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[18 comments]

Aspiring Customers Shop at Nordstrom

January 10, 2012

In a January 2011 article on RetailWire, Bill Hanifin, managing director of Hanifin Loyalty, wrote of the move within loyalty marketing programs to provide "more automatic and instantaneous recognition of customers."

Consumers, he wrote, "want things at the speed of the Internet, whether it's information, customer service — or a perk for being a customer."

Nordstrom, as are others, is facing this challenge as it seeks to broaden its customer base. In the department store's case, that includes so-called aspirational shoppers who may not have the income of the typical Nordstrom customer, but still want to buy the luxury goods it sells.

Now, according to a Wall Street Journal article, Nordstrom has reworked its four-tier loyalty program to make it easier for shoppers to qualify for rewards.

According to the Journal, members on the lowest level will receive up to "$100 in complimentary alterations" from the get-go and consumers may now earn points for purchases made at Nordstrom Rack.

"Rack stores tend to be a common point of entry and a place where people try Nordstrom out," Kevin Knight, president of Nordstrom Credit, told the Journal.

Nordstrom is also making point rewards more accessible for its top customers, as well. Level four members previously had to spend $20,000 a year for a variety of special perks. Now, that number has been cut to $10,000 annually.

FINANCIALS:     [NYSE:JWN]

Discussion Questions:

Discussion Questions: Are consumers today less patient when it comes to earning loyalty reward points? What is your reaction to Nordstrom lowering its reward point levels? What will the effect be with aspirational shoppers and with higher tier shoppers?

While we value unfettered opinion, we urge you to show respect and courtesy for people or companies about whom you comment. Keep in mind that this is a public, professional business discussion. RetailWire reserves the right to edit or refuse the publication of remarks that we deem unsuitable. We may also correct for unintended spelling and grammatical errors.

Instant Poll:

How effective will lowering reward point levels be for Nordstrom in attracting aspirational shoppers?

Comments:

Lowering loyalty points will no doubt please many of Nordstrom's customers. Will it move the sales needle? Doubtful.

Success for Nordstrom will come by offering a superior experience to buying online. The good news for them is that they already do this exceedingly well. Knowledgeable, friendly associates that help the customer with her aspirations in a pleasant environment. So far, you can't find that experience on the web. Also, Nordstrom does not drive sales by price promotion, which inevitably brings the web into the game. Finally, their assortment is not found everywhere, which turns the sales floor into a showroom for mobile price shoppers.

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Bill Emerson, President, Emerson Advisors

It's a practical move. Nordstrom is applying best practices in two specific areas as it relates to this change, changes that most companies do not apply -- staying the course without evolving over time.

First, they have adjusted their program design to address what their data is telling them, that the earning thresholds are "too high." Thus, based on very thorough analytics and financial modeling, it was an acceptable "risk" to lower the point of entry while also adjusting the highest tier. Second, the program has tiers in the first place (many programs do not), that cause customers to shop/spend incrementally in order to gain greater benefit. Tiers promote learning to discover what will cause incremental behavior. Nordstrom has an advantage as it controls and can deliver varying levels of differentiated services and benefits (both proprietary/intrinsic to the brand and through partners).

Ultimately, data drives decisions and Nordstrom, having a solid credit card customer base with deep insight into their in-house as well as out-of-house behavior, is making this move in order to retain its best customers while remaining relevant and compelling vis a vis the competition. The price/value relationship hasn't changed. The love for the brand (especially shoes) hasn't waned, nor the excellent service their associates deliver.

David Slavick, Director, Loyalty & Retention, FTD.com

In an age of making rewards more difficult to achieve (e.g. airline frequent flyer programs), this is a smart move by Nordstrom. It also reflects a fundamental difference in the perspective with which Nordstrom approaches the idea of a loyalty program.

Airlines in particular have come to view frequent flyer miles as a cost of doing business that is to be minimized -- regardless of how they portray the programs publicly. It is an evolution very similar to consumer goods couponing in the '80s and '90s. CPGs ran coupons to increase the attention both consumers and retailers paid to their products, but the objective of many programs was to attract the maximum amount of attention with the minimum amount of redemption. In other words -- cost control.

Nordstrom is approaching their loyalty program as a true traffic and frequency builder. They want people to feel that reward levels are achievable. And with Nordstrom prices and margins, just how many incremental trips/purchases do they have to drive to pay out the higher investment in reward redemptions? I'm guessing one or two will do. Good move!

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Ben Ball, Senior Vice President, Dechert-Hampe

Consumers today are less patient in every aspect of engagement with retailers.

If you are going to offer a loyalty program, it needs to offer ease of entry, rapid rewards and aspirational rewards. The shift in Nordstrom's program reflects these realities. Smart move on their part.

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Max Goldberg, President, Max Goldberg & Associates

We are in the age of sound bites and 44 character messages -- everybody wants everything faster, including the ability to earn rewards through loyalty programs. Nordstrom made a good move by lowering the levels and allowing points to be earned via Rack purchases.

All of the accolades aside, I doubt that it will drive individual customers to buy more, but it will allow them to feel better about buying the same -- as long as it gets them to the reward level they seek.

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Steve Montgomery, President, b2b Solutions, LLC

This is a good move by Nordstrom and it shows them working to improve on several fronts. One, they and their customers will benefit from more integration between Rack and their full line stores. Second, they have been struggling to attract a younger shopper and the lower thresholds should at least help keep their existing younger segments and, best case, actually grow them. Finally, this is a recognition of changing customer expectations in the age of Groupon, but the execution is happening in a way that remains true to the Nordstrom brand.

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Martin Mehalchin, Partner, Lenati, LLC

Smart move from Nordstrom on its loyalty program. Higher tier shoppers won't even notice and aspirational shoppers will perceive the Nordstrom experience as more accessible. There is no doubt that customers are less and less patient with earning reward points and would shift to another program in a heartbeat, should they not experience the benefit of the program fast enough.

Dr. Emmanuel Probst, Vice President, Retail, Empathica

This move makes sense. First, it recognizes the need for speed. Speed means gratification, which means happier customers (especially the under 30 crowd).

Second, the move recognizes the impact of the recession on a generation of aspiring shoppers. Give them access to rewards now; make them loyal shoppers now and reap the profits in perpetuity.

Good job, Nordstrom.

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Liz Crawford, VP, Strategy & Insights, Match Drive

Today's marketing, in my opinion, is more consumer-centric than ever before. With the advent of the blogosphere, social media and mobile, consumers' voices are stronger than ever before.

I think it's a positive move for Nordstrom's to readjust their rewards program to suit all different types of consumers. To answer the question, I don't think high-tier shoppers will even take notice of the new levels of offers. And it's not as though the brand is cheapened in anyway; it's just now more accessible. More luxury brands should follow suit.

Perhaps Nordstrom's won't see a jump in revenue. But it's not always about dollars. They've made a move to please consumers, and as idealistic as it sounds, that's what we as marketers should strive to do.

Ronnie Perchik, Founder/CEO, PromoAid

Earning velocity is a term we use in the business to estimate the speed at which loyalty program members will be able to reach reward levels. We've made this part of our planning discipline to make sure that a "brilliant strategy" doesn't fall apart when the customer begins to engage.

We've seen consumer demand for earning velocity on the increase for the past few years. Instant rewards at POS are at one end of the spectrum, an example of which being what CVS is doing with its ExtraCare program at POS. Most retailers want to keep people engaged and encourage bounce back and repeat visits.

By making the "finish line" a little closer for its program members, Nordstrom is moving in the right direction.

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Bill Hanifin, Managing Director, Hanifin Loyalty LLC

I agree with the comments here that it makes sense and makes rewards more attainable. However, I am most concerted about the inclusion of Nordstrom's Rack in the program. Nordstrom's Rack, in my experience, is the antithesis of the Nordstrom's experience: Lines are long, merchandise is crammed together and sales associates only staff the dressing room and the checkout line. By linking its loyalty program to the Rack stores, I don't think Nordstrom will drive aspirational shoppers up so much as create a brand perception that the Rack experience is "on brand." This part of the program will, I think, do the core brand damage. I think that decision is a mistake.

Lisa Bradner, Chief Strategy Officer, Geomentum/Shopper Sciences

I don't feel the comfort that many here have with this decision (and I particularly share with Lisa apprehension in including Rack). I think the highest-end shoppers WILL notice the difference, and I don't think the reaction will be particularly positive (especially if $100Kers end up rubbing elbows -- figuratively or even literally -- with crowds of $10Kers) Broaden your customer base? OK...but at what cost? Is the aspirational customer such because they are young and starting out, or because they simply have less money? Ultimately, Nordstrom has to decide what it wants to be; perhaps it simply wants to be a "better priced" store, and this is in accordance with that idea. But it might also be headed toward a mix of part Macy's/part Chanel...an unwieldy mix to maintain.

'notcom'

Lowering the rewards points for level 4 membership will certainly expand that group in that level. The interesting data point that I hope Nordstrom plans to track is, do those shoppers that now qualify for level 4 spend more in the coming year to maintain that level? Also, are they reminding the consumer that they are close to achieving that level for the coming year? Marriott and some other hotel chains do a great job letting their loyal customers know how many nights they are away from each level. This reminder certainly impacts a consumer's decision on where to stay.

I have to believe Nordstrom customers would want to maintain their status each year. This information could be used to inspire a customer to shop before the end of the year to maintain their membership level or hopefully grow to the next level.

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John Boccuzzi, Jr., Managing Partner, Boccuzzi, LLC

Nordstrom is creatively modifying a solid loyalty program. In the process, the are making long, loyal, and affluent customers happy, while also bringing aspirational shoppers closer to the chain.

They are effectively making use of a marketing strategy used on a worldwide basis, and one that the charming Cajuns of the Louisiana/Mississippi Gulf Coast have referenced as "lagniappe." It's "something extra" -- a gracious thank you and show of appreciation for being a part of the community.

The long/loyal's will recognize and appreciate the fact that Nordstrom knows it's been a challenging period over the past couple of years. The aspirational will remember the kindness on the way up. We need to keep in mind that households with income in the third, fourth, and fifth quintiles make moves up over a 10 year period of time, taking their position in second and first tiers, or stepping up from lower income positions.

Nordstrom is getting them conditioned for the added "lagniappe" that they will see in future years at this outstanding retailer. They keep it simple, they keep it stylish, and they keep it straight-forward.

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Roger Saunders, Managing Director, Prosper Business Development

Nordstrom is the top-tier retailer. It appears they are inviting the aspiring shopper to give them a try. This is a minor attraction. They will come, and if satisfied, will remain as long as it is deemed affordable.

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Ed Rosenbaum, CEO, The Customer Service Rainmaker, Rainmaker Solutions

A couple of challenges in my mind: 1. Credit or debit programs do not equal loyalty programs. They exclude customers and will likely not see all transactions for the customers who have these cards.
2. Spend is rarely the a good sole proxy for loyalty or engagement in retail.

These moves may be improvements, but in my mind doesn't mean the loyalty program is quite on the mark yet.

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Matthew Keylock, Senior Vice President, New Business Development and Partnerships, dunnhumbyUSA

The changes that Nordstrom announced do not include changing the velocity of its core reward, $20 Nordstrom notes but rather the speed of qualifying for and receiving the benefits associated with its tiers. This might seem trivial but when you analyze the financial costs and return on a loyalty marketing investment there are material differences. Part of what Nordstrom has done in re-calibrating its tier levels is better leverage the value/cost leverage of the way the tier benefits are designed.

It's also worth noting that Fashion Rewards now includes an enrollment/activation reward (a $20 Nordstrom Note) for its new cardholders.

Nordstrom listens to customers and also clearly approaches customer analysis with rigor, both financially and strategically. For example, alterations are part of a full-service and full-price retail experience and Fashion Rewards (FR) now reflects this.

Retail, including upscale soft goods brands like Nordstrom and Neiman Marcus, has significantly changed since the "great recession." With the exception of the ultra-high spenders, consumers have pulled back and remain cautious. We see that with N-M accepting Visa and Mastercard and now with Nordstrom integrating Rack into Fashion Rewards and lowering the tier thresholds.

Last, it's worth noting that Nordstrom has consistently outperformed its peer group since the launch of Fashion Rewards in 2007. The changes announced today are reflective not only of Nordstrom knowing what its doing but also the new reality of both Nordstrom and retail.

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Phil Rubin, CEO, rDialogue

Consumers, myself included, have been disappointed by loyalty programs that, while points may be easy to earn, using them is a challenge. From airlines to supermarkets, blackout periods, and point-value reduction schemes sour consumers' interest in playing the game. Nordstrom, a real honest player in the area, needs to wipe-out consumers past bad experiences and make their program easy to earn, easy to use, for products or services which the shopper really wants.

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Jerry Gelsomino, Principal, FutureBest

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