An Overview of Loyalty in The Luxury Fashion Industry

by Natasha Ambavle |

After the relaxation of the first lockdown phase in 2020, the global fashion industry and especially the luxury fashion sector experienced the unexpected phenomenon of ‘revenge shopping’. Contrary to what marketing gurus and forecasting professionals predicted, the fashion industry experienced a massive boom. The phenomenon was not restricted to offline shopping. In fact, online shopping picked up pace after the pandemic. The online luxury fashion sector is growing thrice as fast and represents 10% of the total market share. As of 2021, almost 80% of luxury fashion sales are ‘digitally influenced’. A report by Forrester, predicts that by 2023, 60% of luxury sales growth will originate from e-commerce. The online sector is expected to represent 25% of the luxury market value by 2025.

However, the online terrain is not the most conducive habitat for luxury fashion. The luxury fashion industry thrives on the exclusivity factor and with an online presence, it becomes widely accessible to customers worldwide. The challenge is to boost customer engagement without negatively impacting the brand image, which is the most crucial aspect of a luxury brand. This also impacts the retention rate, since customers turn to online platforms to look for the most lucrative deals and prices, making brand loyalty harder to maintain. Also, compared to the pre-Covid-19 era, the retention rate is 82% lower in the luxury fashion industry. According to Karen Katz, CEO of Neiman Marcus, “The price transparency and accessibility that comes with online shopping is also driving customer attrition.”

So, how can you curb the customer attrition rate and foster loyalty? The answer is – luxury fashion loyalty programs.

Luxury Fashion Loyalty Programs – The Need of The Hour

Loyalty programs are not as common in the luxury industry as they are in retail. In the past, luxury brands steered clear of loyalty programs because they were concerned about the impact that loyalty programs might have on the overall brand image. However, in the last couple of years, the luxury industry is opening its eyes to the unparalleled advantages of loyalty programs. Breaking the notion that loyalty programs were only for high-street and fast fashion brands and that loyalty strategies devalued their premium positioning in the market, various luxury brands are rapidly adopting loyalty strategies

Loyalty programs not just address the challenge of customer retention but also help to acquire new customers.  According to Branding Strategy Insider, luxury fashion loyalty programs can increase the number of high-spenders from 10% to 15-20%. Today, high-spenders believe that loyalty programs play a significant role in strengthening the brand-customer relationship.

Tips to Design Lucrative Luxury Fashion Loyalty Programs

  • Create Exclusivity – A luxury purchase has a certain aspirational quality attached to it. To further encourage this and promote loyalty, aim to create an exclusive community of your loyal customers. With your loyalty program, give exclusive privileges and perks to your customers to show that they mean more than one-off purchasers. Exclusivity is perhaps the most effective strategy to create brand hype and a distinct brand image.
  • Create an Emotional Connection – Luxury fashion goods have an aspirational quality. Due to this, it is much easier for luxury fashion brands to create an emotional connection with their customers. By fostering a healthy customer-brand relationship, you could even encourage one-time buyers to join the loyalty program and purchase again from the brand.
  • Select the Right Rewards – The rewards you are offering are a crucial aspect of your loyalty strategy. High-spenders of luxury goods are not easily impressed, therefore you need to select the right rewards that will excite your customers. Experiential rewards are always a great idea. Over 50% of U.S. millennials prefer to spend money on experiences. Gifting your high-spenders with luxurious vacations or staycations will pique the interests of your customers. Intend to create experiences that help in increasing your brand recall value, eventually building an emotional connection with your audience.
  • Focus on Customer Experience – Luxury fashion and goods spenders are not looking for discounts or freebies. Focus more on creating tailored experiences than on special offers. If your luxury fashion loyalty program offers a great combination of exclusivity and personalized experiences, it will attract customers.  Create an exclusive and tailored experience for your loyal customers and it will help to foster loyalty and strengthen the customer-brand relationship.

Challenges You Might Face

  • The Repeat Purchase Frequency is Low – When it comes to luxury goods, the repeat purchase frequency or RPF is low. Customers don’t repurchase luxury items as frequently as high street or fast-fashion products. Also, many first-time buyers, only purchase from a brand once or twice throughout their customer lifetime journey. This may not hamper the sale because of the considerable profit margin; but, it has a definitive impact on the churn rate.
  • The irrelevancy of Earn and Burn Strategy – Because of the low RPF, the tried and tested earn and burn formula loses its relevancy with luxury goods. Luxury fashion loyalty programs cannot rely on customers to repeatedly purchase their products in order to redeem rewards. Since the price bracket of luxury goods is quite high, the earn and burn strategy simply doesn’t work in this scenario.
  • Rewarding Customers is Difficult –For a loyalty program to efficiently work, you need exciting rewards that have a certain aspirational quality, that motivate customers to actively participate in the program. With customers of luxury goods, rewards become a challenge. You need a reward that’s exciting enough for customers of luxury goods and on par with their purchase, in order to ensure participation.

Partnering with Annex Cloud for Strategic Luxury Fashion Loyalty Programs

Having partnered with brands like Harrods and Toyota, Annex Cloud has the experience and expertise to design and execute luxury fashion loyalty programs that are customized to suit your target group. Annex Cloud’s dynamic Rewards and Incentive Engine and Omnichannel Loyalty have been recognized by Forrester for their performance and efficiency. For bespoke loyalty strategies and consultation, by Team Annex Cloud, click here.

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