August 28, 2012

Checking In: 5 Predictions for Prestige Brands in 2012

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5 predictions on digital developments that will affect prestige businesses in 2012.

L2 is a think tank for digital innovation. We help our prestige brand members increase their Digital IQ. We have identified seven trends in 2012 that we believe will affect how prestige brands build their brand online.

Mobile and iPad Commerce will triple in 2012.

For the first time In Q4 2010, shipments of smart phones and tablets exceed shipments of PCs globally. U.S. consumers spend 94 minutes a day on mobile apps versus just 72 minutes browsing the web.

Affluent users are even more active. While 7 percent of overall web traffic in the U.S. is registered from a mobile device, 14 percent of search volume for prestige brands occurs on a smart-phone.

The iPad only heightens these statistics. Many prestige brands have registered conversion rates 2 to 3 times higher on an iPad than on a traditional PC.

Over the past 24 months prestige brands have made significant investments in building their Facebook communities. However, while many icons including Chanel, Dior and Gucci boast pages of 5 million plus strong, brands are still trying to unlock how to monetize their communities.

Some brands including Diane von Furstenberg, L'Occitane and Tory Burch have turned to F-commerce. While these initiatives generate significant press and signal innovation to their consumers often conversion rates and sales are a fraction of what they see on other digital channels.

The powerful data around Facebook return on investment is the incremental traffic the platform generates.

Burberry recently passed 10 million fans. In 2010 1.9% of traffic to Buberry.com originated from Facebook. In 2011 the percentage of traffic from Facebook skyrocketed to 29%. Furthermore Burberry fans are 10 times more likely to visit the Burberry site suggesting they aren't only advocates but also customers.

Tumblr, Instagram and Pinterest are words you'll hear more of.

Emerging platforms, Tumblr, Instagram and Pinterest all boast highly visual interfaces and attractive, female-centric user bases that fit hand in glove with the digital marketing strategy for most prestige brands.

Blogging platform, Tumblr, boasts more than 13 billion page views per month with a retention rate estimated at 85 percent versus just 45 percent for older micro-blogging sibling, Twitter. Brands from Alexander McQueen to Donna Karan have a robust presence on the platform.

Despite being isolated to users Apple's iOS, photo-filtering app Instagram reached 100 million uploaded photos in June 2011, just 8 months after launch. Flickr took more than two years to reach the same milestone.

Pinterest is social media's newest darling. The curation engine is now popular with brands ranging from Oscar de la Renta and Bergdorf Goodman.

E-commerce in China will be prestige brands' biggest door within five years.

The prestige consumer in China is young, digitally-native and obsessed with luxury. However many prestige brands are fighting the last war, and going to market with huge investments in theater retail in Tier One cities.

We believe that brands that win in the Chinese market will invest in robust e-commerce sites that allow them to reach consumers in Tier Two and Tier Three Chinese cities where 75% of wealth creation is expected to take place.

Recent data in the Skincare and Cosmetics industry highlights this tremendous opportunity. In 2005, online sales of skincare and cosmetics brands in China represented just 2 percent of overall sales. Just five years later, online sales skyrocketed to 11 percent of overall retail, significantly outpacing mature markets in the U.S. and the U.K, just behind online juggernaut, Korea.

We have seen the enemy and it's not who you think it is.

In 2010 a survey of affluents with an average household income of 300,000 plus indicated that 64 percent had a made a purchase online. The same survey in 2011 suggests that in a year that number jumped to a whopping 92 percent.

When asked their favorite websites they indicated:
Number 5: Zappos
Number 4: Overstock
Number 3: Group-On
Number 2: eBay
And, Number 1: Amazon.

Amazon is growing five times the rate of overall retail and three times the rate of e-commerce in the U.S. Even more staggering, the behemouth currently registers a 37% share of all m-commerce transactions in the U.S.

In our 2011 Digital IQ index Beauty, we registered that more brands registered Amazon as a top upstream and downstream site than Sephora. Surprisingly, prestige beauty brands, which had no active presence on the Amazon platform often drove the most traffic, suggesting consumers might be going to the site to price compare.

We believe Amazon is at the center of a tectonic retail shift and brands that do not proactively address Amazon as a viable platform risk falling behind.

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