Loyalty Programs Are a Great Way to Reward Your Top Customers — Here’s How Things Can Get Complicated

When it comes to buzzed-about retail strategies aimed at boosting sales and customer engagement in an increasingly digital world, loyalty programs are all the rage.

In the past few months alone, Nike, Reebok, Famous Footwear and Nordstrom have all revamped their loyalty programs with a focus on offering more enticing rewards, new experiences and fun features like personalization.

And while rewarding a brand’s most loyal customers — i.e. those who make frequent purchases and spend top dollar — is at the core of loyalty programs, retailers may find themselves shouldering criticism from shoppers who feel disenfranchised by tiered systems.

Nordstrom this week faced the heat when some shoppers — supposed members of the department store’s Nordy Club rewards program — took to social media to express their disappointment in realizing that they didn’t have access to the brand’s popular Anniversary Sale as early as some of its more elite members.

Nordstrom’s Anniversary Sale begins Friday and runs through Aug. 4 but members of its Nordy Club have early access, which started as soon as July 9, for those who reached its highest membership level, “Icon” level.

The Nordy Club has five membership tiers: the lowest tier, “Member,” is for those who spend under $500 with the retailer annually; while the mid-tier, “Influencer,” spends at least $2,000 with Nordstrom annually, “Ambassadors” spend $5,000-plus and so on. Based on their tiers, members were given staggered early access to the sale this year — with higher-tiered “Icon” and “Ambassador” members receiving earlier access than lower-tiered customers. Finally, beginning July 12, all Nordy Club members were able to shop the sale in-store and online — a full week before the event is open to the public.

While some were confused about which dates they were supposed to have early access — prior to Nordstrom’s loyalty program revamp last fall, all members had the same early access — others bemoaned what they perceived to be an unfair advantage for the retailer’s high-roller customers.

While this can be a tricky situation for a retailer — social media backlash can be swift and jarring for brands in the digital age — Nicole Leinbach Reyhle, founder of Retail Minded and author of “Retail 101: The Guide to Managing and Marketing Your Business,” said she doesn’t believe the wave of social media comments represent the bulk of shoppers’ experience with today’s tiered loyalty programs. (Nordstrom has responded to several concerned shoppers via Twitter to clarify access dates.)

“The core of loyalty programs is to create retention and to entice the customer to return and shop with a [brand or retailer] again and again,” Leinbach Reyhle explained. “As customers get savvier, they recognize that loyalty gives them perks beyond their purchases — such as special events or other experiences that make them feel as if they’re a VIP. That’s the exclusivity that tiered programs offer — it’s that their highest- ranking tiers ultimately want to experience that VIP feeling.”

And while “a lot” of customers will want to achieve that VIP status — and spend the extra cash to attain it — there will be others who are disinterested in nabbing the perks and a few who end up disappointed because they did not (whether they had the financial  means to do so or not) spend enough to get them, Leinbach Reyhle added. However, “from a pros and cons perspective, if Nordstrom is offering the best rewards to the customers who earn the most points, it makes sense,” she said.

Similarly, Beth Goldstein, executive director and industry analyst for accessories and footwear at The NPD Group said the benefits of loyalty programs — to both retailers and their most devoted customers — likely outweigh the wrath of a few disappointed shoppers.

“Loyalty programs, create, for the retailer, this added level of segmentation and targeting that [allows them to] go after their most premium members and put more money and resources against marketing to them versus their lower-tier [shoppers],” she added. “[On the customer side], it can create the motivation and the additional loyalty to move up those tiers for the added benefits and rewards.”

Both Goldstein and Leinbach Reyhle said that — more so than concerns over any supposed elitism of tiered loyalty programs — the social media response to Nordstrom this week is often a typical reaction to change. (Nordstrom’s revamp introduced the new tiers to its program.)

“Any time there’s change, there’s going to be backlash,” Goldstein said. “Loyalty programs are not meant to shame. The goal is to inspire customers to spend more and move up and to be loyal.”

What’s more, noted Leinbach Reyhle, when it comes to customer feedback in retail, negative voices tend to resound most — even if they represent the minority.

“In the consumer marketplace, disappointment speaks louder than [satisfaction],” she said. “Often, brands and retailers have to ask customers who are satisfied to share their contentment while those who are not satisfied share it on their own. My guess is that there are a lot of satisfied customers we’re not hearing from in this situation.”

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