As we learned in the Nordstrom case for FRC, the Nordstrom business model revolves around delighting the customer. Happy customers are loyal customers with high lifetime value, and thus drive profit for the company. While most companies provide lip service to customer service, Nordstrom actually delivers, and they do regardless of where you shop—online, in-store, or on your mobile phone.
Customer-centrism informs every aspect of their operating model. As we learned in our FRC case, their sales compensation model empowers employees to exercise judgment and do right by the customer, every time. Stories of their service range from hand-written notes to customers to above-and-beyond searches for lost jewelry (see this Seattle Times article about Nordstrom employees who opened up the store’s vacuum cleaners to recover a lost diamond from a wedding ring).
As e- and m-commerce have grown as a percent of sales across the retail industry (~20% at Nordstrom), Nordstrom has done an incredible job of supporting its customer-focused business through its online operating model. A couple important and interesting components of the online model:
- Inventory pooling: Nordstrom pools its inventory across channels, making all products available to customers shopping in the channel of their choosing. When they first rolled out their integrated inventory, conversion rates doubled (see this NYT article for additional detail). Inventory pooling doesn’t sound sexy, but it is customer-centric to the core.
- Offering free beauty samples with purchase: beauty shoppers are accustomed to receiving free samples when shopping in-store. Nordstrom meets this expectation online by including three free samples with every online beauty purchase, unusual in the online channel but pleasing to the customer.
- Free shipping and free returns: Shipping is always free at Nordstrom.com, both ways. It’s costly but is critical to reassure the customer that she needn’t fear shopping online.
- Commitment to digital innovation: Announced just a few months ago, Nordstrom is investing in its mobile platform to meet customer’s omni-channel shopping needs.
- As Retail Info Systems News reported, co-president Blake Nordstrom said: “To evolve with our customers’ rapidly changing expectations, we’re rolling out new features at a rate three times faster than last year… As customers continue to want a more integrated shopping experience, we view mobile as a long-term priority to provide a richer experience for our customers.” (Emphasis added.)
Nordstrom’s quote captures perfectly how their business and operating models are intertwined: it all comes back to the customer.Nordstrom sees impressive returns on its investments in online customer service, with web sales growing at 25.5% in 2014 compared to the national average of 15.4% (from RIS News). Its operating model reinforces its business model, which continues to inform its decisions on how to operate the business—a virtuous cycle for the retailer and customers alike!