Luxury lessons for loyalty programme operators

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By: Wise Marketer Staff |

Posted on June 5, 2007

Luxury lessons for loyalty programme operators

The Wise Marketer has reported on several schemes over the past few years that could be defined as 'luxury focused loyalty marketing' and, given a recent report (named the 'World Wealth Report' from Merrill Lynch and Capgemini) that highlighted the growing group of super wealthy consumers globally (some 8.7 million millionaires), it is timely that we reconsider what is happening in the world of high fashion and luxury.

Do the super-rich really behave differently when presented with a loyalty marketing initiative, or is it just that they spend more in any case? In fact, a recent research survey by Parago in the US showed that high-income households exhibit greater loyalty and are influenced more by loyalty programmes than average income households. Some 94% of high-income households said that membership in a loyalty, rewards or frequent customer programme had a strong to moderate influence on their purchasing decisions, compared to 78% of all consumers.

Luxury marketing examined To understand better the wealthy end of the consumer market better, Our contributing editor, Peter Wray of UK-based loyalty consultancy Loyalty Matters, attended the Walpole Seminar in London. Walpole was created in 1992 by top-tier luxury branded British companies to promote and develop luxury brands partnerships and understanding of their sector. The organisation presents annual awards for British Excellence and a host of other initiatives aimed to increase awareness and professional marketing.

Walpole is also one of the few organisations focused entirely on luxury marketing and the needs of its membership in the changing world of consumer marketing. Other conference organisers periodically capitalise on the interests of brands in these markets but Walpole goes further in its consistent approach and desire to provide greater insights for its members.

Conference keynote The conference featured a keynote from Julia Carrick (CEO) and Guy Salter (deputy chairman) of Walpole. While Carrick highlighted the major events, achievements and growth of the Walpole community over the previous year, Salter focused his presentation on three broad themes for the consideration of luxury brands:

  1. Losing the human touch?
  2. Technology being passed in a sector that used to be at the cutting edge of new technology
  3. Value and values, with an emphasis upon the ever greater need for genuine 'authenticity' in a world of luxury brands trading down to mass affluence markets and counterfeit attacks on established brands.

Discernment curve In order to provide greater insight into what is going on in the mind of the luxury buyer Walpole has recently commissioned US research company IDEO to help understand the discernment curve, which has as its basis the hypothesis that, as wealth increases, individuals eventually seek ever greater holistic value from the goods and services they acquire.

Mat Hunter, global head of the consumer experience design practice at IDEO, supported Salter's observations with a research-driven project that explored the idea of "understanding the psychology of what is driving consumer behaviour", and he delved into the uncharted territory of "love and respect" from suppliers, rather than any functional or association value. His mantra of what the project is seeking to understand was summed up nicely: "Talent hits a target no-one else can hit. Genius hits a target no-one else can see".

Let the good times roll Lionel Barber, editor of the Financial Times, set the broad agenda in terms of global trends and, although his assessment that "the good times will continue to roll in world economies until at least the first quarter of 2008" seems a little optimistic it does seem a short period in commercial terms, and the management of risk continues to challenge all brands in all markets.

Barber also spoke of the huge liquidity in global capital markets and the never ending search for extraordinary returns on investment. Other presentations featured in this half day seminar included Harrods managing director, Michael Ward, explaining the relaunched Harrods customer loyalty programme and the drive to use the data collected to better understand customers. There was also an excellent presentation from Martin Hayward, director of consumer strategy and futures at Dunnhumby, looking at how Tesco and Kroger (as mass marketers) are using their customer loyalty programmes to drive customer insight and better customer service levels.

Finally, direct marketing agency Harrison Troughton Wunderman (HTW) detailed a direct marketing initiative it had conducted in the USA for Rolls Royce motor cars, and how it had been successful in increasing sales of vehicles that cost in excess of US$300,000. This was an extraordinary example of the sheer power of targeted communications, and support the potential for even luxury brands to understand customers better.

The panel's conclusions The seminar closed with Salter chairing a panel discussion that included the CEO of the Maybourne Hotel Group, the managing director of McLaren Automotive, the chairman of the Admirable Crichton concierge service, and Dr Raj Persaud (a well known psychiatrist and the Gresham Professor for Public Understanding). The panel explored the drivers of consumer behaviour in the luxury brands market, and ways to better engage and understand the target audience.

As Salter observed: "British luxury, like luxury worldwide, is strong and we can look back on another great year. But to continue to deliver these results we need to shift our thinking. We must recognise that the top-down approach is not going to serve us well in the future. We need to rediscover what the founders of many of our businesses instinctively understood, which is - above all - putting people back at the heart of what we do."

This echoed the comments of Lucia van der Post, consultant editor for the Walpole Yearbook: "Money is no longer the name of the game. Insider knowledge, private access, quick fixes, and sophisticated technology - these are the keys to understanding customer needs."

Mass market loyalty lessons So what, if anything, can mass market loyalty marketers learn from the challenges currently facing purveyors of more aspirational goods and services? The first thing to observe is that there challenges are not all that different: All suppliers are facing a developed world of consumers who are satiated in terms of normal consumption. If luxury is something we do not need then ours is a luxury world. In other words, as Hayward put it, "there is just too much stuff out there".

The cross-over buying habits of normal consumers is also a potential source of confusion for luxury marketers, as many consumers will now spend normal incomes on selected luxury brands, while saving money on purchases of less important (in their perception at least) items. These selective luxury buyers must be difficult for the luxury industry to understand. As mainstream grocery players (such as Tesco) extend their brands into 'Finest' ranges and high quality wines, some established luxury brands are reaching out to a broader market with online shopping portals. At some point these two worlds must eventually cross each other.

The irony of the challenge facing luxury marketers is that the mass market players (such as Tesco) and its pioneering work (with Dunnhumby) on customer analysis and insight is exactly the sort of initiative that many luxury brands are going to need for themselves in the near future. They may be masters of brand image management, but they currently appear to have a limited knowledge of customers and their segmented lifestyles. Given that these companies are dealing with generally higher margins and lower numbers in the customer base, this seems to be something of an oversight.

Understanding luxury perceptions What the luxury industry does understand very well, however, is that perception is everything. As Peter Wray says, "If any other customer can access what I can access then it is commoditised and will eventually 'go to value'. Why pay US$100 for a pair of jeans when similar - if not the actual same ones - can be purchased for US$10?" Indeed, creating artificial scarcity and rationing supply can actually increase consumers' desire for a product. For example, the UK supermarket Sainsbury's rediscovered this when its £5 re-usable shopping bag suddenly became a very 'cool' item to possess, and even started to be resold from consumer to consumer on eBay auctions, often changing hands for many times the original value.

So, if everyone can have a product then, by definition, it is no longer desirable as a luxury item. Mass marketers running customer loyalty schemes can benefit from revisiting this idea drawn from the luxury market. It is impossible now to be all things to all people without becoming utterly irrelevant to most. The real value of customer loyalty schemes is the deal that consumers understand so well, and it goes like this: "I'll give you some data about me and my lifestyle - and I will probably only lie a little bit - and you, as a supplier, will use that data to supply goods and services I might want (although probably not need) at a time and place of my choice (not yours). And you'll also only lie to me a little bit."

The bottom line Both mass and luxury brands can learn a little from each other, it seems. Luxury marketers need to deploy the mass market skills of getting better customer insight by identifying and analysing their customers more accurately. And mass market loyalty programme operators need to deploy some of the experiential and artificial scarcity techniques in their otherwise industrialised processes for managing memberships and customer relationships. A bit of glamour could go a long way in the mass markets.

The key concepts, research, market information, and best practices behind the world's most successful mass market and luxury loyalty marketing initiatives are also covered in depth in The Wise Marketer's 950-page loyalty marketing bible, The Loyalty Guide.

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