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June 2001
Beware the Big Dog

Did you hear about the lady who received a refund from Nordstrom for four automobile tires? They don’t sell tires! And with Nordstrom also comes hype like Charlotte has rarely seen. This is Alicia Shawn, your roving reporter, standing in Columbia next to a bus ready to take frenzied consumers on a shopping spree to Nordstrom in Charlotte.

There will be television news stories about the impact on SouthPark Mall, newspaper articles written on “The Nordstrom Way,” and radio shows with topics such as “Your Favorite Nordstrom Service Story” or “The worst service you ever had.” Along with all the press, the traffic, and the additional shoppers to the area, virtually all area businesses will notice the additional focus on customer service, both from the press and their customers.

So why should you “Beware the Big Dog?” Because expectations and demands for dramatically improved service will rise, even for companies that don’t compete with Nordstrom. This will literally change the business environment. Any company that does not significantly ramp up service could risk losing their increasingly service-savvy customers. And those businesses that try to improve service in less-than-judicious ways could hurt their own bottom line.

Therein lies “The Nordstrom Effect.” Consumers’ heightened focus on service will lead to more sensitivity about which companies want to serve and which are indifferent. Those that deliver will grow, and for those that appear indifferent, the screws will tighten.

Raising the Bar

Anecdotes like the returned tires story drive Nordstrom’s customer service mystique into levels only dreamed of by most companies. CEOs often talk about wanting to deliver “Nordstrom’s level of service.” Why? Because, reality or not, Nordstrom is perceived as being at the pinnacle of customer service.

“Nordstrom will establish in people’s minds a new standard in what’s acceptable customer service,” states Queens College associate professor of marketing, Dr. David Rudd. 

Many local business owners are already hearing the buzz about Nordstrom’s service. “Every customer I’ve talked to — it amazes me the reaction I get,” said Perry’s at SouthPark owner Ernie Perry. “Their expectation levels are very, very high.”

Where it might have a particular effect is with men, according to Denise Browning, marketing manager for Trammell Crow, which manages SouthPark Mall. “Men will talk about Nordstrom even though they don’t typically talk about shopping. As I’ve spoken with people during neighborhood meetings, it initially caught me off-guard how enthusiastic the men were about Nordstrom.” Men talking about shopping? Now, that’s buzz!

And along with the buzz will be significant increases in the number of shoppers to the area. Although the increase of consumers to the area is a great boon to SouthPark Mall tenants, with rising traffic come rising expectations. The bar will be raised. Nordstrom raises the service bar for other businesses in two primary ways.  First, the publicity that Nordstrom will receive and the reputation they have with consumers creates a greater focus on the value of customer service and consumers’ right to good service. Second, the service itself will drive up expectations of others.

According to Angie Hicks, founder of Angie’s List, a national company whose consumer-members rate businesses on attributes such as service, quality, responsiveness, and professionalism, “When you experience great service, you begin to expect it and look for it. People seek out companies that keep the promises they make. Companies need to make sure they manage expectations so they can actually fulfill them.”

So why is it so important to close the gap between rising expectations and the reality of the service level delivered?

The Bottom Line for Business

Here are a few hard facts to consider:

A Harvard Business School study states that retaining five percent more of your customers from year-to-year can double profitability. If you keep customers, especially those you’ve identified as highly profitable, you’re reducing advertising costs, streamlining processes for a more mature customer base, and increasing referrals. If customers will pay 10 percent more for the same product with better service, how much in sales are you losing because you have to keep prices low to coincide with less-than-stellar service levels?

 A Technical Assistant Research Project study noted that 68 percent of existing customers leave a business because of perceived indifference. The increased focus on customer service will shine a glaring light on the companies that keep service as secondary, thereby causing a stronger potential for lost business.

 

Customer service has a bottom line impact. While some may point to a recent drop in Nordstrom’s stock price as an indication that customer service does not drive profitability, don’t let misdirected corporate expansion plans and questionable updates to its apparel lines divert you from the truth. Service means dollars, and Nordstrom means traffic — many more shoppers roaming the mall corridors. “It’s like a guaranteed additional five to six percent in traffic and sales,” says Perry, “because they draw in such a bigger base from a larger range.”  But Perry concedes that “if a person goes in there and their initial reaction is good and they go into another store and it doesn’t meet Nordstrom’s standard, it’s going to be hard to get that customer back from Nordstrom.”

Nordstrom will also impact local businesses by drawing on the local talent pool. Dr. Rudd points out that some of the best retail salespeople in the Charlotte area will jump at the chance to work “The Nordstrom Way” if they feel they can excel in a commission-based system.

While Perry feels that Nordstrom is certainly going to be very competitive and they’re going to be recruiting very strongly, it won’t be that much more of an impact than if another department store came in. And some employees may be hesitant to work in an especially flexible Nordstrom-type environment where the Nordstrom employee handbook has only two rules:

Rule #1 - Use your good judgment in all situations.

Rule #2 - There will be no additional rules.

Dale Bishop, store manager for Dillard’s at SouthPark Mall, experienced direct competition with Nordstrom at another store in the late 1990s, and he says, “We lost one or two to Nordstrom in Norfolk, and they didn’t stay at Nordstrom long after the opening.”

What everyone seems to agree is that Nordstrom’s arrival will make a tight retail labor market even tighter, especially for the upper echelon salespeople.

Act Now or Pay Later

Customers will expect better service — faster, more convenient, more friendly, more personal, of higher quality, more simple — better. So how do you deal with these higher expectations, and how do you compete in this changing environment? Consider three options:

Dramatically Increase Advertising.

True or False? There’s no better way to offset your lost business than to spend excessively on advertising to make up for customer service shortcomings. False.

Drastically Cut Costs.

True or False? The best path to improving profitability is to strip products and service offerings to the bare bones. False.

Implement a Customer Retention Strategy Now.

True or False?  The best marketing dollar spent is one spent to keep a customer.  Excellent customer service should actually cost less. True, and true.

Mike Moore, general manager for the Village Tavern located across the street from SouthPark Mall, says there’s already been a trend in the restaurant industry toward focusing back on customer service. “We’ve standardized a lot of training, given servers smaller sections, made sure they’ve learned the menu.”

That one statement says a lot, because the Village Tavern is improving customer service by investing in their people’s product knowledge and by improving the customer-to-server ratios. 

It demonstrates that there’s much more to excellent customer service than being able to pleasantly converse. Customer satisfaction is derived from attitude and process as much as it is by the product itself.

To comprehensively deliver on marketing’s promises of exceptional service, companies must build their “Attitude Bank” by hiring people that will be good in customer service because they demonstrate a willingness to learn, customer focus, organizational skills, and good communication skills. Then companies need to train on skill sets as well as required product and process knowledge to effectively deliver a service.

By improving your attitudes and processes, you raise your own performance first. Only then can you raise your customers’ expectations through marketing, because you’re confident that your operations can deliver on what your marketing promises. Don’t let Nordstrom’s reputation steamroll yours, and more importantly, don’t let their customer satisfaction exceed yours.

If you implement a plan to keep your customers today, you can avoid increased advertising and major cost cutting initiatives tomorrow. Then, there will be no need to Beware the Big Dog.

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