In the final of a three-part series, Abhay Gupta, Founder & CEO of Luxury Connect and Luxury Connect Business School, dissects the challenges and opportunities for luxury growth in India.
As in every market – India also has its pros and cons when it comes to tapping the lucrative luxury set – but identifying and analysing the barriers to then capitalise on the opportunities that arise will be key to successful penetration in the market.
The conclusion to this three-part, detailed overview Indian market overview aims to do just that.
“ Brands fear for dilution of their name and harming their business models ”
Despite the positivity outlook, the market does have certain inherent trade barriers:
¥ Foreign Direct Investment: is a key regulatory road block to growth of the sector. Foreign direct investment restrictions are keeping brands out of the India. 51% foreign ownership is the limit; 100% is allowed but only with 30% local sourcing which many brands find difficult to comply with. Brands fear for dilution of their name and harming their business models.
¥ Lack of adequate luxury retail Infrastructure: Yet another roadblock. Retail infrastructure is non-existent and street level environments are often unkempt. This forces luxury brands to generally launch boutiques in luxury malls or hotels, through joint ventures with local distributors
¥ Lack of talent: Talent which understand luxury retail as a sector is a challenge to find. Those available are under competent and highly over paid. Specialised skill centres and luxury B Schools have been initiated by few organizations, Luxury connect being the first one to do so.
¥ Import tariffs : Are averagely ranging between 30%-40%. This coupled with the high transportation costs, causes simple price parity and margin issues for retailers. It is often cheaper for Indians to buy abroad.
1. The Bridge to Luxury: The “bridge to luxury” is a strategy specifically aimed at emerging & immature luxury markets. For the luxury brand, this type of market presents a number of challenges.
¥ Demand is primarily driven by price. With wealth and disposable income a relatively new phenomenon the consumer is still extremely cost conscious.
¥ The consumer is looking for **brand aspiration/recognition as the main benefit of luxury** consumption. In other words, the market does not yet value luxury for the actual experience and quality — it is characterised by conspicuous consumption from an increasingly your image conscious population, keen to display their wealth or social status.
¥ The presence of “knock off” products in the local market — the combination of brand and cost driven demand the local market is much more open/susceptible to trade in fake goods.
Entry level range models make up for maximum sales and provide the ‘bridge to luxury’ that the millennial generation is aspiring for. For example, from the above info graphic, it is quite clear that in case of both BMW as well as Audi, majority revenue share comes from the entry and the middle level ranges of 1 & 3 series respectively.
2. Targeted Distribution Channels: Lack of quality retail space & presence of customer in different geographical areas and inability of suppliers to reach the target customer necessitates that the brands develop innovative models for distribution. An example of innovative distribution strategy was adopted by Judith Lieber, luxury handbag brand, when they conducted an exclusive ‘Trunk show’ in Indore, a tier 2 city. The sales from this event equalled 10% of the previous years. Brands like a Kiton and John Lobb have entered through a private sale model with no physical showroom or permanent over head.
In addition, with the rate of increase of internet penetration, E-commerce in India is at an initial stage and has a long way to go. There is rather an over-supply of start-ups expressing the immaturity of e-commerce market and luxury brands must be conscious of choosing the right distribution channel.
“ India’s new breed of luxury consumer is expecting a more cherished luxurious experience ”
Luxury comes a full circle in India. India is not new to luxury brands. Although India may be the fasting growing economy in the world but grabbing a piece of this market is more difficult than anticipated. What was western luxury brands’ biggest consumer base during the times of the maharaja’s, is once again the target market for the same brands.
This time, it’s the new maharaja, the new corporate HENRY, the new young pulsating India that is driving in sales of luxury goods. This customer has dreams and expectations. He wants luxury to be providing a personalised, customised and Indianized experience. India’s new breed of consumer indulging in luxury goods and services is expecting a more cherished luxurious experience. Luxury brands should engage themselves in creating a brand connect with the consumers through media, PR, special events & so on.
Provide closeness, uniqueness, product and brand acquaintance with appropriate messages. Educate this new Indian customer with your value proposition – reach out – engage – inform – indulge – entertain and then retain. This customer is loyal and will remain with the brand if assured of prompt service, efficient sales staff, continuous engagement and mutual respect.
“ In a country with a multitude of cultures, languages, religions, festivals, colours & tastes there needs to be a localised marketing strategy ”
Some of the luxury brands entered the market with flashy advertisements and low product width, but wrapped up because their target old rich consumer was expecting the same experience as they get abroad. Now they are shifting their focus on the newly affluent customer who is aspirational but doesn’t understand the products very well. Their current mass marketing strategies are not working.
In a country with a multitude of cultures, languages, religions, festivals, colours and tastes there needs to be a localised marketing strategy. Brands will have to understand the flamboyant Punjabi and a reserved Bengali. For example, luxury brand Montblanc — which successfully operates nineteen retail points across first, second and third tier cities in India — has regionalised all their marketing material. “There is a clear distinction in customer values between [Indian] states,” says Tanya Kapinda of ID8 Media Solutions, an agency which works with Montblanc’s marketing division in India.
“Any time a letterhead, invitation or a newsletter is produced, we customise [it] according to the local language and other aesthetic considerations such as colors used and the amount of decoration.”
With varied types of customer categories, it is imperative to connect and convert the first time walk in client in a luxury store. As from the study, store staff interaction came out as one on the most important parameters for customer conversion and retention. Sales staff can elevate the consumers’ involvement with the brand, both emotionally and materially. For closing the sale and retaining repeat customers, brands must deliver influential, enlightening and touching experiences as the physical store experience is the most memorable form of communication that a luxury brand can offer.
Organisations need to create value experience through the digital platform in alignment with the store experience.
A vast nation, multitude of cultures, unity in diversity and a majorly young population makes India a distinct consumer base for the luxury industry. Brands focusing on India specific strategy and connecting with the local Indian consumer will be the ones who will be most triumphant in the coming years.
Luxury from maharaja to masses is here to stay.