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Why Relationship Marketing Is the New Model for Luxury Brands
Posted on April 28th 2014
Whilst most luxury brands have been looking at the rise of social media and digital innovation from a distance, we believe that social media marketing and CRM are in fact a unique opportunity for many luxury brands. These new digital tools give them a chance to reconnect to their core values, employing marketing tactics that were at the foundation of their history: building relationships.
A bit of history…
The success and longevity of luxury brands are typically based on values of craftsmanship, innovation, exclusivity driven by premium pricing and social prescription. Modern luxury brands such as Louis Vuitton (created in 1854) or Chanel (in the 1930s) have built their initial success within a close community of fans. When Vuitton advertised on his shop on Boulevard Haussmann that the Empress Eugenie was a customer, he was already using social endorsement as a marketing strategy. Although from a popular origin, Coco Chanel built her initial success by developing close ties with the Paris fashion community. Most creators still today have built their initial success by building strong relationships with a small community of clients in the show biz or fashion industry. In a word, relationships have always been key to the success of luxury brands.
The end of the XXth century, however, has marked a change of paradigm for luxury. The development of a larger wealthy customer base and the globalization of some leading brands under the leadership of structured industrial groups, such as LVMH, Richemont and Kering, has taken those brands far from their roots and to a new level.
The marketing paradigm of mass luxury
The success story of luxury brands over the last 20 years has been largely due to two phenomena: the invention and execution of a new marketing model and a burgeoning need by consumers to feel special. People of a wide swath of wealth aspire for singularity, quality and a need for identification.
This new marketing paradigm has been based on two main pillars:
1) Brand platforms have focused on institutional messaging, aiming at building a unique brand image and creating a sense of exclusivity and social aspiration. The awareness and image of the brand must be carefully constructed with a particular attention to sophisticated advertising, placed in the most selective outlets.
2) At the same time, leading brands have developed an integrated global distribution network and opened retail outlets in the most exclusive shopping venues (for example the TSUM in Moscow, Wafi Mall in Dubai, Santa Monica Place in L.A. or Westfield in London) with the view to bring the luxury experience and personalized service closer to customers.
Interestingly, this specific marketing model has now become a well identified-standard that has been used in an expanding range of non-luxury sectors with brands such as Apple or Nespresso.
This model, however, is already being challenged. The development of retail outlets as a singular point of contact with clients requires huge investments and will not provide infinite proximity. In an environment characterized by increased competition and the stagnation of purchasing power (excluding the hyper wealthy), growing penetration on existing customers has become a key business objective, requiring more frequent and relevant engagement. Digital media is also changing the way customers spend their time, shop, build and maintain relationships or expect to engage with brands.
Building the new model of luxury marketing
1) CRM as a way to engage with customers
Customer relationship management in luxury must take into account a multitude of factors that are specific to the affluent population. First, communications should be considered with discretion. Secondly, privacy of personal data is sacrosanct. Thirdly, a customer must be considered as the same customer wherever she/he is. In other words, when a Platinum customer walks into any store around the world, that store personnel must be able to pick up where the last store left off. According to the customers’ habits and devices, the relationship and communication channels must be adapted to where and how he/she wants.
2) Omnichannel in an exclusive world
If being everywhere and exclusive are seemingly conflicting terms, the reality is that the customer’s context and reality is seamlessly interwoven among different devices, platforms and physical locations. If luxury brands are to succeed in creating value through the omnichannel existence, branding must be consistently excellent and, yet, thoroughly adapted to the context in which it is being consumed. Such a challenge is rendered even more complex by technical (bandwidth), technological (compatibility) and compliance (CNIL) issues.
3) Social media: the opportunity for relationships?
Most luxury brands have been looking with suspicion at the rise of social media and wondering if and how this could fit into their brand model. Competing for fans and likes was not an obvious fit for many and they started adopting the leading social media platforms only when they realized they could be used just as a new media on which they could broadcast their institutional campaigns. Luxury brands, however, cannot ignore social media as a conversational platform between individuals.
Social media means that brands have already lost the monopoly – if not control – of the conversation on themselves in the public sphere. The presence of luxury brands in forums and social media platforms comes with an inherent risk of commoditization of the brand’s content and values.
New and strong social communities are rapidly developing on social media. Social influence has expanded online. The current (and prospective) customers of luxury brands are building their perceptions, desires and behaviors based on conversations and interactions with their peers online, including friends, family and influencers.
Beyond bloggers – toward a social business
One of the challenges for luxury brands -- especially when anchored in a large corporation -- is to ensure that the brand's purpose and authenticity remain intact. In a world of increased transparency, luxury brands need to ensure impeccable products and service, with a heightened sense of values and ethics. Luxury brands need to look beyond fashion bloggers to understand how they can leverage social media to build advocacy and recommendation online through relationships with key customers, prospects or stakeholders, including their employee base.
Influencer marketing programs for luxury brands will not aim to develop loose perk-based engagement mechanics. They will look to generate authentic recommendations and advocacy that will expand the brand’s values within its identified target audience and territory. According to the different luxury segments, brands will need to figure out the spheres of influence and degrees of separation between influencer and the target customer. Building such programs in a luxury world will require going through the following main stages:
- Clearly define objectives and the related target audience. Specific programs could focus on brand advocates, socially active communities in specific territories associated with the brand (travel for Louis Vuitton, horse riding for Hermes...) or important stakeholders, such as employees
- Identify, recruit and select program members that are committed to the brand and can best expose the brand’s content and values
- Design exclusive content that will generate authentic engagement and endorsement by program members
- Measure, optimize and iterate. It is not about campaigning; it is about building long-term and personal relationships.
Planning and executing successful influencer marketing programs will require specific influencer technologies (such as Traackr*), but also a new focus from marketing. Re-allocating budgets and attention away from media spend to relationship programs will be a major switch in the mindset of most CMOs.
Addressing the challenges of social media, however, goes beyond influencer marketing. To be effective in their relationship building with affluent customers (or, at least, to demonstrate the added value within their brand), luxury brands need to embrace the full concept of a deeper social business. As defined by the IBM Social Business report, “a social business is an organization whose culture and systems encourage networks of people to create business value.” To harness the full power of social media, per se, a successful social business will embed the social tools, media and practices within and throughout the organization, not just in the marketing or PR departments.
Relationships at the core
It is time luxury brands get back to where it all started: relationships.
Luxury brands have grown by building relationships through traditional high net worth networks. In an age of mass luxury consumption and strong challenges on the growth potential of many luxury brands, the digital revolution opens a new and unique opportunity to refocus on building relationships at scale through strong CRM programs and social media relationship programs.
It is time to start identifying key stakeholders online, advocates, contextually relevant influencers and key customers and to build strong and structured relationship programs with them. This will involve a corporate-wide transformation, to have everyone galvanized and focused on each client as a single, valuable and long-term customer.
About the co-author:
Nicolas Chabot is an investor and VP EMEA at Traackr, a San Francisco-based technology start-up in the influencer marketing space. Traackr works with leading agencies and brands such as Publicis, Orange, Asos or SAP to help them build scaleable relationships programs with key online stakeholders. Previously, Nicolas worked at the Boston Consulting Group and has extensive international experience at the executive level in leading retail brands Darty and Carrefour where he was head of the Electronics and Appliance Division at Group level, managing a $5B turnover business. Nicolas graduated from HEC Business School.