What is common between a cup of coffee, a mobile phone and a canvas travel bag? Not much… except that some manufacturers have had the brilliant idea to turn these ordinary consumer products into luxury goods. For a wide variety of products, major players in the prestige brand universe, like Nespresso, Apple or Louis Vuitton, all share and endorse the luxury codes meant to make the consumer dream of a different world and distract them from the basic use of an everyday product.

Luxury as a fundamental and universal human need

Luxury products are generally characterized by their originality, innovative technology, quality or performance, durability, scarcity. The brand’s heritage, evoking quality and tradition, plays an important role in their survival despite fashion trends and consumption cycles.

Luxury products are based on powerful values of timelessness, borrowed from religion and mysticism:

• A prophet, the brand’s founder or an iconic figure, aiming at building a unique brand identity with consumers
• A Promised Land that evokes the brand’s history (like the garagein Los Altos where Steve Jobs launched Apple or Maranello, well-known as the birthplace of Ferrari
• Flagship stores , nothing less than cathedrals of luxury,
• Ritual ceremonies (fashion week, international exhibitions) to celebrate the worship for luxury brands
• Faithful followers (brand fans and devotees)

In the past luxury used to be all about extravagance, ostentation and excess. In the 21st century, it enhances self-esteem and responds to a need for social recognition. By purchasing branded luxury goods, customers want to feel like they belong to a select group or caste. Consumer goods manufacturers have fully understood this and have been able to analyze and divert luxury codes to create a premium offer for which consumers are willing to pay two, three … five times the average reasonable cost of the desired product.

Actually, what applies to everyday consumer goods could easily be applied to service industries such as banking. Banking services are now generally commoditized services free of charge. To stay ahead of the game, traditional banks have no option but to improve customer satisfaction and reinforce the support of those who recommend and act as ambassadors of the brand. Otherwise their market shares and GNP will most likely continue to decrease to the benefit of the neo banks, quicker in making full use of digital potential to offer innovative products at lower cost.

Private banking as a luxury industry

Part of the solution may lie in the ability of some banks to transpose luxury codes into their universe, in order to make themselves more desirable to their customers and prospects. Most private banks have for a long time taken a proactive approach by opting for prestigious addresses, upper floor agencies, cosy atmosphere, refined decoration, a warm welcome and personalized attention and inviting special customers to major cultural and sporting events or gala evenings with VIP treatment. Such significant commercial initiatives must be in coherence with the bank’s positioning (sponsorship policy, for example) and reserved exclusively for special customers. The resulting cost can be justified in terms of attracting and retaining customers who each generate tens of thousands of euros in annual net banking income (compared to an average of less than two hundred euros for neo-bank clients).

But be careful, it would be a fatal mistake to focus on appearance only! A “premium” strategy first and foremost relies on the best quality service in all aspects of the customer relationship: contact making, accessibility, responsiveness to customer requests, commercial proactivity, quality of advice, information, management reporting, etc. The promise must be kept in all circumstances and on all services provided by the bank and its potential partners.

Luxury codes can be transposed to the world of retail banking

But what is true for the « ultra-high net worth individuals » should also be applied in retail banking. Why should a branch bank be an awful place where advisers receive customers in a small and dimly lit room, with only ads for consumer credits posted on the walls? Most banks have understood that to stop the relentless decline in customer usage of bank branches, it was necessary to imagine new formats of outlets, more friendly, cozy, in which customers will enjoy going.

Establishing a premium position means rethinking the offices ‘design: interior decoration and fit-out, ambient lighting and scenting, background music, it means inviting customers in a virtual trip calling upon their imagination, emotion and all their senses. It also means guaranteeing the consistency of the various components directly visible to the customer: office design and signage, marketing campaigns, look-and-feel of online banking applications, customer supports, starting with regular mail and payment options available. The approach and the resources involved must obviously be differentiated and proportionate to fit the customer segment (and therefore value) to be addressed.

It is therefore a great challenge to ensure a rational industrial organization of services while creating the feeling of exclusivity and providing top quality services: speed and efficiency of responses to customers’ requirements, wise and proactive commercial approaches, customization of messages and demands.

This implies that quality standards have been clearly established at an early stage and that they are known and respected by all. Which is difficult in large banking networks with large numbers of financial advisors. Big Data and Artificial Intelligence technological expertise now seems to be an essential prerequisite for effective customer relationships and appropriate response to their needs and preferences, on all traditional and digital channels.

In any case, becoming a “premium bank” is a long-term process that requires revisiting many of the constituent elements of the bank’s offering, business model, processes and information system. But with the rise of the uberized economy, the deconstruction of the banking value chain, the emergence of fintech companies causing disruption and interfering in the traditional bank-client relationship, the GAFAs’ attempts to break into the financial services market, quality upgrading may prove an efficient strategy for banks to improve their attractiveness and adequately price their service offerings