You thumb a few buttons on your smartphone. Later in the day, at precisely the time you requested, a sparkling Audi appears in your Glen Park, San Francisco, driveway for your weekend getaway. You open it and start the engine with your phone. At the end of your Audi-powered adventure, and your reservation, the car simply disappears from your driveway.
A luxury car -- I’ll take the A7 -- is no longer just a $70,000 marvel of metal and engineering. It’s now available as an on-demand service. I worked on the team that created the new Audi on Demand offer. We took a journey confronting many luxury brands: how to move from the product economy to the experience economy. We started with a brand beloved for very tangible attributes: materials, form, engineering. To translate this understanding of what Audi stands for into the context of experience we needed to identify the right new attributes, this time based in qualities of service: responsiveness, human interactions, the right use of technology. If we got it right, magic.
People increasingly prefer to spend their money on experiences over things. They are choosing access over ownership. These trends are accelerated by the digital disruptions that make service delivery feasible, but luxury companies seeking to move from making things to delivering experience should understand how much they need to change, and recognize the very different rules of digital and experience economies. It is especially hard for companies in the luxury space to navigate this change, because of the traditional materiality of luxury goods.
Traditionally, luxury goods rely on the best materials and on superior, bespoke craftsmanship. They cost more to make, and command more as a result. But digital goods and experiences are neither made of precious materials nor individually hand-crafted. Distinctive physical qualities are what make something a luxury item. They are also what make it easy to detect a fake, but digital good -- think movies, music, software -- can be reproduced or counterfeited with no loss in quality. Digital goods and services are inherently mass-market goods. They often derive much of their value from network effects: they are more valuable if they are more popular.
There may not be such a thing as luxury digital goods. Even though we talk of software as “digital products” they don’t have the material qualities or obey the economics of luxury goods. Technology is helping turn products into service platforms in many industries.
A fork in the road.
For luxury-space companies moving from products to services, digital technologies offer two diverging paths.
One path takes luxury goods -- a private jet, for example -- and creates a new marketplace for the fractional use of otherwise inaccessible luxuries. It is the road to increasing mass adoption. This path makes use of new technologies to standardize operations and bring provider and customer together. A "Downton Abbey" lifestyle of leisure can now be assembled and commanded from a smartphone.
The other approach involves understanding premium experiences deeply, and only then looking to technological approaches to service personalization and magic. In this approach, digitization is not the objective, but the means to other ends.
The value of unique experiences.
A more differentiating role for digital technologies becomes clear if we consider the defining traits of premium experiences, as opposed to goods.
Experiences are ephemeral: they are produced and consumed in the moment. They have real incremental costs, often mainly labor costs. Like products, they can increase in value if they are scarce and an accelerating driver of producer cost and customer value is the fact that they can be ruined by over-enrollment. Too many customers can spoil an experience.
What is truly special and increasingly scarce is the great but undiscovered experience. Think of an ideal trip, to unplug and get away from crowds of tourists (who are always other people, not us) and find something authentic and unspoiled.
Finding that unique, just-right-for-me experience is a problem of information discovery, of matchmaking. Matchmaking gets harder as people assert more personal preferences and subscribe less to conventional definitions of “the best.”
The attributes of peak experiences.
What the new, more demanding luxury consumer is looking for is more authentic experiences. And digital tools have enormous potential to deliver these three crucial qualities of experience: essential simplicity, storytelling value and magical convenience.
A simple, essential experience does not try to be everything to everybody. It has a point of view and focus. The mechanics that enable the service are invisible. Choice is smartly restricted. Offerings are just right, often to the individual.
Simple, essential offerings lend themselves well to vivid storytelling. Stories are what make experiences memorable and shareable, and therefore cherished. Sometimes the story is implicit in the experience; sometimes it needs to be packaged. An investment in content development can drive sales -- such as the travelogues and features on the Mr. Porter website/shop. Or it can be a pure exercise in brand expression, as seen on Nowness, a curated video site owned by LVHM.
Finally, digital channels and supporting (invisible) systems are enabling experiences that are more magically individualized and convenient.
The magic that manifests as a personal experience across communications channels can take a lot of back-of-house technology, and great people to deliver those rare inter-personal moments of service. Most of the digital service projects we have worked on recently have included tools to help employees deliver better in-person service. Conventional understanding holds that businesses prioritize software or staff (and it’s usually software, to cut costs), but this approach favors software for staff.
As more and more interactions become self-service digital experiences, the stakes go ever higher for those remaining, rare experiences that also include eye-contact. At the other end of the spectrum from high-touch interactions, we see the rise of faster, more lightweight communications via text messaging. Call centers built around phone communications are in a channel that people use less and less. Text is more accessible, lightweight and asynchronous than a phone call.
You want the one you can’t have.
Economists describe something called Veblen goods as things which have upward-sloping demand curves. That is, these are goods for which demand increases as their price rises. This sounds magical because it seems to disobey basic laws of economics. But it happens. A handbag made by Hermes is a textbook example. The more it costs, the more people want it, and the harder it is to get one, so the price rises. All bubbles -- from tulips to tech stocks -- work this way.
Experiences can be made scarce by restricting supply, on the hope that this will stimulate demand, pace Veblen. You can profitably operate a tiny restaurant if you sell out every service, and if your meals are very expensive.
Chef’s Table at Brooklyn Fare requires that you book a reservation on a Monday morning at 10:30 for a meal six weeks out. They are decidedly not trying to make things easy for customers. Similarly, Fäviken, in Sweden (and in a gorgeous series on Netflix) bills itself as the world’s most isolated restaurant. At a seven-hour drive from Stockholm, it is not offering the experience of a meal, but of a pilgrimage.
Examples like these are noteworthy but they are outliers. Scarcity has no necessary relationship to quality, and in our work we have heard repeatedly from consumers that they prefer their own strong opinions about quality, and what they like; they are skeptical of someone else’s definition of “the best” or “most exclusive.”
The best experiences are deeply personal. That doesn’t require a perfect predictive algorithm, or the ability to anticipate needs. (We don’t think people enjoy being “predicted” anyway. It’s not usually accurate, and when it is, it can be creepy). Instead, firms should seek to leverage digital systems to be instantly, personally responsive. Touch a button and an Audi materializes: that’s digital luxury.