By Howard Schneider, Senior Consultant, Kobie Marketing
When Neiman Marcus shared its Q3 earnings report last month, the luxury retailer announced that year-over-year same-store sales fell 8 percent in the quarter. One cause, according to the company’s CEO: fading customer loyalty.
The challenge is not unique to Neiman Marcus—Saks Fifth Avenue and Nordstrom also report disappointing performance. Neiman Marcus’ CEO, Karen Katz, identified specific factors driving decreased loyalty: the price transparency fostered by online shopping, and the ease of jumping from one site to another. Ecommerce has made luxury brands accessible to more consumers. With so many choices available, brands face more competition for customer dollars and attention than ever before—which makes loyalty and engagement programs more important than ever.
Neiman Marcus’s InCircle loyalty program was a pioneering effort, launched in 1984, years before most retailers entered the loyalty space. The program has been a public favorite and industry leader over the years, offering an attractive and addictive mix of valuable rewards and unique brand experiences and benefits.
A well designed loyalty program can be very effective at engaging customers, driving incremental visits and sales and building brand advocacy. A loyalty program can even help mitigate some of the negative trends in the marketplace cited by Katz. But there are unique considerations to keep in mind when designing a program for a luxury brand.
The Luxury Shopper: The Same, But Different
Affluent customers love a good deal—or a valuable reward—as much as anyone. But a luxury brand has to offer much more than cash back or a punch card type of program. Customers who patronize luxury brands are looking for a different experience than those who shop at discount stores, so loyalty programs should reflect that difference. Rather than rewarding customers for shopping frequently with standard rewards like added savings or free items, luxury brands should provide a more differentiated, brand-appropriate loyalty experience.
From a business perspective, simply giving away discounts or free goods to frequent shoppers often fails to drive measurably incremental behavior, while eroding margins. Luxury brands more than mainstream stores have many means to add value to the customer experience without handing out discounts.
Tips for Luxury Loyalty Programs:
Offer experiences and benefits as well as hard-value rewards
Material rewards still have a role in an effective loyalty program; members love double points shopping nights, for example. But hard-value is not enough for a luxury brand.
Reward loyal behavior with personalized services that add value without discounting merchandise. Expedited checkout? Complimentary gift wrapping? Concierge services like a personal shopper? A wardrobe or beauty consultation? Invitation to a members-only trunk show? Perks like these reinforce brand values and differentiate a brand from its competitors. Not only are such benefits less costly than cash back or discount—the customer will remember and appreciate a special experience long after she’s forgotten a 10 percent off certificate.
Recognize member status
Stores like Nordstrom and Neiman Marcus have programs that use tiers based on shopper value as thresholds to exclusive benefits and services. Members have to earn status by their loyal behavior; once earned, status is a badge of honor. Recognize your most valuable members by name; demonstrate your knowledge of their preferences, their personal style and taste. “Insider” or VIP recognition can also come in the form of invitations to members-only events like receptions and fashion shows. Partnerships with other luxury brands like Mercedes Benz or Four Seasons can also provide recognition and benefits, extending the loyal relationship outside the walls of the store or the website.
Provide a unified member experience across channels and media
Your brand is your brand at every touchpoint, and shoppers expect the same level of experience instore, online, on your mobile app. Use technology to integrate loyalty program and other functions. When shopping on the app, can members see their status, points balance and other program features? Starbucks, while not strictly speaking a luxury brand, delivers a consistent, luxurious experience for My Starbucks Rewards members. The app displays loyalty earnings, allows for real-time reward redemption, acts as a mobile payment vehicle, enables mobile ordering, and even streams music. Convenience and problem-solving are great loyalty tools.
Luxury brands can create an air of exclusivity with members-only online offers and mobile app exclusives. Last holiday season for example, Neiman Marcus offered a smart mirror similar to the ones in-store as part of its fantasy gift guide. The catch: only members of its loyalty program who shopped through the mobile app could access and purchase the mirror.
In today’s digital world where consumers have more access to luxury brands than ever before, rewarding loyal customers is key for upscale brands to maintain their status. But not all loyalty programs are created equal. Only when luxury brands match the rewards and format to its brand personality will they create a program that keeps customers coming back.