Digital Channels and Social Media Management in Luxury Markets

Fabrizio Mosca, Chiara Civera

• Publisher: Routledge
• Year: 2017
• ISBN:
  9781351332286
• Edition: 1
• Topic: Business
• Subtopic: Marketing
• Index: Business

In recent years, luxury goods markets have faced significant changes that have influenced both the dynamics of the competition, as well as their strategies. The principal changes include the following:

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• new geographical market development, such as in the Far East, India, and some parts of Africa (these countries are added to a list of already relevant countries that are involved in luxury goods consumption, such as the Emirates, Russia, and South America);
• diffusion of new media and new technologies in communication, which is characterized by a high degree of interaction;
• the evolution of distribution channels is underway – these channels are moving towards new forms of integration that utilize both physical digital channels.

This has forced firms to revise their strategies and implement multichannel marketing strategies to continue to operate in increasingly international markets that are characterized by increasingly more demanding and informed consumers.

This book will enable readers to gain a clear insight into how the luxury goods market operates and amongst other things, focuses on:

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• recent internet and social media strategies adopted by luxury companies and their brands;
• how luxury companies manage their communication and distribution channels to compete in the market and the impact of digital marketing on their competition;
• the main models of direct and indirect distribution in the digital channels;
• how consumers react to multichannel strategies;
• trends, social commerce and CSR and how luxury companies react;
• identifying the different social media strategies for luxury companies.

Chapter 1
MARKETING AND DIGITAL INNOVATIONS

1.1. Introduction

At the end of the XX century, a completely new concept was introduced, having an immediate deep effect on the economic, social and cultural macro-environment and – in line with the topic of this work – on the way we understand marketing and company management today: the advent of digital systems which, in a wider perspective, include distribution and digital communication channels and User Generated Content.

A revolution in marketing activities has taken place since then, starting from consumer behaviors. Marketing activities have in fact been and keep being affected and deeply modified by the advent of digital systems.

Companies started a process of strategic and operational adaptation with the aim of acquiring the necessary tools to interpret the new mentality which stands at the origin of this change and gradually assimilating all new technologies, taking advantage of their potential.

The digital innovation can rightly be defined as a revolution, which doesn’t overcome traditional marketing solutions but assimilates with them providing a fresh impulse.

“The idea that the Internet would have replaced traditional business models overturning their known advantages dominated the scenario for some time. [ … ] The Internet doesn’t usually replace but integrates companies’ traditional processes and competition strategies. Virtual actions do not provide a substitute for physical actions. On the contrary, they tend to magnify their importance. Moreover, the Internet creates new opportunities to satisfy customer needs more effectively” (Lambin, 2012).

It is important to highlight how the digital revolution has been – and still is – a cultural event and not a mere technological phenomenon. Toward the end of the last century, people started to feel the need for different, more horizontal ways to connect and express themselves. Digital systems intercepted this need and provided the necessary technology to satisfy it. However, in doing so, digital systems didn’t only affect the external form of the need they aimed to satisfy but modified its core substance in ways that are currently not predictable.

1.2. The virtual market

Within a marketing perspective, it’s still difficult to identify all possible new scenarios that will present themselves in both the creation of marketing strategies and plans and the understanding of company structures. However, we can already analyze some changes, which are currently underway.

The first noticeable change has to do with what the market considered as a whole is: The worldwide market without any distinction by sector – in this market, the exchange of information is increasingly becoming more crucial than the exchange of goods. The digital innovation has brought forward an increased dependence on goods based on information, especially in more advanced societies and we can identify a convergence between the digital and the physical world. The environment in which consumers and companies act could be defined as “infosphere”. (Vernuccio, 2014).

What is the current size of the infosphere and, therefore, of the digital market? According to data from January 2016¹, Internet users in the world are more than 3.4 billion, over 2.3 billion of whom are active on social networks. Both figures increased by a staggering 10% in only one year.

People can constantly be connected to the world-wide web from anywhere using integrated devices such as computers, tablets and smartphones, exchanging information, goods, services and opinions in a faster, cheaper and more aware fashion than they have ever done in the past.

The traditional market characterized by the exchange of goods has not disappeared but it is operating side by side and in integration with (for now) the electronic market (Guo and Sun, 2004).

For example, from a distribution point of view, the physical channel – characterized by many retailers all over the world – is gradually integrated with a digital channel made up of new intermediaries and old, recently evolved players. These new economic subjects are a threat to the traditional distribution players.

“GEM [Global Electronic Markets, e.d.] produce and distribute digital products and services worldwide whereas GTM [Global Traditional Markets, e.d.] work with EGM to fulfill the use phase or to implement the physical phase of production and distribution. Traditional companies direct their demand and offer to GEM while electronic market companies create new demand and offer for both GTM and GEM. “A spin off of GEM, the new market operators are become increasingly more important” (Lambin, 2012).

Besides, it is important to distinguish between the global electronic market and the e-marketplace. The former consists of a network through which all market players – consumers, providers, distributors and sellers – exchange and share information, sell and buy goods. The latter (e-marketplace) has to do with B2B transactions and can be defined as an information system for providers and buyers. Using previously provided credentials, these companies can access the system to check in real time the situation of raw material, work progress, products and prices, bypassing the typical administrative hindrances responsible for supply chain slow downs.

The integrated double arena of exchanges conceived by Lambin consists of both electronic and traditional markets. The difference between the two doesn’t have to do with the participants but with their motivations and the benefits they expect to receive.

Easy, quick and cheap access to information makes the customer’s role in transactions stronger. This increases awareness of the relative value of different offers. Customers expect to find a large variety of products and more personalized services to choose from, comparing prices and exchanging information with other consumers around the world. Moreover, customers get access to a higher volume of information in a quicker and cheaper manner, and transaction costs are reduced.

The traditional consumer’s limited sense gives way to a higher awareness, which takes consumers themselves to a perfectly rational microeconomic model. In fact, digital systems have modified consumer behaviors making a series of more precise and up to date information on prices, product availabilities, variations, delivery methods and times available to users.

Target markets are virtually increasing without limits, reducing (due to process automation) transaction costs and overall expenses, mainly on digital products.

Manufacturers can produce an almost limitless catalogue, offering infinite versions of the same product at almost insignificant adaptation costs. That is the “long tail” conceived by Chris Anderson (2004) – decreasing significantly the distribution costs of digital products (music, movies, news, services) removes the economic and physical restrictions limiting the variety of tangible goods. Companies operating in this field can therefore still profitably afford offering products that are not in big demand. The long tail creates market fragmentation, diversifying it into countless niche products. This is particularly true for consolidated markets.

The digital channel allows manufacturers to increase their market and drop production, distribution and supply costs. Manufacturers, like other market players, benefit from the integration between traditional and digital market (Guo and Sun, 2004).

Vernuccio’s virtual market analysis (2014) investigates some aspects of B2C and their evolution during the Internet era: parties involved, relationships and subject of the exchange. The advent of the Internet has deeply affected the identity of both parties involved – companies and end customers – and has modified consumer behaviors.

“Beside the more traditional segmentation analysis techniques, consumers/users can be clearly identified and better known using the Internet. Internet websites, in fact, are often available to identified users only. Consumers leave their status as anonymous and indistinct components of a segmented market to become individuals representing their own identity” (Vernuccio, 2014).

In this regard, User Generated Content as the main social media and blogs are powerful tools available to companies to obtain real-time information about the quality of services provided, prices and customer’s current and future expectations in relation to the product concept. For example, when a new smartphone by Apple or Samsung – just to mention the two main manufacturers – are placed on the market, Internet blogs are inundated with positive or negative comments generated by global users. This massive amount of information is in fact a market research assessing the gap between the expectations and the actual new product performance and it is free of charge.

This new situation is beneficial to consumers also. In fact, consumers are more easily identified by companies, which – in return – are more visible and transparent to the consumers themselves. Digital media provide customers with information on products and services as well as company’s good and bad behaviors and this can be easily accessed by potential customers from anywhere and at any time.

Consumers are empowered by the opportunity of receiving more information on brands and their products in a cheaper and quicker manner. This is now a renowned fact on which academics, consumers and Internet users agree.

A number of factors have a role in balancing out the relationship between companies and final customers: they can now compare competitors’ different offers, purchase from anywhere in the world after finding the best offer, give and receive information about the quality of services, using blogs and posts – in a kind of contemporary word of mouth – and create a positive or negative buzz around a product, a brand or a company. Consumers can elude marketing activities by ignoring website advertisements and classifying unwanted emails as spam. On the contrary, the same consumers can actively take part in the creation of marketing campaigns by, for example, posting product tests run by them on YouTube.

This new power is not limited to digital systems users considered as consumers but involves their personal, cultural, political and social interests also. Internet users have now all the necessary tools to express their real time opinion on any topics, taking part in the social, political and cultural life of their own country as well as the entire world’s. The widespread success of Movimento Cinque Stelle in Italy, a political movement that started off from an Internet blog, as well as the diffusion of the revolution in the Arab spring with Twitter, are meaningful examples of this. For this reason in several anti-democratic countries the use of the Internet is severely restricted and websites spreading opinions not considered in line with the system are temporarily shut down. However – we should briefly mention this here – we all know digital systems have also a dark side to them. They have favored criminals too, making them even more dangerous.

The direct consequence of consumer empowerment is a change in the relationship between companies and their customers. Beside the traditional linear and one-directional top-down/one-to-many approach, where companies are active players while consumers are mainly subject to their decisions, and beside the direct marketing’s one-to-one type of approach, a new dimension is starting to emerge. This new dimension – not removing but integrating the already existing dimensions – is characterized by a many-to-many type of approach, based on “non-hierarchical networks” (Vernuccio, 2014) based on dialogues and conversations that express market relations in a context of customer advocacy (Urban, 2005). Companies – now more open and transparent than ever before – have to gain their customers’ trust providing them with clear and honest information on products and services (Winer et al., 2013).

Winer et al. (2013) cite a direct and meaningful extract by John Deighton, professor at Harvard Business School:

“Marketing operators do not control the market anymore. They are invited guests. They will stay in the game only if they are stimulating, relevant and fun. If they try to dominate the market, they will be excluded”.

The Internet virtual market turns both physical and digital products into bits, making them a fundamental aspect of the network. Today’s marketing strategies cannot avoid considering how the consumer’s user experience has now become a virtual experience too.

New digital technologies allowed the creation of a new market space and now provide consumers with a series of instruments to access it.

Internet, emails, social networks, Extranet and Intranet networks are available digital media which allow users to be constantly in touch with each other through a large variety of devices like computers, smartphones, TVs and tablets.

This system based on digital media and technical supports represents an interesting challenge for companies. In fact, companies need to change their marketing actions making them really interactive, open to sharing and exchanging and available for activities of co-creation of information and content with the market, in a process of systemic supply and demand co-evolution.

Among the Internet connecting devices, Winer et al. (2013) consider smartphones bear stronger marketing potential, thanks to a wide range of functions, can be considered nowadays mobile marketing platforms which enable users to receive product information, exchange opinions about brands, gather information and make purchases.

Distribution and communication both physical and digital are now integrated in order to improve efficacy and effectiveness with the aim of winning over the final user.

For example, in some cases, retail outlets are the point of contact between the physical and the digital channels. Products are available on the shelves but can be purchased and personalized online by customers while they are browsing the shop. The opposite can happen too: customers buy their products online and collect them in a retail outlet.

1.3. New application areas

One of the main issues companies face nowadays is determining to which marketing areas these new technologies can be most effectively applied.

There are essentially four areas, two of which pertain to non-digital marketing also but acquire different connotations when operating on the net: B2C (Business to Consumer) and B2B (Business to Business). The other two areas can be defined as “native digital” since they are typical of e-marketing. In fact, before the digital era, they were almost irrelevant if compared to the importance they have today: C2C (Consumer to Consumer) and C2B (Consumer to Business).

B2B, which entails the direct sale of goods and services to consumers, is still the most popular one. People buy any kind of product online no matter what price range they belong to, from commodities to luxury goods. However, as previously mentioned, digital systems allow buyers to lead the exchange process as they can compare quality, prices and similar offers in order to make their final decision based on what product feels more convenient. Moreover, buyers can share the outcomes of their online investigations contributing to the good or bad name of the different products, services and brands.

B2B is mainly an information exchange space among companies. B2B avails of the Internet to make offers, issue invoices and provide before and after sales assistance.

One of the most significant differences between B2B and B2C is the number of buyers (as highlighted by Pellicelli, 2012). If buyers are only a few, then providers tend to be known (Pellicelli, 2012).

This is very important when considering companies’ actions on the web for at least three reasons. First of all, B2...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• List of Illustrations
• Preface
• 1. Marketing and Digital Innovations
• 2. Digital Channels in Luxury Markets
• 3. Digital Channels: Reference Models for Direct and Indirect Distribution
• 4. Social Media and Integrated Communication in Luxury Markets
• 5. The Frontiers of Luxury Goods Marketing: Social Media Systems and Channels Integration
• 6. The Frontiers of Luxury Goods Strategies: Corporate Social Responsibility and Online Communication
• References
• Appendix 1
• Appendix 2