Fred Thompson is retail practice leader at LoyaltyOne
By Fred Thompson During the first quarter of 2014, The Wall Street Journal reported on the slowdown in the luxury retail sector, noting that luxury consumption will grow at a mere 6 percent this year compared to 7 percent in 2013 and 11 percent in 2012. Compounding this slowing growth, the luxury landscape has become increasingly crowded as retailers seek new ways to differentiate themselves from entry-level competitors that are rapidly capturing market share. Luxury retailers need to quickly re-examine their customer loyalty strategies to ensure that they are as sophisticated and effective as the other areas of the customer experience. Why have luxury marketers lagged in adopting loyalty? Class of its own One of the myths regarding loyalty and luxury customers is that this audience does not value rewards because its wealth is inherited, and they are indifferent to price and loyalty strategies. Studies by the Harrison Group, as well as other researchers, confirm most luxury consumers today come from entrepreneurial wealth and middle class backgrounds. These newly affluent customers tend to reflect their middle class values in their buying behavior – and in their attitude toward customer loyalty programs. Another myth says that rewards strategies are too down-market, using broad-based consumer appeals that do not apply to high-end clientele. While affluent consumers have high expectations of elevated service levels, preferential treatment and insider access, they also consistently rank rewards at the top of attractive elements of a loyalty program in research. Loyalty initiatives should integrate exemplary customer service with promotions, bundling soft benefits with hard rewards. In fact, the luxury market is at a tipping point in terms of openness to loyalty initiatives not just for brands, but for retailers. Department store chain Bloomingdale’s has established a case for a more inclusive program. The “Loyallist” initiative, established in 2012, now has a successful track record as a multi-tier, points-based program. The retailer has increased member participation and average spend as well as captured greater amounts of customer data for enhancing marketing efforts. Cosmetics marketer Lancome recently unveiled Elite Rewards, designed to increase customer acquisition and retention, with an emphasis on social media and content promotion. The structure of the program helps Lancome establish direct relationships with customers. More efforts are expected to launch shortly. Ultimately, the question for luxury marketers is not “Is loyalty important to us?” but rather, “How can this approach best be used to amplify our brand in the market?” Three’s the charm Here are some initial steps for creating a successful loyalty strategy in the luxury segment: 1. Do not approach loyalty as a program, but as an overall customer relationship enhancement strategy. It is a mistake to launch a loyalty initiative as you would a marketing program. Instead, it should be part of the holistic marketing mix: consider loyalty along with pricing, merchandising, customer experience and promotions. 2. Align with employees. Especially in a retail setting, make sure the loyalty initiative provides strategic tools for floor associates that are highly branded and relationship based. Monitor and collect feedback to refine the tools and the clienteling process. Employee buy-in is crucial: if they do not embrace it, customers will not. 3. Go beyond the traditional models. There is no reason that luxury brands or retailers should be constrained by old formats or paradigms such as tiers or points. Design an integrated, elegant strategy that provides the customized customer experience that results in long-term loyalty. MARKETERS NEED TO leverage the flexibility inherent in loyalty programs and design them to be as unique and aspirational as the brands they represent. With those guidelines in mind, brands that engage their customers with premium products, exemplary customer service and well-architected loyalty strategies will expand their market share in the increasingly competitive luxury marketplace. Fred Thompson is retail practice leader at LoyaltyOne, Toronto, Ontario, Canada. Reach him at fthompson@loyalty.com.