CREATING LONG-TERM LOYALTY RELATIONSHIPS CHAPTER 5 153 Marketing Excellence Nordstrom had never carried or sold tires, it happily accepted the return and instantly provided the customer >> Nordstrom cash for his purchase. In another example, a saleswoman noticed that a customer had left her plane ticket on the In 1901, John W. Nordstrom founded a small shoe store store's counter. She called the airport and asked the air- in Seattle that eventually grew into a fashion specialty line to issue the customer another ticket, but the airline chain store called Nordstrom. Nordstrom has remained in refused. The saleswomen immediately jumped into a the family for four generations and now sells top-quality cab and hand-delivered the ticket to the customer at the brand-name clothing, accessories, jewelry, cosmetics, airport. and fragrances. There are many other examples of its exceptional John W. Nordstrom built his company on the belief customer service, and Nordstrom's "no questions asked" that it should always provide the highest possible level of return policy remains intact today. Its sales representa- customer service, along with top-of-the-line, high-quality tives send thank-you cards to customers who shop merchandise to fit almost everyone's needs and bud- there, warm up their customers' cars on cold days, and get. When he retired, his sons Everett, Elmer, and Lloyd have hand-delivered special orders to customers' homes. continued to run the business with the same customer- Nordstrom installed a tool called Personal Book at its focused attitude their father shared. As the company registers that allows salespeople to enter and recall cus- expanded into fashion, stores were stocked with a wide tomers' specific preferences in order to better personalize range of high-quality clothes at various price points. their shopping experiences. Sales associates are also al- Nordstrom believed it was better to carry too many sizes lowed to sell merchandise in any department, giving them in each style than not enough so a customer didn't get even more opportunities to develop relationships with frustrated if his or her size wasn't available. The brothers customers. Nordstrom also provides multiple channels for also instituted a policy titled "decision by consensus," shopping, allowing customers to buy something online which helped move the company along even when dis- and pick it up at a store within an hour. agreements arose. Nordstrom believes it has 15 seconds to capture Nordstrom grew into the billion-dollar retailer it is to the excitement of a customer with a memorable experi- day under the leadership of the family's third generation: ence" when he or she walks in the door. Aisles are neat Bruce, John, and Jim Nordstrom and Jack McMillan. and uncluttered, big display windows create a bright and Their philosophy focused on empowering the manag- open atmosphere, and the layout is efficient and easily ers and sales force to make decisions that favored the navigated. Dressing rooms are large and illuminated to customer, not the company. The company rewarded en- imitate natural light, escalators are wide to allow couples ergetic individuals who attained an entrepreneurial spirit, or parents with children to stand next to each other, preferring to hire "nice" people who could be trained to and each fixture is chosen to create a homelike feeling. sell rather than seasoned "salespeople" who weren't When a new store opens, Nordstrom connects with the seen as nice. surrounding community by hosting an opening night During this time the company also decentralized gala complete with live entertainment, a runway fashion its purchasing process, giving regional managers the show, and the ultimate shopping experience to help raise freedom to purchase styles that fit the needs and tastes money for local charities. of their particular area. That is, managers in Minnesota Nordstrom's Fashion Rewards Program repays loyal could, and did, buy very differently from managers in customers on four levels based on their annual spend- southern California. To cater to each region, the company ing. Customers who spend $10,000 annually receive encouraged its sales force to continuously ask custom- complimentary alterations, a 24-hour fashion emergency ers what products and styles they would like to see in hotline, and access to a personal concierge service. the store. Jim Nordstrom explained, "When we go into a customers at the highest level ($20,000 annually) also market, our first buy is the worst." receive private shopping trips complete with dressing Today, Nordstrom is run by the fourth Nordstrom rooms pre-stocked in their size, champagne, live piano generation and continues to set the standard in customer music, tickets to Nordstrom's runway fashion shows, and service and loyalty. In fact, the company is so well known access to exclusive travel and fashion packages, includ- for its customer service that true tales of "heroics" still cir- ing red carpet events. culate today. Perhaps the best-known tells how in 1975 The company's long-term and often costly customer- a customer came into the store after Nordstrom had focus approach has reaped great benefits. Not only has purchased an Alaska-based company called Northern Nordstrom emerged as a luxury brand known for quality, Commercial. The customer wanted to return a set of trust, and service, but its customers remain loyal even in tires originally bought at Northern Commercial. Although hard times. During the economic crisis in 2008 and 2009, many customers chose Nordstrom over its competitors Questions due to their existing relationship and its hassle-free return 1. How else can Nordstrom continue to provide excep- policy. Nordstrom continues to stay strategically focused on tional customer service and increase brand loyalty? customer service and look for new ways to help deepen 2. What are Nordstrom's greatest risks, and who are its and develop its customer-salesperson relationship. The biggest competitors? company currently operates in 44 countries and 31 states Sources: "Annual Reports, "Nordstrom.com; "Company History," Nordstrom.com, Chantal Tode, with 111 full-line stores, 119 Nordstrom Rack clearance Nordstrom Loyalty Program Eperience , News, May 4, 2007; Melissa Alisan and Amy stores, two Jeffrey Boutiques, and one clearance store. Martinez, "Nordstroms Solid December Showing Suggests Some Shoppers Eager to Spend." Sales reached $12.2 billion in 2013. Seame Times, January 7, 2010: Robert Spector and Patrick D. McCarthy, The Nordstrom May. The Inside Story of America's #1 Customer Service Company New York: John Wiley & Sons, Inc., 1995). Marketing Excellence a retail titan in home furnishings and a global cultural phe- nomenon, inspiring Business Week to call it a one-stop >> IKEA sanctuary for coolness" and "the quintessential cult brand." IKEA inspires remarkable levels of interest and devo- IKEA was founded in 1943 by a 17-year-old Swede named tion from its customers. Each year more than 650 million Ingvar Kamprad who sold pens, Christmas cards, and visitors walk through its stores all over the world. Most seeds out of a shed on his family's farm. The name IKEA need to drive 50 miles round-trip but happily make the was derived from Kamprad's initials (IK) and the first letters effort in order to experience IKEA's unique value proposi- of the Elmtaryd farm and the village of Agunnaryd where tion: leading-edge design and functional home furnish- he grew up (EA). Over the years, the company grew into ings at extremely low prices. IKEA's Scandinavian-designed products are well Year of the Rooster, IKEA stocked 250,000 plastic place- made and appeal to the masses. To stay relevant and mats with rooster themes, which quickly sold out. When fashionable, the company replaces approximately one employees realized U.S. shoppers were buying vases third of its product lines each year. Most have Swedish as drinking glasses because they considered IKEA's names, such as HEKTAR lamps, BILLY bookcases, and regular glasses too small, the company developed larger LACK side tables. Kamprad, who was dyslexic, believed glasses for the U.S. market. After IKEA managers vis- it was easier to remember product names rather than ited European and U.S. consumers in their homes, they codes or numbers. learned that Europeans generally hang their clothes, Besides featuring fashionable and good-quality prod- whereas U.S. shoppers prefer to store them folded. As a ucts, IKEA stands out in the industry because of its bar-result, IKEA designed wardrobes for the U.S. market with gain prices. The company's vision is and always has been deeper drawers. "to create a better everyday life for the many people." As Showrooms in each country or region vary as well. Kamprad said, "People have very thin wallets. We should For example, managers learned that many U.S. con- take care of their interests." A high percentage of its cus- sumers thought IKEA sold only European-size beds. tomers are college students and families with children. Beds are very important to U.S. consumers, so IKEA IKEA continuously seeks out new ways to run its quickly changed its U.S. showrooms to feature king businesses more efficiently and pass those cost savings beds and a wide range of styles. After visiting Hispanic on to the customer. In fact, it reduces prices across its households in California, IKEA added more seating and products by 1 percent to 3 percent annually. How can dining space to its California stores, as well as brighter it do so? For starters, IKEA engages the consumer on color palettes and more picture frames on the show- many levels, including having the customer do all the room walls. In China, IKEA set up its showrooms in small shopping, shipping, and assembly. spaces to accurately reflect the small size of apartments IKEA's floor plan is designed in a winding, one- in that country. way format featuring different inspirational room settings, As the company expands globally, it is learning that so consumers experience the entire store. Next, they attitudes towards its core DIY (do it yourself) delivery can grab a shopping cart, pay for the items, visit the and assembly business model vary. In China, for ex- warehouse, and pick up their purchases in flat boxes. ample, consumers do not want to assemble products Consumers load the items in their car, take them home, themselves and will pay a significant amount for home and completely assemble the products themselves. This delivery and assembly. As a result, IKEA has added these strategy makes storage and transportation easier and services, and sales in Asia have taken off. The company cheaper for the store. plans to implement the same strategy in India, where DIY IKEA has also implemented several company-wide is also less common. strategies to keep operational costs low. The company IKEA is known for its quirky marketing campaigns, buys in bulk, controls the supply chain, uses lighter pack- which help generate excitement and awareness of its aging materials, and saves on electricity through solar stores and brand. It ran a campaign inviting customers panels, low-wattage light bulbs, and energy from its own to be the "Ambassador of Kul" (Swedish for "fun"), but in wind farms in six different countries. Its stores are located order to collect the prize, the contestants had to live in an a good distance from most city centers, which helps IKEA store for three full days before it opened, which they keep land costs down and taxes low. happily did. When IKEA develops new products, its designers Thousands of people will line up for a chance to win and product developers start with a low price tag first prizes and IKEA furniture. In Sweden, IKEA launched a and then work with one of their 1,350 suppliers around Facebook page for the manager of a new store. Anyone the world to develop the product within that price range. who could tag his or her name to an IKEA product on Designs are efficient, and waste is kept to a minimum. the profile page won that item. The promotion generated Most stores resemble a large box with few windows and thousands of tags. doors and are painted bright yellow and blue-Sweden's IKEA has evolved into the largest furniture retailer in national colors. the world, with approximately 350 stores in 43 countries Many of IKEA's products are sold uniformly through- and revenues topping €27.9 billion, or $36 billion, in out the world, but the company also caters to local 2013. The majority of sales still come from Europe, but and regional tastes. For example, stores in China stock the company has aggressive plans to expand the $11 bil- specific items for each New Year. During the Chinese lion brand further into Asia, India, and the United States. Questions Sources: Kerry Capell, "KEA: How the Swedish Retailer Became a Global Cult Brand." BusinessWeek, November 14, 2005, p. 96"Need a Home to Go with That Sofa?" BusinessWeek, 1. What are some of the things IKEA is doing well to November 14, 2005, p. 106; Elen Ruppel Shell, "Buy to Last." Atlantic , July/August 2009, reach consumers in different markets? What else Jon Henley, "Do You Speak KEA?" Guardian , February 4, 2008; innovative Retailers: KEA could it be doing? Retailinsider.com/PCMS, March 29, 2012, Jenna Goudreau, "How KEA Leveraged the Art of Listening to Global Dominance," Forbes January 30, 2013; KEA, www.ikea.com. 2. IKEA has essentially changed the way people shop for furniture. Discuss the pros and cons of this strategy, especially as the company plans to continue to ex- pand in places like Asia and India.
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