Luxury Institute: New Rules for Data-Driven, High-Performance Client Retention

As consumers flock back in the post-pandemic era, premium and luxury brands are ramping up their marketing and innovation efforts. For many brands, client acquisition, vs. retention, has been the top marketing priority, despite the far less favorable economics. However, as legendary marketing guru Ted Levitt stated simply: “No business can function effectively without a clear view of how to get and hold clients.” Peter Drucker, the management guru, contends that because the purpose of a business is first to acquire, and then to retain a client, the business enterprise has two, and only two, basic functions: marketing and innovation. “Marketing and innovation produce results; all the rest are costs.” Especially with a premium or luxury, good or service, where high-value, high-emotion purchases are involved, the brand should strive to keep a client for life.
The economics say that a 5% increase in retention can increase profits by 25-95%. Premium and luxury categories, by nature, are long-term client relationship-building ventures. Below are seven new rules to super-charge a premium and luxury retention program with new high-performance marketing and innovation rules that drive maximum results:
Rule #1: Start with current client value metrics
The simplest, most powerful approach to determining the client’s current value is to do a calculation of their recency, frequency and monetary value (RFM). This is a decades-old, tried-and-true method. In most luxury companies, including most goods and services, the top 5% of clients account for about 40% of sales while the next 15% of clients account for 30% of sales. The bottom 80% of clients account for the remaining 30% of sales. Many companies use their transaction data to calculate client lifetime value, but often they don’t know much else about most clients. Third-party data that is purchased is only about 40% correct, so it is very hard to guestimate potential “lifetime value” by customer. Current client value is a good start to retention, but it is impossible to calculate accurate lifetime value and needs without adding highly reliable predictive data.
Rule #2: Behavioral data direct-from-the client is your new secret weapon
Transaction data, which comprises a majority of first-party data, is limited in prediction power. At the top of the client pyramid, the private client team knows a great deal about their top 5%, the V.I.P. segment. Clients at this level often share a great deal about habits, tastes and preferences with their personal shopper. Retention is easier and highly proactive for this segment. For the next 15% of clients, brands have far less data. These high-value, high-potential clients are often assigned to a store sales associate, but the discipline for follow-up is mixed, often because little is known about client demographics, true needs and relationship potential. Retention efforts are mostly a random, blind process. Within the bottom 80% of less frequent buyers are many high-potential clients. But without data, beyond transactions, that illuminates a deep understanding of these clients; the default marketing effort is to continuously spam this segment with irrelevant offers to see what sticks. Not much does.
Retention projects now have a source of rich behavioral data to gain deep understanding of the client segments that comprise 95% of the base. Using the DataLucent personal data exchange, brands design a branded client data sharing loyalty program to license clients’ Facebook, Instagram, Amazon, and Google data, in exchange for coveted rewards and benefits.
Today, 59% of consumers feel that loyalty programs enhance their shopping experience. Nearly 72% of all adults participate in at least one loyalty program. Brands can reward data program members with unique extraordinary experiences as well as incentives that encourage purchases. Initial data licensing response rates are 7-10% depending on the reward. By licensing authenticated behavioral data directly from a representative sample of two value segments (e.g., a panel of 1,000 or more clients per value segment) the brand gains laser-focused visibility into validated demographics, behaviors, needs and preferences. The brand achieves never-before-attainable actionable insights into sub-segments and audiences that live within its client base to generate predictions and recommendations that are highly likely to convert to sales.
Rule #3: Nurture, don’t overwhelm your top 5%
Brands face an extremely delicate balancing act with their most valuable V.I.P. segment. Clients in this segment often complain that brands constantly try to sell them more, as if the client resources, and desires for the brand, were unlimited. Brands need to innovate exclusive services, custom and limited-edition products for this group. Instead of annoying the client with constant contacts, relationship managers should be innovating unique, extraordinary experiences and events that inspire the client to attend and/or to refer family members, friends and colleagues. Client value formulas at this level of loyalty should include purchases, but as purchases max out, client value calculations should include the number of members of their network referred by the client and each referred client’s lifetime value. Luxury Institute has worked with private jet, wealth management and luxury real estate brands to develop systemic customer retention and referral programs that have yielded huge returns from this V.I.P. segment.
Rule #4: Focus on building your next high-probability tier of clients
The 15/30 segment delivers the next highest loyalty, has demonstrated affluence, and has the highest probability of increasing in value near-term when developed intelligently. Combining current client value and predictive behavioral insights from DataLucent, the brand can now calculate accurate lifetime values for each client, identify needs, and prioritize relationship-building efforts. These high-potential clients can be assigned to top store associates in their geographic area for human engagement, even if they are online-only clients. Through analytics, brands can design high-probability recommendations to clients in order to build deeper relationships that add mutual value. The insights generated by this vibrant segment’s behavioral data can lead the brand to understand where they can take market share from competitors with products that either have not been presented to the client or that can be originated to serve newly discovered customer sub-segments that populate this high-value zone.
Rule #5: Discover and build relationships with your bottom 80%
Due to lack of data, brands are flying blind on this massive number of clients. Unlike mass brands that are commodities, luxury brands can ill afford to ignore 80% of their client base simply because they know little about them. DataLucent personal data exchange insights shed new light on the needs and desires of the various sub-segments of customers that live in this highly underdeveloped, often ignored, group. The data will identify look-alike client segments that are high-potential to be top-two tier clients. One rule in dealing with this segment is to humanize and personalize communications. Once the prediction and recommendation algorithms do their magic, emails, texts and calls must be originated by sales associates. For example, Luxury Institute has worked with a luxury fashion client where, using these techniques, low value and dormant clients converted at rates above 20%.
Rule #6: Emotional Intelligence is the secret ingredient of relationship-building across all customer value segments
Rich, relevant, timely data licensed directly from clients that drives high-performance algorithms will dramatically increase the probability of the brand getting the right offer, to the right client, at the right time to drive retention. Irrespective of channel, the communication must embody the four elements of emotional intelligence that Luxury Institute identified over a decade ago. These elements: expertise, deep empathy, trustworthiness and kindness, identified working with neuroscientists and psychologists and proven with dozens of brand relationship teams, must be used with every client within every customer value segment. In luxury, even online sales must be imbued with a human element. Humans were starved for human connection even before 2020, and the top-performing luxury brands will always nurture and invest in human development for their associates and their clients.
Rule #7: Use data to innovate the right products and services to retain and upgrade clients in each value segment
Many luxury brands develop products in a creative vacuum. That can work, but it limits the ability of brands to scale to a revenue and profit level where they can nurture deep, enduring relationships with their entire client base, across generations, at scale. The megabrands of luxury, such as Hermès, Louis Vuitton, Chanel, Gucci, Rolex, BMW, Mercedes-Benz, and others develop a product line of highly specialized products at the top, and also offer a portfolio of tried-and-true, highly coveted products, which often are classic, ageless and timeless. It is an imperfect science of experimentation, but the reality is that all brands are beginning to use client data to enhance the pinpoint commercial accuracy of their creativity. Especially in the age of sustainability, brands cannot afford to create waste due to unpopular, unsalable inventory. Premium and luxury brands that design products and services using rich, relevant, timely direct-from-the-client data inputs will enjoy the highest probability of deepening customer relationships going forward.
“The days of blindfolded retention programs are over,” said Milton Pedraza, CEO of Luxury Institute and Chairman of DataLucent. “Brands that optimize the new rules of data-driven, high-performance client retention will thrive by stacking up unfair advantage and taking market share from weak competitors who are stuck in Industrial Age, Piñata-style retention programs.”
About Luxury Institute
Luxury Institute is the world’s most trusted research, training, and elite business solutions partner for luxury and premium goods and services brands. With the largest global network of luxury executives and experts, Luxury Institute has the ability to provide its clients with high-performance, leading-edge solutions developed by the best, most successful minds in the industry. Over the last 18 years, Luxury Institute has served over 1,100 luxury and premium goods and services brands. Luxury Institute has conducted more quantitative and qualitative research with affluent, wealthy and uber-wealthy consumers than any other entity. This knowledge has led to the development of its scientifically proven high-performance, emotional intelligence-based education system, Luxcelerate, that dramatically improves brand culture and financial performance. Luxury Institute has also innovated the Advanced Personalization Xchange (APX), powered by DataLucent, to empower affluent consumers to license their digital platform data to premium and luxury brands they trust legally, securely and privately in exchange for fair value rewards and benefits.
To learn more about Luxury Institute, please contact us at LuxuryInstitute.com
About DataLucent
DataLucent empowers consumers to access and share comprehensive, historical social media data with brands in return for rewards, benefits and personalization via a legal, ethical, secure, transparent and privacy-compliant process. DataLucent’s patent-pending platform navigates consumers through the process of requesting, downloading and transferring personal data from Facebook, Twitter, Google and other consumer platforms, then provides real incentives for individuals to share data with companies they love and trust. DataLucent transforms and integrates data on behalf of consumers across networks to provide unparalleled customer and consumer insights to brands.
To learn more about DataLucent, please visit DataLucent.com
Contact: Milton Pedraza – mpedraza@luxuryinstitute.com 
Source: Luxury Institute