Privacy Not a Luxury Anymore for High-end International Brands

By Ericka Chickowski
Posted on:
June 3, 2021
Share on:

As luxury brands seek to regain footing after the pandemic's toll, digital transformation will play a huge role in their strategic vision for 2021 and beyond. Central to many of their plans will be data-analytics and personalization efforts for engaging high-end customers with not only targeted marketing, but also tailored products and services.

This inevitably will heighten the natural tension between the creative and ample use of customer data and the protection of that data and preservation of customer privacy. Many experts believe that luxury brands stand at a pivotal time for data security, and that the cybersecurity moves they make now will have long-term impact on their brand equity and viability in a market that research has shown to be increasingly sensitive to data-privacy issues.

Covid Effect on Luxury Brand Economics

According to a recent analysis from Bain & Company, the core personal luxury goods market took a dive of 23 percent in 2020, the first time the market dropped in more than a decade, and the largest drop recorded since Bain started tracking it back in 1996. 

Consumers trapped at home and uncertain about their health or the economic outlook took a dramatic pause on much of their discretionary spending. This doesn't mean they completely closed their wallets—but spending habits did change dramatically. Two key trends in 2020 hold the clues to some of the major strategic shifts that luxury brands will make to rebuild during post-pandemic recovery.

According to Bain, the slump in luxury sales would have been much more dramatic if it hadn't been for online sales. The firm reports that digital luxury shopping doubled its share of the market, increasing from 12 percent in 2019 to 23 percent of the market in 2020.  

Meanwhile, at the stores there's been a geographic rebalancing spurred on by a year of grounded travel from consumers. One analysis shows that as tourists shifted to buy products in their home markets, the share of purchases made locally comprised 80 to 85 percent of luxury spending. One of the biggest impacts of that was a huge spike in spending in China; the luxury goods market there rose 48 percent, as affluent Chinese spenders kept their money flowing locally.

What Recovery Strategy Will Look Like

Experts believe that luxury brands shouldn't expect spending to catch up to 2019 levels until 2022 or even early-2023. As consumer demand ramps up, many luxury players will lean into the strongest purchasing trends of last year to try to speed up their recovery. 

Bain expects that online sales will make up more than 30 percent of luxury brands' overall market value by 2025. Many experts believe that trend will be driven by increased investment in data-driven personalization and enhanced omnichannel experiences that will more closely engage the consumer, not only within luxury brands' online platforms, but also in their local stores. 

Luxury brands will also likely seek to invest in targeted geographic areas to account for dampened tourism during early pandemic recovery, with China being a key region. Bain believes that, even with lockdowns lifted, luxury brands should expect that, in the near term, local purchases will still make up 65 to 70 percent of the market—and that this increased relevance of domestic purchasing will especially enhance the appeal of catering directly to the Chinese and broader Asian region. 

On both fronts, luxury brands will need to keep cybersecurity investments aligned in order to achieve their business goals for pandemic recovery without incurring too much risk. Both investing in personalization and the push for greater share in China have important data-privacy and security implications that require careful planning to navigate.

Personalization and Privacy

According to Milton Pedraza, CEO of the Luxury Institute, customer segmentation and personalization will play an integral role in pandemic recovery for luxury brands. Segmenting based on a range of analytical attributes—such as demographics, buying patterns, and online habits—will be integral for targeting ads, marketing campaigns, and product development, as well as for forecasting demand and orchestrating supply chains. 

"I think we will see personalization first by segments, and then, in the future, by individual consumers," Pedraza said, explaining that many luxury brands are still overcoming challenges in figuring out how to become more sophisticated about the way they collect, store, and utilize customer data. "You can't have analytics without data,” he explained. “It's like having a Ferrari with no fuel. A lot of brands have invested in digital transformation and have bought a lot of software without the data they need to fuel it. So, they're starting to become aware they need to be more sophisticated."

Among the big points of friction are the cybersecurity and consumer-privacy issues wrapped up in the ample use of so much customer data. Not only do luxury brands need to be sure that they've properly baked-in strong technology and practices around encryption, tokenization, pseudonymization, and compliant data handling, there's also the issue of optics among high-value consumers when it comes to data collection and ownership.

“We may see tension between consumers and luxury brands regarding data privacy, as consumers react to the monetization of their information and brands seek to customize the experience for each client," said Louise Firestone, senior vice president for Legal Affairs and General Counsel for LVMH Moët Hennessy Louis Vuitton Inc., in a recent interview with Law.com. She reported that data-privacy issues will be one of the major trends to impact the luxury market globally in the coming year.

The Luxury Institute’s Pedraza noted that data-privacy policy and practices will be critical to luxury-brand revenue and differentiation in 2021 and beyond. 

"The important thing that brands need to know is that, in almost every survey conducted, these consumers are hypersensitive about privacy and cybersecurity," according to Pedraza. "Affluent consumers feel they have more to lose if their data is hacked or shared illegally or unethically. But I also think there's a dichotomy where the younger affluent consumers are willing to share so much more data. There's a sense with them that technology and devices and analytics can help you live a better life in many areas, a belief that boomers and Gen Xers don't seem to share."

This is leading to some interesting arrangements regarding how luxury brands collect and assign ownership of consumer data. Increasingly, brands and research outfits, such as the Luxury Institute, are incentivizing customers monetarily to give their permission to collect, track, or share their personal metadata.  

"Today, about a quarter of consumers are saying, ‘Why aren't you compensating me for the use of my data?’” Pedraza said. "Most consumers don't know they own their data, but as soon as they find out, they want control, and they want compensation."

As such data-ownership arrangements evolve, it’s inevitably going to up the ante for protection of all that data. After all, if a company assigns a value to individual consumers' data, that creates a cost basis for lawyers to point to if they're tallying damages for class-action lawsuits in response to big breaches.

China and Cross-Border Data Constraints

Meantime, China is increasingly becoming a large strategic target for luxury brands in 2021, mostly due to the local spending factors and other prevailing market forces. A recent study by Luxe Digital predicts that China will become the world's largest luxury market by 2025 and brands are increasingly investing in localization of their campaigns for the Chinese market.

As this occurs, global brands could face strong regulatory headwinds, with existing compliance constraints on data collected in China and stored outside of the country. Some experts suggest that companies might be able to manage these requirements through strategic use of data discovery, data tokenization to pseudonymize data, and proper restrictions on data de-tokenzation to ensure that information is only accessible by Chinese-allowed users. 

Ultimately, Chinese data-privacy concerns highlight another global trend that luxury brands will need to contend with—that is, deciding how to harmonize global data-security compliance efforts. Pedraza believes the best course of action for many brands is to take an across-the-board approach that holds their firms to the highest global standards wherever possible. 

“Meet those standards globally because it's coming anyway," he concluded. "If you do, nobody is going to accuse you of being a bad brand because you over-delivered on privacy."




















< Back to The Protegrity Blog

Subscribe to Stay up to Date

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.