3.1. The basic problem in luxury marketing

One general characteristic of the way consumers are building preferences and choices was named the “law of the few,” meaning the opinions of 10% of a consumer market is influencing the buying behavior of the other 90% (Lazarsfeld 1944). The marketing model (figure 3.1) in which a company employs the services of an advertising agency to create media that will influence the audience directly, is in truth a simplification.


The “two-step flow theory” states that instead of having a direct effect, advertising messages are channelled through opinion leaders with influence in social networks, and that it is through their output word of mouth that communication effects can occur (Katz and Lazarsfeld 1955). Opinion leaders process the information first, since they tend to be more frequently exposed to mass media (figure 3.2) (Richins and Root-Shaffer 1988).


The problem about changed consumer attitudes from a marketing perspective is the higher immunity of the discerning and highly sophisticated opinion leaders against traditional marketing channels and mass media. Especially HNWIs do not want to be targeted by direct push-approaches (figure 3.2) (Push marketing is the traditional direct type of marketing. It includes direct mail, advertising, cold calling, and other techniques that push your products and services). To get access to rich customers in general, and specifically their opinion leaders, different channels have to be employed. This is done with pull-approaches (Pull marketing brings customers to you by their own incentive. It is a more indirect approach that includes using proactive referral systems, speaking, writing, having a visible presence within communities and social networks, and providing additional information once the potential customers have given their permission to do so). Once a relationship based on trust is established, customers can be more receptive for direct push-approaches. A company's own customers can therefore be targeted more directly than new customers, leading to two different models of luxury marketing—customer acquisition and customer retention.

Customer acquisition
Acquiring customers for luxury brands must be differentiated by wealth level and the customer's marketing exclusivity, meaning the inclination of a consumer to be not receptive for mass marketing environments and mass media. The theory is that the higher the wealth level, the less receptive the customer is to normal marketing channels (Abraham-Holdings 2008A, Tsuchiya 2007: 76-77). Figure 3.3. shows marketing environments in a combination of the consumption level marketed in, and the media-channels used to transfer the message, the marketing exclusivity (It is important not to mistake consumption level with consumer level. The consumption level [figure 3.3] defines the relative price level of a product sold, advertised or otherwise marketed, while the consumer level [from figure 2.1 and table 3.1] defines the level of a consumer's social lifestyle and connections). Everything can be considered a marketing environment: the lobby of an expensive hotel, a private party, even a talk among friends can be the scene of a conversation about a product or service, or a setting for brand exposure and image building.
A change in marketing environment and consumer behavior has led to a gradual decline in the traditional mass market, with the so called “death in the middle” by companies who failed to differentiate themselves either by price (offering qualitative products in the discount market) or quality and emotional appeal (offering new luxury products and premium offerings, or changing the shopping environment). What has happened in the last decades is a gradual shift in marketing exclusivity from the left of figure 3.3 to the right. Consumers either demand more of their shopping experience or look out for the lowest price or convenience (Silverstein and Fiske 2005; Nunes et al. 2004; Danziger 2005; Anterior Insight 2008).


The higher the wealth level, the higher is the average marketing exclusivity of the marketing environment and the media necessary to gain access to the individual customer. Thorough customer segmentation can reveal at which media level the marketing has to be executed. As most brands have a product range which spans some or all of the consumption levels from figure 3.3, an holistic approach can be necessary. The problem in luxury marketing is how to reach the higher levels of marketing exclusivity, as these tend to vary depending on cultural context, are linked to specific networks, and are not directly accessible.

Customer Retention
The basic approach for customer retention is illustrated by Tsuchiya (2007), who makes three propositions: Proposition 1: 80% of the revenue is delivered by 20% of the customers of a luxury company. Proposition 2: Only about 10% of the customers are opinion leaders, while the other 90% tend to be heavily influenced by them in their buying decisions. Proposition 3: Customer acquisition is 10 times more costly than customer retention (Tsuchiya 2007: 40-41, 70-71).
Considering propositions 1 and 3, it makes sense to treat some customers better than others and to invest more energy into retaining their loyalty (Nunes et al. 2004: 57, Tsuchiya 2005, 40-41, 70-73). The challenge is now how to move the 10% opinion leaders of your 20% best customers up the loyalty ladder in order to become brand advocates, so that they can be effectively used for word of mouth marketing strategies, as can be seen in figure 3.4. To do this, special services are created for those 20% top customers in order to move them up the loyalty ladder, giving them status and incentives to talk about their positive experiences to others. This approach is already practiced in many industries: by airlines (mileage clubs), by credit card companies (fringe benefits and concierge services) and financial services providers (special treatment and privileges, private wealth management) (Nunes et al. 2004: 67).


As loyalty tends to increase only with extreme customer satisfaction, what is needed is outstanding performance and services (Hongoard 2002: 248). Relationship economies are strongest at the higher consumption levels, as market mechanisms are modified and eliminated at the top, where switching costs are caused by social factors like emotional attachment to products and conformity within social networks. In contrast, in the highly competitive middle-class environment the idea of extreme customer satisfaction is out of place due to low switching costs.