Customer Engagement

Luxury Institute spills beans on Customer Engagement

user engagement

As luxury goods and services brands emerge from the pandemic, Luxury Institute has been observing and engaging in candid, constructive dialogue with dozens of senior executives and top-performing front-line associates across many categories, brands, and functions. The universal story they share is one of an industry that has been so shocked by the virus that it has forgotten the highly innovative, experimental and experiential requirements of luxury. Executives and associates talk of an industry that, with few exceptions, is slow to adapt true innovation; an industry that, for all the dialogue on reinvention and disruption, is stuck in the past. For example, most luxury executives believe that more e-commerce innovation is digital transformation. The luxury industry is typically the first to take risks in product innovation, is making great efforts to lead in sustainability, and is finally taking inclusivity seriously. However, luxury brands cling to an outdated business model. Most luxury brands continue to copy “best practices,” failing to think for themselves and build the ideas and skills needed to drive true digital transformation.

Luxury Institute’s experience, having served over 1,100 premium and luxury brands over 18 years, is that the poor performing brands are those that fail to integrate the new, emergent and transformative rules required by consumers today. Brands that desire a successful transformation from soulless transactions to deep customer relationships realize they need to reinvent their entire business model for true customer-centricity.

Despite the pandemic, the ranks of the wealthy around the world continue to grow in size. Younger affluent consumers are digital natives. They have dramatically different expectations and are redefining what “customer-centricity” actually means. The brands that will flourish are those that approach their business model reinvention from the perspective of these new customers with deep empathy, and create internal systems that cultivate trusted, emotionally intelligent relationships. Building a customer-centric culture used to mean adopting best practices. Today, it means reinvention and measured risk. Below are three new and critical rules to become a true customer-centric luxury brand:

Rule #1: From Broken Corporate Functions to Agile Customer-Centric Teams

Luxury brands are organizationally broken, literally. Despite all the post-pandemic seamless customer experience claims, at their core, luxury brands are broken up into departments and functions fit for the factories of the industrial era. All the relevant data that resides in the enterprise is disconnected and uncoordinated. New technology such as customer data platforms and customer engagement venues will be a complete waste without an organizational reconfiguration that matches the power of new digital assets to drive customer-centricity. For years, Luxury Institute has recommended that luxury brands reorganize along customer segment teams vs products and categories. This creates a customer-centric focus. While products and categories are important, they become providers to customer segment leaders who specialize in generating real-time experiences that meet the evolving stated and unstated needs of the customer audiences for whom they need to curate joyful experiences. Every luxury executive worth their salt realizes that, in this new world, core products and services are only one small component of extraordinary, personalized customer experiences. Luxury Institute has also recommended that a highly skilled and emotionally intelligent leader be put in charge of all the customer-facing people, technologies and touchpoints. Experts with different skills such as data management, insight generation, creativity, design, offer and content development, production, supply chain, etc. must organize into customer segment-specific high-performance teams, instead of siloed departmental hierarchies. External experts are welcome. These teams will be networked into every part of the organization and generate critical inputs and outputs and use other team outputs in real-time for results. They execute short-term or long-term projects based on clear customer segment objectives. Domain experts combine and recombine like adaptive organisms to achieve the next objective seamlessly and effectively. This structure is required to achieve the agility and responsiveness demanded of the digital era. All too often, executives across departments fail to work together to deliver optimal customer value. They deliver dysfunctional customer experiences. Organizing into flexible, agile networks of internal customer-centric teams is the next generation luxury organization.

Rule #2: From Multi-Party Sourced Data to Direct-from-the-Customer Data

Much has been written about the fact that data is the lifeblood of any enterprise in the 21st century; trust is the currency. To fuel business performance with critically needed data, most consumer goods and services brands have yielded that existential task and responsibility to third parties. This is why the terms first-party data, second-party data, and third-party data were developed. Now we even have zero-party data. Brands claim to be customer-centric, but they have failed to build a direct data relationship with the customer. Today, luxury brands need to have an honest dialogue with their customers about data sharing and adopt transparent, legal, ethical, secure, private, fair value processes. It is a failure of massive proportions that brands have relinquished control to the ad-tech and mar-tech ecosystem of over 8,000 companies that stand in the way of building healthy, thriving customer-centric relationships. Ethical brands are paying the price economically and reputationally as opaque data collection companies operate on their behalf. To get the data they sell to a brand, most of these data aggregation companies have used surveillance capitalism tactics at all costs, including legal and ethical violations. Despite all that, the data brands receive is often incomplete, inaccurate and useless for predictions. The result is dismal ad response rates.

Brand leaders may not be aware they are ignoring two of the most critical issues of our digital era, personal data rights and human data dignity, even as they, and their loved ones, continue to lose their privacy and freedom in the process. The solution is for brands to stop going around the world to get next door. Instead, they need to respectfully ask the customer for direct and secure access to their personal data in exchange for rewards and benefits with legal protections. Fortunately, consumers, especially Millennials and GenZ’s want to share their data with brands they trust and love. Privacy laws today empower data control, portability, and mobility. Innovators are going beyond privacy laws, using already existing copyright and licensing laws, to empower consumers to take full digital control of their data, including the data they generate in platforms such as Facebook, Google, Amazon, and any other data aggregators. Consumers can then license all types of personal data to brands they love and trust for fair value rewards and benefits. New players, such as the ethical data exchange DataLucent, are pioneering direct data sharing relationships between brands and the human beings who are their valued customers and prospects. This will dismantle the data mercenary ecosystem forever, and usher a new era of direct relationships based on delivering direct, extraordinary customer experiences that include the granting of data access for true personalization. Customer lifetime value will still be measured with traditional metrics such as purchase recency, frequency, monetary value, and referral value. The same metrics of recency, frequency, value and referrals will be applied to personal data access and will become an essential component of measuring customer lifetime value.

Rule #3: From Soulless Analytics to Humanistic Insights and Predictions

As rules one and two above take hold, the new luxury business model will redefine the data analyst’s role from conducting biased, soulless tasks into insight generation professionals who develop deep domain expertise. Analysts will conduct essential fiduciary work that serves the best interests of the brand by serving the best interests of the customers first. This change will be powered by the overwhelming benefits of sourcing data direct from eager customers and prospects. First, the data is authenticated, and validated, from the original source: the customer. Second, the data is behavioral, and therefore, the richest, most predictive data available to make accurate predictions and recommendations that have increasingly higher probabilities of delighting customers. The data can be refreshed often. Third, because the data is richly structured, it arrives ready for immediate analysis. Fourth, the data is so accurate and well analyzed in advance that many critical insights will be generated by simple queries without the need for machine learning. Fifth, because the brand knows who each customer is, by mutual consent, the brand can finally begin to personalize extraordinary experiences, by segment, or by individual, whichever is best for the customer. When data analysts begin to generate insights that truly serve their customers, they will work as inspired professionals. This will unleash the human personalization revolution and usher a new era of deeper, trusted, more mutually beneficial, emotionally intelligent brand-to-customer relationships. Luxury will lead this new era, if it begins the transformation immediately. No ripping off of band-aids, as often recommended by pundits, is required. Rapid cycle testing and learning is the way to go. Go, we must, into this fascinating, new customer-centric world of luxury.

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