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Case Study: How Nordstrom Built a Thriving Rewards Program

A few weeks ago, the Chicago Tribune published an article detailing retail giant Nordstrom’s recent performance. The retail industry as a whole had been experiencing several consecutive negative quarters, including superstores Macy’s and Kohl’s. Nordstrom itself reported an earnings per share of 39 cents less than in the same quarter just a year ago, which disappointed investors.

But amidst all the struggle, Nordstrom did highlight one bright spot in its earnings release: its newly-implemented and thriving rewards program.

Typically, loyalty programs are designed to keep customers coming back while increasing tangible metrics, such as repeat purchases and average order volume. Because there are truly limitless variations on what constitutes a “rewards program”, the process of building a program that’s sustainable for a business and that’s engaging for customers can be deeply complex. 

Nordstrom was able to design a program that balanced these two factors successfully and has the company excited about the program’s potential in the future. Over the next year, an estimated five million customers will join the program, which is more than double its current membership. With this growth, loyalty member purchases will account for nearly forty percent of the company’s sales! This number is not surprising given that in the past year, members of Nordstrom Rewards spent a whopping four times as much as nonmembers, and visited three times as often. In other words, rewards program members are visiting more often and spending more per visit than their non-member counterparts.

How Did Nordstrom Structure Their Program?

The Nordstrom loyalty program is by no means intricate: customers are rewarded points in direct proportion to how much then spend. While the program previously was only available to customers using a Nordstrom credit card, the company received feedback from customers that more people wanted to be involved in the program without necessarily signing up for an additional card. In fact, the high activation energy involved in getting customers to register for a new credit card was precluding the vast majority of their customers from getting involved in Nordstrom Rewards.

Nordstrom's Thriving Rewards Program

A breakdown of Nordstrom’s revamped rewards program

In order to capitalize on their customers’ demand for involvement, Nordstrom found an elegant and simple solution that both maintained and incentivized their credit card program, while also becoming accessible to the remainder of customers. They ultimately created two plans: one for their card holders, and another for the rest of their customers.

Those without a Nordstrom card earn one point per dollar spent. Those points accumulate as customers spends more at the store. Once a customer has earned 2,000 points, they can redeem the points for a $20 voucher.

Customers who signed up for a Nordstrom credit or debit card earn two points for each dollar they spent, effectively getting them to the discount twice as fast. Card-holding members see additional benefits as well, such as early access to sales and invitations to private holiday shopping parties.

Nordstrom Rewards Program

Additional benefits are provided to Nordstrom credit or debit cardholders


Now that we’ve outlined how Nordstrom’s program works, lets take a look at what they focused on to make sure their program really produced results.

What did Nordstrom do right?

A closer look at Nordstrom’s program makes it clear that it was rebuilt thanks to knowledge they acquired from their loyal shoppers. Erik Nordstrom, the company’s co-president, revealed that the changes to their rewards program were directly derived from customer requests. Because of the value of their rewards program and the high demand to join, Nordstrom made adjustments to increase its engagement by simply reducing the barriers to entry.

By creating a non-card holding membership program, a much greater percentage of their best customers could get involved in the program and become even more valuable customers. Nordstrom did their research in order to understand just how much more rewards program members were worth to their company than ordinary customers, and took action to make sure they were getting the most out of each and every buyer.

In addition to strong research and planning, what really made Nordstrom Rewards stand out was the widespread commitment to the program. Rewards programs are really all about a company’s brand and getting customers to really want to be involved. Nordstrom created several dedicated, easily accessible pages on their website to explain the program and get their customers excited about it. They even put together a video that they were able to share through online advertising and their social media, and a mobile app to engage customers preferring to shop from their phones. Nordstrom so thoroughly made Nordstrom Rewards synonymous with their brand that newer customers are much more likely to want to be a part of the club. Promoting your program across many channels is important and Nordstrom took advantage of several forms of media to get it done. 

As Nordstrom continues to add customers to Nordstrom Rewards, we expect them to  reap the benefits of an excited and loyal customer base. 

Their program built a solid foundation that should continue to benefit them for years to come, but now many of you are probably wondering how your store can replicate the success that Nordstrom enjoyed. There are several important “best practices” that Nordstrom followed when implementing their program, many of which you can employ to make a Swell program work nicely for your store.

What Best Practices from the Nordstrom Program Can I Apply to My Store?

Successful programs can take many forms, as businesses have vastly different goals that they hope to accomplish with rewards; as our team here at Swell says, your program should reflect what matters to you. A store selling a shaving kit, for example, may want to incentivize subscriptions to keep customers using their product consistently and to build brand loyalty. On the other hand, a store selling a less-frequently purchased item (e.g. watches) may want to focus their program around referrals and broadening their outreach. Regardless of the primary aim of the program, there are generally several key guidelines merchants should keep in mind as they outline their program, just as Nordstrom did with theirs.

Learn from your best customers: Studying your best customers will help you answer the crucial question: why people are even interested in your products in the first place?Understanding these customers (and finding more like them) will help your store build a dedicated and reliable foundation. Look at what those customers like to purchase, why they like to purchase those items, and what actions they tend to take before, during, and after purchasing. If your best customers are particularly interested in one product or a particular group of products, maybe you should be featuring those products more prominently on your website or your social media pages.

You can even learn a lot about how to incentivize more of your customers to become your “best” customers. For example, if your best customers tend to spend a lot in each visit, offer a discount to people making purchases over $100. If your customers tend to buy after seeing your products on Instagram, offer points to customers who follow your Instagram account. Any lessons you can learn from these customers could prove valuable as you try to build your brand. 

Rewards Shopper

Nordstram programs members spent 4 times more than nonmembers

Maximize their value: Just because your best customers are already spending frequently at your store, doesn’t mean you’ve maximized their value. There are always steps you can take to make sure your best customers are treated well and are happy. Just as you used information about their habits to try and attract more customers, find what makes these customers love your store and see if you can amplify that to make them love your store even more! For example, if those customers tend to make many small purchases, try offering a free product every fifth purchase a customer makes. When they get to four, they’ll be quick to come back to you for that next item and their free product.

Define success with measurables: With the countless options that come with setting up a rewards program, having goals and a tangible understanding of success means for your program are essential. This will allow your company to understand if the program is working or if certain aspects of the program need to be adjusted. Any number of small tweaks could potentially result in massively improved performance for your program. Knowing when to reevaluate your program is the first step toward making it even better than before. 


Once the framework for a program has been appropriately laid out, the specifics of the implementation must carefully executed. Here are some tips for merchants to keep in mind when getting started with their programs:

  • Make sure signup is frictionless.
    • We all know time is our most valuable resource, and as a merchant, it is important to understand and appreciate this fact; regardless as to how much time you spend making sure that your site is beautifully designed, customers will still typically look to spend as little time on it as possible. The more difficult it is to sign up for your program, the fewer customers that will actually take the time to be involved in it. 
      buying-online-picture

      Customer convenience is key for a rewards program

      Consider a credit card based loyalty program. Because of the additional investment involved in setting up a credit card account, painfully few customers actually go through with the process. By contrast, a program that requires little more than a name and email address to signup will be much more inviting.

  • Reward customers for what they buy in addition to how many times they visit.
    • Storeowners should be careful about giving out heavy rewards that aren’t based on amount spent. Keep in mind, customers are always looking for ways to get the best deal and if there’s a way to get a huge discount without spending a lot of money, they’ll find it. For example a store operating on punch card rewards (reward for a certain number of visits) could be at risk to lose money if customers repeatedly make small purchases at the the store to earn a larger reward. A punch card system that establishes a minimum purchase size or even a system that directly rewards points for dollars spent would be a much safer incentive.
  • Reward customers with what they truly want

    • Rewarding customers with easy-to-use coupons, or must-have products goes a long way towards increasing involvement in your program. Customers will be naturally drawn toward their reward of choice and so as a merchant you should do your best to make sure they can find their favorite reward at your store. Remember, a successful loyalty program bolsters your brand and its your job to make sure every step of the process is designed to optimize the customer experience.

another-nordstrom-picture

Building the right rewards program can be complex, but as we saw with Nordstrom, careful planning can go a long way. Nordstrom surely took advantage of their wealth of resources while figuring out and implementing their program but you don’t have to be Nordstrom to see the same success. Using a program like Swell makes having Nordstrom’s resources even less necessary. You can plan out the perfect program by following the same best practices Nordstrom did and take advantage of Swell’s adaptability to get you to the finish line. A few steps along Nordstrom’s loyalty path and you’ll be well on your way to building a program that creates a dedicated and dependable customer base.

Nikhil Naidu • September 19, 2016


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Comments

  1. Susannah November 20, 2016 - 5:28 am Reply

    I have to give ESPN a pass on this one. My BS meter spiked up to red when I heard this former Hara#h&r39;s employee never filed a police report (something the girl in the Kobe case DID) and has a history of depression and other problems.I think it's a money grab, and ESPN already has enough stories on David Beckham to cover that subject.

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