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[7 comments]

One size doesn't fit all luxury consumers

March 28, 2014

Through a special arrangement, what follows is a summary of an article from COLLOQUY, provider of loyalty-marketing publishing, education and research since 1990.

The super wealthy customer (aka one percent) is the proverbial "center of the bulls-eye" target segment for luxury brands across varying sectors — think Four Seasons, Saks Fifth Avenue, BMW, Cartier, Louis Vuitton — but rarely is it the majority. Few of these brands would survive, much less thrive, without the contributions from other less affluent segments. And therein lies the problem and the opportunity around cultivating and securing the loyalty of luxury consumers.

The reality of the new luxury consumer, the dramatic growth in digital commerce and the recession are changing much of luxury's rarified image.

First, studies by the Harrison Group (and others) challenge the notion that the luxury customer comes from inherited wealth and is somehow inherently drawn to exclusive and expensive products and services. In fact, most luxury consumers today come from entrepreneurial wealth and tend to carry their middle class values into their buying behavior. The museum-like quality of many luxury locations — and the doting service levels — are often more repelling than enticing.

Second, the explosion of e-commerce, and all things digital, is rapidly re-shaping the luxury customer experience. While highly attentive, one-on-one service epitomized an exclusive brand's value proposition, bypassing the obsequious sales person is often the goal for many consumers. More often, today's luxury consumer wants to control the experience.

Finally, with a few notable exceptions, luxury growth in the decade leading up to the recession came from raising prices, not adding customers, growing transactions or deepening engagement. When the music stopped in the fall of 2008, many brands saw a relatively brief and minor reduction in business from the top tier, but a precipitous decline in business from the rest of their customer base. Many are still working hard to get back to pre-recession levels.

Unfortunately, the hyper-focus on one segment and one-size-fits-all strategies carried over to loyalty programs as well. Before its re-design in 2008, Neiman Marcus' storied InCircle Rewards program had become largely one-size-fits-all, so long as your size was living large.

When Neiman Marcus created a robust value and behavioral-based segmentation in a new design, it confirmed that its program was far too narrow in its appeal. Point values, redemption options, exclusive member offerings and reward tiers all needed to be re-configured.

Embracing a strategy of treating different customers differently, whether one serves the luxury market or not, requires a commitment to deeper customer insight, an investment in more "test and learn experiments" and building capabilities to design and execute a greater variety of personalized and mass customized offerings and marketing programs.

It is unquestionably more complicated and more expensive (at least in the short-run) than traditional approaches. But in an omnichannel, constantly connected, customer-in-charge world, the old tried-and-true strategies are running out of gas.

Discussion Questions:

What are the particular challenges in creating loyalty programs for luxury retailers and brands? What are the merits of a one-size-fits-all approach versus a tiered approach? Should "treating different customers differently" be the aim of loyalty efforts across channels?

While we value unfettered opinion, we urge you to show respect and courtesy for people or companies about whom you comment. Keep in mind that this is a public, professional business discussion. RetailWire reserves the right to edit or refuse the publication of remarks that we deem unsuitable. We may also correct for unintended spelling and grammatical errors.

Instant Poll:

Does a tiered approach seem more effective than a one-size-fits-all approach in building loyalty programs for luxury stores?

Comments:

The problems associated with creating loyalty programs for luxury retailers and brands are no different than creating loyalty programs for the masses. One size does not fit all. The Internet is the great equalizer. Consumers want to be treated as individuals. After all, haven't they been told that they can have it their way for decades?

Consumers want loyalty programs to provide unique experiences and savings on the items the items they want to purchase. They expect a personalized return in exchange for their loyalty.

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Max Goldberg, President, Max Goldberg & Associates

The challenge in creating loyalty programs for the luxury market is that what motivates the luxury segment is quite different than what is typically targeted by traditional loyalty programs.

The luxury segment is unlikely to be motivated by price and promotions. Rather, customization for this segment is all about communicating, and even creating, the availability of products likely to be highly attractive to the individual. This means that understating the tastes of the individual is absolutely essential. And this is a difficult problem, because luxury purchases occur with far less frequency than do products targeted at a wider audience. This implies less data to learn from, and higher importance of getting each targeting right.

Creating availability can be carried all the way to new product design and manufacturing. Properly understanding the potential appetite for new luxury products is obviously critical. Extending state-of-the-art machine learning techniques from forecasting the sales of existing items to designing new products that appeal to a particular niche, such as luxury, is a rapidly emerging branch of market and data science.

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Dr. Paul Helman, Chief Science Officer, KSS Retail

A one-size-fits-all approach is ridiculous for all brands, but especially for luxury brands. As Steve points out, the luxury consumer is not just the Paris Hiltons of the world, but are mostly new money entrepreneurs with down to earth values. The internet and the Great Recession didn't spare this segment from the chaos they've created either.

As with any business, luxury brands need to know who their customer is and how they want to interact with them. Loyalty programs targeting HENRY's (high earners not rich yet) and their well healed Boomer parents should be constructed to meet the needs of each group. Customers should be treated differently because they are different!

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Marge Laney, President, Alert Technologies, Inc.

Well-to-do people more than any other segment buy exactly what they want, when the mood strikes, wherever they are, almost irrespective of the price. I think luxury retailers pursuing these fickle but determined shoppers through "loyalty programs" is a fool's errand.

'Liatt'

Excellent article. Steven Dennis sums up this discussion nicely in his comment, "today's luxury consumer wants to control the experience."

The days of a one-size-fits-all approach are over. The luxury consumer expects more from the brands they are loyal to, and for all the right reasons.

Omnichannel loyalty programs are key to reaching this consumer and offering different opportunities for engagement should be the aim. The consumer will choose the channels they like and buy in if they are offered an interesting incentive, such as rewards, exclusivity, custom offers or even an interesting mobile app that makes their shopping experience easier.

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Karen S. Herman, Founder & Design Director, Gustie Creative LLC

A one-size-fits-all approach may have worked 20 years ago, but with the explosion of technology from the digital era, the expectation has been set much higher. All consumers expect more, and loyalty programs are one of the best channels to express appreciation for brand loyalty. From personalized offers to discounts to rewards, consumers are looking to be treated as the individuals that they are. For luxury consumers in particular, the desired rewards may not be the same as for other products, but the most important element remains the same: to identify the individual's specific interests, and to cater to those to demonstrate personalized appreciation.

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Alexander Rink, CEO, 360pi

Interesting perspectives re: the affluent and department stores.

My expertise is specialty stores where the issues in marketing to the affluent are different. With the exception of a few big-ticket categories, the top 1% shouldn't be a target for most retail companies. It may be sexy, but they're hard to reach with gatekeepers at every intersection.

Each store is different, so there are no broad answers to how beautiful your showroom or mall should be. But I wouldn't suggest you quickly shun a "museum-like" venue - your environment is part of the experience. Furthermore, my experience isn't that highly attentive salespeople are the problem. The affluent have always controlled the experience and purchase. The issue is that they don't want to be annoyed by the experience. And most retail salespeople are annoying.

Perhaps department stores increased revenue by raising prices rather than increasing customers. Specialty stores, on the other hand, increased revenue by seducing customers from department stores (seduction and desire are pillars of luxury). Specialty stores also intuitively treated each affluent client individually. Department stores and their affinity programs are taking tips from specialty stores that one size never fit all.

Treating clients distinctively is essential. Knowing how they're different and what resonates is the Holy Grail. But, that information is available to retailers - even those with limited budgets.

The impact of the 2008 recession cannot be understated because a large percent of luxury was bought by aspirational customers. And it was the aspirational customer who was most hurt by the economic catastrophe. The difference is the affluent went through a recalibration of values. What used to matter often isn't so important anymore. Family and legacy became paramount, time became currency and technology allowed the affluent to purchase more seamlessly.

Every retailer has to change to survive.

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Christopher P. Ramey, President, Affluent Insights

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