Why Service Design Is Luxury's New Battleground

Most Legacy Luxury Brands Are Failing at Delivering Service, Especially Online

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If you happen to order something from Balenciaga.com, better hope that it fits. Otherwise, you may find yourself going through the following multi-step scenario, which starts with taking your package to the store only to be told that it doesn't take returns for orders made online. The journey continues online when you fail to find return instructions and address on the website. You then call customer service. A rather aloof assistant on the other end of the line (this is Balenciaga, after all), will inform you that she will send you an email with the form that needs to be attached to the package in order for it to be returned. She forgets to do it. After the successful second call, your package is finally on its way back to where it came from.

If this sounds complicated, that's because it is. It shows the palpable struggle of luxury brands to articulate their core value unit and transform the business they are in.

The core value unit refers to the element (product, service, information, content, social currency, etc.) that is being created or consumed. Traditionally, the core value unit of luxury retailers has been their product. Everything they do to transfer this core value unit to their customers -- supply, production, distribution and marketing -- consists of value-adding actions revolving around the product.

All but three of the top 10 of the world's largest startups do not have any physical products to speak of. The core value unit of Uber -- the list's leader at $51 billion -- is information about drivers' availability. Airbnb's core value unit is the apartment listing. These companies transfer their core value units to their customers through value-adding actions that revolve around seamlessness, convenience, speed and efficiency.

The world's most valuable startups today are all in the business of removing friction in providing service to their customers.

The fact that most legacy luxury brands fail to successfully create and deliver service is unfortunate. The business of luxury retail today increasingly involves browsing and shopping online, via aggregators and on editorial sites, on mobile and in-store. It involves multiple touchpoints and diversity of consumer demands and expectations. Customer service and CRM are part of this experience.

By being slow to act, luxury brands open up their markets to outsiders who are faster to innovate and nimbler to respond to evolving customer standards. Customers, spoiled by the service they get from modern brands like Tesla, Net-a-Porter, The James Edition or One Fine Stay, expect the same thing from the established luxury players. They turn their attention and their wallets to destinations that most quickly and seamlessly fulfill their desires -- and more often than not, those destinations are not legacy luxury brands' websites and boutiques.

This situation is even more unfortunate if we remember that most of the luxury brands achieved their status and prestige not only by offering high-quality, intricately crafted product, but a superior, efficient and personal service at the ateliers of their founders. Those founders all sold a dream of sorts, but they also delivered it with excellence that allowed them to turn their brands into global companies.

The luxury brands of today all still want to sell the dream and the lifestyle. More than ever, they have the means and the opportunity to do so. Digital technology liberates them from the confines of print and video and propels them into the deeply experiential, data-rich, omnichannel and interactive world. In this world, opportunities to create and deliver value are endless, even if and when they do not involve a product purchase.

This world also allows companies to use service as a strong branding tool, competitive differentiator and a way to create customer lock-in. In terms of the latter, customers' emotional satisfaction and brand affinity are a byproduct of the pleasure with the quality of service they get.

Service design is a matter of organizational transformation as much as it is of management of the social, emotional and physical context where customers experience the brand and the way they move through these contexts over time. The first step in creating a truly service-design centric organization for luxury brands is to shift definition of their core value unit and the brand promise that's built around it.

Today, as always, a company's goal is value creation. The difference is that, in order to create value for themselves, companies first need to create value for their customers.

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