Do loyalty programs work for luxury brands? It’s a fair question. The usual suspects of discounts and coupons don’t exactly scream high-end, but not to worry -- loyalty programs come in all shapes and sizes. In this blog post, we’re taking a closer look at some alternative strategies for luxury brands to leverage in order to motivate their customers to spend more and more frequently.
Choose Your Channels Wisely
It’s vital for all retailers to fuse together online and offline channels in order to create a seamless customer experience, but perhaps even more so for luxury brands, whose customers typically have a longer path to purchase. According to McKinsey, “On average, a luxury shopper will be influenced by nine points of contact with the brand he or she finally purchases.” Among those nine, these are five of the must-have touchpoints for luxury brands: the city store, person to person word of mouth, online search, sales people, and brand website. Rising customer expectations mean that luxury brands must execute each of these touchpoints flawlessly. Brands are required to be omnipresent and accessible whenever their customers want to interact -- no easy feat.
While all of your touchpoints require some TLC it may be prudent to prioritize your focus on the digital ones, as according to McKinsey, three-quarters of the total luxury goods market is influenced by a brand’s digital presence. And as Bain reported, online sales among luxury brands jumped 24 percent in 2017. These numbers will only continue to increase. The key to having a successful digital presence is ensuring that it is seamlessly integrated with your other channels, including stores. It is no longer enough to send a one-off message on a single channel -- marketers must continually adapt to channels on which customers will respond, which varies by customer.
Your Loyalty Program Foundation
Luxury brands are rightfully skeptical about how applicable and relevant traditional loyalty programs are to their customers and brand image. We’ve outlined a few guiding principles for luxury loyalty programs below.
- Program is comprised of different Tiers, determined by how much a customer has spent. The program will offer different benefits and rewards based on Tier.
- Create a differentiated program that’s difficult to replicate. What sets your brand apart from other brands? Make sure those differentiators shine through in your program as well.
- Create a program experience that fulfills the emotional needs within luxury. These include personal connection, convenience, recognition & status, and exclusivity.
- Ensure in-store employees have the ability to exceed the confines of the program structure at their discretion.
- Deliver personalization that conveys an understanding of the customer lifestyle, as well as individual preferences, through robust data capture beyond merely transactional behaviors.
Focus on Lifetime Value
- Customer engagement through the program should serve to increase overall spend by way of frequency, cross-category and cross channel shopping.
- Program should overlay with PLCC and drive more value to PLCC customers (often the best customers).
- Cultivate long-term value within the Millennial and Gen Z demographic (Forbes reported that Millennials and Generation Z will make up 45% of the global personal luxury goods market by 2025).
Loyalty Strategies for Luxury Brands
It’s not uncommon for the majority of a luxury brand’s business to come from merely 20% of their entire customer base. As a result, many are focused on increasing the frequency and spend of this segment. How do they do it? Luxury loyalty programs are all about rewarding customers by adding value, rather than slashing price. Here are a few suggestions:
McKinsey reported that about 80 percent of luxury consumers use social media on a monthly basis, 50 percent on a weekly basis and more than 25 percent on a daily basis. These consumers aren’t just mindlessly scrolling either; they’re actively sharing photos, videos, product reviews or re-posting other users' content. Millennials like a brand more when that brand uses social media, according to Deloitte. This is important because social interactions with a brand can be a great way to start the customer journey and plant the seeds of loyalty.
Buy-one-get-one? Not so much. Instead, send your top-spending customers invites to exclusive events -- like a new store opening or fashion show -- and give them access to special services -- alterations, personal shopping, etc. -- at no additional charge. Consider the reasons why customers shop with your brand. They likely include status and quality; the experiences you deliver through your loyalty program should fulfill both their perceptions of your brand and their perceptions of themselves.
Make Shoppers’ Lives Easier
When designing a loyalty program for luxury shoppers it’s critical to empower and activate your store associates and customer service personnel with the data they need to deliver an exceptional shopping experience. For example: leveraging location data, Nordstrom gives in-store employees the ability to track when a shopper who reserved clothes online through the app is on their way, so that the associate can prepare a fitting room with the customer’s merchandise before she arrives.
Incentives and recommendations are only useful if they appeal to the customer. Taking your best guess on what an individual might be inclined to purchase won’t cut it. Instead, leverage your customer data (which is hopefully stored in a dynamic customer profile that’s updated in real time) to deliver highly personalized recommendations based on past purchases and activity. The right product offering + the right incentive = more incremental activity.
The traditional way of thinking about loyalty is out of style, and never really fit luxury brands anyway. In order for luxury brands to increase spend among their best customers, they must ensure they have the right resources (this means both technology and people) in place to provide an incredible, tailor-made experience across all their touchpoints.