Why Did Chanel, LVMH, Burberry and Hermès Lose Their Brand Reputations?

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Brand reputation and brand loyalty are two related but distinct aspects of a luxury brand’s performance, and they are inextricably linked. Brand reputation is how consumers perceive a brand and its products, services, or experiences. It is based on various factors such as product quality, brand heritage, pricing, advertising, corporate social responsibility, and customer service.

A strong brand reputation helps attract new customers and enhances customer retention rates. For luxury brands like Rolls Royce and Rolex, reputation is essential in establishing an aura of exclusivity and desirability for those who can afford these brands and aspiration among those who can’t yet, but may in the future.

Brand loyalty, on the other hand, speaks to the relationship between the brand and its customers. Reputation brings customers in and loyalty measures how effectively the brand lives up to its reputation and promises.

Loyalty is the degree to which customers are devoted to a specific brand, demonstrated through their repeated purchases or strong advocacy for that brand. Loyal customers are invaluable for brands, as they contribute to a significant portion of the brand’s revenue and often act as brand ambassadors.

Brand loyalty and brand reputation create a virtuous circle: A strong brand reputation builds customer loyalty, further enhancing brand reputation. However, according to RepTrak’s latest brand reputation study, many luxury brands’ reputations fell this year. That could present more challenges to luxury brands just when they need loyal customers the most as dark clouds hang over the global economy.

Reputation Recession For Some, Not All

For the past two years, RepTrak found the overall reputation scores across thousands of brands it tracks with global consumers declining. After the overall RepTrak Reputation Score reached a high in 2021 of 74.9 points, it fell to 74.2 last year and continued its downward trend to 73.2 this year. Its reputation scores are measured on seven dimensions – Products & Services, Innovation, Workplace, Conduct, Citizenship, Leadership, and Performance – and it’s been in the reputation tracking business for some 20 years, so it knows its stuff.

Calling it a “reputational recession,” Stephen Hahn, global executive vice president at RepTrak, said a five-point decline in a brand’s score results in a 4-5 percent decline in customer support that can impact all business outcomes. Imagine losing just 5 percent of your loyal customers because they no longer trust your brand.

“Much of the decline is related to ESG perceptions. We’re assessing companies with higher expectations of doing more and unfortunately post-COVID, they’re not quite living up to those expectations,” said Hahn. If they don’t fill those expectations in the court of public opinion, we don’t see them as reputedly relevant for what we want to accomplish as human beings in society.”

Luxury brands regularly claim coveted spots on the top 100 list, but this year, 12 of the 13 personal luxury brands listed in the top 100 declined on average 15 positions and Adidas fell off the list entirely, after reaching number 16 last year. Note: The report doesn’t provide the actual reputation score, only the companies’ ranking, so the top 100 list is comparative showing how one brand is doing relative to another.

However, Hahn notes that these personal luxury goods brands are already doing well in terms of good conduct, good citizenship, and other social-related issues, so something deeper is going on.

“It is less about conspicuous consumption and more about capitalism with a conscience,” he said. “They must reflect the values of the people they serve and that ties back to the deeper more intrinsic values of the brand rather than the extrinsic ones. You’ve got to align with people’s needs on a more meaningful level.”

Yet while fashion luxury brands were on a losing streak, home luxury brands rose eight positions on average. Bosch reached number two in the RepTrak 100, second after Lego, Dyson rose 13 positions to number 11 and Whirlpool advanced 23 to number 76, making them the biggest home gainers. Also on the list were Miele at number seven, LG at 82, and Electrolux at number 92.

Be Good, Not Just Look Good

These conflicting results suggest a substance-over-style shift in the luxury consumers’ value system. Luxury brands that provide a functional purpose, i.e., do something, such as home appliances, had an easier time managing their reputations than brands that just say something, i.e., fashion which is largely about subjective style.

Consumers’ drive toward luxury is shifting from conspicuous consumption to celebrating one’s individuality and purpose. “Luxury brands must be more aligned with a sense of self-worth, versus net-worth, where the intrinsic values define purpose,” RepTrak’s Hahn explained.

Traditionally, luxury goods have been a marker for status, wealth, and worldy accomplishment, and their purchase is largely motivated by a desire for self-gratification and ostentatious indulgence. Aspirational messages have been the hook for consumers to indulge.

But for purposefully-functional goods, like luxury appliances, the aspiration they celebrate is tied to self-worth. “It’s that sense of admissibility that I worked hard to achieve success and deserve this very special thing or experience,” Reptrak’s Hahn explained.

“It is a symbol of self-reward. I buy an expensive dishwasher because it’s quieter, better quality, and gives a greater sense of home comfort. The deeper reward is intrinsic rather than extrinsic that might be driven by ostentation,” he continued.

Since a luxury brand’s reputation is so important to earning luxury consumers’ brand loyalty, this year’s slip in personal luxury brands’ reputations is a wake-up call for brands to pivot to more objectively, quantifiable messages around greater quality, heritage, value, and comfort that consumers will find with them. That is the aspiration that brands should lean into.

“Brands have to shift the expression of how they tell their stories in terms of the promises they intend to keep. That is the story they should put out into the world so that people view them in a different light that connects with their humanity,” Hahn suggested.

Luxury Brands Held To Higher Standards

Luxury brand reputation creates its aspirational aura and that leads to brand loyalty if it meets those higher expectations. Top on the list of what affluent consumers expect from a luxury brand is a reputation for excellence and RepTrak’s study shows that may be slipping.

This data is from a recent survey among luxury consumers conducted by The Affluent Consumer Research Company. The survey included a sample of n=200 affluent consumers who said they were loyal to one or more luxury brands.

The results provide valuable insights into the mindset of high-net-worth luxury consumers ($ 1+ million assets excluding home value), a notoriously hard consumer to survey. Some 70 percent of the sample were HNW consumers with high-earners-not-rich-yet (HENRYs) making up the other 30 percent.

The fact that LVMH, Burberry, Hermès, Chanel, and the others fell so far in the RepTrak top 100 is an early warning that something may be amiss in the hallowed halls of luxury. Brands may not be living up to consumers’ heightened expectations for excellence, customer service, originality, and timelessness.

Early Warning

Luxury brands pay a heavy price when their reputations for excellence drop. It puts customers’ brand loyalty in jeopardy. Neither can be recovered easily.

“Brands are like people. Every brand is a construct in the mind of consumers, where we develop mental models of brands, essentially a heuristic,” observed Chris Gray Psy.D., The Buycologist. “It tells consumers what they are going to get and can expect from the brand. In the field of psychology, it’s called object relations.”

“If a brand’s reputation is strong, it is perceived as having high value to the consumer. They are willing to go out of their way to spend resources, time, money, even frustration to be part of the brand,” he explains.

And since, taking part in a luxury brand requires a large monetary investment, its reputation is even more important than for other brands. “When a brand’s reputation suffers, that means something negative is happening with that mental model. It can lead to avoidance behavior,” he shared.

“Luxury brands can become too self-centered, focused too much on their own appeal. When that happens, it is at the expense of acknowledging its consumers and connecting with their needs,” he continued. “In the same way that self-centered people are difficult to connect with, self-centered brands can be off-putting to consumers, damaging the relationship and driving them away.”

Mixed Signals

It’s still early days to measure how the drop in reputation may impact luxury brand revenues. At least for LVMH and Hermès’ most recent quarter, growth was strong, up 23% and 17% respectively. But other luxury brands experienced a slowdown during the final quarter of 2022, and Milton Pedraza of The Luxury Institute suggested that luxury brands’ revenues may have gotten a boost from higher prices, rather than an uptick in demand.

“For all top-tier luxury brands and groups, a major portion of the growth in 2022 has come from strong pricing, and much less from like-for-like volume growth,” he said. “Even HNW (high-net-worth) and UHNW (ultra-high-net-worth) consumers tell the Luxury Institute that continuing to increase prices for the same products has its limits. We expect growth to be subdued for most of the luxury industry in 2023 and recovery in 2024.”

Don’t Just Talk Luxury, Be Luxury

Brand loyalty will see luxury brands through the tough times as the global economy hangs in the balance. And brand loyalty hinges on brand reputation. However, RepTrak’s latest reputation study shows many luxury brands face challenges ahead with their reputations waning.

As RepTrak’s Hahn said, “The wake-up call for luxury companies is that just having good products and services does not guarantee you strength in reputation. You’ve got to be more than luxurious.”The title of “luxury brand” must be earned in the hearts and minds of consumers, and it can’t be a label that a brand claims for itself.

Ultimately, luxury isn’t a product or a price point, but a mindset. The core values expressed by the brand must reflect the customers’ values and aspirations. And those values must be demonstrated through the company and its staff’s dedication to quality at every customer touchpoint. In this way, a luxury brand will earn a stellar reputation and devoted brand loyalty will follow.

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