Luxury Institute's Wealth and Luxury Trends 2014 and Beyond

Luxury Institute's Wealth and Luxury Trends 2014 and Beyond 
A New Model to Increase Profitability 
NEW YORK, NY -- (Marketwired) -- 10/21/13 --  The following is a
White paper by Milton Pedraza, CEO of Luxury Institute, LLC: 
The luxury industry is closing out the final quarter of 2013 and
preparing for another year of uncertainty ahead in 2014. Hyper-growth
in the emerging markets since 2009 is showing signs of softening,
while the year-over-year increases in U.S. sales are picking up
steam. Europe, too, is on the upswing. 
Looking ahead, brands are concentrating on existing stores, price
increases, cost reductions, and emphasizing higher-profit products.
Another area of focus enabling many of these initiatives is improving
customer conversion and retention efforts.  
Providing luxury goods and services to wealthy customers will remain
a growth industry. Market share is the name of the game and
competition is getting fierce in a slower-growth environment.  
We work with dozens of top-tier global luxury brands each year. Based
on recent experiences in New York, Milan, Paris, and London, here are
seven trends that smart luxury brands need to address in 2014: 
1. U.S. Brands Ditch CRM Vendors Who Fail To Deliver Measurable
The honeymoon is over. After investing heavily in CRM systems and
consultants, leading brands are now beginning to divorce their
initial CRM vendors. Many top-tier luxury brands, particularly those
based in the U.S., are terminating their current CRM contracts or
confidentially seeking alternatives. They feel shortchanged by empty
CRM promises at the database and analytics levels. They are also
disappointed with CRM consultants unable to execute simple reporting
requirements to support marketing and front line teams on a timely,
error-free basis. As CRM vendors continuously fail to deliver, look
for the Europeans to stage their own revolts from underperforming
analysts and systems.  
2. Mystery Shopping Is No Way To Boost The Bottom Line 
Luxury executives, mostly out of habit, have opted for mystery
shopping as the preferred method for measuring sales team behaviors.
It's dawning on many brand leaders today that they are often getting
reports that are clearly massaged by the vendors and/or the mystery
shoppers, very much like fake online ratings and reviews. These are
not real shoppers, nor are they even economically qualified to be
luxury shoppers. Combine this with the fact that the number of data
points does not equal a statistical sample, and you get a sense of
the spurious conclusions that can be drawn from mystery shopping. The
concept adds up to wasted resources and falls far short of the goal.
Look for the leading edge brands to abandon mystery shopping as a
relic of the last century that took years to wear thin. Customer
experience surveys and customer metrics can take the mystery out of
mystery shopping and be a better use of resources. 
3. Attribution Model Retribution 
Brands are eager to pinpoint which marketing and sales channels are
most effective so they can invest accordingly. It's not an easy task,
so data scientists have come up with a concept called attribution
Attribution modeling attempts to determine which communication
channels get credit when a prospect uses several of them before
converting into a buyer. Data scientists analyze data and try to
trace the customer purchase journey across touch points. They then
weight the channel results using their own judgment to come up with
an answer. 
There are several challenges involved, including how to account for
unknown offline influences, multiple device usage, and various
digital touch points that may be a combination of social, display,
video, referral, email and search. The inaccuracies are almost
insurmountable. The process is biased from the start due to the fact
that the most readily available data comes from online sources.  
Predictably, the brand channel owner fighting hardest to get the
credit also influences results. Today, data scientists build
expensive attribution models that are very precise but highly flawed.
Look for senior brand executives to demand full accountability from
their teams and stop wasting money on inaccurate models that drive
ineffective spending in 2014.  
4. Not Big Data, Relevant Data  
The Big Data hype became huge in 2013. Since most senior executives
are new to data and analytics, they must act duly impressed by the
promise of Big Data, or they will be accused of being out of touch.  
The reality is that most collected customer data is simply exhaust
and not relevant in making predictions about future spending
behavior. The 20% of the data that gives us 80% of the predictability
models gives us what we term "lift", or a higher probability. This
higher probability that a customer will buy an item is simply that,
increased probability, not certainty. Timing is everything and even a
good predictive model of what a customer might buy next may send the
offer at the wrong time. Demand that your analysts prove to you which
massive data they collect and analyze is relevant and why. Ensure
that the data scientists verify the conversion "lift" of their
models. Make sure that Big Data has a big return on investment.
Sometimes just skip the propensity models and build strong customer
relationships by simply contacting clients and asking how you can
best serve them. 
5. Online Personal Shoppers  
Finally there is innovation in delivering a customer-worthy online
buying experience, and it looks a lot like the offline experience.
The human being is en vogue again. Online-only and multi-channel
retailers are developing personal shopper teams aimed at supporting
their most valuable customers (top 20%) who may require a guided or
curated experience with a trusted expert. Masses of affluent tourists
are a preferred segment since many can be retained online after the
initial store purchase.  
Brands are incentivizing their specially selected and trained
personal shoppers to use digital channels to develop deep customer
relationships based on expertise, trustworthiness and generosity. It
is not cheap, but the low conversion and high attrition rates among
key customers and wealthy tourists require innovation that yields
high returns, even if it is boring, low-tech humanity. 
6. Luxury Outlet Saturation 
Recessions have a way of inspiring luxury brands to explore new
opportunities for development. Luxury outlets are a growth engine
right now. Many luxury retailers are reaching the point where
discount outlets may soon outnumber their full-price stores. Right
now, this strategy has delivered results and outlets are a source of
good profits for brands, but don't dismiss the negative impact this
can all have on a luxury brand. A great deal of the merchandise in
luxury outlets allegedly has never seen a full-price store. It is
made of a lower level of design, quality and craftsmanship, created
specifically for the outlet, and carries faux full price tags that
are then reduced.  
Luxury has rules that can't be violated for long without serious
consequences. True luxury consumers are highly educated and
connected, and allegations have spread across fashion blogs. When you
take the high quality, craftsmanship, and design out of your
products, and also eliminate personalized service, you slowly erode
the brand's heritage and loyal clients will begin to doubt your
legitimacy. Many executives in headquarters are quietly beginning to
worry. Outlets fever will have a corrosive brand effect. The problem
is that short-term growth feels so good and the negatives creep in
slowly. Wall Street will cheer you on. You won't notice your luxury
brand has been damaged until full price loyalists begin to flee in
7. Customer Culture is the New Profit Model 
Like CRM, Customer Culture is a holy grail everyone discusses with
passion, and can even cite the great culture-driven brands such as
Zappos, Nordstrom and The Ritz-Carlton. Although most brands know
their stores and websites are more like vending machines than
relationship building centers, embracing Customer Culture is scary
for many. Some will simply pretend they are customer-centric, while
others do piecemeal work in an effort to create a client-focused
Results from a 2013 Deloitte survey on culture and values show that
companies with a purpose beyond selling widgets have much higher
rates of profitability as well as customer and employee satisfaction.
Luxury Institute's own case studies reveal that data collection rates
can triple and retention can double, especially for the top 20% of
customers who drive 70% of sales. One automotive client recently won
an award for CRM activities such as a 400%+ increase in lead
Brand leaders finally understand that technology, big data, and
analytics are rendered useless without empowered and inspired human
beings that engage the customer daily. We predict an increased focus
on Customer Culture in 2014 as brand executives are forced by fierce
competition and slower growth to innovate.  
Dramatic progress can be seen when brands think beyond products and
channels and focus on customer relationship building. Even Apple has
recognized the potential of further engaging the customer, bringing
Burberry CEO, Angela Ahrendts, on board in a new role to oversee both
retail and online stores. Customer Culture is the new profit driver
in a commoditized and fiercely competitive luxury world. Only the
enlightened will thrive. 
To hear Luxury Institute CEO, Milton Pedraza, speak more about the
importance of relationship building with top clients, watch excerpts
from "Bold Customer Culture: The New Profit Model" presented at the
2013 Luxury Interactive conference. 
About the Luxury Institute
 The Luxury Institute is the objective and
independent global voice of the high net-worth consumer. The
Institute conducts extensive and actionable research with wealthy
consumers globally about their behaviors and attitudes on customer
experience best practices. In addition, we work closely with top-tier
luxury brands to successfully transform their organizational cultures
into more profitable customer-centric enterprises. Our Customer
Culture consulting process leverages our fact-based research and
enables luxury brands to dramatically Outbehave as well as Outperform
their competition. The Luxury Institute also operates, a membership-based online research portal, and the
Luxury CRM Association, a membership organization dedicated to
building customer-centric luxury enterprises. 
Visit us at and Contact Us with any questions
or for more information. 
For Further Information, Please Contact: 
The Luxury Institute, LLC
Milton Pedraza
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