Leading with luxury program

Building loyalty in the luxury market

Claudia Rodriguez, MS San Ignacio de Loyola University Lima, Peru

Loyalty programs and the luxury market

Loyalty of customers
Does it exist? What do we understand by loyalty Loyalty in the luxury market: easier or not than in the mass market? What does it take?

Types of luxury consumers

X-fluents: Extremely affluents, spend heavily on luxury living Butterflies: Powered by a search of meaning and new experiences Luxury cocooners: Focused on heart and home Aspirers Highly attuned to brands and believe luxury is best expressed in what they buy and own Temperate pragmatist: Newly emerged luxury consumers. Careful spenders

Business logic for the luxury market

Customer logic Product logic Targeted customer range Lifestyle and selfidentification Selected locations Customization focus

Economic logic Structural logic

Loyalty, customer and from where they come from

The word customer is somewhat difficult to track its origin back in time. We can go as far as the times of the Roman Empire who had the hospitium privatum similar as what we understand today as a right of asylum or to the medieval times where the Lords were pledged to defend their clients or people that served them in case of invasions. In the end, the core idea was the same; to protect and, in doing so, prevent that the proteg betrays them and shift lines with the enemy.

Key question:

Do Loyalty programs actually build customer loyalty?

Definition
According to Shoemaker and Lewis (1998) loyalty programs are offered to the customers in order to build an emotional attachment to the brand. While customer loyalty is defined as the likelihood of a customer to repurchase and have a high level of emotional attachment to the company. (Wijaya, S. 2005).

Types of loyalty
L H

Attitude

Likelihood of repurchase

Spurious Inertia loyalty No loyalty

Premiun True loyalty Latent loyalty

L Backman and Crompton, 1991

Back to the basics

Question: where does the process of building loyalty actually start? The starting point: The sale! Or even before. It is much more than a marketing initiative, it requires a cultural transformation in the organization. Be aware of focusing only on conquest marketing

Key concept
What really drives repurchase is not high-quality customer service, wellmanaged communications or rewards program such as frequent stay programs Superior customer value, does.

Value and Loyalty

Basic Customer value Expected Desired Un-anticipated
Level of service

Customer loyalty

Prior to the experience

Repeat purchase Reevaluation

MKT

Awareness

Interest

Reconciliation Loyalty

Evaluation

Learning

Action

Commitment

Hierarchy of effects

Hierarchy of Experience

Loyalty = Fidelity

The quality or state of being faithful Steadfast in affection Loyal Unswerving in allegiance/devotion RAVING FANS!

Loyalty Programs: Working definition

Process used by companies in order to get the loyalty of their customers, meaning faithfullnes to their brand that translates in continuos purchases

Working definition
Process used by companies in order to get the loyalty of their customers, meaning faithfullnes to their brand that translates in continuos purchases

Loyalty means you retain a customer and increase the business you do with that customer, developing a relationship so he/she will not be lured away to the competition with the promise of a lower price
Ford,L. 1998.

Implications
Getting the loyalty of customers goes far beyond the goal of retaining them. It implies the need to build a lifelong relationship. To do this we need to assess the value of this lifelong relationship and link this to the segmentation process.

Why the need to invest on this?

In our nowadays changing world, customers are much better informed allowing them to make better purchasing decisions. Because of the effect of the commoditization trap If a company retains 5% of its current customer base, its profits will increase between 25% to 125%. Effective positioning is important, but not enough. Here are some other issues to consider

a. Attract new customers is expensive

Selling to a new customer is 5 times more expensive than selling more to an existing one. (actually, it could be much more!). (McIlroy and Barnett, 2000). An existing client buys easily from the company with whom has an existing relationship

b. Loyal clients generate lower operative costs Frequent customers are cheaper to serve as they know better the process, representing savings in time and costs, both for the company and the client. The effect of switching costs

c. Loyal clients bring more clients Word-of-mouth effect Credibility Impact between 3 to 10 multiplier
Is this still true?

Be careful with regional/international differences

d. Loyal customers tend to accept higher prices A loyal customer is less attracted to change service providers based solely on price Because:
Switching costs Fear of failure in getting what he or she wants Price of being-safe

Customer loyalty threats

Price reduction policies E-global distribution systems Low switching costs Conformance to requirements operational policy Access to competitive info Nature of the business
In what business is the luxury-hospitality business?

The process of building loyalty

First Imperative:
KNOW YOUR CUSTOMER!

Database management/CRM
Who are they? What do they prefer? Why do they buy from me? Pattern of behaviour

1. Design a competitive offer

Deliver value Not only defined in economic terms What is value for your customer?
Freebies? Customization? Smile?

2. Know your customer

Customer Information Intelligence Opportunities for the hospitality industry
Frequent stay programs, Fidelization Cards, Face-to-face Interaction

What do you do with all these information?

3. Build a learning relationship

But this is not the final goal, the real intent is to evolve into a real partnership!

How do you learn from your customer?

4. Train your staff

Your staff is key in this process, they are your spies all-around Develop customization-skills among them Empower them to break the rules Train them to develop listening skills, recovery skills and handling complaints

 In hospitality services, the human-factor plays a strategic role in customer loyalty but to be effective, they must we aware of:
Building and maintaining a learning relationship The fragility of this relationship The life-time value of the customer The importance of service-recovery

5. Stage your act wisely

Customer Satisfaction is not enough Minimize Customer Sacrifice Stage Customer Suprisestage the unexpected! Stage Customer Suspense

Customer Satisfaction is not enough

just having satisfied customers isnt good enough anymore. You dont own those customers. They are just parked on your doorstep and will be glad to move along when they find something better
Blanchard and Bowles, 1993

 customer satisfaction is now just a requisite for loyalty, but satisfied customers may not become ever, loyal customers
Bowen and Shoemaker, 1998

6. Aftermarketing activities
Any activity directed at current customers with the express purpose of increasing those customers likelihood of repurchasing a product or service in the future, or of increasing their share of requirements.
Vavra, T and Pruden, D. 1995

Loyalty at Leading

http://www.lhw.com/LeadersClub/lchome.aspx

Issues about Loyalty programs in the luxury market

A one-size fits-all loyalty strategy doesnt work in the luxury market. Loyalty programs in this market must be crafted around what really turn the customer on and the rewards that will make a real difference to them. Based on emotional and experiential benefits.

Customer Loyalty Management

Staging of memorable events Use of relationship marketing tools Staging of memorable eventsfor returning customers! Developing a learning relationship with the customer Stage of surprise effect Customer relationship Management

Questions?

Thank you!