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Competing Beyond Price To Maximize Customer Loyalty

  • Written by Alicia Fiorletta
 

Following is Part 3 of the Retail TouchPoints series focused on Pricing Challenges In An Omnichannel World. In this final installment, industry analysts discuss how retailers can maximize customer loyalty by providing enhanced services and benefits, not related to price. Click here to access a PDF version of the full report.

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The economy slowly is recovering, encouraging consumers to research and purchase products more frequently. However, today’s tech-savvy shoppers still are researching aggressively across channels and devices to find the best buy.

Mobile price comparison and other new ways shoppers are researching products have prompted retailers to implement new strategies, including price-matching models and more consistent pricing across channels — in an effort to attract price-conscious consumers.

While addressing pricing challenges, however, merchants must continue to address customer wants, needs and expectations, noted Greg Girard, Program Director of Merchandising and Marketing Strategies and Retail Analytics at IDC Retail Insights.


“It is imperative that merchants deem the customer as the ‘end all, be all,’” Girard said in an interview with Retail TouchPoints. “Today’s showroomers and mainstream shoppers are in complete control. They represent the crucial ‘Five I’s:’ instrumented, informed, interconnected, in-place and immediate.”

But as merchants continue to compete in a price-sensitive retail environment, they should consider adding incentives and services that can help drive foot traffic and impulse purchases, as well as generate long-term loyalty.

In fact, a strong value proposition that includes these enhancements can empower retailers to differentiate themselves from competitors, noted Pam Goodfellow, Consumer Insights Director of BIGinsights. “That proposition may focus on great customer service, a unique merchandise selection, higher quality, or a fun store environment. Truly knowing their customers — who they are and what they want and/or expect from a shopping experience — helps retailers maximize their efforts in creating loyal, long-term shoppers.”

Mike Murphy, Senior Analyst for Retail Markets at CFI Group, also commented on the importance of adding value to the retail experience: “Attractive prices are an effective means to get people in the door, but it’s not enough to maintain loyalty, drive future purchases, and generate customer recommendations. Customers need to be satisfied with the shopping experience and the products, in addition to feeling they are receiving good overall value.” 

Innovative Services Drive Engagement

It’s no surprise that best-in-class retailers are connecting more effectively with shoppers, not through their wallets, but through their minds and emotions. Nordstrom, Bloomingdale’s and Sephora all leverage added services in their loyalty programs that are designed to make consumers feel “special” and generate incremental purchases. By offering consumers special incentives and VIP access to products and special events, these retailers are encouraging shoppers to purchase more frequently.

“Retailers should seek to distinguish the relationship between loyal and standard customers,” Dixon said. “An ongoing, loyal relationship must be encouraged, whether through promotions, unique products or other means.”

Nordstrom
is an example of a retailer that has continuously focused on creating exemplary customer experiences across every touch point. The retailer offers a variety of “value-adds” via the Fashion Rewards program, which is available to all Nordstrom credit card holders. Consumers receive two points for every net dollar spent in a Nordstrom store or on the e-Commerce site.

Once 2,000 points are earned, shoppers receive a $20 “Nordstrom Note” gift certificate. Points are earned faster when shoppers spend money during “bonus point events.” As cardholders obtain more points, they increase their access to higher levels of service and VIP events. For example, the highest-level of loyalty shoppers, called Tier 4 members, receive early access to the Nordstrom Anniversary Sale as well as invitations to special holiday shopping parties and private shopping events hosted at their favorite brick-and-mortar locations.

Bloomingdale’s utilizes a similar, tiered program that delivers added perks and benefits to stimulate loyalty over lowest price. Through the Bloomingdale’s “Loyallist” rewards program, members earn one point for every dollar spent in-store, online and in the retailer’s outlet stores. Every shopper is eligible for the program, but those paying with their Bloomingdale’s credit cards receive additional incentives, such as amassing three points, rather than one, for every dollar spent. All members receive double points on cosmetic and fragrance purchases. Top-level club members — those spending $3,500 or more in a single year — receive many additional benefits, including four points for every dollar they spend, and eight points per dollar spent on fragrances and cosmetics.

Bloomingdale’s also rolls out short-term campaigns in which “Loyallists” can earn more points and in turn, more rewards. For example, during the 2012 holiday season, the retailer accelerated pre-Black Friday by offering double points for online and in-store purchases. Additional perks these loyal customers receive include free shipping, unlimited gift-wrapping services and discounts for the Bloomingdale’s restaurant.

Arguably, other commerce channels are taking some sales away from the brick-and-mortar location, by offering better deals. In order to draw customers back in to the store, smart retailers are offering enhanced services and special offers to these deal seekers.

“The primary goal for brick-and-mortar retailers is to identify and deliver the kinds of services customers really want enough to draw them to the stores,” noted Bob Hetu, Research Director with the Retail Industry Services branch of Gartner Research. “However, it’s a tricky matter to deliver on those wants: If the enhanced services create a notable price disparity, the benefits must be in line with what shoppers perceive as truly valuable and worth the added cost.”

At Sephora, for example, a series of rewards and incentives add value to the in-store experience and help compensate for the higher cost of Sephora products.

The Sephora Beauty Insider Club acts as a standard loyalty program for online shoppers as well as those in the retailer’s 1,300 stores worldwide: The more money they spend, the more points they earn towards discounts and free products. Beauty Insider Club members also get exclusive access to new product releases and offers, as well as personal consultations and guidance from store employees.

The strategies implemented by Nordstrom, Bloomingdale’s and Sephora indicate that while consumers still are hunting for deals across channels, they still value a great shopping experience. Added services and benefits available via loyalty programs enable consumers to have more unique and intimate brand experiences. This form of exclusivity, in turn, can make consumers more willing to spend their time — and money — with a retailer.

Click here to access a PDF version of the “Pricing Challenges In An Omnichannel World” report.

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