Apple-like Ecosystems for Luxury Brands?

Luxury brands should take a page from technology companies like Apple and adopt ‘ecosystem models’ to develop new markets, channels and products, advises a recent report by The Boston Consulting Group. BoF investigates.

Apple app ecosystem | Source: Apple

LONDON, United Kingdom — It’s often said that Apple has applied the rules of fashion to the marketing of its popular iPod, iPhone and iPad devices. But luxury brands also have much to learn from the Apple playbook, say the authors of a recent report published by The Boston Consulting Group.

In order to succeed in today’s complex and fast-changing world, luxury brands should adopt ‘ecosystem models’ to power a universe of external partnerships — much as Apple has done by enabling third-party contractors to generate an explosion of ‘apps’ that run on its products — says the report.

Many of the world’s leading luxury brands seem to be doing the opposite, launching directly owned and operated stores, buying back licences and acquiring suppliers. Burberry recently bought back the rights to its fragrance and cosmetics licence from Inter Parfums and now directly operates the business under its new Burberry Beauty division. Meanwhile, Hermès, LVMH and Kering have been integrating suppliers, like crocodile farms and leather tanneries, from Singapore to the south of France.

But as rapid globalisation, emerging technology and changing consumer behaviour continue to reshape the luxury industry, growth will increasingly depend on developing new markets — each with their own cultural quirks, rules, politics and retail networks — exploiting new channels, especially online, and developing innovative new product categories, all of which will require a much wider range of ideas, expertise and knowledge than what luxury brands currently have, or can effectively develop, in-house.

“Complexity follows the rapid growth of luxury markets everywhere, including in China, India, Indonesia, Russia, and Vietnam,” says the report, which goes on to note that “the growth numbers for experiential luxury — everything from spas to luxury kitchen installations — show that the category is expanding by more than 12 percent a year on average, compared with about half that for personal luxury products, such as watches and cosmetics.” What’s more, the rise of wearable computing — personal accessories with embedded sensors, displays and other digital technology, such as Google’s Internet-connected eyewear and Apple’s rumoured iWatch — may soon put pressure on luxury brands to develop ‘smart’ products or cede market share.

“Relying solely on an internal team can easily blind an organization to what’s coming next,” says the report. “Companies increasingly benefit by bringing in ideas and expertise from the outside. That is especially so in the luxury world, where future growth for many companies will depend on success in new market categories, locations, and channels — and where partnerships, when thoughtfully and carefully orchestrated, can make the difference between success and failure.”

To keep pace, luxury companies must open themselves up and develop and nurture an ecosystem of third parties who can build on and around their existing brand assets, much like the host of partners, from tech giants to small independent contractors, who have built apps for Apple’s iOS devices, say the authors of the report. “A luxury ecosystem describes a confederation of partners assembled by a luxury brand and united over the long term by a shared vision of the future. The brand is effectively the gravitational centre of the ecosystem; it orchestrates many of the actions taken by the partners and plays the leading role in building and maintaining trust among all parties.”

The approach could power partnerships that help Hermès open new stores in frontier markets, enable Louis Vuitton to expand into luxury travel experiences, or allow Gucci to develop new sustainable biomaterials, things these companies would struggle to accomplish independently in a cost-efficient and nimble way.

“A luxury ecosystem helps reduce the risks and costs of innovation because many more sources are contributing to the pool of new concepts. And it helps companies overcome the challenges of scale that affect many luxury brands today. It also provides an unmatchable advantage: agility.”

To be sure, embracing an ecosystem model means companies must relinquish some degree of control over their brands, something that luxury businesses, in particular, are reluctant to do. But the example of Apple and the universe of third-party apps built on top of its iOS devices demonstrates that, with the right frameworks in place, it’s entirely possible to strike a winning balance between control and openness, enabling agile innovation while ensuring a seamless and high-quality brand experience.

So who in fashion and luxury has successfully adopted this approach?

“It does not really exist yet. There are some interesting partnerships but nothing looks like an ‘ecosystem’ as we mean it: strategic versus ad hoc, on core business versus side business only, long term versus mid term, with aligned objectives versus conflict of interest,” Jean-Marc Bellaiche, BCG’s global leader for luxury, fashion and beauty, and one of the authors of the report, told BoF by email. “Current licences and partnerships often don’t match this criteria. If you are a licensee and have my brand for five years and give me royalties on sales, we will have major conflict of interest, e.g. the licensee trying to maximise profits versus the brand which is only interested in revenues; the licensee [thinks] more short term versus long term for the brand.”

The report highlights Kering’s joint venture with Yoox which manages the e-commerce sites of many of its smaller and mid-size fashion brands (including Balenciaga, Alexander McQueen, Saint Laurent and Bottega Veneta) as an example of a successful partnership in which incentives are aligned, as both sides get a cut of sales. “Candidly, though, it is too early to say whether any one luxury company or partnership perfectly exemplifies the ecosystem model,” the report concludes. “However, providers that are already open to dealing and integrating with others… are primed for success.”

Stay tuned.

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7 comments

  1. A very misleading and totally ill-conceived idea. Yet again, more evidence that ‘luxury’ is becoming an oversaturated game with too many players trying to jump on its bandwagon, and why consultants who wouldn’t even know how to hem their own trousers do not belong in the game as players or even “advisors”, but should better play their role simply as customers if they can afford to buy the goods at retail. The equally misleading term of ‘ecosystem’ used in the Apple example, is not ecological at all, but based upon an operating software’s technological monopoly on proprietary hardware produced in enormous quantities with limited access to creators of applications and accessories. The fundamental business, technological, and operational, model is completely different than luxury fashion and design in a million ways, and the argument is simply another smokescreen to create an excuse for consultants to exist and be paid for by someone stupid enough to do so. It is about time BoF spends a little more time on real operators in the luxury field that are truly making it and changing its future for the better, instead of all the tom, dick and harry financial world quacks who simply want to exploit it… and like so many others before them will only make it worse. Luxury is not for everyone, and there are fundamental reasons why this is so. Too many news articles that clearly are a joke to anyone who really knows the game, will quickly degrade the interest your news service has been able to build recently. It’s time to get out of your overly cyber-heavy office chairs in London and out into the field and into the workrooms and workshops of the people who still know how to create something real, unique, and beautiful with their minds, hands and hearts and you will be beginning to get back on the right track.

    Geoffrey B. Small from Spinea, Veneto, Italy
  2. Your recent link to the Burberry article demonstrates why licenses are revoked, why control is sought by luxury brands; it can mean the rise or fall of a brand when not managed correctly. Luxury fashion is a different animal to IT or creating apps. I’m all for symbiotic relationships, but this article fails to acknowledge the foundation upon which luxury brands are built on.

    Vesna Milinkovic from Durham, Durham, United Kingdom
  3. Excellent, well written comment Mr. Small, I couldn’t agree more! Bravo!

    Lazmex from Florence, Tuscany, Italy
  4. “To keep pace, luxury companies must open themselves up … much like the host of partners, from tech giants to small independent contractors, … A luxury ecosystem … It does not really exist yet.”

    Really?! The excerpt shown here reflects a failed understanding of the luxury market and desperate attempt by BCG (Boston Consulting Group) to create new jargon (instead of actual, proven solutions) in order to gain more clientele.

    Underwhelmed from Markham, ON, Canada
  5. Agree with all the above comments. This article and the report it is describing show no understanding of the delicate nature of luxury brands. In fact, it is this delicate nature, that relies on elements of exclusivity and illusion that makes the digital world so challenging for luxury brands.

    As they find themselves suddenly in a world of democratisation and free information what makes them so special?

    Daniel Braithwaite from London, London, United Kingdom
  6. It is a nice idea but it geared to the wrong sector in the fashion industry. first of all luxury market is not intended to the masses but only to a small group in the market. Secondly luxury is about exclusivity which means only to a few customers. Thirdly fashion industry is not a new technology or a new frontier. Fourthly a luxury fashion item does not become out-dated like an I-phone. Both fashion and high tech industries evolve differently and their set of rules governing them.
    Now there is some area we can work congruently with a high tech industry but there is a huge resistance in the market and it will take a while to adjust itself. I know for sure that all industries will be affected majorly by new technology and all brands should brace themselves for the major changes. For example all banks will disappear as a brick and mortar into virtual world. I would love to seat down with the brands and explain the changes and what steps should be taken and how to evolve with new technology. Yes there are huge opportunities ahead of us
    pierregarroudi@gmail.com

    pierre garroudi from London, London, United Kingdom
  7. Sure, clusters or “ecosystems” (i.e. Sillicon Valley) are good at what they are doing because they house people who are in the know and specializes in a certain field — say IT. However, like the other commentators, I would say, this model would not sit well with luxury brands.

    First, most customers these days are incredibly price sensitive in light of the economical crisis. Also, loud logos are not in fashion anymore. Nowadays, the customer wants to know where the brand is from, and the integrity of the brand, and whether the methods used to produce the item of interest is sustainable or not and whether the company has good reputation or not to justify for the expensive prices.

    Therefore, outsourcing to ecosystems or clusters will only garner a bad reaction from the customers. This is why most brands are now buying back their licenses and taking over franchises. They want to have more control over the quality and be more careful with their products. Customers have already gotten the idea that luxury has long lost its luster. While it is vogue to outsource, it doesn’t sit well with luxury.

    The point of luxury is timelessness, exclusivity, scarcity and the hedonic value behind it all. Not jumping on the trendy bandwagon unnecessarily, which would jeopardize all their efforts to maintain brand prestige.

    Michelle C from Melbourne, Victoria, Australia