Please see below for the Luxury Institutes latest White Paper, “Luxury Institute Reveals Top Seven Reasons Why Sales Performance Fails, And How To Fix It” by Milton Pedraza, CEO:
Luxury brands in 2016 are managing through a troublesome time in the global economy, including a dramatic slowdown in China, a stronger dollar, and muted demand in the developed markets of Europe and the United States. Other issues that luxury executives have wrestled with are clients shifting towards luxury experiences and online buying, rampant discounting, too many competitors, and even terrorism and weather. Exacerbating all of these problems are disloyal clients and employees.
At the Luxury Institute, we sit one-on-one with dozens of top luxury CEOs every year, and for the first time since 2008, most of these company leaders are deeply worried. While companies cannot control the environment in which they operate, they can certainly choose their strategic response. What these leaders want to know is what effective action they can take in 2016 that will make a significant impact on their ability to adapt and survive.
An important point that we hear from luxury CEOs is that 60% of success stems from the companys superior products, but a significant 40% of success depends on relationship-building expertise and execution of front-line teams, both in stores and online. Unfortunately, this is where many brands are stumbling.
Every luxury brand we know has a sales performance improvement program, but when we reviewed the client data collection, conversion, and retention rates of dozens of luxury goods and services brands in 2015, they were dismal. Results show that 9 out of 10 would-be clients walk out of a store without a purchase, and 80% of those who buy dont become repeat buyers, even though most brands are multi-category providers. The luxury industry is clearly failing to control a critical element of its destiny.
More than 75% of people in the luxury industry work in front-line, customer-facing positions. Most brands train their associates and track their development, so why are the results so dismal?
Based on our experience with luxury goods and services firms, here are seven reasons why sales performance so often fails to produce operational improvements, along with what you can do to make these programs work.
1: Failure To Communicate That Relationship Building Is The High-Value Skill, Not Selling
In difficult times, it is easy to misunderstand the true purpose and mission of a twenty-first century luxury enterprise. One colleague recounts a story about what the CEO of a top luxury brand told his front-line team at the end of a two-day, highly empowering client relationship-building training workshop, Its great that you enjoyed this touchy-feely program, now its time to face the harsh reality, and get back to the real work of selling. Building a high performance client relationship program requires a few ingredients. First, the profound realization by senior management that dehumanizing, hard-push, transactional sales programs are obsolete. Unfortunately, disengaged and robotic selling is still a part of the culture of most luxury brands. The only approach that will work going forward is creativity-unleashing, empowering, client relationship-building that humanistically drives big increases in client data collection, conversion and retention. This approach, when applied with surgical detail, drives short and long-term sales and high profit margins. The critical skills today are having product and brand expertise and displaying it with empathy, trustworthiness and generosity. Panicking backwards into hard selling will get you into an even deeper hole as clients, especially millennials, reject your outdated selling ceremony and give their business to competitors with more appropriate models.
2: Failure To Engage Objective, Independent, And Trusted Advice
Two years ago, we were brought into a top luxury accessories brand eagerly by the heads of retail and human resources who felt they direly needed objectivity in the client relationship-building process. After listening politely, the CEO asked his team pointedly, Why can’t we do this ourselves? His team explained that the overwhelming record shows that most brands, like professionals in other industries, are unable to identify and keep up with the best high-performance practices, especially outside their own industry. High-performance innovations are continuously being developed in fields such as sports, the military, medicine, aviation, education and behavioral psychology. Internal teams are too busy with the everyday issues of the brand to immerse themselves in the leading best practices. Furthermore, they explained that the internal politics, intricate relationships and informal networks inside the organization prevent people from objectively evaluating themselves and their colleagues, and communicating honestly with regard to their own, and their associates, behaviors and performance. They felt the front-line team needed an outside coach to help design and maintain a safe space for the accurate measurement and honest communication and execution of best practices that drive high performance. The well-intentioned CEO insisted they could do it themselves, and intimidated his people into abandoning coaching because he feared appearing weak and incompetent. While his ego remained intact, his company is still suffering with poor results, and insiders tell us it has gotten much worse. In most ultra-competitive fields such as real estate, professional sports, entertainment, music, even medicine, the top achievers today are eager to benefit from an objective, expert coach. In luxury, using effective coaching is the exception.
Independent research in other professions shows that diligently scheduling and conducting coaching sessions is the most effective intervention designed for high performance. When professionals are trained in workshops, even if they include practice exercises, the percentage using the best practices after six months is only 10%. However, if you add the on-going support of well-trained internal coaches, with sessions conducted one time per week for 30-minutes to 1-hour, the percentage of people who are still using the best practices diligently and effectively after six months is a staggering 95%. We have implemented coaching programs that require daily measurement to create accountability and self-awareness among professionals, and increase performance dramatically and immediately. The daily tracking along with a formal monthly review with an external expert has delivered conversion rate increases, in some stores, as high as 80%, and has transformed internal managers into effective coaches. In luxury, we pretend that we can do it all by ourselves despite the insurmountable challenges. The results speak for themselves.
3: Failure To Recognize That Top Performers Benefit Most From Coaching
In conducting Luxcelerate training programs over the last several years, we have heard a recurring theme that at first seems logical to luxury executives, but can be detrimental to the performance of teams. Many executives believe that top sales associates will either reject or don’t need training and continuous coaching. In professional sports, there would be no debate that on-going coaching is necessary. Lets do the obvious math: If a store associate who sells $100,000 per year increases their sales by 20% with coaching, they will sell $120,000. If a sales associate who sells $1 million per year increases their sales by 20% with coaching, they will sell $1.2 million. The benefits are strikingly clear. In a recent Luxcelerate project, we trained and coached one top-performing associate whose sales increased 50% from $1.0 million to $1.5 million in just six months. At first, the executives and the associate were skeptical, but once they saw that he was actually getting better quickly, they bought in. By becoming the proven case study, this top performer actually encouraged and inspired his teammates to higher performance too. The entire team increased their conversion rate by 42%, and transaction value by 15%. Naturally, all the top performers did even better. One expert reported identifying more areas of potential improvement in a 20-minute coaching session than he had independently over 5 years. Most luxury brands don’t have a competent weekly coaching program in place for anyone, despite the evidence of success that exists in so many professions, and the top associates are deemed off limits, or exempt. This mindset is a huge detriment to improving performance. In 2016, the price of coaching mythology and fear in luxury will be higher than ever before.
4: Failure To See The Big Picture Of High-Performance Client Relationship Systems
You can understand why someone at the front lines of luxury might not be able to see the big picture of high performance systems. They are outwardly focused on the clients. It is less acceptable for senior executives to not get it, despite their advanced degrees and years of experience. Yet, here we are in 2016, and most senior teams have not yet connected the dots of how high performance client relationship building works. It starts with selecting the right people, uncompromisingly, for human values first, and then skills. It requires an innovative on-boarding education program that combines online and offline learning opportunities and confirms that learning is taking place. It empowers each associate to be a learner and a teacher continuously. It provides evidence-based coaching techniques, once a week, at minimum, for all associates. It uses the correct daily metrics to help people track their performance on behaviors that drive conversion and retention, not dollars. It celebrates and compensates people for the humanistic input behaviors that drive dollars, not the actual dollar outcomes. It empowers associates to be creative and innovative with each individual client instead of the one-size-fits-all sales ceremony that is measured by robotic mystery shopping tools and lengthy customer satisfaction surveys.
5: Failure To Recognize The True Role Technology Plays In High-Performance Teams
In the past few months, as we visited with luxury executives of multi-billion dollar brands in the U.S. and Europe to exchange ideas and trends, CRM systems and iPads at the front lines were hot topics. One luxury brand that has a reputation as being among the most tech-savvy, which had introduced a new CRM system to great fanfare and empowered its front-line teams with iPads, current and former executives alike shared that the poor results did not justify the heavy cost. The CRM system created some efficiency, but no greater effectiveness. The few people who were already relationship builders used the tools to be more efficient, while many people failed to use the technology at all. In other words, having insightful data available at the associates fingertips and equipping them with iPads for outreach meant little without a high performance client relationship system, despite a high technology system. This sounds obvious, yet this is the current state at most luxury brands today. We have seen clients increase sales from 15-30% within 12 months, and often sooner, using simple POS systems and Excel while brands that have extensive technology, but no culture, fail and carry a heavy cost. Two points about technology bear remembering in 2016. First, technology is not a competitive advantage, because if it is any good, everyone who is competent will adopt it. Second, technology implemented without a high performance client relationship system, or culture, will fail to have any effect. The brand we described above recently published its results. It actually underperformed its competitors by a significant margin and is rethinking its priorities.
6: Failure To Remove Toxic Leaders Who Lack Empathy
Empathy is defined as the distinctively human ability to understand or feel what another being is experiencing from within the others frame of reference, and to do something positive and helpful to meet their needs. We expect our front-line associates to have, or develop, and practice this ability consistently with their clients and even peers. And yet, a significant number of executives and managers in luxury lack true empathy either because they have never directly served a luxury client, or simply because they are too far removed from the front-line associates. In order to develop a high performance client relationship system, luxury needs leaders who can truly empathize with their front-line associates. In 2016, a competitor cannot replicate empathy, unlike technology and products, because it is inherently personal and individual. Yet empathy, like a muscle, can be built up to higher levels. The collective empathetic values and behaviors from your front-line teams add up to one huge competitive advantage with clients and drive sales. Your front-line people need empathetic executives leading them. Identify the minority of toxic, self-centered, disempowering executives quickly in 2016. Kindly, gently, and with empathy, exit them from your brand. Front-line teams will perform with empathy only as well as their leaders.
7: Failure To Execute With Urgency And Speed
We often hear luxury brand executives state that they require a year to eighteen months to execute a high performance client relationship system properly. When we objectively analyze the reasons why, we find that there are three main reasons for this. The first reason is the slow approach to aligning the organizational direction. Companies often take six months of meetings and deliberations to do what should take a few well-planned 2-3 day workshops with pre-work exercises so that people come prepared to contribute with facts rather than opinions. Both are valuable, but facts should be indisputable. The second reason is the slow pace of execution once the direction and plan are set. Failure to execute strategic plans rapidly and efficiently results in immense opportunity loss. We have seen brands take turn-key plans that can be executed in a matter of weeks and expand the execution over several months, or even years, resulting in tens of millions of dollars in lost sales. A third reason is simply the amount of bureaucracy in luxury brands. There are so many layers that they trip each other up in a power grab that hurts results.
Our Luxcelerate results demonstrate that if a company has well-defined brand purpose, relationship values and client experience standards, but lacks a strong execution system, the enhancement project should take 60 days to start up globally. When should you start to see measurable results? Day 61. If the purpose, values and standards need definition and articulation, then it may take 120 days at most to develop those basics. When should you begin to see results? Day 121. In 2016, speed in execution is a huge competitive advantage. And yes, you have to get it right too.
To recap, to improve your sales performance, and do it correctly, you must:
Abandon the hard-sell, robotic sales approach for one that encourages creativity, empowerment, and humanistic relationships
Measure the front-lines success based on behavioral metrics that drive conversion and retention, not just dollar sales
Enlist the help of an external, objective and expert coach
Stop relying on technology solutions to increase performance, and start investing in coaching and education for the whole team, especially top sales performers
Remove the toxic, un-empathic leaders from your company immediately
Empower individuals to accelerate decisions free of unnecessary bureaucratic procedures in order to execute plans efficiently
The year 2016 will test your leadership skills like never before. Embrace the challenges knowing that humanistic client relationship skills coached by an objective external expert, including your top performers, can drive the retention and conversion rates that your brand desires. Having these relationship building skills within a high performance system that is supported, rather than controlled, by technology and led by exemplary empathetic leaders who execute with speed and accuracy are the elements of luxury sales success in 2016.
About Milton Pedraza and Luxury Institute, LLC
Milton Pedraza is the CEO of the Luxury Institute. Over the past 12 years, Milton has established the Luxury Institute, first and foremost, as a high performance client relationship consulting firm. Our Luxcelerate System has helped our clients to significantly improve client data collection, conversion and retention rates. In addition, the Institute has conducted more research with affluent consumers than any other entity in the world. In the last decade, we have served over 1,000 luxury and premium goods and services brands across dozens of categories.
Milton advises and coaches luxury CEOs and advises the boards of top-tier luxury and premium brands, as well as luxury startups. He is sought after worldwide for his practical, innovative and humanistic insights and recommendations on luxury and is the most quoted global luxury industry expert in leading media and publications.
Milton is also an authority on customer relationship management technologies, analytics, and Big Data. Prior to founding the Luxury Institute, his successful career at Fortune 100 companies included executive roles at Altria, PepsiCo, Colgate, Citigroup and Wyndham Worldwide.
Milton was born in Colombia, raised in the United States, and has lived in several countries. He has conducted business in over 100 countries, and speaks several languages.
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