CRM is Not a Luxury but a Necessity for Luxury Retail

According to the Economic Guru, an online source for economic definitions, the definition of luxury goods is - 'In general, a good (or service) that is not essential but makes life more enjoyable.' In other words, luxury goods are most often purchased by consumers with greater disposable income. But, how can a luxury retail establishment attract those consumers with greater disposable income and how can they maintain their loyalty in a falling economic market?

The initial problem for any brick and mortar retail institution is to understand the buying behavior of their customers; this is especially true for the luxury retailer whose customer is more likely to have a unique and sophisticated purchasing profile.

But, first we need to define the luxury consumer. The Luxury Institute of New York defines the affluent consumer as those with household incomes exceeding $100,000 per year, but less than $150,000 per year. They estimate this encompasses 10.1 million households. The super affluent, those with household incomes exceeding $150,000 per year encompasses 5.6 million households. It must be kept in mind that the luxury consumer cannot only be defined by income, but must be recognized by overall wealth – some definitions will contain home value, while others discount static investments such as home value and focus on investment portfolios. Whichever definition is chosen, the challenge remains “how do we attract and retain this customer?”

Consumers at this level have a sophisticated approach to purchasing, a 360 degree approach using all retail channels available to them. Therefore, a retailer of luxury items must maintain a consistent service standard across all channels and stores. By its very definition luxury retailing demands a personalized or hands on approach. Service levels must meet or exceed expectations, customer profiles must be maintained and communication with and to the customer must be personalized. The luxury retailer must always remember they are not only providing just a product but an overall experience.

The ultimate goal of the luxury retailer, therefore, is to maintain a one-on-one personalized relationship with each customer, creating that strong customer experience. A retail CRM solution can help in the acquisition and anlaytics of customer information which will lead to the creation of this strong and unique customer experience.

The multichannel approach offered within the retail CRM systems is ideal for the diverse and sophisticated luxury retail market. Customer's information can enter the system through on-site registration, on-line registration or through point of sale systems. Regardless of how the customer enters the system the goal is the retention of that customer and subsequent increase in life time value of the customer to the retail operation. For a retail CRM system to function within the luxury market, the retailer must also have their basic retail functions in order. The customer must have a positive perspective of the retailer and have had satisfactory one-on-one dealing with the store associates. Only when this is true will a CRM system become advantageous.

For the system to be effective, all stakeholders across the organization must buy in to the concept. A retail CRM system must be focused at all times on the customer experience. Reports and analysis of the data must focus on actionable insights. There must be a commitment at all levels to then act upon these insights to improve and enhance the customer’s experience.

When the commitment to implement a CRM solution is made the information collected on each customer will then feed the system. Basic customer information will be collected at all touch points – name, address, purchase information and more. This information can then be analyzed to determine the overall value of this customer to the retail organization – is this a one-time purchase, a returning customer or has the customer shifted in their purchasing profile to a higher or lower level of product? Using this information the retail organization can then begin to differentiate or segment the customer base.

Segments can then be treated in unique manners, those repeat customers moving towards a higher purchasing profile can be offered additional benefits through customer loyalty programs. This identification of customers with the greatest potential for high life time value will then allow marketing dollars to be spent in the most effective manner possible.

A CRM solution will also enable the luxury retailer to manage the customer base in the most profitable manner. By analysis of the customer base the retail operation should be able to identify those customers they need to defend from competitors through retention or other personalized programs, identify those customers they should maximize in terms of purchasing profiles, and identify those customers with the greatest potential for growth

It is important that the luxury retail operation recognize that it is not just the brick and mortar they need to focus on and a functional CRM system will allow them to look past the doorway to the future of their market. The system will enable them to identify new and unique market channels to reach their customer base. By using retail CRM at the point of sale to track purchase profiles, unique marketing opportunities to that customer can be formulated and acted upon.

Another important aspect of the CRM solution is the ability of a retailer to react quickly to changes within their market and define if these are true changes or simply a reaction to the economic environment of the time. If the changes are true the retail is in a position to affect its marketing programs and policies. If the changes are reactive the retailer can “ride them out” without the expending of marketing dollars, maintaining the current course.

In summary, a CRM solution is "NOT a luxury" item, but a necessity that no luxury retail operation can do without to survive and grow in this era of globalization.