One size doesn’t fit all luxury consumers
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.
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?