Neiman Marcus filed for bankruptcy on May 7, 2020. The case study provides invaluable background information about Neiman Marcus from its opening in 1907 to 2006 when the case was written. Use the information in the case, along with the information you gather through external sources, answer the following question:

If you were the CEO or CMO of Neiman Marcus, what would you do to help the company move forward?Hint 1: Consider the primary target market, and note that the primary target market drove 90% of the sales revenue. Hint 2: Consider the competitive customer advantage (i.e, marketing mix) - price, location, service, and merchandise. Hint 3: Consider the external environments (PEST) and competition.

Customer Focus at Neiman Marcus: "We Report to the Client" There is never a good sale for Neiman Marcus unless it is a good buy for the customer. Herbert Marcus This simple philosophy expressed by Neiman Marcus co-founder Herbert Marcus became the foundation of a highly successful customer-focused strategy with which Neiman Marcus became the second largest and the most profitable specialty retail chain in the country. The "Client" in 2006 She's richthe minimum income of the target customer household is $200,000; she's fashionableshe knows fashion, lives fashion, and watches it wherever it appears; she cruises the Internet (e.g., Style.com) and reads the "right" publications; she demands qualityshe wants fashion well made and she wants the real thing, no imitations; she wants the uniqueno copies, no mass production; she's as current as tomorrowshe's after the latest and will take a risk to beat her peers to tomorrow's best; she gives and appreciates fashion advice. She demands personal professional service and attention. And she is willing to pay. She's been the Neiman Marcus customer1 for ninety-nine years. History Opened in Dallas in 1907 by Herbert Marcus, his younger sister Carrie Marcus Neiman, and her husband Al Neiman, Neiman Marcus was created as "a store of quality, a specialty storethe only store in the city whose stocks were strictly confined to ladies' outergarments and millinery and which presented wider varieties and more exclusive lines than any other store in the South."2 The ambitious founders decided to not compete directly with other sellers of women's clothing, but to create a new retail option for women in the South. They perceived a gap in the 1 The terms "customer" and "client" are used interchangeably at Neiman Marcus. Since the Neiman Marcus brand signifies professional selling, "client" is used more frequently for the best, i.e., highest-spending, customers. 2 Advertisement, Dallas Morning News, September 8, 1907. CUSTOMER FOCUS AT NEIMAN MARCUS 5-405-750 2 KELLOGG SCHOOL OF MANAGEMENT top-quality women's clothing market in Dallas. While there were many women who could afford and were eager to wear the finest clothing, the fashion communities of New York and Paris were too distant for them. In an effort to best serve this newly identified customer base, three objectives were of premier importance: (1) to improve the quality and availability of ready-towear ladies' clothing; (2) to offer a variety of styles at the forefront of international fashion trends; and (3) to provide customers with superior service and merchandise unsurpassed in quality and overall value. These principles guided the business from the day Neiman Marcus opened its doors as the first specialty store in Texas. Everyone seemed eager to be part of the growing Dallas fashion scene, and Neiman Marcus became the place to shop. As the economy of Dallas exploded, Neiman Marcus thrived on the prosperity realized by local citizens. The newfound riches, first from cattle, then oil, and later real estate, allowed these individuals to develop refined tastes. Pragmatism was thrust aside to make room for extravagance, and Neiman Marcus gained national exposure through such publications as Vogue. By the 1950s fashion-conscious individuals from all over the world traveled to Dallas to shop at Neiman Marcus. As the reputation of the store spread, sales continued to increase, and the customer base extended well beyond Dallas. During this time the Marcuses were continually on the lookout for new items to complement the current merchandise. Clothing items such as shoes, furs, and other ladies' accessories, as well as gift items and a stationery line, were added to the store's alreadysuccessful repertoire. Then in 1951 expansion began with the opening of a second Neiman Marcus store in the suburban Preston Center Mall outside of Dallas, which closed in 1965 only to be replaced by a larger store in the North Park Shopping Mall. In 1969 another store opened in Houston. The Founders' Strategy and Philosophy In order to maintain its position as the leading seller of higher-priced women's fashions, Neiman Marcus management realized the need to continually bring unique and innovative products to the Dallas market. The layout and ambiance created in the Neiman Marcus stores made a visit not simply a shopping trip but a shopping experience. Stores were designed by famous architects with contemporary fashion as their keynote. Aisles were intentionally wide; as one store manager said, shoppers should be able to walk down any aisle and swing their arms in a circle with room to spare. Display shelves stopped well short of the ceiling, and displays were immaculate and well maintained. Every member of the staff was charged with the responsibility of making each customer feel like a distinguished guest of the Marcus family. A major factor in instilling customer focus in store employees was the constant managerial presence of a Marcus family member. While Herbert was clearly in charge until his death in 1950, his son Stanley took on greater responsibilities and emerged as Herbert's obvious successor, serving as CEO until 1974 and then chairman and later chairman emeritus until his death in 2002. Stanley's younger brothers also worked in the business at one time or another. 5-405-750 CUSTOMER FOCUS AT NEIMAN MARCUS KELLOGG SCHOOL OF MANAGEMENT 3 Expansion into a National Chain, 1969-2005 From 1907 until 1969 Neiman Marcus was a family-owned and -operated business. Then in 1967, with three stores and an international reputation, Stanley Marcus wanted to expand beyond Texas. Since internally generated funds would not be sufficient to support an ambitious plan and the sale of company stock to generate funds for expansion would reduce family control of the business, Stanley Marcus decided the best course of action was to seek a merger. He sought a new parent company capable of continuing the tradition and reputation for excellence that had begun sixty years earlier in Dallas. After exploring possible joint ventures with several organizations, Neiman Marcus was sold to the Carter Hawley Hale Stores, Inc. in 1969. Stanley Marcus was promised the autonomy he desired to continue running Neiman Marcus, and Carter Hawley Hale clearly possessed the resources that allowed acceleration of a national expansion program. Common wisdom in retail indicated that expansion would lead to economies of scale in centralized operating costs (e.g., the buying organization) while at the same time it would leverage the selling power of additional stores with the Neiman Marcus name and image. Following the acquisition by Carter Hawley Hale, the Neiman Marcus organization began a rapid expansion that grew from three Texas-based stores in 1969 to twelve locations from coast to coast in 1980. Between 1981 and 1985, an additional nine stores were opened (see Exhibit 1 for store locations). No longer a southwest regional chain, Neiman Marcus acquired operational challenges that required sufficient flexibility to address. Its expansion stopped in 1986 when Carter Hawley Hale had to divert cash to fend off a takeover attempt by the Limited. Then when the Limited raided Carter Hawley Hale again in 1987, Carter Hawley Hale raised cash by selling Neiman Marcus, Contempo Casuals, and Bergdorf Goodman to Boston-based General Cinema Corporation (now called Harcourt Cinema3 ). Under Carter Hawley Hale there were insufficient funds to remodel stores, and some developed a dated and stale appearance. When General Cinema took control, it invested heavily in adding, updating, and remodeling stores. Five stores were added from 1989 to 1992, bringing the total to twenty-seven. From 1992 to 2005, Neiman Marcus added ten more stores along with eleven clearance centers and three Gallerias. Four more stores were scheduled to open by 2007. Gallerias, small stores focused on precious and fine jewelry, gifts, and home furnishings, that CEO Burt Tansky called a good experiment that failed; all closed by 2004. Accordingly, as of 2005 Neiman Marcus had three groups of stores based on sales volume: AAA stores, more than $100 million a year; AA stores, between $50 and 100 million a year; and A stores, less than $50 million a year. There were seven AAA stores. As a consequence of the geographic expansion, Neiman Marcus began competing against other national high-fashion specialty chains such as Saks Fifth Avenue, Lord & Taylor, and I. Magnin. Competition also came from local specialty shops and designer boutiques. Not only did the competition differ from city to city, but Neiman Marcus quickly recognized that there were inter- and even intra-city variations in tastes and fashions. 3 General Cinema became Harcourt Cinema after it sold its bottling business to Pepsi, closed the Contempo Casual Chain, and with cash from the bottling sale purchased Harcourt Publishing. The company then operated movie theaters and Harcourt Publishing in addition to the Neiman Marcus Group (Neiman Marcus Stores, Bergdorf Goodman, Neiman Marcus Direct, Kate Spade, and Laura Mercier). In 2005 Warburg Pincus and Texas Pacific Group took the Neiman Marcus Group private with a leveraged buyout for $5.1 billion. CUSTOMER FOCUS AT NEIMAN MARCUS 5-405-750 4 KELLOGG SCHOOL OF MANAGEMENT Multiple Directions and Growing Strains, 1983-1993 While Stanley Marcus remained chairman of the board for Neiman Marcus, he relied heavily on the president (after 1987, the CEO), who oversaw the two key functions: sales (the stores) and buying (the merchants). Between 1983 and 1993 there were five different individuals in this position, four of whom came from outside Neiman Marcus. David Dworkin held this position from 1983 to 1985, followed by Richard Marcus from 1985 to 1986, Allen Questron from 1987 to 1989, and Terry Lundgren from 1990 to 1993. Each of these presidents had a different retail philosophy. While one emphasized sales per square foot, another was a merchants' man, i.e., "the store's role is to sell what the merchants buy," and another was a store man, i.e., "the merchant's role is to buy what the stores can sell!" The last major initiative during this period was the "much better" strategy (so named by consultants). "Much better" was a strategy of moving into lower price point merchandise to expand the Neiman Marcus customer base. In the opinion of Burt Tansky, who became CEO in November 1994, the true Neiman Marcus customer was not interested in buying lower-priced merchandise. At the same time, the new customers whom the strategy was designed to acquire were largely intimidated by the Neiman Marcus image and could find the same kind of lowerpriced merchandise in other retail stores. During the "much better" era the exclusivity of Neiman Marcus declined, and at the end of 1993 Neiman Marcus stock was at $17.42, $5 from its all-time low and $49.40 from its close ($66.70) just before the announcement of the leveraged buyout in the spring of 2005 (see Exhibit 2). The rapid expansion of the early 1980s (nine stores were added in five years) created such a need for additional store personnel that, for the first time in its history, Neiman Marcus was forced to fill a large number of key positions with people from outside the organization. Some had difficulty adapting to the Neiman Marcus culture and resigned. As one of its members put it, "the buying side was gutted" to fill the ever-increasing number of sales department head and assistant store manager merchandise positions. The number of buyers increased from 70 to 110 between 1975 and 1985. However, so many left for store positions due to promotions or through normal turnover that the historic expertise level of the buyers was seriously reduced. At that time it took three years to fully develop a buyer, but in 1986 when the rapid expansion stopped, only about 35 percent of buyers had three or more years of experience. To cope with this inexperience, the responsibility of each buyer was reduced to narrower lines of merchandise, e.g., responsibility restricted to men's ties instead of all men's accessories. As a result, the challenge and variety of the job declined, buyers felt underpaid and overextended, and turnover increased. Communication with stores also became less effective and relationships with vendors suffered. As Carter Hawley Hale diverted resources to fend off the two takeover attempts by the Limited, expansion ceased, the dcor of stores became lackluster, and customer service standards slipped. A 1987 customer service survey using phantom shoppers rated Neiman Marcus 67 out of 100, which was better than Saks at 65, and Bloomingdale's at 64, but short of Nordstrom, which received a 97. When General Cinema entered in 1987 and quickly devoted resources to updating and remodeling the stores in the late 1980s, service improved, but three years later came the "much better" strategy in 1990 that again confused traditional Neiman Marcus customers. 5-405-750 CUSTOMER FOCUS AT NEIMAN MARCUS KELLOGG SCHOOL OF MANAGEMENT 5 Total Refocus on the Core Customer, 1994-2006 In November 1993 after Terry Lundgren resigned, new CEO Burt Tansky, former head of Bergdorf Goodman, a division of the Neiman Marcus Group, redirected the company. His strategy was simple: refocus everything on the core Neiman Marcus customer. Customer Focus: The Customers Neiman Marcus focused on four kinds of customers, one of which was the primary target, though the others were also important. 1. Fashionista. The primary target customers were the fashion hounds, the divas. Eighty percent were female, and all were wealthy (the target market began at $200,000 annual income with no upper limit). The target age range was loosely thirty to sixty-five. One store manager noted that he would rather have a forty-year-old millionaire than a seventy-year-old one. These customers shopped at Neiman Marcus for the unique, the novel, and the latest, the "expected" as well as the "unexpected." The "unexpected" fashion merchandise included cutting-edge designer creations since fashion hounds wanted to be surprised and delighted by Neiman Marcus fashion leadership. This did not mean they liked everything Neiman Marcus offered, but they expected Neiman Marcus to keep trying; their attitude was, "See if you can impress me! I want to be excited with your collections." The "expected" merchandise was merchandise these fashionistas already knew about and told Neiman Marcus to carry. Since each local market had different and constantly evolving ideas on fashion, Neiman Marcus merchants had to pay attention to each of these markets. The locally "in" designer label was very important, but beyond labels these customers possessed a sharp eye for quality workmanship and fabric. 2. Distance Shoppers. Generally living more than sixty miles away from a store, these shoppers traded store ambiance and touching the merchandise for mail order or Internet shopping convenience. Neiman Marcus Direct served these customers. 3. Tourists. This group included vacationers, business travelers, and conventioneers who shopped at Neiman Marcus for gifts, novelty, and entertainment. Neiman Marcus took this business very seriously, but it was limited to stores in urban tourist locations such as Michigan Avenue in Chicago and downtown San Francisco. Suburban stores did not attract this business. 4. Last Call Shoppers. These customers were so named because they shopped during the end of the season sales period ("last call"). They were valued because they bought heavily discounted merchandise left over at the end of the year. These customers sought bargains, not the latest in fashion, since by the time merchandise arrived in the discount sale, the latest, the best, and the unique were long gone. For the most part, last call shoppers and those who shopped at the Neiman Marcus outlet locations did not overlap with any of the other target markets. Neither did tourists. The exception was wealthy tourists on vacation or the rich who lived in an area where there was no store. For example, wealthy Latin Americans frequented the stores in Miami and Dallas; Europeans visited Atlanta, San Francisco, and Beverly Hills; and Asians visited the Honolulu and West Coast CUSTOMER FOCUS AT NEIMAN MARCUS 5-405-750 6 KELLOGG SCHOOL OF MANAGEMENT stores. Many of these visits were for the express purpose of shopping. On the other hand, catalog and Internet shoppers had the same taste as the fashionistas, they simply preferred to use these alternative channels. Fashionista shoppers made up the bulk of the business. They bought primarily for themselves, but also for husbands and children. The 20 percent of this category who were men were just as serious and knowledgeable about fashion, though perhaps bought somewhat less flamboyant styles. Both fashionista men and women bought for work, leisure, formal occasions, galas, balls, and charity and entertainment eventswherever one could wear the best. THE LOCAL FASHIONISTA While fashionista customers might have the same interest in fashion, their definition of what fashion was, their taste for it and the speed at which this taste changed differed among the thirtysix stores. The local fashionista was a moving target. Differences ranged from the easily predictable, such as those that could be anticipated because they repeated from year to year, to the totally surprising. In the predictable category, the West and East Coasts were generally more fashion-savvy. Dallas was more traditional and not very contemporaryprobably a year behind the coastal trends. Even within a local area there were predictable differences, as seen by comparing the Northbrook Court store in the northern suburbs of Chicago with the Michigan Avenue store only thirty miles away. While both stores did a thriving fashion occasion and business attire business, the Northbrook store sold less business attire due to its suburban location but much more cruise wear, since most of its customers traveled in the winter. Moreover, shoes had to be more rugged and comfortable in the Michigan Avenue store since people in urban areas walked more than those who lived in the suburbs. Weather-related conditions surrounding a store were constant (Sun Belt versus Snow Belt), although Snow Belt fashionistas traveled and so required fashion for their Sun Belt winter destinations. Other environmental conditions changed slowly but significantly. For example, over time what was a yuppie (young urban professional) community with a taste for contemporary fashion slowly became a muppie community (middle-aged urban professional) with higher income and less taste for the flamboyant. Because of an influx of high-income urban villagers, e.g., in downtown Dallas, a store would gradually add new lines of fashion casual to existing formal merchandise. Locality also affected fashion preferences. For instance, the Coral Gables store catered to Latin American women with more daring merchandise while the Palm Beach store nearby was more formal. The San Francisco store catered to a variety of international customers as well as a highly diverse local community, and its evening gowns ranged from all black with fur trim that a dowager empress would wear to the opera to outfits a rock star might wear to an MTV banquet in colors that would make a rainbow blush. In addition to predictable local fashion tastes, there were the totally surprising and unpredictable changes such as a sudden shift in a designer's popularity.4 When the television show Sex and the City featured Manolo Blahnik shoes, sales increased sharply, making Blahnik Neiman Marcus's number-one shoe designer. When Kate Spade raised the price on handbags too much in one season, they languished on the shelves. After 9/11, all business fell sharply in 2002. 4 Neiman Marcus purchased merchandise from vendors who employed designers. Some big design houses employed a large number of designers although the vendor usually went by the name of the founding designer, e.g., Armani. The term "designer" was used in this case instead of "vendor" since it was the designer that the customer noticed. Neiman Marcus personnel used the two terms interchangeably. A designer might sell many lines of merchandise, e.g., Chanel, or specialize. Some designers controlled all of their manufacturing, and others outsourced some or all of it. 5-405-750 CUSTOMER FOCUS AT NEIMAN MARCUS KELLOGG SCHOOL OF MANAGEMENT 7 Finally, there was the speed with which a market adopted new fashion trends and the speed with which it shed "yesterday's" trend for a new one. The "first-in-and-fast-out" stores tended to be those on the East and West Coasts. In Beverly Hills, the fastest in and fastest out, most trends lasted no longer than six months, and many lasted less. Regardless of the kind of merchandise they wanted, for the fashionistas, fashion was an obsession. The average customer visited a store three and a half times a week. Competitive Customer Advantage: Winning the Target Customer Competitive advantage in specialty retail rests on four elements. The customer chooses one specialty retailer over another because of price, location, service, and merchandise. The successful retailer has to get all four right. For most businesses it is typical for 80 percent of revenue to come from 20 percent of the customers. At Neiman Marcus the 80/20 rule did not apply. Key customersclientsrepresented less than 20 percent of all customers and drove 90 percent of the business. Competitive customer advantage for Neiman Marcus required acquiring, keeping, and growing the business with these "clients." PRICE Common wisdom holds that very wealthy customers do not notice price. This is not entirely true. Some, despite an ability to pay for anything they want, still appreciate bargains. These customers flocked to Neiman Marcus's "last call" sales, although the tradeoff was marginal merchandise selection. The bargain shoppers were distinct customers from those who shopped early for the most current style and paid full price. Some customers made it a point not to ask about the price but appreciated high price points because these kept the "wrong" kind of people out of the store. Others wanted to know the price because it was an ego boost to be unconcerned about it. Some customers wanted to know the price so that they could let their friends know what a "bargain" they got. Neiman Marcus's strategy was simply to remain at higher price point merchandise. Entry level (called "bridge" merchandise) for men's suits started around $1,200, and women's shoes began around $350 a pair. Needless to say, price moved substantially beyond these entry levels. Beverly Hills featured Roger Vivier shoes for $3,500 to $4,000 a pair. As far as price cuts were concerned, first call (price cuts averaging 25 to 30 percent) and last call (discounts up to 65 percent) were chain-wide events driven by a seasonal calendar. Even if the competition dropped price before them, Neiman Marcus never responded. For an individual customer who had just been to Saks and who had seen an item at a lower price, the price was reduced for that customer; but on a store-wide basis, Neiman Marcus observed pre-announced sale dates. Neiman Marcus was not in the discount price game. LOCATION The Stores Choice of location in the "best" areas of major U.S. cities easily accessible to upscale clientele was important, and Neiman Marcus carefully chose locations to ensure this. Before Tansky took over, Neiman Marcus bought into some locations because of deals with real estate developers, and several of these locations proved very poor choices. After Tansky took over, however, all location choices were based strictly on proximity to the target customer. Still, many very wealthy customers traveled great distances to shop in "destination" Neiman Marcus stores, typically stores in tourist destination cities such as San Francisco, Beverly Hills, and Honolulu. CUSTOMER FOCUS AT NEIMAN MARCUS 5-405-750 8 KELLOGG SCHOOL OF MANAGEMENT Neiman Marcus Direct Six months after the first store opened, mail-order solicitations were being sent to distant locations. In 1907 this meant Plano, Texas. After the purchase of Horchow's in the late 1980s, the mail-order division, which produced the famous "Book" (i.e., catalog), was renamed Neiman Marcus Direct. This direct marketing and fulfillment business marketed the Neiman Marcus, Horchow's, and Chef's Catalog (sold in 2004) brands as well as the NeimanMarcus.com Web site. This Web site, introduced in the fall of 1999, offered visitors a personalized shopping service for luxury designer attire, jewelry, home dcor, and gifts. As of 2005, Neiman Marcus Direct did $600 million in sales with $200 million from the Web site alone (see Exhibit 3 for a chart of the Neiman Marcus Direct organization). Because Neiman Marcus Direct was not a separate brand, Neiman Marcus wanted customers to think of it as one more channel for purchasing Neiman Marcus merchandise. Traditionally 80 percent of the mail-order business came from people who lived an average of more than fifty miles from a store. Consequently, catalogs and the Web site were the store for wealthy customers living in small cities without sufficient numbers of appropriate customers to justify a store. Catalogs and the Web site had two purposes: to make merchandise available to individuals who could not or did not prefer to visit the stores and to advertise merchandise that enticed new customers into the stores. As in the stores, designer labels were highly important for generating sales, and Neiman Marcus Direct featured all of the major designers except two. At first, designers resisted going on the Web, especially the European designers who thought Web sites would tarnish their image with an eBay garage-sale aura. Eventually, however, they began to see a Neiman Marcus brand Web site as a very lucrative distribution channel to the most desirable customers. In time, Neiman Marcus Direct partnered with designers who had their own Web sites by handling the fulfillment process, and customers who ordered the designer's goods found themselves ordering through Neiman Marcus Direct and seeing a package arrive from Neiman Marcus. Eighty percent of these customers who had never used Neiman Marcus became new customers and started to order other items. Beginning in 1915, the Neiman Marcus Christmas Book had a significant promotional purpose. The "his-and-hers" gifts remain legendary: his-and-her submarines for $37,400 in 1963; mummy cases for $6,000 in 1971; buffalo calves for $11,750 in 1976; Chinese Shar-Pei puppies for $4,000 in 1983; diamonds for $2,000,000 in 1985; names on a UAL 777 for $177,732 in 1995; for the politically correct, an ecologically endangered land preserve named for the customer for $200,000 in 1999; action figures for $15,000 each in 2002; multifunctional robots for $400,000 in 2003; and a his-and-hers bowling center for $1,450,000 in 2004. The Neiman Marcus Direct strategy gradually shifted to more emphasis on customer acquisition. Other catalogs and magalogs precisely targeted specific groups of customers, e.g., segments of the InCircle loyalty program (see page 10 for a description of the InCircle program). Direct promotions were carefully timed to coincide with promotions in the stores. While the catalog business was stable, the Web site business showed dramatic growth, primarily because of the Web site design and the level of customer service. When it began, the Web site featured three-dimensional moving merchandise images. A pair of shoes would levitate off the shelf, pirouette 360 degrees, and fly back to the shelf. Although exquisite, in the days before broadband waiting for the show to download did not delight customers. In 2002 the new president of this division adopted a customer-focused strategy. The Web site did not feature "special" or "exploding" offers, just convenient-to-find merchandise complete with prices and 5-405-750 CUSTOMER FOCUS AT NEIMAN MARCUS KELLOGG SCHOOL OF MANAGEMENT 9 easy ordering instructions. The tactic became "the fewer clicks, the better." Each customer entered the Web site through a portal with merchandise similar to their first purchase with easy access to other categories, giving the customer their own "door" into the Web store. In 2004 an e-mail campaign began. E-mails sent to those who ordered described new merchandise usually similar to what the customer had already purchased, giving interesting background on the designer and other fashion details. Unlike most promotional e-mail, there was never a "call to action," or "order now, supplies are limited." The discussion of the product seemed to prompt the customer to shop online, although not necessarily for that specific product. Reception was so positive that mailings increased from one a week to five. The e-mail list grew to more than one million people. The Web site strategy paid off. The site attracted 200,000 visits a day, and more significantly, once customers overcame their fear of shopping online with their first purchase, purchases per customer increased dramatically. PROFESSIONAL SERVICE In a major market, most designer merchandise could be obtained in luxury fashion stores and from the designer's own boutiques, but Neiman Marcus's competitive differentiator was excellent professional service. The Neiman Marcus brand communicated to its customers that they would find personal, professional sales associates, and Neiman Marcus customers expected the best. Throughout its history, Neiman Marcus prided itself on its reputation for providing customers with excellent service. The tradition started with Herbert Marcus in the first Dallas store in 1907. At that time service was treated as the key ingredient for creating satisfied customers and encouraging loyal clients. Customer loyalty became increasingly important as Neiman Marcus expanded into more competitive markets. Stanley Marcus described his feelings about store employees in the following way: We expect a lot from our employeesthe best of their individual abilities. As a result, I firmly believe we help many people achieve more in our stores than if they were working elsewhere. We simply won't settle for mediocrity, if we believe the person can do better. This all comes back to the quest for perfection started by my father and Aunt Carrie. Of course, we never reach it, but it's exhilaratingand exhausting, I might addto try. It's contagious, for frequently a salesperson will come to me, complaining about some new procedure, and say, "We can't let this new rule apply to Mrs. X after all she has meant to this store over the years." This type of response delights me, for it is indicative of the type of possessiveness, pride, and responsibility we have been able to develop. This all becomes reflected in our customer service, which in most cases is gracious, friendly, and helpfulnot duplicated or excelled in any other store in the world. For a time Neiman Marcus measured customer service by employing "mystery shoppers." Management suspected that the stores scored well below Nordstrom because mystery shoppers did not understand what Neiman Marcus was all about and, frankly, that some of them were envious of Neiman Marcus and its customers. When measurement was changed from mystery shoppers to systematic calling of actual customers, Neiman Marcus found specific practices to correct (see Appendix A). Anyone walking in the door of Neiman Marcus expected very good service, but the objective of this service was to capture the less than 20 percent of customers who became the "clients" driving 90 percent of Neiman Marcus's business. This produced a management challenge. Since CUSTOMER FOCUS AT NEIMAN MARCUS 5-405-750 10 KELLOGG SCHOOL OF MANAGEMENT sales associates were on commission, some tried to find these critical clients based on first impressions of their appearance and underserved or even avoided the rest. Since the days of Stanley Marcus, management had to constantly remind the sales associates to be "democratic," to treat all customers the same, to avoid judging customers by the way they behaved or were dressed. No one knew the aspects of a customer's appearance that indicated they would become valued clients in the future. The Neiman Marcus customer purchased different levels of service. While all customers received excellent service, the more one bought, the more extensive the service became. Ideally, in a Neiman Marcus store there was no self-service. If a customer was noticed browsing, sales associates approached with a friendly greeting and a willingness to bring to the customer any merchandise in which they might be interested, although "May I help you" was forbidden. Neiman Marcus introduced one of retail's first loyalty programs in 1984 called "InCircle." Members were categorized by the amount they spent annually, and rewards and special targeted mailings were differentiated according to a member's category. The top category (members spending $1 million or more) could earn a first-class, all-expenses-paid trip around the world. Members spending more than $115,000 a year received copies of Entre, an exclusive magazine advertising luxury goods, some of which were not even sold in Neiman Marcus stores (e.g., autos and travel destinations) although their inclusion was thought to enhance the Neiman Marcus brand. Neiman Marcus recognized five grades of customer spending: "opportunity customers" spending $1,000-2,000 a year; "growth customers" spending $2,000-4,000; "valued customers" spending $4,000-5,000; "honor customers" spending $5,000-10,000; and "elite customers" spending a minimum of $10,000 well into the millions. It did not take many $1,000 Chanel handbags to create an "elite" customer. Loyal elite high-spending customers might expect to avoid the inconvenience of moving around the store, or even being seen in the storethere were special entrances close to their salon, where merchandise and refreshments were brought to them. Furthermore, personal shoppers could bring carefully edited selections directly to them so they did not even have to visit the store. Special mailings, announcements of the arrival of exclusive merchandise, or even samples were sent or delivered to their homes, offices, vacation sites wherever they wished. In one case merchandise was delivered to a waiting plane flown in specifically to pick up a special gift for a special someone. Each sales associate aspired to build a "book" of clients, i.e., customers with whom the sales associate had a deep and lasting relationship. They were to become their client's personal clothier. The goal was for clients to feel totally confident in outsourcing their personal attire needs to the associate, who advised, coached, and called to let the client know what latest outfit just came inand could be reserved just for them. They wanted the sales associate to know everything about them when it came to merchandisespecial dates, occasions, preferences, sizes, cuts, tastesthe list was endless. Customer service was equally important for Neiman Marcus Direct. Customer care representatives took two weeks of training before being allowed to talk to customers. Moreover, representatives were visited by designers who educated them about new merchandise. Since the objective was the retention of loyal customers, representatives were empowered to send replacement merchandise and gift cards to make up for damage or shipping delays.

When making recommendation(s) for Neiman Marcus, please include the following in your analysis.

1. Case Overview

2. Identify and summarize the keymarketing strategyissues.

3. Evaluate the key issues.

4. Propose solutions/make thorough recommendations on how the issues should be handled.

5. Justify solutions.

6. apply marketing concepts/theories introduced in this course or you find from external sources.