The luxury sector is in many ways remarkably different from most other business fields, not least as its focus remains solidly on exclusivity rather than trying to reach as many customers as possible. Luxury brands are well aware of the inverted price–demand curve: contrary to other brands, luxury brands often see increased demand for their products as prices go up. A key definition of luxury is exclusivity that combines with quality in order to become something desirable for many customers . Well aware of the importance of exclusivity, many luxury brands actively want to keep the number of customers limited. In the words of Patrick Thomas, former CEO of French luxury brand Hermès: “The luxury industry is built on a paradox: the more desirable a brand becomes, the more it sells, but the more it sells, the less desirable it becomes.”
In line with this paradox, most luxury brands are only available in a few selected places; their flagship stores are often found in the fashion capitals, and customers from all over the world travel to visit them. The servicescape in these boutiques is carefully and exquisitely designed to appeal to all senses to reinforce the desired brand positioning. The service encounter itself should match the high expectations of the customer. As part of the service experience, customers are often served champagne or other beverages and receive personalized and attentive service.
However, the world of luxury is changing, and it is changing rapidly. Millennials and younger generations who have grown up with the Internet are estimated to represent more than half of all luxury customers by 2024, underlining the transformation that this traditionally conservative business field now faces.
This shifts toward a more active digital strategy already started before the outbreak of COVID-19, but the pandemic in 2020 accelerated this transformation further. Many luxury boutiques had to be closed for months. In addition, more than 50% of luxury sales in markets such as France and Italy are to tourists predominantly from Asian countries. Hence, the travel restriction represented an additional problem for the traditional service encounter in luxury boutiques. However, as interactions with customers in boutiques dwindled, digital interactions soared to unprecedented heights. In this sense, the pandemic accelerated a shift toward digital luxury that was already in the making. An industry report from Bain &
Company found the digital share of sales leaped from 12%
of all luxury sales in 2019 to 23% in 2020.

STUDY QUESTIONS
1. What makes luxury services so special that digitizing customer interactions has to be done with care?
2. Did Bottega Veneta do the right thing by exiting social media platforms to focus on its in-store servicescape, or is it futile to try to resist increased digitization?
3. Why might Chanel take a traditionalist approach to the servicescape and service encounter while competitors such as Dior and Saint Laurent embrace digitization and online sales? Do you agree with the approaches these companies take?