April 27, 2007
Talk About a Loyalty Program
Like other retailers, Nordstrom, Saks Fifth Avenue, Nieman Marcus, Bergdorf Goodman, Barneys New York and Bloomingdale’s have shopper loyalty programs. But, that is where the similarities apparently stop as these luxury retailers have pumped up the perks to get the attention of their well-heeled clientele.
Yesterday, Nordstrom announced it had restructured its Fashion Rewards with a tiered program that offers greater incentives to buy as customers spend more in its stores or online at Nordstrom.com.
“Our Rewards program is an important part of building relationships with our customers,” said Kevin Knight, president of Nordstrom Credit, Inc. “We know that customers who participate in our program shop more with us, and Fashion Rewards is a way for Nordstrom to provide additional benefits to those loyal customers.”
The added benefits Mr. Knight referred to include the retailer’s previous program of offering Nordstrom Notes certificates that go against the cost of purchases. In addition, depending on the level of the program achieved, customers can also receive complimentary standard shipping and alterations, invitations to private events, access to purchase exclusive merchandise, tickets to Nordstrom fashion shows and the opportunity to pre-select merchandise for the chain’s Anniversary Sale.
At the very highest level, according to Nordstrom, customers can design private shopping parties and buy shopping packages such as trips to new store openings or holiday shopping in cities such as Chicago and San Francisco. Other perks include Nordstrom spa-and-shop getaways and the opportunity to purchase special red carpet packages including travel and accommodations as well their very own personal wardrobe stylist to help them get ready for the event.
Nordstrom’s new program is, in part, an attempt to keep up with Saks, Nieman Marcus and other luxury retailers. More fundamentally, it is the retailer’s strategy for taking away any reason its top shoppers might have to go somewhere else to spend their money.
Those top shoppers, according to a Wall Street Journal report, mean serious top and bottom line dollars for luxury retailers. The top 100,000 customers at Neiman Marcus, for example, spend more than $12,000 a year with the retailer. All told, the top 100,000 spent $1.3 billion with the department store last year. As a point of a comparison, all the other shoppers at Neiman Marcus stores spend an average of $600 a year.
“The firepower of these customers is incredible,” Neiman Marcus CEO Burt Tansky told The Journal.
The Neiman Marcus program, known as InCircle, is vastly more complicated than many others with a total of 20 tiers. Shoppers get one point for every dollar spent in the store. Rewards can include complimentary gift-wrapping, designer clothing, trips — and the top perk is a Lexus 2008 L. Nieman Marcus customers can also receive rewards at the InCircle program by shopping at Bergdorf Goodman.
Discussion Questions: Do the loyalty card programs at luxury retailers demonstrate these merchants have a better understanding of what motivates their shoppers to spend versus merchants targeting different groups of customers? Are luxury consumers more drawn to reward/loyalty programs than those in other economic groups? What do you see as the strength or weaknesses of programs such as Nordstrom’s Fashion Rewards or InCircle at Neiman Marcus/Bergdorf Goodman?
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If you know how profitable your customers are at various levels, you can determine how much can be spent to reward loyalty and still be profitable. If you really know those consumers individually you can offer each individual a reward they would like. If you don’t know them individually you can offer them a choice of rewards. The choice set can be altered based upon which choices are used or how often they are chosen. As with most any other program, how it is used determines whether it is effective or not. And who makes that decision? The consumers of course.
In 1933 W.C. Fields’ “The Pharmacist” was released. In one scene, he gives away a 2-foot tall antique Chinese jar as the premium for shopping in his store, to a customer who buys a single postage stamp. That’s the kind of value shoppers really appreciate from a loyalty program. Too bad for them that “The Pharmacist” is a satire, not a documentary.
Loyalty programs, especially those programs at clothing and department store retailers, are viewed by many customers as a one way street (and not in their direction). The store wants to know all about the customer up front and wants to be able to track purchases by amount and type at a customer level but rarely gives sufficient value back in loyalty TO the customer. For most customers of any economic strata getting a birthday card from the store manager, a “free” anything, an invitation to a special store event, or an advance notice of a sale before the word goes out to the general public is much more valuable than an emailed 10% discount offer once in a while (a discount that incidentally usually has tons of caveats and exclusions attached). In addition, many of the loyalty programs are exclusively tied to store credit cards. Many shoppers these days eschew store credit cards because of higher interest rates and/or because they prefer to use airline or other affinity cards through which they perceive even greater rewards value. That does not mean they aren’t a valuable shopper but it often means they are an invisible shopper.
I suspect that if a family spends $12,000 a year at a store like Macy’s but distributes the purchases among American Express Visa and Discover the store never connects the dots and figures out they have loyalty in their midst that deserves attention.
As usual I have to agree with my former colleague, Nikki (as well as many other of the postings here.) Loyalty programs have to be used as a means to creating a deeper relationship with consumers through the data they collect and through the brand experiences they provide. I agree that the exclusivity of these retailers gives them a unique opportunity to position themselves aspirationally but I wonder if some of these programs are making the classic mistake of rewarding those who would have spent a lot of money with them anyway.
Leveraging the power of the top decile of shoppers is right on but creating specific brand related customer experiences (online, in-store, personal shopping services etc) will ultimately go farther to create true brand loyalty than any points and rewards program.
This is all about the perceived utility of a “reward” to a given consumer. And it is about the difference in a discount on an everyday need versus a reward on a luxury. Giving consumers discounts on everyday need items — and that is what most F/D/M “loyalty cards” do — simply tells them you are a cheap(er) place to shop on a net cost basis. Anyone who can be as cheap/cheaper than you beats you out for the sale.
Providing rewards on luxury items is a whole different world. Now you are talking about helping me get more of things I want versus simply affording the things I need. There’s even an argument that the more aspirational that purchase is for me (e.g. a middle-income shopper at BG), the more likely I am to view simply having the card in my wallet as a measure of achievement and esteem.
For our audience, maybe we can think of it this way. How jealously do your guard your elite status on American or United — or better yet, on Quantas or British Airways? Now, how much attention do you pay to that Southwest Airlines card somewhere in the bottom of your briefcase?
Exclusivity, competition and thrill are part of the purchase price for the luxury consumer. Sure, Bergdorf is hip. They wrote the book on catering to the swells. An who doesn’t want to belong? The low end consumer wants admission to the middle class; the middle class consumer wants admission to the upper middle class and the high end consumer wants to exclude everyone else. Stratospheric pricing tiers are the easy way to create an exclusive membership. Men’s clubs have been doing it for decades. I predict the next phase of this will be “sponsored membership” into buying opportunities–like a club where a current member has to “sponsor” a new member. I also predict “private” shopping, where the buyer pays for access to exclusive merchandise and shopping experiences (similar programs already exist in Japan).
There is no one correct way to run a loyalty program. Each retailer needs to understand their customer base, their competitive set, and the underlying financial dynamics of their business before deciding how best to leverage their loyalty program.
High margin, high spend retailers like Nieman Marcus will certainly have success with lucrative offers for their heavy spending customers. But I would suggest that their more affluent shoppers will also be more responsive to non-financial rewards that recognize their importance to the retailer and treat them in a special way. Luxury retailers can look to the airline programs for clues about how to run an effective loyalty program.
Lower margin retailers need to approach their loyalty programs differently because they can’t afford to shower their best customers with expensive gifts. This is especially true for retailers that compete on the basis of price. Creativity is required to leverage loyalty information to reward customers without investing too heavily in financial rewards.
For Nieman Marcus, personal service may mean having someone call a top customer on the phone or send them a hand written card. The grocery retailer’s version of personal service might be to send each customer a personalized email letting them know about items that are on sale that week that the customer has bought before.
I think loyalty is at a real crossroads for retailers. While the data about customer behavior is becoming increasingly valuable–and critical–to retailers, we live in a world where consumers are getting maxed out on loyalty programs. And there are stories of highly successful retailers with wildly loyal consumers–and no loyalty program, right alongside retailers with loyalty programs that just offer straight discounts. So a loyalty program is by no means a sure bet to ensure loyalty.
Loyalty programs need to evolve to become a way to recognize and create differentiated treatment for the best customers. Luxury retailers have always been careful and nurturing of those relationships. Every other retailer needs to find ways of doing that without necessarily requiring a sales associate to be the front for that relationship. Straight discounts are the bastion of lazy and weak loyalty programs. How about a special website for the biggest spenders? Where they can get access to exclusives or first shot at new merchandise–before everyone else? Or special shopping hours? Or a customer appreciation night at a local store? With a little imagination–and effort–loyalty programs have an opportunity to be truly differentiating for retailers.
Loyalty programs that offer rewards like complimentary shipping and alterations, free tickets to events, etc. are working to “connect” with their customers on basic conveniences. There is a large base for loyal customers who spend a lot of money and like the “recognition” of these loyalty programs.
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If you know how profitable your customers are at various levels, you can determine how much can be spent to reward loyalty and still be profitable. If you really know those consumers individually you can offer each individual a reward they would like. If you don’t know them individually you can offer them a choice of rewards. The choice set can be altered based upon which choices are used or how often they are chosen. As with most any other program, how it is used determines whether it is effective or not. And who makes that decision? The consumers of course.
In 1933 W.C. Fields’ “The Pharmacist” was released. In one scene, he gives away a 2-foot tall antique Chinese jar as the premium for shopping in his store, to a customer who buys a single postage stamp. That’s the kind of value shoppers really appreciate from a loyalty program. Too bad for them that “The Pharmacist” is a satire, not a documentary.
Loyalty programs, especially those programs at clothing and department store retailers, are viewed by many customers as a one way street (and not in their direction). The store wants to know all about the customer up front and wants to be able to track purchases by amount and type at a customer level but rarely gives sufficient value back in loyalty TO the customer. For most customers of any economic strata getting a birthday card from the store manager, a “free” anything, an invitation to a special store event, or an advance notice of a sale before the word goes out to the general public is much more valuable than an emailed 10% discount offer once in a while (a discount that incidentally usually has tons of caveats and exclusions attached). In addition, many of the loyalty programs are exclusively tied to store credit cards. Many shoppers these days eschew store credit cards because of higher interest rates and/or because they prefer to use airline or other affinity cards through which they perceive even greater rewards value. That does not mean they aren’t a valuable shopper but it often means they are an invisible shopper.
I suspect that if a family spends $12,000 a year at a store like Macy’s but distributes the purchases among American Express Visa and Discover the store never connects the dots and figures out they have loyalty in their midst that deserves attention.
As usual I have to agree with my former colleague, Nikki (as well as many other of the postings here.) Loyalty programs have to be used as a means to creating a deeper relationship with consumers through the data they collect and through the brand experiences they provide. I agree that the exclusivity of these retailers gives them a unique opportunity to position themselves aspirationally but I wonder if some of these programs are making the classic mistake of rewarding those who would have spent a lot of money with them anyway.
Leveraging the power of the top decile of shoppers is right on but creating specific brand related customer experiences (online, in-store, personal shopping services etc) will ultimately go farther to create true brand loyalty than any points and rewards program.
This is all about the perceived utility of a “reward” to a given consumer. And it is about the difference in a discount on an everyday need versus a reward on a luxury. Giving consumers discounts on everyday need items — and that is what most F/D/M “loyalty cards” do — simply tells them you are a cheap(er) place to shop on a net cost basis. Anyone who can be as cheap/cheaper than you beats you out for the sale.
Providing rewards on luxury items is a whole different world. Now you are talking about helping me get more of things I want versus simply affording the things I need. There’s even an argument that the more aspirational that purchase is for me (e.g. a middle-income shopper at BG), the more likely I am to view simply having the card in my wallet as a measure of achievement and esteem.
For our audience, maybe we can think of it this way. How jealously do your guard your elite status on American or United — or better yet, on Quantas or British Airways? Now, how much attention do you pay to that Southwest Airlines card somewhere in the bottom of your briefcase?
Exclusivity, competition and thrill are part of the purchase price for the luxury consumer. Sure, Bergdorf is hip. They wrote the book on catering to the swells. An who doesn’t want to belong? The low end consumer wants admission to the middle class; the middle class consumer wants admission to the upper middle class and the high end consumer wants to exclude everyone else. Stratospheric pricing tiers are the easy way to create an exclusive membership. Men’s clubs have been doing it for decades. I predict the next phase of this will be “sponsored membership” into buying opportunities–like a club where a current member has to “sponsor” a new member. I also predict “private” shopping, where the buyer pays for access to exclusive merchandise and shopping experiences (similar programs already exist in Japan).
There is no one correct way to run a loyalty program. Each retailer needs to understand their customer base, their competitive set, and the underlying financial dynamics of their business before deciding how best to leverage their loyalty program.
High margin, high spend retailers like Nieman Marcus will certainly have success with lucrative offers for their heavy spending customers. But I would suggest that their more affluent shoppers will also be more responsive to non-financial rewards that recognize their importance to the retailer and treat them in a special way. Luxury retailers can look to the airline programs for clues about how to run an effective loyalty program.
Lower margin retailers need to approach their loyalty programs differently because they can’t afford to shower their best customers with expensive gifts. This is especially true for retailers that compete on the basis of price. Creativity is required to leverage loyalty information to reward customers without investing too heavily in financial rewards.
For Nieman Marcus, personal service may mean having someone call a top customer on the phone or send them a hand written card. The grocery retailer’s version of personal service might be to send each customer a personalized email letting them know about items that are on sale that week that the customer has bought before.
I think loyalty is at a real crossroads for retailers. While the data about customer behavior is becoming increasingly valuable–and critical–to retailers, we live in a world where consumers are getting maxed out on loyalty programs. And there are stories of highly successful retailers with wildly loyal consumers–and no loyalty program, right alongside retailers with loyalty programs that just offer straight discounts. So a loyalty program is by no means a sure bet to ensure loyalty.
Loyalty programs need to evolve to become a way to recognize and create differentiated treatment for the best customers. Luxury retailers have always been careful and nurturing of those relationships. Every other retailer needs to find ways of doing that without necessarily requiring a sales associate to be the front for that relationship. Straight discounts are the bastion of lazy and weak loyalty programs. How about a special website for the biggest spenders? Where they can get access to exclusives or first shot at new merchandise–before everyone else? Or special shopping hours? Or a customer appreciation night at a local store? With a little imagination–and effort–loyalty programs have an opportunity to be truly differentiating for retailers.
Loyalty programs that offer rewards like complimentary shipping and alterations, free tickets to events, etc. are working to “connect” with their customers on basic conveniences. There is a large base for loyal customers who spend a lot of money and like the “recognition” of these loyalty programs.