By Richard Dixon There was once a time when luxury brands stood aloof, commanding loyalty through reputation and heritage alone. Products were clearly everything and sold themselves. Customers only touched the brand person to person. Communications were issued through broadcast channels of prints, ads and sponsorships. Brand loyalty was often passed from generation to generation. At the beginning of this century, there was a dramatic shift in luxury customer values. The lines between luxury, premium and mass market started to blur. More new brands entered the fray and now competition is tougher than ever before. Added to this, the entire industry must now cope with 24/7 real-time interactive communications and customers are demanding to be treated as individuals. But luxury brands have failed to invest in managing their customer relationships. Magnificent seven According to research by the Luxury Institute, fewer than 20 percent of luxury brands know the value of their customers and fewer than 50 percent tailor their customer communications. Customers will remember the brand that remembered their birthday or what they choose when they last shopped. Ninety percent of luxury brand communications focus on promotions or special offers – only 10 percent tell stories or evidence the brand. And this is what sets luxury brands apart – the unique history, the expert craftsmanship, the story behind the brands. This is the opportunity for the brand to create the personal bond, and build the relationship that will last. According to PricewaterhouseCoopers, customer retention has profound implications. For many companies, up to 95 percent of profits come from long-term customers. But luxury brands fail to retain even half of their top customers each year. 1. Create a distinctive value proposition Luxury brands need to firstly define their positioning for the loyalty proposition, how aspirational it should be and the type of rewards that will best build customer relationships. Loyalty propositions should be carefully constructed to protect the attributes that are key to the brand perception and positioning. Exclusivity and individuality should be preserved at all costs. A one-size-fits-all program is best avoided. At the center of it all should be the customer promise. This is the overarching idea which binds the program, benefits, rewards and communications together. 2. Define the exchange of value in the relationship Loyalty requires a long-term relationship. A relationship is two-way, valued by customers and delivering value to your brand. It may seem an obvious statement, but only trusted brands generate customer loyalty, especially in the current economic climate. Luxury brands should engage customers through emphasizing their long-standing reputation, legendary designs, deep-rooted influence on their industry, expert craftsmanship and unrivalled customer service. In short, luxury brands should negate any perceived brand risk and continually remind the customer why she chose the brand in the first place. 3. Map your desired customer journey From recruitment to welcome to engagement to enrichment, map out each customer touch point. Customer retention will improve if you can detect the stages at which loyalty falters and intervene accordingly, positively impacting your bottom line. Luxury customers, by their nature, expect a higher level of service. So if standard objective is to ensure that all interactions are consistently satisfying the customer, then you as a luxury provider should to go above and beyond, and exceed these expectations. 4. Develop a personalized, interactive communications program The objective of your program should be to create a positive connection between your customers and your brand. Your communications should highlight what is unique about your products or services and build the emotional bond as the power of this intangible connection is what makes customers three times more likely to recommend and repurchase. 5. Enable your customers to become active brand ambassadors The top reason for staying with a brand, named by 44 percent of those who never shop around, is brand affinity, which refers to the emotional connection to the brand. Recognition of their loyalty through reward concepts or crediting your best customers with a higher status will encourage word of mouth recommendations which are hard to obtain and extremely valuable. 6. Collate and join your data to generate penetrating insights As channels multiply, it becomes more difficult to track sales and deliver a seamless experience. However, tracking customer activity end to end enables analysis of customer behavior changes and campaign results. The challenge is that luxury customers are private people and are often loathe to part with their contact details. Sufficient incentives and assurances should be provided. Gathering personal preferences will also allow you to develop personalized communications and shape your loyalty proposition, all making the customer more satisfied. 7. Evaluate performance to drive customer value growth Using the increase in customer value and customer tenure, the incremental lifetime value of the customer can be calculated, which in turn enables prediction of the long-term effect of customer marketing activities. This is a critical element of the marketing mix, as it ensures the underlying impact is evaluated and secures long-term profitable customer relationships. The end result should achieve the twin effect of maximizing both ROI and of your customer value. Richard Dixon is director of customer marketing at Black Sun plc, London. Reach him at rdixon@blacksunplc.com.