How Big Data is Driving Luxury Growth

This article is a summary of a report published in Luxe Digital by Global MBA students Vaibhav Jain, Jonathan Bernal, and Pranaay Gupta. Their research provides an in-depth understanding of how big data is transforming the business of luxury and how brands that are able to leverage big data will gain a competitive advantage in the future.

Big data, a concept that refers to the technologies and processes used to collect, organise, and generate insights from large amount of customer information, is transforming the business of luxury. 

The IDC, a market-research firm, predicts that 180 zettabytes of data will be created per year by 2025. To manage that amount of data, global tech companies are rapidly building new data centers around the world. In 2016 alone, Amazon, Alphabet, and Microsoft spent over $32bn in data management, up 22% from the previous year.

The quality of available data is changing as well. According to The Economist, the new economy is about analysing real-time flows of unstructured information such as consumer social media comments, influencers’ feeds on Instagram, or customers’ purchase funnel across multiple channels.

The market for data analytics is thus massive. The big data opportunities for luxury brands that are able to successfully take advantage of them will prove critical in the coming years.

Digital pure-play brands are reshaping the industry

Digital brands such as Net-A-Porter and Farfetch have proven, not only that online luxury retail is possible, but also that big data is at the heart of a successful digital operation. Sales for online luxury retailers have indeed grown strongly over the past few years. Net-A-Porter, for example, saw its sales increase by 20% in 2017, ending the year at USD 2.61 billion.

Those digital-first luxury brands are thus rapidly taking market shares from the more established traditional brands. And big data is at the heart of their success. “ We have 1,000 engineers in London and Bologna ,” explains YNAP’s CEO, Federico Marchetti. “ That’s something that no luxury brand in the world can have. We are the perfect merger of luxury and tech, that’s why we are serving the brands so well. ”

Traditional luxury brands are only just starting to catch up

While 85% of luxury sales come from customers registered in a brand database, traditional companies have been slow to embrace big data. Data analytics can indeed help a brand identify and connect with its most valuable consumers, but it wasn’t a priority for traditional brands until now.

This is starting to change however. Luxury brands have a wealth of information available on their customers’ behavioural habits through purchase records, customer profiles, and exclusive memberships. The sheer size of their physical retail presence also provides traditional brands with a significant competitive advantage to collect consumer data.

Brands such as Montblanc and Burberry are perfect examples of companies who operate at the forefront of the industry’s digital transformation by embracing big data to uplift their business. They understand the valuable impact that big data could have on their business operations and are willing to focus on the opportunity.

Big data leads towards luxury market convergence

As traditional luxury brands start to take advantage of big data to engage with their consumers, digital-first brands start to open physical stores to reach new customer segments and collect more sales insights. We’re observing a convergence in the luxury sector towards online and offline integrations and omnichannel purchase journeys.

The success of a brand in the future will increasingly be determined by its capability to collect, analyse, and generate valuable insights from its customer data in order to drive sales. Big data has indeed proven to be a profitable asset and an essential tool to offer a more personalised and timely customer engagement model. As the younger generations of Millennials and Generation Z consumers start to drive a larger share of luxury brands’ revenue, companies will need to provide a level of service that meets their expectations.

Read the complete report on big data for luxury brands by Vaibhav Jain, Jonathan Bernal, and Pranaay Gupta on Luxe Digital.

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