Contrasting the New Loyalty Programs at Nordstrom and Victoria’s Secret
Back in the early 1980s, American Airlines realized it had very little information about its customers. The company knew your name because it had to issue you a ticket, and in some cases it may have had your address because it had to mail you your ticket, but that was about it. All the relevant information about you (e.g., your age, income, motivations for traveling) was in the hands of your travel agent. Since having this information was a real source of power and leverage for travel agents, they wisely refused to share it with American Airlines.
To gain this information, American put in place what eventually became the Advantage program. It promised flyers that if they would complete a small form providing American with some information about themselves, they would be given stickers that they could append to their tickets whenever they flew. American, in turn, would collect these tickets and give them “mileage credits” good for discounted fares.
The idea was to gain information about the customer so that American could market directly to them in a targeted fashion designed to appeal to their key needs and purchase motivations. Every student who has taken Marketing 101 has learned the importance of market segmentation. Different customers often purchase the same product (or a similar product) for very different reasons and motivations. As originally conceived, loyalty programs were a remarkably creative way for the customer to reveal their key needs and purchasing motivations so that a company could tailor its marketing message specifically for that individual.
This was a superb idea, but one that has never really achieved the benefits that were envisioned for it. Rather than becoming a way to send personalized marketing messages to customers that address — in a targeted manner — their key needs and purchase motivations, “loyalty programs” have devolved into a method for purchasing customer visit frequency by offering discounts. Whether you do it through a neat app or by just giving the register operator your phone number at the local supermarket, the end result is the same. “Shop at my store and I’ll give you a discount.”
Therefore, when I read about the recently announced changes in the loyalty programs at two highly respected retailers, Nordstrom and Victoria’s Secret, I was immediately hopeful and openly wondered, “Has an organization finally gotten their loyalty program right? Perhaps a retailer has finally developed a way to identify and then appeal directly to the key purchase motivations of their different customers!”
Nordstrom’s Nordy Club appears to be a step in the right direction. The company's press notice states that “Along with the new rewards, levels and services, The Nordy Club will offer personalized experiences for every customer, highlighted by an experience enabling them to create their very own ‘Nordy Portrait.’” Unfortunately, Nordstrom didn't get into the details of what these “personalized experiences” and “Nordy Portrait” really entail.
Victoria’s Secret’s “PINK” Loyalty Program, unfortunately, makes no reference to personalization. Rather, its announcement mentions that it will engage its customers “ … through product promotions and special offers like giveaways and sweepstakes.” From my point of view, this represents a missed opportunity.
Companies need to understand that a properly conceived loyalty program represents an excellent way for them to tailor their marketing messages to the specific needs of their customers. If you believe in the concept of market segment, then a well-designed loyalty program will allow you to address the individual needs of your customers in each of your key segments in a more targeted and direct fashion. To quote that world famous marketer, Muhammed Ali, “different strokes for different folks.”
Related story: Loyalty Program Revamp Enhances Customer Experience at DSW
John Larson is the senior partner at John Larson & Company, a pioneer in the field of customer loyalty and the author of Capturing Loyalty. Prior to starting his own firm, John held positions at McKinsey & Co., Monitor Company, Lieberman Research Worldwide, and J.D. Power and Associates, specializing in the areas of strategic analysis, organizational effectiveness, and customer satisfaction and loyalty. John uses survey research techniques to help clients develop a better understanding of the needs of their customers, assess how well these are currently being met in the market place, and then target opportunities to create long term competitive advantage. He has worked with clients to address the specific organizational barriers that can impede effective implementation.