Macy’s balances plusses and minuses of free shipping to loyal customers
Through a special arrangement, presented here for discussion is a summary of a current article from the blog of LoyaltyOne. The article first appeared on Forbes.com.
One million customers have joined Macy’s Bronze-level tier per quarter since the the Star Reward program was relaunched in May 2018. Many Bronze members are close to Gold status, which comes with free-shipping perks for customers but margin erosion for Macy’s.
And therein lies a challenge facing almost every retailer with a rewards program in the world of Amazon: How to manage the expected cost of free shipping while investing in rewards perks that delight members and help the merchant stand apart from rivals?
Here are four ways retailers can control shipping and free up the expense for customer engagement:
- Sell the whole outfit at once, not a piece at a time. Because free shipping applies to no minimum on spending, Macy’s Gold and Platinum members are ordering just one item at a time rather than bundling. That approach is being re-thought. Paula Price, Macy’s CFO, said on the retailer’s first-quarter conference call, “We are continuing to test and iterate in terms of what the free shipping threshold will be.”
- Letting shoppers BOSS Macy’s around. Orders through BOPIS (buy online, pick-up in store) and BOSS (buy online, ship to store) have expanded to more than 10 percent of digital sales.
- Finessing when to hold and when to flow. Macy’s “hold and flow” initiative is designed to reduce shipping expenses and improve margin by ensuring the right amount of merchandise is delivered to each store. Loyalty program data likely informs allocations.
- Encourage in-store action. Star Rewards members can win invitations to fashion events that get them off the website and into the store.
Macy’s recognizes increased shipping costs are a necessary investment to retain customers and improve customer loyalty. In addition to the growth in Bronze-tier members, spending among Macy’s top-tier Platinum members, which make up about 30 percent of all sales, rose 10 percent in the first quarter.
If that 10 percent higher spending, combined with other cost-management measures, can offset delivery costs by more than a few percentage points, it could present a golden opportunity, not just for Macy’s, but for its customers.
DISCUSSION QUESTIONS: What strategies can help retailers minimize the impact of free shipping perks as part of loyalty programs? Should free shipping come with spending thresholds, even for top-tier rewards members?