American Marketer


Luxury experiences not up to product standards: Luxury Institute

November 17, 2011


Luxury brands are having a hard time matching high-quality products with premium experiences, making it difficult for them to retain affluent customers, according to findings from a report by the Luxury Institute.

Customer retention is a saving grace in times of economic uncertainty since providing great experiences is what will make consumers continue buying. Personal relationships and experiences are key to this type of success.

“Products have never been a problem,” said Milton Pedraza, CEO of the Luxury Institute, New York. “The industry has gotten its act together and put out superb products in terms of craftsmanship, design and quality.

“But the problem is how to create a relationship from a human perspective,” he said. “When Zappos can out-behave luxury brands in service, there is a huge opportunity to improve human interaction.

“Wealthy shoppers want to engage with luxury brands and are willing to give them personal information if it means that it will increase their customer experience.”

Can spam
A few brands have made an impression on luxury consumers by delivering superb products and customer service.

Approximately 86 percent of consumers do not mind providing personal information to luxury firms if the result is a superior experience, according to the study.

Furthermore, 77 percent will give their email addresses and 50 percent are willing to share product preferences, birthdays and anniversary dates.

The problem is that brands often do not reach out to customers in the right way or in the right increments.

“Luxury brands spam their customers every day, and they get turned off,” Mr. Pedraza said.

“If you earn the confidence of your customer over time, you should be able to text them or call them and that is the human interaction that generates transaction and sales,” he said. “If you just send offers on a mass basis without differentiating, it really is just spam.”

There are some brands that have gone above and beyond, according to the responses by consumers in the Luxury Institute study.

Four Seasons, Ritz-Carlton, Marriott and NetJets excelled in the travel and hospitality category, while fashion brands such as Gucci, Jimmy Choo, Ralph Lauren and Rolex were at the top of their sectors.

Gucci cruise collection 2012

Debt crisis in Europe and in the United States slowed spending during October, but not so much that sales went into negatives.

Nordstrom’s same-store sales rose 5.4 percent in October, but decreased from a 10.7 percent increase in September.

On the other hand, Saks Fifth Avenue’s comparable sales dropped to 1.8 percent in October from September’s 9.3 percent gains.

Meanwhile, Neiman Marcus reported comparable sales that grew 6.4 percent for three months ending Oct. 30.

“Customer retention is in the 10 percent–20 percent range, which is pretty dismal,” Mr. Pedraza said. “There is a lot of slowing all over the world, and BRIC markets have masked the fact that the luxury industry is slowing down dramatically in Europe and a risk of a slowdown in the U.S.

“When there is less growth, the more urgent it is to hook return customers,” he said.

The best way to do so is to provide exceptional experiences. These can come in many forms.

For example, notifications by email of early sales went out to 39 percent of wealthy shoppers this year, down from 45 percent in 2010.

Consumers do want emails, but would prefer if they were customized, the study said.

Another type of personalized service that has increased over this year is the availability of free shipping on purchases and returns.

Retailers such as Gilt Groupe and Nordstrom have used this technique to up their customer service (see story).

Nordstrom offers free shipping

This is the most important “special touch” offered by luxury brands, according to the Luxury Institute.

“There is so much opportunity in the industry to retain customers,” Mr. Pedraza said. “The biggest opportunity is to take the data that is collected and use it to build long-term relationships.

“The more you know about a customer, the more you will be able to customize the offers, whether it is with a handbag or ready-to-wear,” he said.

“There is a huge opportunity, but it is being wasted by a lot of luxury brands.”

Final Take

Rachel Lamb, associate reporter on Luxury Daily, New York