Case study Chapter 14 Nordstorm How to Succeed by Selling Just one Shoe Upscale
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Question
Case study Chapter 14 Nordstorm How to Succeed by Selling Just one Shoe Upscale retailer Nordstrom has been famous for supe- rior customer service for over 100 years. Robert Spector, coauthor of The Nordstrom Way, says his favorite story is of a woman with one leg who jokingly bet a Nordstrom salesperson that he wouldn’t sell her just one shoe. He was more than happy to split up the pair, though, to her surprise, and Nordstrom gained a lifelong customer in the process. “Who knows how many times she’s told that story?” Spector asks. “Do you think that that’s worth the price of a shoe? I do.” This kind of word-of-mouth public- ity means that Nordstrom spends much less on traditional advertising than its competitors do. And the stories told by satisfied customers are much more persuasive than an ad in the Sunday paper. Patrick McCarthy, who was the first salesperson to generate $1 million, cites an example of a customer who was traveling and accidentally left his plane tickets in the store. An employee who found them paid for a cab to the airport with her own money so that the customer wouldn’t miss his plane. This, McCarthy says, is an example of “heroic service,” and at Nordstrom they expect nothing less. Industry observer Lior Arussy calls Nordstrom’s busi- ness strategy “greed through love.” They have perfected the art of focusing on the right customers and giving them undivided attention. A salesperson will often continue the relationship with a customer for years. They may exchange business cards, set future shopping dates, and call custom- ers when new merchandise comes in. “It’s a heart experi- ence,” says McCarthy, who kept handwritten notes on all 12,000 of his personal customers over the years. “Most companies are head experiences—bean counters are run- ning them. When the heart is running them, it becomes exciting.” Nordstrom is also known for its generous exchange policy. In a familiar story that has been forwarded around the Internet for years, a man claims he was allowed to return snow tires, even though the store never sold auto parts. It may be an urban myth, but it reinforces the com- pany’s reputation for putting customers first. Even though the company loses some money on returns, the staff be- lieves it’s worth it to keep customers coming back. Nordstrom has 204 stores in 31 states, with plans to expand into Canada beginning in 2014. Eric Nordstrom, the company’s president, visits each potential location himself before signing off on it. He says his gut instinct about a location is almost as important as the demograph- ics and statistics they analyze. “Plenty of places look good on paper and we say no.” Even though Nordstrom values the traditions that come with its long history, Erik Nordstrom says that they’re not afraid to evolve with the times. “We see the way peo- ple shop changing very dramatically,” he says. The com- pany analyzed barriers between its sales channels and realized that it was limiting sales opportunities. Customers who purchased Nordstrom merchandise online couldn’t return it in the retail stores, for example, and customers who shopped in the stores couldn’t always find the same products online. The company now aims for a seamless shopping experience across all sales channels, whether mail order, online, or in-store. The company has also benefited from a new comput- erized inventory system that gives buyers and salespeople the necessary data to make smarter decisions about what is needed in the stores—and what isn’t. Choosing the right handbags to stock, for example, in the right styles, quantities, and colors, enabled them to sell more items at full price, which in turn improved the bottom line. Eric Nordstrom says that they want a customer’s expe- rience to be “aspirational and upscale, so people feel they are treating themselves.” Therefore, he says, the company refuses to hop on the price-promoting bandwagon. “We don’t rely on promotions, be it one-day sales, coupons, or ‘friends of friends’ sales. We think our regular pricing has to have integrity.” CASE STUDIES 1 In 2006, when many retailers were struggling, Nordstrom thrived, posting $8.6 billion in sales, a 10.8 percent increase from the year before. Nordstrom has also beaten expectations as it has recovered from the recent downturn with the rest of the retail sector, posting an 11 percent sales increase over the year prior in the third quar- ter of 2010. Eric Nordstrom says, “Retailing is not for every- body. It’s a competitive, high-energy business. Every day, you’ve got to open your doors and sell something.” Even if it’s just one shoe. Sources: Monica Soto Ouchi, “Sharper Focus Helps Nordstrom,” Seattle Times, February 27, 2007, http:// seattletimes.nwsource.com/html/businesstechnology/2003590861_nordstrom27.html; “Sticking with the Family Formula,” WWD, May 22, 2006, www.wwd.com/retail-news/sticking-with-the-family-formula -534920?full=true; Dave DeWitte, “Nordstrom Leader Says Retail Business Is Changing,” The Gazette, October 12, 2006; Monica Soto Ouchi, “Nordstrom Sees a Fashion-Forward Future,” Seattle Times, May 23, 2007; Alexandra DeFelice, “A Century of Customer Love,” CRM Magazine, June 1, 2005, www.destinationcrm .com/Articles/editorial/Magazine-Features/A-century-of-customer-Love-42958.aspx; Joan E. Solsman, “Nordstrom Net up Despite Sales Drop at Outlets,” Wall Street Journal, November 15, 2010, http://online .wsj.com/article/SB10001424052748703326204575616971039595804.html; PRNewswire, “Nordstrom Rack to Open First Kansas City Area Store,” Yahoo! Finance, January 11, 2011, http://finance.yahoo.com/news /Nordstrom-rack-to-open-First-prnews-2843967071.html?x=0&.v=1; Nordstrom Web site, “Future Store Openings,” http://about.nordstrom.com (Accessed May 2, 2011). Questions 1. What type of retailer is Nordstrom? Describe the characteristics it shares with other retailers of this type. 2. How would you describe Nordstrom’s level of service on the continuum from full service to self service? Why? Give an example of a store that would be on the opposite end of the continuum, and explain their differences. 3. Which of the six components of Nordstrom’s retailing mix do you think have been the most important to the company’s success? Why? 4. What are the primary challenges Nordstrom faces in the current retail climate? How has the competition changed in recent years, along with consumer expectations
Explanation / Answer
A retailer is a firm that controls the activities directly related to the sale of goods and services to the ultimate consumer for personal, non-business use. There are multiple types of retail stores each offering a different product assortment, type of service, and price level to fit the customers’ shopping preference. Nordstrom can be classified as a department store. This store is defined as a store that carries a wide variety of shopping and specialty goods. It includes the selling of apparels, cosmetics, house wares, electronics, and may even include furniture. The customer service is from moderately high to high in most cases; they have a broad product mix, for instance, selling fragrances, cosmetics, shoes, jewelry, and accessories for women, men, and kids; and, the prices range from moderate to high. The purchases are to be made by each department because they are treated as separate buying centers. This helps the gain of economies in promotion, buying, service, and control. Nordstrom is competing with other stores such as Saks Fifth Avenue, Barney’s, JC Penny, and Dillard’s. They all aim to maintain market share by offering specialized customer service, competitive prices, and a trendy and big variety of products, yet the main difference is the focus of the company.
Nordstrom aims for the best customer service. It seeks to offer the best shopping experience either online, by mail, or through the store itself. They aim to treat the customer with responsibility and respect. Nordstrom offers alterations from their employees toward the customers. For instance, it provided the option of buying one single shoe instead of a pair. In this way it gained a customer for a lifetime. Additionally, they aim to offer the same product mix online and on the store, and they offer return, or exchange, policies, confirming the company’s reputation of placing customers first. They aim for a word-of-mouth advertising, adding the loyalty characteristic, which guarantees that the customers will keep returning to the store. On the other hand, Ross Stores, an off-price retailer, offers no customer service. Because off-price retailers sell at a 25% or more below the traditional department store prices, there is no return policy. There will not be specialized service, or any adaptation to customer wants. There is large variety of goods; yet, the customer will buy what is available and something on what they can get a good deal on.
The six components of a retail store are the price, product, placement (distribution), promotion, presentation, and personnel. The company’s main focus is the customer. For this reason, the most important element in the retailing mix is personnel. Nordstrom must make sure to have the most competent and consumer-focused personnel. They would become the image of the company. The description of “heroic service” from Patrick McCarthy, the first salesperson to generate $1 million, explains the importance of understanding consumer wants and adapting them in order to gain their loyalty and heart. Additionally, the employees, or salespeople, must persuade customers to buy the product. They may employ suggestion selling or trading up, in any case, the salespeople must adapt to customers expectations. They must know what the customers want and expect from Nordstrom and then fulfill the expectations and even master them. Having that advantage and positioning in customers minds is what will give them the proper word-of-mouth advertising, the consumer loyalty, and also, the profit.
Retailers must adapt to customer expectations. The aim must be to fulfill those expectations and offer the customer what he/she wants. There is a broader view from the customers toward the retail market. Because most people in the families are in the workplace, customers are seeking products through mail, catalogs, or through online shopping. The customers wish to see the same products either in the store or in the web page, and they aspire to have the ability to purchase them in both locations. They are searching for convenience. Nordstrom must offer the same products in both sites and there must be return policies available for purchases in there as well. Additionally, customers no longer aim for a personal one-on-one attention, but on the other hand, customers are happy buying by themselves as long as they can easily find what they are looking for. For this reason, Nordstrom now aims for a “seamless shopping experience across all sales channels”. Also, customers want the most trendy items to be on display, and for this reason, Nordstrom implemented a new computerized inventory system that gives the salespeople the advantage of knowing what is selling the most in the store and what is needed in the store, giving the buyers and salespeople the necessary information to make the smarter choices. Competition grows larger and more personalized. With the multiple promotions, positioning, and pricing strategies, it is through a wise focus on consumer expectations that the company can gain the market share and maintain it through loyalty from its customers.