How luxury brands can forge better customer engagement and loyalty

October 9, 2024

Burberry fall collection 2024. Image credit: Burberry

Luxury brands have long relied on exclusivity, premium pricing and restricted access to maintain their high-end allure.

However, evolving consumer preferences and economic pressures are pushing these brands to reconsider their customer acquisition strategies.

Could luxury brands be missing an opportunity to attract new customers and build loyalty among a wider audience by avoiding strategies such as loyalty or rewards programs?

Changing luxury landscape
The broader economic environment is also impacting the luxury sector.

A recent PYMNTS article noted that some luxury brands, such as Burberry and Yves Saint Laurent, have begun lowering their prices to attract middle-income consumers, who now make more than half of all luxury purchases.

This trend highlights how luxury brands are adapting to reach aspirational shoppers feeling the squeeze from rising costs and economic uncertainty.

The question for luxury brands is no longer whether to adapt, but how to innovate without compromising exclusivity.

Michelle Wood

Rakuten+: A premium cashback model for modern luxury
Rakuten’s new premium cashback program, Rakuten+, is a bold example of how luxury brands can rethink discounting without diluting their prestige.

This new program is a paid membership program that guarantees members at least 10 percent cashback on designer fashion purchases.

So rather than upfront discounts, cashback programs provide value to consumers after the purchase.

This delayed “discounting” mechanism appeals to stressed consumers’ continued interest in saving money on purchases but manages to avoid tarnishing luxury brands’ high-end image.

Indeed, as quoted in RetailWire, "The enemy of luxury is discounting, and Rakuten provides promotions without discounts. This could be a match made in heaven."

In this context, Rakuten’s program could help redefine how luxury brands approach customer acquisition and retention.

By being open to shopping rewards programs that offer cashback on luxury purchases after the purchase, premium brands can tap into the appeal of offering savings for contemporary value-conscious consumers, while maintaining the aura of exclusivity and premium pricing.

Amazon effect on luxury: a new opportunity for expansion?
Amazon’s recent investment in Saks Global highlights another major shift in luxury retail.

Amazon’s minority stake in the department store confab, which includes 36 Neiman Marcus stores, 39 Saks stores and two Bergdorf Goodman stores, could have far-reaching implications for luxury brands looking to expand their digital footprint.

As noted in a PYMNTS report, Amazon’s $2.65 billion acquisition could bring streamlined logistics, inventory management and supply chain efficiencies to the luxury sector.

This move reflects a growing recognition that traditional luxury retail models, including department store sales – which are down 50 percent since the 2000s – struggle to maintain relevance in an increasingly digital world.

Amazon’s entry into the luxury space could offer a new avenue for luxury brands to attract consumers who expect a seamless, digital-first shopping experience. The future of luxury could indeed prove to be digital.

As digital-first consumers from Gen Z and Gen Alpha grow into the age where they can purchase luxury goods, Bain predicts that by 2030, shopping online may become the leading channel for luxury purchases, with 32-34 percent of total luxury sales.

While many affluent consumers still appreciate the experience of shopping in person, the integration of digital technologies into luxury retail could provide additional convenience and personalization opportunities.

In fact, the potential for other consumer benefits, such as same-day delivery or virtual styling sessions, could redefine what luxury shopping means in the coming years.

LUXURY BRANDS ARE at a crossroads.

As economic pressures and evolving consumer expectations reshape the industry, brands must be willing to try new approaches.

The Rakuten+ premium cashback program and Amazon’s investment in the new Saks Global luxury conglomerate offer two examples of how the luxury sector could embrace new strategies to acquire customers and build loyalty.

By adopting rewards programs that align with today’s consumers’ desire to stretch their budgets, luxury brands can maintain their premium status while appealing to a broader audience.

The future of luxury retail will depend on striking the right balance between exclusivity and value — a challenge that brands must meet head-on to stay competitive.

The time has come for luxury brands to explore these opportunities and redefine embrace what the new loyalty paradigm means in the luxury market.

Michelle Wood is senior vice president of merchant business development at Wildfire Systems, San Diego.

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