The luxury sector is growing steadily and creating great opportunities for brands to enter the market or grow their audience. But it’s no longer all about being flashy and pricey, today’s luxury shopper is more influenced by personalization, innovation, conscious consumerism, and an emotional experience. So while today’s luxury industry is broader and more accessible than ever before, it’s also more challenging. To meet the high expectations of today’s discerning luxury buyers and stand out from the crowd, brands must achieve customer service excellence.
Business is booming again for luxury brands
In the last few decades, consumption in the luxury segment has increased considerably and steadily:
- In 1995, this industry had 90 million customers;
- In 2013, the figure rose to 330 million;
- Today, approximately 400 million people make purchases of this kind.
- 60% of these people say they are willing to increase their spending in this
- segment if they find options they like.
Post-pandemic, the global luxury industry recorded sales of €1.15 trillion in 2021 and it continued to grow by around 20% in 2022, with the same growth expected this year. Luxury hospitality, luxury cars, and personal luxury goods represent over 80% of the total market.
Plus, the industry is evolving in response to changing consumer demands:
- Millennials and GenZ shoppers created all of the growth in the luxury sector last year.
- Trends like quiet luxury and save-to-splurge spending habits are growing.
- Socially responsible, sustainable luxury purchases are more desirable than ever.
- Technology has opened the doors for greater personalization and made luxury shopping available to nearly everyone on the planet.
It’s a great environment for business. But it’s not for every brand. As the consumption ticket has grown, so has the competitiveness. There is a large audience out there that spends and invests in the luxury segment, but brands can only get a slice of the pie if they achieve customer service excellence.
The value of luxury customer service
To understand the impact of customer service on business success, we’ll go to the experts who created EHL Advisory Services’ Definitive Guide to Service Excellence, which states:
“According to a study by McKinsey, 71% of buying experiences are based on how customers feel they are being treated. This means that a large percentage of business success stems from how a customer is made to feel, not just how happy they are with their purchase or service.”
Indeed, if around 70% of all shopping experiences are based on how the customer feels treated in all industry sectors. Imagine how much more important it is for an audience that is making a significant expenditure and seeking status, exclusivity, and unique experiences.
In fact, 89% of luxury customers consider the quality of service as important as the product itself.
Given this context, we’ll deconstruct the luxury segment to analyze its key principles and the practical actions you can take as a leader to achieve Customer Service Excellence.
The decalogue of the luxury segment: 10 pillars of service strategy
Before getting into practical matters, you should assess whether you are considering all the pillars of Excellence in Customer Service in the luxury segment. We can summarize the essence and challenges of the luxury industry in 10 major principles that you can use as a conceptual foundation for your future actions.
1. The luxury consumer is not just anyone
Luxury consumers represent approximately 5% of the world’s population, so using general demographic data to try to understand them is a serious mistake. Conducting focus groups, cross-referencing data among your leads, and other more focused measurement methods are key.
2. Reputation is your primary asset
A Harvard Business Review report found that a decrease of one star in the average rating on review sites like Yelp can result in a 5-9% reduction in sales for luxury-associated businesses, such as Michelin-starred restaurants. And bad reviews can damage the reputation of a luxury brand for a long time. A study by ReviewTrackers found that 94% of consumers avoid a brand with bad reviews. This is a general statistic; imagine how much worse it is within a luxury niche!
3. Innovation and exclusivity go hand in hand
It’s not about having the most expensive furnishings to receive your clients or including materials like gold or diamonds in certain products. That’s only ostentation and barely a small part of exclusivity. As Suzanne Godfrey, an independent brand and marketing consultant and lecturer at EHL, once said, “Luxury brands are leaders, not followers”. Today, luxury users perceive a brand as exclusive if it offers different options, is at the forefront of the market, and has innovation as its mindset.
4. Quality is in the small details
Luxury segment consumers are selective and seek exceptional experiences and exclusive products. These customers value quality over quantity, seek exclusivity, and are willing to pay more for it. Additional service and personalized reception, with taste and subtlety, can make a big difference.
5. A consumer who demands the best is not indifferent
Authenticity and sustainability are becoming increasingly important, with 71% of luxury consumers seeking products that reflect these personal values. This statistic underscores the evolution of the luxury consumer towards social and environmental consciousness.
6. It’s not all about status: Emotions matter too
In the luxury segment, emotions can weigh more than material status. For example, Ferrari is not just a car manufacturer; it’s an emotional experience. People don’t buy a Ferrari solely for its status but for the passion, prestige, and excitement the brand evokes. Sporting heritage and constant innovation are values that people see in this brand, beyond the price of its cars. “The most beautiful car is the one that is yet to be made”, Enzo Ferrari used to say.
To better understand the role of the brain and emotions in the consumer decision-making process, check out this EHL blog article about the neuroscience behind customer service.
7. Controlled exclusivity versus growth
It’s important to maintain a balance between exclusivity and accessibility. Exclusivity is essential in luxury, but you should also be approachable and welcoming to your clients. With that in mind, luxury brands can offer limited-edition products and unique experiences to maintain a sense of exclusivity, while also offering an enjoyable, intuitive online shopping experience to reach a larger audience. Consider some of these examples of best practices in the luxury hospitality industry.
8. Inspiration is a duty
To achieve or maintain the status of a luxury brand, you must aim to inspire your customers with beauty, creativity, and innovation in everything you do. In the general industry, referencing other brands is very useful to standardize elements like price, quality levels, and service scope. In luxury, it’s not. To stand out in the luxury crowd your brand has to be different, be what your customer demands, and create a brand personality that resonates with your specific niche, even if it’s a tiny niche.
9. The value of time is more important than the cost
The value of time in the lives of high-class individuals is an essential consideration. These individuals often have tight and busy schedules, with professional and social commitments demanding their attention. As a result, time becomes a scarce and precious resource.
To avoid wasting your valuable customers’ time, consider the principles of service design and the way it impacts the whole customer experience of shopping, purchasing, and any follow-up required. Make it easy and quick to seek assistance and get answers to important questions, and make the payment process as seamless as possible.
10. In luxury, marketing and sales must be 360°
From personalized in-store service to exclusive events and engaging online content, luxury brands must create an interconnected world that immerses customers in their narrative and lifestyle.
Here’s some advice from the luxury watch industry: “Forty percent of people buy only one watch in their lifetime; it is, therefore, vital to be in the right place at the right time when it comes to marketing activities. Podcasts, YouTube, and Instagram are the preferred digital channels to drive interaction and visibility in our main markets.” Brian Duffy, CEO, Watches of Switzerland.
5 Practical actions to build customer service excellence in the luxury segment
Considering the conceptual pillars of Excellence in Customer Service in the Luxury Segment, consider strategic actions such as:
1. Segment your customers and determine their luxury profile
Don’t follow standard market measures. Dive into the specific reality of the luxury world and, once there, perform a much more precise segmentation. For example, you can collect and analyze data to understand what kind of luxury customer you have:
- Know-it-all: Considers themselves an expert in a sector and seeks the best and most exclusive within it.
- Investor: Prioritizes luxury but with financial awareness. Wants to feel they added value to his wealth.
- Hedonist: In a good economic situation and wants to indulge themselves. Not looking for ROI or wealth contribution but a sensation of the highest level.
- Conservative: Consumes in the luxury segment but thinks it through carefully. Has an analytical and slow buying process.
- Disillusioned: Has spent a huge amount of money on luxury brands and feels they’ve been disappointed most of the time. Maybe the issue isn’t quality but wanting something much more personalized.
2. Conduct tests, no matter the cost;
Failures resonate in the minds of luxury consumers for a long time. A strategy misaligned with the customer’s profile can significantly damage reputation.
That’s why you should test and retest before officially launching a product or communication line. Conduct A/B tests, simulate products with digital animation, and explore other alternatives to be of great help.
3. Be a luxury consumer yourself!
Are you already living a luxurious lifestyle? You need to understand your customers’ perspectives, so immerse yourself sensually in what they experience every day.
It can be a very enjoyable form of training! Stay at five-star hotels, dine at the best restaurants, drive an exclusive car… these are small sensory stimuli to understand your customers’ interaction with the luxury universe.
4. Hyper-focused staff training
Like you, your employees need to understand how the customer in this segment acts, thinks, lives, and breathes. One way to help your staff practice interactions with VIP customers is to conduct role-playing exercises and simulations. Additionally, you can reach out to experts in customer experience to design and deliver specialized training measures for the luxury segment.
Also, it’s important to define a true purpose within luxury that your employees can connect with. For example, show how luxury creates unforgettable family moments and unique connections.
5. Align your KPIs with luxury
In the luxury segment, your Key Performance Indicators (KPIs) are not the same as everyone else’s. Think about Customer Service Excellence metrics that are truly relevant within the luxury segment:
- Index of Satisfaction in Exclusive Events Experience: Create a framework for evaluating your customers’ perception and experience.
- Customer Word-of-Mouth Value: Evaluate the impact of your customers’ recommendations on new customers and additional sales.
- Purchase Exclusivity Index: Measure how many exclusive or limited-edition products a customer buys in relation to their total purchases.
- Expectations Met Index: Ask your customers about their expectations before making a purchase and then evaluate if those were met or exceeded.
In broad terms, the luxury segment departs from generalities, standardization, and scalability (producing as much as possible with the minimum possible resources) of the general market.
And this should be taken into consideration in every action you undertake as a leader, from a customer profile study to the selection of KPIs for your strategy.
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This post originally appeared on the EHL Hospitality Business School here and is reproduced with their permission.