How Luxury Brands Can Stay Ahead in the Age of Amazon
During an earnings call in 2016, Jean-Jacques Guiony, the chief financial officer of LVMH — the luxury conglomerate whose brands include Louis Vuitton, Dior and Bulgari — said, “there is no way we can do business with them.” By “them,” Guiony meant Amazon, a company he believed to be the antithesis of what a luxury retail experience should be. Three years later, all three of those brands have their own Amazon stores. As do Chanel, Gucci and Tiffany & Co.
When it comes to digital transformation, luxury retailers have famously lagged behind their main street counterparts. Consumers pay a premium for luxury brands and what they represent: heritage, craftsmanship, sophistication and stylishness. Luxury shopping has always been geared toward maintaining that VIP image through VIP service. That experience lends itself to a physical store, difficult to replicate online.
But they must. Luxury retailers’ Amazon shops typically have curated, limited selections, but the fact that they exist demonstrates how high the stakes have become. The Internet has democratized the exclusivity of luxury brands, whose customers are increasingly moved online. Over the past five years, luxury brands have outpaced the global market in e-commerce growth. McKinsey & Co. projects that e-commerce will make up 19 percent of the luxury market by 2025, up from 8 percent in 2016, when it was unfathomable to find Louis Vuitton bags on Amazon.
Recognizing how high the stakes are is the first step, but it isn’t enough. As Amazon increasingly becomes synonymous with shopping, luxury leaders need a roadmap for where to focus next.
1. Understand Personalization
Companies that fully invested in personalization outsold their competitors by 30 percent last year, according to Boston Consulting Group. That success is predicated on understanding what personalization truly is and is not. Personalization is considering what makes a brand and its buyers unique, and building programs and integrating technology that makes the most of those differentiators.
Many marketers and merchandisers hear “personalization” and think “product recommendations,” which can be a challenge for luxury brand adoption. These retailers must go beyond recommendations, a small piece of the personalization puzzle, and look at the entire customer life cycle. Triggered messages are sent in response to specific behaviors along that life cycle: signing up for your mailing list, making a purchase or abandoning a shopping cart.
Personalized by nature, with significant room for ongoing testing, optimization and layering of personalization based on when and where the triggering activity took place, they outperform generic batch-and-blast campaigns, generating more than three-quarters of email marketing revenue.
Within the body of the email, personalization can also mean dynamic categories. If you can always count on a particular customer to shop shoes, lead with that, ensuring that shoes are the first thing she sees. Take the same approach to your mobile app, highlighting the product categories where each customer’s interests and predicted purchases lie — while maintaining your high brand image, of course.
Bringing personalization to mobile is especially important because smartphones represent the bridge between online and offline. It’s common practice to use smartphones in-store to research products and compare prices. Why not use those devices to provide white-glove service in a modern way? Options include using geolocation to roll out the red carpet before the customer arrives, turning your app into a concierge service, and allowing shoppers to learn more via strategically placed QR codes.
2. Invest in Email Marketing
In addition to consistently producing the highest ROI for retailers, email marketing is typically the litmus test for who delivers premier personalized shopping experiences. Every year, Sailthru embarks on an exhaustive analysis of more than 250 brands for our Retail Personalization Index. Our researchers evaluate, score and rank these brands based on their web, email, mobile, in-store, display, direct and social tactics.
Points are awarded by category. There are 30 available points in the email category, which are earned by anything from including a customer’s name in subject lines to personalizing the closest store location-based on where they open their email. The brands that made the Personalization Index’s top 10 scored an average of 25 points. The average luxury brand scored a 12.
Email is an important channel for luxury retailers because like mobile devices, it can bridge the gap between online shopping and brick-and-mortar stores. For one, email is a great way to drive traffic to physical stores, where luxury shines. Designers often offer exclusive looks at upcoming collections, either at their own stores or luxury multibrand retailers such as Saks Fifth Avenue and Neiman Marcus. Email is an easy way to let customers know it’s happening; alerting them also helps them feel like insiders.
Savvy retailers also use email to promote preferred items and share personalized in-store discounts. However, to truly pull that off, it’s important to remove barriers between email and retail teams. These teams should work towards the same goals: increasing conversions from new customers and turning them into loyal repeat customers.
3. Use Meaningful AI
In the end, LVMH changed their tune about Amazon, and that’s likely because of artificial intelligence. The e-commerce juggernaut represents how powerful AI can be for retailers. The world’s most valuable public company as of January, Amazon owes 35% of its revenue to its recommendation engine.
It makes recommendations based not only on past behaviors, but the likelihood of future actions, and many other high-volume retailers are following suit. For luxury brands, predictive analytics can be used to identify likely high-lifetime value customers, specific individuals who will purchase in the next 30 days, and which channel an individual is most likely to engage. For most luxury retailers, a high-value buyer is very high. At the same time, many of these brands’ customers are one-and-done, so identifying those people early could pay off in spades, increasing the percentage of buyers who make a second purchase.
McKinsey reports that retailers who have embraced AI generate profit margins 10 percentage points higher than their competitors. Luxury brands need to be in the market today for technologies that support smarter segmentation, anomaly detection, automating testing and reporting, channel optimization and more — all via AI.