth is a gap that limits competitive penetration and expansion into the new market of young people.
Given that Dior offers luxury products, it employs the premium price strategy to reflect key attributes of quality, exclusiveness, and heritage in the fashion industry. The high-end customers afford premium prices because they attach unique value to products and the luxury brand of Dior. The examination of prices indicates that women’s fashion range from £200 to £3000, men’s fashion start from £300 to £4000 and kid’s fashion range from £150 to £1000 (Dior 2019). The focus on premium pricing strategy relates to the agenda of targeting young luxury consumers. The apparent gap is that premium pricing makes products exclusive and ignores the modern luxury model of the young people, which focuses on purpose, crave, passion and authenticity.
Opportunities and Recommendations
Gap analysis revealed that Dior has a significant opportunity for growth on the agenda of social media. Leading brands such as Gucci have a larger number of followers in social media than Dior, and it dedicates 60% of its advertising budget to a digital marketing (Arienti 2019). Social media has diverse benefits to the luxury fashion section because it promotes identity, loyalty, preference, attachment, and association of brands among target consumers (Wang et al. 2017). Moreover, social media is beneficial since it is a powerful marketing tool that enables companies in the luxury fashion sector. Therefore, gap analysis recommends Dior to boost its social media marketing strategies for it to compete effectively with Gucci and Louis Vuitton.
Dior has a considerable gap in the utilisation of omni-channel marketing strategies because it relies on its websites for advertising purposes only. Omni-channel strategy presents a lucrative opportunity for Dior to explore and exploit in the distribution and sale of its products. Effective omni-channel strategies enables shopping experience of customers and streamline the operations of the supply chain. Ye, Lau, and Teo (2018) identify online payment systems, artificial intelligence, social media applications, and mobile phones as strategic drivers of omni-channel shopping. On this basis, Dior should adopt omni-channel strategies to improve both the shopping experience of customers and enhance the distribution of its products globally.
The emerging market of generations Y and Z requires Dior to diversify its products to meet their unique needs. Market analysis shows that generation Y and Z comprise 47% of the luxury market and produce about 31% of total sales (D’Arpizio et al. 2018). By focusing on women, men, and kids, Dior fails to capture the youth who form a considerable part of the customers and account for a third of the sales in the luxury fashion industry. In the analysis of the global cohort of millennials, Stepien, Lima, and Hinner (2018) established that they have unique needs, which set them apart from luxury consumers in older generations. In this view, Dior should adjust product design, marketing strategies, and pricing models to fit the specific needs of the young generation.
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