Defying success and failure in the time of brand transformation

Then, what is success and what is failure in a time of change management?

For the purpose of this article, we will offer a unified understanding of the concepts of success and failure during a brand transformation period. Keeping the finance-first approach, success can be understood as retaining the current revenue growth rate without a brand distortion, which can be further expressed as a mathematical formula shown below.

As it implies from the proposed framework, the strategic challenge shouldn’t be perceived purely from the balance generated by the flow of leaving customers and in-coming customers.

In light of the above definition, success occurs when Y grows in a pace that is not slower than in the days of Lagerfeld’s leadership. The failure, on the contrary, would be defined as a decline of the Y factor. What is interesting, is that the concept of failure is not limited to a situation in which the leaving customers outnumber the new customers. In fact, there are two more drivers of decline, correlated with the quality of the customers base, that is to say, a decline in an average annual ticket or a drop in an alpha coefficient, which directly impacts on the perceived brand status by a luxury brand’ clients.

As the next steps, it is of key importance to understand how the leadership change within a heritage brand might deform the composition of the customer base and therefore its quality – ultimately impacting on the market demand. One of the strategic challenges in front of Chanel is to successfully fill the gap after the lost leader to prevent customers’ deception and brand desirability loss. Viard will have to stay authentic to her own values, yet cater to the customers who love Chanel for Lagerfeld’s bold leadership and heritage, while managing customers’ and market expectations. 

As indicated earlier in the article, the managerial transition might lead to a change in the composition of the customer base, a natural deformation that is very likely to occur during a leadership transition at a luxury house. In fact, many customers might abandon or show a negative attitude toward their favorite luxury brands if they perceive a loss of prestige or exclusivity of the brand; as people typically buy luxury products to distinguish themselves from others and tend to abandon their brands when outsiders or less affluent groups copy their shopping preferences.

Thus, a luxury brand could see this moment of crisis as an opportunity to re-build and cement its connection with the core of its customer base via a dedicated engagement strategy to avoid churn and re-direct those negative emotions towards sales.

Consequently, to turn the challenge into an opportunity a luxury brand should develop a value based dynamic segmentation; this strategic approach would, on one hand, identify new clients and feed the relationship with them and, on the other hand, keep developing an exclusive and personalized relationship with the core clients via dedicated CRM actions.

Since a strong, distinctive relationship cannot be run with all customers – such strategy would be difficult and expensive, and potentially inappropriate, during a time of transformation, it is necessary to develop and monitor multiple customer portfolios to coherently engage and retain according to a dynamic segmented approach.

This approach will allow the luxury brand to distinguish between two clusters of customers:

• The core customers, those representing a high worth for the brand in terms of both customer lifetime value and brand’s values and codes representation, must be cherished. Ideally, this segment should always be addressed through direct, lively means, such as personalized phone calls, handwritten mailings, invitations, to VIP events. During a transition phase this segment needs to be nurtured and retained, as it is a selected group of customers projecting the aspirational image of the brand with a direct impact on brand perception and equity
• The new customers, those representing the brand fan base following the leadership change, must be engaged. This segment should be addressed through more automated means: classic mailing, brand magazines, newsletters and invitations can be sent via the brand database. Nevertheless, high perceived quality should absolutely be assured during these interactions

Preserving the quality of a luxury brand’s customer base is key during leadership change

The takeaway learning is that during a change management, luxury brands should strategically address the topic of their customer base quality. By retaining its core customers – the one highly impacting on brand equity and brand perception, heritage brands will mitigate the potential brand distortion risk deriving from a brand transformation.

As discussed above in the framework, for luxury brands facing a leadership transition, the positive social influence of a given client segment – the alpha coefficient, is as critical as the number of new customer recruits, number of churns, and the average annual tickets.

In the end, to avoid the deception among core customers at high worth, brands must interact more and in a specific fashion with them, as proof of their identity and care for them. Therefore, exclusive CRM actions will allow luxury brands to make feel their privileged customers still part of a selective club, preventing them to leave the brand and impact negatively on the brand equity on the long run.

Article rédigé par Elisabetta PORTIOLI