Luxury Institute in a recent post addressed the issue of customer retention and how it can be achieved. According to data, a 5% increase in retention can increase profits by 25% to 95%. Luxury Institute proposes seven new rules that can lead customer retention at a higher level.
Rule #1: Collect current client value metrics
A good start to determine the client’s current value is to use the RFM method. The RFM method includes three factors. The first one is recency (when was the last time that the customer made a purchase), the second one is frequency (how often does the customer make purchases) and the third one is monetary value (how much the customer spends). This is a method that it is used for decades. In some cases companies calculate client value with the help of their transaction data. But often they don’t know much else about most clients. So, this is not the right way.
Rule #2: Behavioral data direct from the client is the key
It has been proved that transaction data has limited prediction power. Usually, little is known for the clients who are not at the top of the pyramid but also have high potential. These clients are often assigned to a store sales associate. However, without data, beyond transactions, these clients don’t receive information relevant to their needs and interests. The Luxury Institute focuses on the fact that retention projects now have a source of rich behavioral data to gain deep understanding of the client segments that comprise 95% of the base by using for example the DataLucent personal data exchange.
Rule #3: Innovate and nurture instead of overwhelming your top 5%
Usually VIP clients complain that brands try to sell them more and more. For this reason, brands need to innovate exclusive services, custom and limited-edition products for this group and not constantly annoy their VIP clients without any serious reason. Members of the VIP clients’ network and each referred client’s lifetime value should be included at the client value calculations as purchases increase.
Rule #4: Focus on building your next high-probability tier of clients
The Luxury Institute in its analysis points out that the 15/30 segment has to offer a lot when developed intelligently. Through analytics concerning current client value and behavioral insights, brands can design high-probability recommendations to clients in order to build deeper relationships that add mutual value. The brands can understand where they can take market share from competitors with products that either have not been presented to the client or that can be originated to serve newly discovered customer sub-segments that populate this high value zone.
Rule #5: Build relationships with your bottom 80%
Usually brands because of the lack of data they don’t have sufficient information for this group of clients. After all, luxury brands cannot ignore 80% of their client base simply because they know little about them. DataLucent personal data exchange insights can provide useful information about this group. The Luxury Institute points out that one solution is to humanize and personalize communications. Once the prediction and recommendation algorithms do the appropriate job, emails, texts and calls must be originated by sales associates.
Rule #6: The role of emotional Intelligence for relationship building
Except from the appropriate data, the communication between the client and the brand must embody the four elements of emotional intelligence. These elements according to the Luxury Institute are: expertise, deep empathy, trustworthiness and kindness. In luxury sector, even online sales must be imbued with a human element, according to the Luxury Institute. Humans seek for human connection and this will never change.
Rule #7: Use data to innovate the right products and services to retain and upgrade clients in each value segment
The brands that design products and services using data direct from the client will enjoy the highest probability of deepening customer relationships going forward, according to the Luxury Institute. For example, expensive luxury brands such as Hermès, Louis Vuitton, Chanel, Gucci, Rolex, BMW, Mercedes-Benz, and others develop a product line of highly specialized products at the top, and also offer a portfolio of tried products which are classic and timeless. The Luxury Institute admits that this is an imperfect science of experimentation, but the reality is that all brands are beginning to use client data to enhance the pinpoint commercial accuracy of their creativity.
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