Last time, we discussed the state of luxury in times of crisis, specifically with the coronavirus. In this argumentation, we want to explore the opposite. How do consumers adapt to the given situation? What can companies learn from this? How can companies adapt themselves and their business model? 

Currently, our country has been in lockdown for a full week. In this short time, our behavior has changed rapidly. Working from home has become standard practice. We have limited our interactions with people and digitilized them if possible. Data providers have upgraded their packages with extra data and entertainment companies are heavily promoting movies or series. The companies we mention are showing their flexibility. Because of this, they can minimize the economic impact. It might even lead them to have an increase in sales.

To be able to adapt your strategy, you must know what it is you have to adapt. What are the changes in consumer behavior? Are their possibilities for companies? In this post, we give a general overview of the changing consumer behavior and answer these questions.

Crises in general

It is important to understand how people previously reacted when confronted with a crisis. The most logical implications of a crisis are the lower-priced products becoming more attractive. What is even more concerning, are users who are convinced such products are a suitable replacement for their previous brand(s) of choice. A McKinsey study in 2009 reported that 46% of people switching labels said the alternatives were better than expected. Consumers also start to think more practically. They ask themselves several questions that affect their decision on whether or not to buy a product. 

• Is the product/service useful? 
• Do I need it?
• Is it available somewhere else and at a lower price?

Premium and luxury products have a hard time convincing clients to see the benefits they offer compared to non-luxury brands. Failing to do so, means that their worth in the eyes of consumers deteriorates further. 

This causes luxury and premium brands to fight a war on the pricing battlefield, which is almost impossible to win. We mentioned in our previous post that this doesn’t necessarily mean these brands will take a nose-dive, yet it is still something to be aware of. 

Something that also impacts brands, is the fact that people save more. They also start to invest in items like jewelry instead of stocks. India is a great example of this. Because the prices of gold suddenly rose, they started to invest more into jewelry which is something that has always been important in their culture.

Health is the new wealth

Being healthy and staying so has recently become more important to people. Whereas being mindful of what you eat and mental health used to be received with eye-rolling, a (luxury) market has developed itself. The conclusion is that brands, in general, that take these trends to heart, will have an edge over competitors. This is also important during the coronavirus.

We are isolated from the people we normally connect with and loneliness is a real threat. Specifically singles have a harder time because there isn’t a partner in the house who they can show affection to. As a result, they are forced to turn to social media or call/facetime people. 

All of these things tend to become repetitive. That’s why all companies should focus on connecting people. The goal is to either help people form new connections or to promote activities that stimulate mental health. In the first case, this can be done by reaching out to people via LinkedIn or Twitter and offer to meet one another (digitally). People like Erendiz Ates and Frédéric Paulussen have already done this. 

In the case of mental health, companies that are in the sports-industry can share resources to build or maintain their physique and create dopamines that relieve stress and anxiety. On a related level, in times like these, empathy is important. Both businesses and consumers face similar challenges which is why solidarity is needed. Louis Vuitton e.g. shared this warm message with its audiences on WeChat and Weibo:

 

“Every paused journey will eventually restart. Louis Vuitton hopes you and your beloved ones stay safe and healthy.”

 

Alternatively, companies can contribute to society with their in-house resources. In the case of Filliers, a distiller of luxury gin, they create denatured ethyl alcohol which pharmacies  can use to create hand sanitizers

Future spendings

Given the coronavirus-situation, there might be possibilities for luxury brands to explore. The first thing to note is that your e-commerce should be on point. Luxury brands always had their doubts concerning their investments towards e-commerce. The current situation, however, leaves no doubt about how important this is. Up to recently, e-commerce ‘only’ attributed 12% of sales to luxury brands. Due to social isolation, that number can go up quickly. In China, for example, the number of online car sales increased. Yet when looking at the number of luxury car brands selling online, we are left with only Tesla.

Another possibility is the fact that people have become more price-sensitive. This might feel contradictory yet the reasoning is simple. Since luxury brands can’t directly compete with non-luxury brands on pricing, the benefit for luxury brands lies in the future. Even in times like these, people will have to buy certain necessities. Most of them will first look at the prices. 

Convincing consumers

Luxury brands, therefore, need to explain that paying a higher price short term leads to customers saving money. This is because their products are more durable and cost less long term. Admittedly, this is not easy to convince customers of, especially because it isn’t a universal argument. Using customer reviews and studies helps to prove the quality of your products, thus convincing people of your brand’s value.

A player that could potentially rebounce after the crisis, is inland tourism. There are two reasons for this. The first reason is that according to well-known virologist Marc Van Ranst, we do better not travel abroad during the summer. People normally travel to tropical resorts. They now need to find alternatives. The second reason is that the overall difference in travel spending in a boom and during a recession is relatively low. The same is true when comparing the recession to the recovery phase, which doesn’t show large differences. 

The luxury aviation market is a good example of this. The industry did well in February when people no longer wanted to travel publicly. Both regular and more thriving consumers grabbed this chance to still have the chance to go on holiday. We believe that inland tourism can become a blooming branch. If, for example, local tourism would partner up with local gastronomy, they could both benefit from the synergy both create. This combined with a possible larger disposable income indicates that there is a relatively good chance this industry could get back on its feet in a reasonable time.

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