The Luxury Institute
As founder of The Luxury Institute, Milton Pedraza has positioned the entity as an impartial, independent and objective ratings and research organization that serves as the global voice of the high net-worth consumer.
With a goal of providing knowledge-based products that deliver actionable insights to luxury goods and service firms that continuously seek to create extraordinary customer experiences for their clients, Pedraza is frequently quoted on luxury issues on television, radio and print media. Recently Pedraza met with Elite Traveler Editor-in-Chief, Douglas Gollan, at The Core Club in New York City to give an overview of The Luxury Institute and insights into the current luxury market.
ET: Can you give us an overview of The Luxury Institute?
Milton Pedraza: The Luxury Institute is the uniquely objective and independent ratings and research organization that is the voice of the high net-worth consumer globally. We conduct more primary research globally with wealthy consumers and in the luxury space than any other entities combined.
ET: What was your background before starting The Institute?
Milton Pedraza: I spent most of my life in the corporate world. Prior to founding the Luxury Institute, I worked in finance, marketing, sales and senior management positions at Fortune 100 companies Altria, Pepsico, Colgate, Citigroup and Wyndham Worldwide. There, I learned the value of listening intensely to, and acting upon, customer feedback. I was fortunate to be able to conduct business in over 75 countries. Then I was blessed with discovering my entrepreneurial sweet spot in the luxury industry.
ET: What are some of the services you provide for members?
Milton Pedraza: We deliver brand ratings research on approximately over 1,000 brands in dozens of luxury product and service categories such as fashion, hotels and wealth managers in the U.S., Japan, China and Europe. We also conduct research with the wealthy on topics as diverse as their social networking habits to food and dining habits. We want our luxury brand clients and members to get to know the wealthy 360 degrees. We also have a rapidly growing luxury marketing and branding consulting business through our Preferred Partners program where we partner with the best in class providers to deliver our services to top luxury brands.
ET: How has The Institute evolved since you launched it?
Milton Pedraza: We began doing primarily luxury brand ratings, but our top clients kept asking us for two things: First, how to join the Institute and get more research on wealthy consumer habits and practices across their lives; and second, to consult with them on how to improve their brand ratings. So, our evolution with membership programs such as Luxury Board and Preferred Partners consulting services are driven by the clients’ needs. Today we also do closed-door lunches and breakfasts with C-levels only. Thanks to our valued client referrals, we have developed the most expansive network of high-level luxury executives in the world.
ET: What are members telling you about how the economy is affecting the luxury industry?
Milton Pedraza: It has been painful across all levels of luxury and wealthy consumer segments. But some brands, such as Hermes and Vuitton, are doing much better while others are really hurting. Those that are truly unquestionable luxury and serve the ultra-wealthy are generally better off than those who serve the merely wealthy, although everyone has suffered. Those that served the aspirational masses with premium products and called themselves luxury have suffered the most.
ET: What advice are you giving to members on how to deal with the crisis?
Milton Pedraza: We have a long list of rules. Essentially though, we are saying, do some soul-searching and understand who you really are in luxury, who you serve and at what levels of wealth, and with what differentiated, unique and exclusive luxury value proposition you serve them. If you find that you are a me-too provider, you have to radically innovate and reinvent your design, your quality, your craftsmanship, and most importantly, your service experience. Or, just serve the masses and stop pretending. We are also telling them that if they are not good cash managers, it does not matter how great they are in this crisis.
ET: Why were so many companies surprised by the recession?
Milton Pedraza: We tend to extrapolate from the present, and the luxury industry was booming for a couple of years, so many luxury executives extrapolated a high level of growth domestically and globally for years to come. This economic crisis was so sudden and so severe that I think most brands were caught flat-footed and in high-growth investment mode. And I also think luxury executives with short memories believed the myth that luxury was either immune or super-resilient to downturns. Our analysis of the data said otherwise, and we did say it publicly, but few luxury leaders are focused on macro-economics or are willing to hear bad news.
ET: What are some of the mistakes you are seeing companies make as they come under cost pressure?
Milton Pedraza: Some companies are cutting service levels and that is a major mistake. I heard a story recently about a luxury resort where the room rate deals were great, but when VIP guests arrived, two of the three restaurants and the spa were closed. That is an extreme example, but the point is that many service level cuts can add up to memorable bad service. In other places, we see complacency and lack of motivation from the customer-facing personnel. That is a truly tragic mistake. When times are tough is when you proactively go out and acquire customers, ask for referrals and focus on retaining your good customers. We see many brands frozen in terms of initiatives and discounting heavily instead. Discounting is a short-term tactic that has long-term damaging effects in luxury.
ET: What are your goals for The Institute over the next three to five years?
Milton Pedraza: Our goals are to expand our services more globally. For example, we want to conduct research in India and the Middle East, if feasible. We are also continuously asking for candid client feedback and reviewing our existing products in order to innovate. We survey our clients to give us unfiltered feedback. Although sometimes it is painful to hear the feedback, we must do so in order to reinvent ourselves. That is one major recommendation we make to all our luxury brand clients. Listen to your customers and then test and learn your way into the future. Only those who are gearing up to compete in the 21st-century will survive and thrive.
ET: What do you consider luxury?
Milton Pedraza: High net-worth consumers tell us luxury has several characteristics. It’s comprised of unique and great artistic design created with the highest levels of quality and craftsmanship. All of it is wrapped in impeccable and personalized service. This should synergistically add up to an extraordinarily unique and exclusive experience. It helps if your wealthy peers, those whom you admire and respect, are also using the good or service. Luxury is about to reinvent itself and it will be wonderful to see what new innovations the true luxury brands bring forth.