Article

Opinion: Why Nordstrom's loyalty program is so effective

Loyalty marketing is, and should always be, much bigger than just points, thresholds or incentives.

January 19, 2012

There was an interesting article in the Wall Street Journal recently about how Nordstrom Inc. is enhancing its loyalty program by lowering the price of its rewards. As the article explains, "The store's frequent customers will be able to get perks like custom shopping parties and tickets to in-store fashion shows after shelling out just half as much as they used to spend to qualify for rewards."

The retailer has always had one of the most loyal and engaged member bases in the industry. The structure of their loyalty program and how they use the data collected through the program to make informed product, marketing and customer experience decisions are key to its success.

Nordstrom's loyalty program has been one of the primary reasons customers are loyal to the brand (sales in 2011 increased 13 percent over a similar period in 2010). Loyalty marketing is and should always be much bigger than points, thresholds or incentives. It is about changing and influencing behavior in a proactive manner that creates long-term brand advocates who, in turn, enter into a dialogue with the brand. This dialogue is filled with rich behavioral insight and the interaction gives Nordstrom the opportunity to listen to and respond in a manner and channel that these brand participants want and that keeps them engaged.

So, lessening the point and spend requirements for the upper tiers of the four-tier loyalty program (to 5,000 and 10,000 respectively) gives Nordstrom the opportunity to expand the base and, more importantly, consolidate the spend of their customers.

Nordstrom's program is effective for a number of key reasons. First, even the lower levels of Nordstrom's loyalty program are engaging because they offer meaningful soft benefits, such as $100 of free tailoring. And because it's aspirational, members remain engaged — they aspire to be at the higher tiers in the program so they can get the bigger rewards. Lastly, they offer different reward values for different stores (Nordstrom Rack has more points per dollar spend) which gives Nordstom the ability to further differentiate their program and increase the engagement and loyalty of their customers.

This program change is coming at a time where consumer spending and consumer credit are picking up. So if people are going to start borrowing and spending, it is best to use a proactive approach and develop a program that changes behavior. "Fashion Rewards" members shop twice as much as the average customer and spend three times the amount; this is creating a sustainable behavioral change.

It is much easier to engage your audience and create brand advocates when you develop and/or adapt a program that influences sustainable behavior change. Nordstrom's recent move is the most lucid example in recent memory of a comprehensive loyalty program that is predicated on voice of the customer. I predict this is a market-leading program that will further enhance the shopping experience and increase engagement of their audience — all of which will lead to long-term loyalty and increased sales.

Mark Johnson is CEO of Loyalty 360, the Loyalty Marketer's Association. (Photo by Hans van de Bruggen.)