A new report by the Luxury Institute and marketing company Epsilon, emphasises the need for luxury brands to know their customers‘ profiles. While merchandise and the overall experience are unarguably important elements to a luxury brand‘s success, research has shown that luxury brands could be missing major opportunities by skipping the fundamental influence on their profits: the customer.
While luxury brands tend to have a higher price point and average order value by definition, many luxury brands lose 80-90% of the customers in any given year. Those same brands struggle to retain the top 50% of their customers. In addition, only 10-15% of luxury customers cite a first-name relationship with a sales professional.
Milton Pedraza, CEO of Luxury Institute confirms:
“Luxury brands lose half of their top customers every year. The biggest reason why a consumer won‘t come back isn‘t the product – it‘s a rude or inattentive salesperson.”
It‘s therefore crucial for a luxury brand to understand their customer from a high macro level, which could be part of a brand‘s marketing and advertising, down to a granular level, which could be leveraged by individual sales associates in the course of customer relationship management.
Luxury is more often than not, associated with having the financial means to afford higher price points, and to some extent this is true but how exactly can the concept be defined? Says the report:
“Luxury” is a very broad category – it can encompass retail, travel, auto and finance but there is a wide range in these groups. For instance the pricing different between a Coach handbag and a HermÃ¨s Birkin bag is substantial. The same is true for BMW 3 Series and Bentley Continental GT. So is the luxury market that vast? Is it tied only to affluence?”
Wealthy consumers believe that luxury is defined by exceptional quality (the most significant attribute) followed by a brand‘s design and finally customer service.
According to American Express and The Harrison Group, luxury customers prefer elegant stores and wish to feel an in-store experience that is in line with owning an indulgent item. Luxury is a state of mind, and for these customers, close relationships with select sales associates are valued.
The report suggests that typically, there are four shoppers who buy into the luxury market:
Aspirational Shopper: This consumer desires the pieces of high end brands, but does not have the finances to do so on a regular basis. Instead, aspirations are met through outlets, boutiques or low-ticket designer brand items eg. cosmetics.
Moments of Wealth: This type of shopper will save for a specific item from a lux label, investing in one-off purchases over long periods of time.
Dressed for the Part: These are the customers who purchase luxury items to maintain the appearance of someone who lives a luxury lifestyle, but doesn‘t have the means to be a true luxury buyer. This fashion-conscious shopper devotes his/her time on curating a handsome collection of items across fashion and accessories, or a car, rather than on an expensive home.
True Luxe: The True Luxe can afford to purchase luxury items without any concern for the price. This is the consumer who frequents luxury retailers throughout the year.
It‘s imperative that luxury brands understand which customers to place into which category, as there are opportunities for acceleration eg. Aspirational shoppers may complete their degree and obtain a well paid job, after which they may upgrade to the Moments of Wealth or Dressed for the Part category.