To Reach Upscale Consumers, Upscale Customer Service is Essential

If you want to reach upscale consumers with luxury products, be prepared to go above and beyond the typical call of duty. The Luxury Institute, which specializes in reviewing high-net worth marketing programs, sees several trends for the upcoming new year.

1. The old guard leaders pass the baton to a new generation. But are they ready for the brave new world?

The founders, family members and their trusted lieutenants who built the grand luxury behemoths and boutiques alike have begun to retire, to sell, and consider family legacy and philanthropy. The new generation of leaders who will inherit these brands must not seek to merely replicate old business models.

But attend luxury conferences and you hear the same old messages, tired strategies and tactics, with lively debate on whether or not to sell to the masses, or on the Internet. Attend a Silicon Valley conference and you will understand that the luxury industry lives in another galaxy, detached from its consumers, who have already moved beyond Web 2.0 and into community. Either the new leaders are being reserved, or they don’t understand how technology, globalization and commoditization are transforming their world. Either way, look for innovative luxury leaders to emerge from the chaos.

2. Luxury rediscovers great service as a differentiator.

As the U.S. economic slowdown continues, luxury marketers will realize mainstream millionaire consumers – and not just celebrities and heirs — require great service to earn their loyalty.

With so many “luxury” categories inundated with brands vying for the attention of the same consumers, luxury CEOs will begin to allocate resources to continuously train their well-intentioned, but generally unskilled, salespeople and customer representatives. Luxury Institute surveys show 29 % of wealthy consumers have had a problem with a luxury firm that required resolution in the past year. Ironically, getting luxury firms to admit to problems was one of the biggest problems.

3. Membership has its privileges.

A few years ago, we predicted the advent of the “Luxury Access Revolution,” an accelerating phenomenon at every price point on the luxury-spend spectrum. Jets, yachts, vacation homes, autos, vineyards, golf clubs, even typically less pricey items such as handbags, jewelry, and watches, were embracing membership — selling variety, convenience and utility, without the hassles of ownership.

We also predicted that brash entrepreneurs would drive the first phase of innovation to be eventually overrun by better-capitalized luxury brands. Right on cue, in 2007, we saw many entrepreneurial providers of these membership models merge, consolidate, or disappear.

Next, top luxury brands and original manufacturers will take over, leveraging their trusted brands, synergistic offerings, fixing flawed business models, providing direly-needed transparency, and using vast resources to legitimize these access models for the mainstream affluent and the wealthy. For all those savvy millionaires waiting on the sidelines, it may finally be time to become a member.

4. It’s time to go beyond concierge services.

It seems that today everyone provides concierge services. From credit card companies to private banks, concierge services are the rage. Expect these commoditized, low-margin services to begin to morph into high-fee, high-value consulting services, worthy of the name.

Companies such as Quincy Consulting Group are reshaping the industry, applying a McKinsey-like model to serving the seamlessly personal and professional needs of the wealthy. While they will not manage your assets, they will handle many critical needs beyond the basic restaurant and theatre reservations call-center model. They will, for example, plan a wedding, charter a mega-yacht; find a trained nanny, a competent wealth manager, a trustworthy art dealer, etc. They will bring in specialists to help execute each task, and manage the project. Most importantly, they will do so in an objective, independent manner not been typical of most concierge firms, which have created conflicts of interest by steering clients to “preferred” suppliers. Concierge services will never be the same again.

5. Philanthropy evolves.

Bill Gates and Warren Buffet’s entry into big-league philanthropy did not just create an “alms race.” Their participation, and the trend they started, have brought great media attention, and a level of accountability, lifting the veil to expose the incompetence and sometimes dishonesty that plagues a large segment of this tax-sheltered industry. What these icons of efficiency have done is to bring upon charities a level of scrutiny and transparency that will force out bad apples and eliminate conflicts of interest. New transparent models of philanthropy, often Web-based, will accelerate the trend so that the neediest can benefit from this generosity. It cannot happen soon enough.

6. Luxury brands will embrace communities of raving fans.

If any brands have truly devoted, emotionally invested fans, it is luxury brands. However, luxury firms, many of which are trapped in traditional media, have failed to listen to, engage, and create a community dialogue among their most ardent fans. Could it be because when you inspire fans to have a sincere dialogue online, and make it transparent and public, you lose control?

You have to earn the right to facilitate a community dialogue with good, old-fashioned trust. Giving up control to communicate honestly with the customer community is exactly what leading luxury brands will do. By creating a community of fans, and listening to the good, the bad, and the ugly, and then acting on it, the best luxury brands will begin to enhance the experiences of their customers in ways loyal customers want, and will begin to co-create products that their customers desire. That will be extremely hard for many luxury brands to do. Expect more than a few to wither into irrelevance.

7. Luxury discovers mass scalability is hard when you leave out the customer service experience.

Oops. Looks like all those luxury brands racing to transform themselves into affordable luxury (a contradiction in terms) by making deals with mass retailers forgot that their business model is not just about stamping out more luxury widgets. Quality production may be scalable when you serve the masses, but has anyone noticed that part of the experience of luxury is great, over-the-top, personalized service?

Just walk into any mass retailer and indulge yourself in the service levels they provide. That may not be the service level you want your luxury brand name to be associated with, because in a transparent world consumers will share and rate their experiences and define your brand for you. Look for some luxury brands to head back to Madison Avenue in a hurry, albeit not with reputations intact.

8. Luxury retailers eliminate marginal brands.

Top luxury retailers like Nordstrom, Neiman Marcus, Barney’s, Bergdorf’s and Saks have long prided themselves on being expert guides to luxury for their wealthy customers. But brands such as Vivre have created inroads by becoming curators, delivering connoisseurship, and a higher level of consistently unique and exclusive offerings. Now look for retailers to go up-market and start to eliminate marginally luxurious product lines as they embrace and experiment with unique, new designers who wish to remain bespoke. Luxury retailers will earn their curatorial stripes with their wealthy customers once again.

Milton Pedraza is CEO of the Luxury Institute, New York.