Luxury Institute News

January 23, 2014

Three Luxury Myths Killing Your Brand Equity

(NEW YORK) January 23, 2014 –As one the world’s foremost research and consulting companies for top tier luxury brands, Luxury Institute has been privileged to work with the most dynamic brands in the U.S., Europe and Asia.  We often find ourselves engaged in rich dialogue, and healthy debate, with senior executives and top leadership at the world’s greatest luxury firms.

We help iconic brands adapt themselves to compete in the new world where technology, people and product superiority combine to drive success.  Below are three of the biggest myths that we often encounter and our recommendations for how brands can overcome the tendency of destroying their own equity, despite the best of intentions.

Myth #1: You Must Choose One Area of Focus Among Product Leadership, Operational Excellence and Customer Intimacy

Back in 1995, Michael Treacy and Fred Wiersema published “The Discipline of Market Leaders” in which the authors addressed the idea of strategic focus, and discouraged attempts to excel on multiple fronts.  The concepts and principles were adapted by top-tier consultants and spread throughout the management ranks of corporations that engaged them, propagating the myth that you have to choose only one area of differentiation.

Today, superior products, efficient operations and brand intimacy are an inseparable trio for building and maintaining a luxury brand. The reality now is that you have to be great at all three, or you are highly disadvantaged.

A clear example of achieving excellence on all three fronts is Bottega Veneta.  The iconic luxury fashion brand has seen a phenomenal sales growth trajectory over the past ten years. It was on the brink of bankruptcy in the late 1990s, and in 2001 was acquired by the company that is now Kering.  Back then, annual sales were around $50 million and the income statement was mired in losses. Today Bottega Veneta’s sales are topping $1 billion.

Bottega Veneta’s management team is best-in-class. They are blessed with a brilliant, authentic designer matched by a management team that is beyond superb. The brand delivers on all three disciplines seamlessly. At Bottega Veneta, brilliant execution delivers a reported profit margin of 32%. Phenomenal sales and profit growth flows from product leadership, operational excellence and customer intimacy that is the envy of any brand. A profoundly personal, humanistic culture translates into the Bottega Veneta brand running on all three disciplines, instead of getting a lift from only one.

Myth #2: A Luxury Brand Must Be Organized As a Hierarchy In Order to Be Effective

At the center of a luxury brand is usually a brilliant innovator and founder whose creative genius is unquestionable. There is also typically a business partner who makes all of the decisions jointly with the founder.

The origin of luxury in Europe has created an industry organizational model that has some of the strictest hierarchies known in the business world. When we visit with senior management teams in Europe, and even at many U.S. firms, the organization is defined as a military style, top-down hierarchy.

Proponents of this model say that luxury brands, unlike brands in any other industry, have lasted hundreds of years–or at least for several decades–so why fix what is not broken?

There are two major reasons why the myth of the luxury brand as a strictly regimented organization must be shattered. The first is demographic in nature. As millennials in the 21-34 age group enter the work force, our research shows that that these younger people are far more idealistic about having meaningful purpose in their work.  They tend to change jobs more frequently and often leave if they are in a structured environment where opportunities to develop and contribute are limited. Author and researcher Daniel Pink says that three things are required in an organization today to retain employees: a meaningful purpose; some degree of autonomy over how they perform their function, and continuous skills growth.

The second reason why rigid hierarchies are ineffective is the new meaning of strategy. The metaphor for a successful brand is not the machine model, but the organic model. There must be a balance of adapting processes to achieve healthy, sustainable growth while adhering to corporate DNA.

Myth #3: Sales Professionals are Anonymous and Robotic Transactors

Luxury sales teams at most brands already have enormous turnover and this is not likely to decrease in organizations that fail to empower associates. Brands must embrace the ‘freedom with boundaries’ approach or watch their associates walk out the door.

While luxury executives say they are sold on the ideas of customer experience and engagement, they are far less enthusiastic about employee experience and engagement.  Most brands will tout the new principles but will resort to giving orders instead of trusting front-line professionals, especially in tough times.

The paradox is that in order to unleash the power of customer relationship building, driven by a customer culture, brands cannot simply task front-line employees with delivering results, excluding them from the “customer” definition. Employees are really internal customers and they should be measured just as carefully. In addition to empowering employees, brands must use innovative education and daily customer and sales associate metrics to improve skills and reinforce the culture daily.

Luxury sales professionals in the future will be treated as artisanal entrepreneurs who are given their own email addresses and digital devices for professional use. They will be given the freedom to innovate in small and large ways daily in order to personalize and customize for the customer

It may be true that many sales associates in a variety of industries will be replaced by technology solutions. However, in luxury, these jobs will be upgraded to deliver the extraordinary customer experiences and build the long-term relationships that brands once took for granted when they first opened their doors.  Innovation will flow from the bottom-up as much as from the top-down.

Conclusion:

Luxury Institute has worked with more than a dozen luxury brands or conglomerates on Customer Culture projects in the past few years.  The improvements are real and deliver powerful results in customer data collection, conversion and retention. Brands have seen retention of employees increase too. Bridging the gap between management, the front line, and the customer may be hard for some executives to swallow or imagine, but that is the future of luxury.

The luxury industry is very much a darling of Wall Street today, and with good reason. As the global population of affluent consumers grows, luxury is in for a good ride indeed. Yet, these myths are preventing many luxury brands from achieving significantly better sales and profit growth and could potentially drive many established companies out of business.

About the Luxury Institute (www.luxuryinstitute.com)
The Luxury Institute is the objective and independent global voice of the high net-worth consumer. The Institute conducts extensive and actionable research with wealthy consumers globally about their behaviors and attitudes on customer experience best practices. In addition, we work closely with top-tier luxury brands to successfully transform their organizational cultures into more profitable customer-centric enterprises. Our Customer Culture consulting process leverages our fact-based research and enables luxury brands to dramatically Outbehave as well as Outperform their competition. The Luxury Institute also operates LuxuryBoard.com, a membership-based online research portal, and the Luxury CRM Association, a membership organization dedicated to building customer-centric luxury enterprises.

 

September 26, 2013

Strategy emerges from customer culture: Luxury Institute CEO

By Joe McCarthy
Luxury Daily
September 25, 2013

NEW YORK – The CEO of The Luxury Institute at the Luxury Interactive 2013 conference said that luxury brands should focus on building a culture of relationship building and sales will follow.

The executive said that many conventional paradigms of behavior should be flipped to create an environment steeped in meaningful purpose. In his “7 Paradoxes of Luxury Marketing” talk he verified the profitability of such strategy suggestions with hard evidence.

“If you want to create a great customer culture, you have to think in terms of paradox,” said Milton Pedraza, CEO of The Luxury Institute, New York.

“Some people say culture trumps strategy, but I don’t believe that’s true,” he said. “Strategy emerges from culture.”

Internal paradigms
Mr. Pedraza discussed several remedies for poor strategies that have become entrenched in business culture.

The first paradox dealt with shifting a brand’s focus from commodities to meaningful purpose. This objective reaches beyond revising product development to facilitating a better society.

Mr. Pedraza at the Luxury Interactive 2013 conference

Next, companies should switch the tone of their command style from hierarchical and militant to empowering and creative.

Mr. Pedraza said that employees are more responsive and more likely to create innovative ideas when given liberty to act without constraints. An example of this would be giving in-store employees technology to pursue friendly relationships with customers post-purchase.

Third, Mr. Pedraza said that decision-making should incorporate employees from all levels of operation as well as consumers. When decisions are cloistered among high-level executives, simple or uncanny solutions can be overlooked.

Looking out
Educating employees should not resemble a classroom. Rather, Mr. Pedraza insisted that employees will quickly adopt brand values when trained in a gradual, interactive and personal manner.

A skill-based hiring process should be tempered with value-based merits. A candidate selected after an assessment of values will likely assimilate into brand culture with more ease.

Mr. Pedraza urged brands to incentivize the right behavior. Employees will likely be more proactive if they know their behavior is recognized.

Finally, a meaningful brand culture should be reinforced daily to ensure its fortitude. Lexus and The Ritz-Carlton were two luxury brands that Mr. Pedraza acknowledged as pioneers of meaningful brand culture.

For instance, Toyota Corp.’s Lexus is promoting the 2014 IS vehicle with a collaboratively created, stop-motion Instagram film that draws on the perspectives of 212 fans to show the vehicle in a range of angles and tones.

Under the orchestration of a directorial team during Instagram’s #WorldwideInstameet, car enthusiasts and Instagram users from a variety of background blended their personalities in a film that colorfully animates the IS. By leveraging Instagram in this unifying fashion, Lexus will likely grab the attention of a younger demographic and potentially trigger more collaborative, stop-motion films (see story).

Ultimately, if employees are infused with a sense of purpose, they will likely be more effective sales agents.

“Employees that believe companies have strong sense of purpose versus companies without purpose perform much better,” Mr. Pedraza said.

http://www.luxurydaily.com/strategy-emerges-from-customer-culture-exec/

September 23, 2013

Small Business Learns To Build Customer Loyalty Like Luxury Brands

Luxury Institute founder applies lessons learned in high-end retail to small and medium sized businesses.

(NEW YORK) September 23, 2013 – There are more than 27 million small businesses in the United States, according to the Small Business Administration, but 50% of them will fail within five years. While lack of capital is a major factor, also significant is the lack of a customer-centric culture.

“Many entrepreneurs launch businesses with a great product or service idea, and then proceed to focus on daily transactions rather than building long-term customer relationships,” says Milton Pedraza, CEO of the Customer Culture Institute. “Focusing on transactions over relationships does not breed customer loyalty.”

Successful smaller companies, says Pedraza, are organized at an early stage to deliver extraordinary experiences to every customer on a daily basis. The problem for most small businesses is a lack of expertise and a proven process.

To provide these companies with access to state-of-the-art methodologies and metrics to measure and boost customer satisfaction and loyalty, the Customer Culture Institute is launching a do-it-yourself, online software platform to help small businesses to create their own customer culture. Pedraza, who is also CEO of the highly-respected New York-based Luxury Institute, says the Customer Culture Navigator software enables business owners to communicate with and provide needed support and training for their employees in real-time.

Small business teams will use their creativity to custom design a cultural foundation with clear definitions of relationship values and standards. The software helps to train, measure and reinforce the culture daily, a process that has a track record of dramatically improved customer loyalty at large luxury and premium brands that Pedraza has previously coached.

“We help move companies away from a soulless transaction mentality to profitable long-term customer relationship building,” says Pedraza. “In essence, we teach them that outbehaving the competition leads to outperformance.”

One innovative approach Pedraza and his team have taken, is to use crowdfunding site Indiegogo to raise funds from investors in the project. The campaign can be viewed at http://www.indiegogo.com/projects/customer-culture-navigator/x/4837243.

“Online crowdfunding is an elegant win-win-win opportunity,” says Pedraza. “We have an opportunity to provide valuable resources to our funding contributors, while building a project that can transform small business culture and dramatically increase the success rate of small business.”

August 14, 2013

21.6 Billion Reasons The Luxury Industry Needs Oprah And Her Friends

By Russ Alan Prince
Forbes
August 13, 2013

The Boston Consulting Group estimates that US$130 billion is spent per year on luxury fashion and accessories including US$38,000 handbags. Of course, the vast majority of goods sold are priced considerably less, and we learned even billionaires such as Oprah Winfrey hedge at such sky-high prices. She said that had she been given the chance to buy the bag, she probably would have passed.

About 90% of private jet travelers buy some type of luxury fashion and accessories annually – leather goods such as purses, wallets, briefcases and shoes – and the average spent is about US$120,000 per household. The super-rich like Ms. Winfrey likely account for around US$21.6 billion in annual purchases of gowns, skirts, suits, totes and, of course, handbags. Milton Pedraza, the CEO of The Luxury Institute, believes as many as one billion consumers worldwide purchase some type of luxury good or service, be it staying in a five star hotel or buying a luxury brand fragrance or key chain.

If you want another way to think about the luxury product purchasing power of the ultra-high-net-worth sliver of the world’s population, get out a map: Go to the South Pacific and find the 15 strong Cook Islands chain. Single out Rarotonga, a 26 square mile microdot of land that is home to the capital. Now go to North America, a continent accounting for 16% of the world’s landmass, and you will have a good idea about the relationship between the global super rich population and how much they spend. While the jewelry market is more concentrated than fashion, London based diamond house Graff’s 2012 IPO filing, for example, revealed that just 20 customers made up 44% of their US$756 million in annual sales.

Click the link below to read the entire article
http://www.forbes.com/sites/russalanprince/2013/08/13/21-6-billion-reasons-the-luxury-industry-needs-oprah-and-her-friends/

July 12, 2013

Nordstrom Captures Luxury Customer

By Sharon Edelson
WWD
July 11, 2013

In the last 12 months, Nordstrom captured the largest percentage of luxury shoppers — those with a net worth of more than $5 million — according to a recent Luxury Institute survey.

Click the link to read the entire article which features a quote from Milton Pedraza, CEO of Luxury Institute (subscription required):http://www.wwd.com/retail-news/department-stores/nordstrom-captures-luxury-customer-7050312?src=search_links

June 20, 2013

Ultra-Wealthy Shoppers Flock To Nordstrom But Barneys, Bergdorf And Neiman Cultivate Relationship Business

(NEW YORK) June 20, 2013 – The Luxury Institute surveyed consumers with minimum net worth of $5 million about top luxury retailers they purchase from, and the relationships they maintain with luxury sales professionals.

Nordstrom boasts the largest share of pentamillionaire purchasers, with a majority of ultra-wealthy consumers buying something from the Seattle-based luxury retailer in the last year.  Rounding out the top three in terms of popularity are Bloomingdale’s and Neiman Marcus.

Marquee names selling higher-ticket luxury items make up for a lack of widespread appeal with deeper customer relationships. Sales professionals at both Barneys New York and Neiman Marcus rise above the competition in building relationships with pentamillionaire clients.  Similarly, Bergdorf Goodman’s market share among ultra-wealthy shoppers is just one-fourth the size of Nordstrom’s, but the prevalence of customer-salesperson relationships at Bergdorf is triple the rate at Nordstrom.

Sales professionals at more mainstream retailers like Nordstrom and Bloomingdale’s are far less likely to have cultivated exclusive relationships.  Relationships are more prevalent among women than men, and those under the age of 65 compared to those who are older.

“Technology may make it easier for sales professionals to maintain relationships,” says Luxury Institute CEO Milton Pedraza. “But simple and personalized approaches like follow-up phone calls or handwritten thank you notes still prove tremendously effective.”

Respondents also ranked the comparative importance of the qualities they seek in sales professionals from luxury retailers, such as recognizing them when they visit the store, receiving calls and emails with special product offers, and making them feel comfortable.

About Luxury Institute (www.LuxuryInstitute.com)
The Luxury Institute is the objective and independent global voice of the high net-worth consumer. The Institute conducts extensive and actionable research with wealthy consumers about their behaviors and attitudes on customer experience best practices. In addition, we work closely with top-tier luxury brands to successfully transform their organizational cultures into more profitable customer-centric enterprises. Our Luxury CRM Culture consulting process leverages our fact-based research and enables luxury brands to dramatically Outbehave as well as Outperform their competition. The Luxury Institute also operates LuxuryBoard.com, a membership-based online research portal, and the Luxury CRM Association, a membership organization dedicated to building customer-centric luxury enterprises.

May 8, 2013

Neiman Marcus sale could build more customer-focused brand

By Danielle Abril
Dallas Business Journal
May 7, 2013

While private equity investors of Neiman Marcus Group Inc. consider their exit strategy, a luxury retail expert predicts a move that could result in an increased emphasis on customer relations.

Milton Pedraza, CEO of The Luxury Institute LLC, said he belives that the next logical step for Dallas-based Neiman Marcus is to go public. The move would allow Neiman Marcus the freedom to focus on building relationships with its consumers.

“Neiman will have a very solid structure if they go public,” Pedraza said. “It will be customer-centric rather than shareholder-centric.”

Bloomberg reported earlier this week that TPG Capital and Warburg Pincus LLC, Neiman Marcus’ private equity investors, were considering selling the company or taking it public. The firms held their investment for eight years, 60 percent longer than the norm, according to Bloomberg.

Neiman Marcus declined to comment.

Neiman Marcus could take four different directions, according to Randall Ray, partner with Munck Wilson Mandala LLP. Ray has spent almost 25 years dealing with corporate legal matters and said one thing is clear in this situation: TPG and Warburg will choose the path that ends with the highest profit for them in the least amount of time.

The four options, according to Ray, are: filing an initial public offering, selling to a private equity firm, selling to a strategic buyer and choosing a dividend recapitalization.

Pedraza said it was “less likely” that the firms would sell to another private equity firm.

“It would take a very special private equity firm to do the things Neiman Marcus needs,” he said. “You need patient money to rebuild the brand.”

Pedraza cites online retailers Amazon and Zappos as companies that have benefited from answering solely to the consumer. He also said that other retailers, such as Nordstrom and Michael Kors, have been successful in their transformations to becoming publicly owned.

Pedraza also said the recovering economic climate offers an opportunity for TPG and Warburg Pincus to sell to the general public.

“It’s a good time to go public,” he said, adding that a booming economy would offer the best conditions for the move. Whatever road Neiman Marcus chooses, there will be few clues as to its direction until the transaction is complete.

“Unless Neiman Marcus feels compelled to make this information public, there won’t be a lot of transparency in the process,” Pedraza said.

http://www.bizjournals.com/dallas/news/2013/05/07/sale-of-neiman-marcus-could-impact.html

February 12, 2013

Applying Best Practices Of High-End Retail, Luxury Institute Founder Launches Customer Culture Institute To Help Mainstream Brands Build Better Relationships, Boost Sales

(NEW YORK) February 12, 2013- Milton Pedraza, founder and CEO of the Luxury Institute (www.luxuryinstitute.com), the leading global independent research and consulting firm in the luxury industry, has launched the Customer Culture Institute (www.customercultureinstitute.com). The objective Customer Culture Institute is focused on helping mainstream brands across all industries and geographies to rapidly design, deploy and reinforce customer-centric cultures that leverage their unique competitive positions.

“Customer acquisition, conversion, and retention rates for most brands are dismal,” says Pedraza, one of the world’s most respected and independent CRM experts since 1997.  “Digital technology, social media, Big Data, and multi-channel access are getting all of the attention these days.  However, the most important element in order for brands to outperform and, more importantly, outbehave their competition is a customer culture.

Pedraza has developed and licensed a proprietary Customer Culture process to the Luxury Institute and will do the same with the Customer Culture Institute. The newly formed institute will provide clients from diverse industries with Pedraza’s collaborative seven-step process that includes developing relationship-building techniques, education, incentives and measurement for customer facing employees and ultimately drives higher sales.

“A great deal of business today is purely transactional when it should be relationship-driven and more humanistic,” says Pedraza.  “At the Luxury Institute, we have proven through engagements with world-class clients that customer data collection, conversion, retention, recovery and referrals go up dramatically as a customer culture takes hold.”

The Customer Culture Institute is presently adding staff and seeking more like-minded and passionate individuals specialized in particular industries to represent the institute in the U.S. and in key overseas markets. For information, please visit www.customercultureinstitute.com to fill out a contact form.