Case Study: Neumann Marcus

Please see attached instructions. If you were CEO, what would you do to move the company forward? Consider primary target (pg 5) competitive advantage (marketing mid, pg 7, PEST and competitors. All instructions and grading rubic attached.Case Analysis 3 Neiman Marcus Instructions Please read the case: Customer Focus at Neiman Marcus: “We Report to the Client” and  complete the case analysis. Question to be addressed in your case analysis: Neiman Marcus filed for bankruptcy on May 7, 2020. This case study provides 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? • Please consider the primary target market (on page 5) and note that the primary target market  drove 90% of the sales revenue (on page 7). • Please consider the competitive customer advantage (i.e., marketing mix) – price, location,  service, and merchandise (on page 7). • Please consider the external environments (PEST) and competition. Please make sure to review the grading guidelines and rubric prior to working on this case  analysis. Please include the following in your case analysis. 1. Cover page 2. Summary of key marketing strategy issues. 3. Evaluation of key issues 4. Propose and justify your own solutions 5. Recommendations 6. References 7. Please apply marketing concepts or theories introduced in this course or you find from  external sources. Case write-ups should be at least 5 pages not including cover page and reference page, double  spaced, font size 12 in Times New Roman. Please submit it in MS Word format. 5-405-750  ROBERT D. DEWAR  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 rich—the minimum income of the target customer household is $200,000; she’s  fashionable—she knows fashion, lives fashion, and watches it wherever it appears; she cruises the  Internet (e.g., and reads the “right” publications; she demands quality—she wants  fashion well made and she wants the real thing, no imitations; she wants the unique—no copies,  no mass production; she’s as current as tomorrow—she’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 store—the  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. ©2006 by the Kellogg School of Management, Northwestern University. This case was prepared by Professor Robert D. Dewar. Cases  are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or  illustrations of effective or ineffective management. Because of the confidential nature of some of the topics discussed, some  information has been deliberately distorted. To order copies or request permission to reproduce materials, call 847-491-5400 or e-mail No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or  transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of the Kellogg School of Management.  CUSTOMER FOCUS AT NEIMAN MARCUS 5-405-750  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-to wear 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 already successful 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. 2 KELLOGG SCHOOL OF MANAGEMENT 5-405-750 CUSTOMER FOCUS AT NEIMAN MARCUS 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. KELLOGG SCHOOL OF MANAGEMENT 3  CUSTOMER FOCUS AT NEIMAN MARCUS 5-405-750  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 lower priced 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 décor 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. 4 KELLOGG SCHOOL OF MANAGEMENT 5-405-750 CUSTOMER FOCUS AT NEIMAN MARCUS 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 KELLOGG SCHOOL OF MANAGEMENT 5  CUSTOMER FOCUS AT NEIMAN MARCUS 5-405-750  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 events—wherever 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 thirty six 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 contemporary—probably 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. 6 KELLOGG SCHOOL OF MANAGEMENT 5-405-750 CUSTOMER FOCUS AT NEIMAN MARCUS 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 customers—clients—represented 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. KELLOGG SCHOOL OF MANAGEMENT 7  CUSTOMER FOCUS AT NEIMAN MARCUS 5-405-750  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 Web  site. This Web site, introduced in the fall of 1999, offered visitors a personalized shopping service  for luxury designer attire, jewelry, home décor, 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 8 KELLOGG SCHOOL OF MANAGEMENT 5-405-750 CUSTOMER FOCUS AT NEIMAN MARCUS 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 employees—the 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 exhilarating—and exhausting, I might add—to 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  helpful—not 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 KELLOGG SCHOOL OF MANAGEMENT 9  CUSTOMER FOCUS AT NEIMAN MARCUS 5-405-750  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 Entrée, 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 store—there 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 in—and could be reserved just for them. They wanted the sales associate to know  everything about them when it came to merchandise—special dates, occasions, preferences, sizes,  cuts, tastes—the 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. 10 KELLOGG SCHOOL OF MANAGEMENT 5-405-750 CUSTOMER FOCUS AT NEIMAN MARCUS THE RIGHT MERCHANDISE  It is unique—aside from cosmetics, epicure, and some categories in which replacements are  required (sets of flatware or fine china)—luxury upscale merchandise is unique. There exist a  limited number of copies, and once these are sold, there are no more. Neiman Marcus  merchandise was designer original and very well made. While the newest designer creations  could be copied by knock-off manufacturers, the fabric and workmanship of the original could  not be duplicated. In many cases women’s and men’s wear was made by hand, not machine.  Since Neiman Marcus stores carried several hundred designers, the key challenge in  supplying the stores was to determine which designers went to all stores, which went to a few  select sets of stores, and which went to only one or two stores on an experimental or very  exclusive basis. The next challenge was to select from the lines and articles a designer made the  quantity and lines that would do well in each store. Aside from a few lines of lingerie and  cashmere, Neiman Marcus did not carry house brands. To win against the competition, Neiman  Marcus had to have the best and most fashionable designers (see Appendix B).  Buyers put a great deal of effort into discovering new designers. First of all, once a month  buyers investigated the cold calls they got from new designers, even though few of these calls  resulted in carrying the line. Secondly, buyers met with designer representatives who called on  the Neiman Marcus offices in New York and in various European locations, e.g., Milan for shoes.  Finally buyers made four trips a year to the market in New York and at least one trip a year to  foreign fashion centers (Munich, Paris, Milan, or Hong Kong, depending on the type of  merchandise). For a buyer, the criteria for selecting new designers were that their merchandise  was fashionable, trendy, believable, exciting, and, most important, unique. The designers that  impressed buyers were ones that made a different and exciting fashion statement instead of  copying someone else or following a trend.  The Surprise and Delight Element of Merchandise  Buyers commented that one of their main objectives was to surprise, excite, and delight the  customer. For example, although Neiman Marcus did not feature Western wear, one buyer took a  risk in 2002 and tested a line of $1,400 Giuseppe Zanotti cowboy boots in five stores. The boots  sold through at 80 percent (the average is 65 percent), and she regretted not having bought more.  “The customer wants the unique,” she said. “That’s why they come to us.” This same buyer did  not miss the trend of the Ugg boot, which emerged in January of 2004 because twenty-something  Hollywood starlets were wearing them. The Ugg boot was declared “out” that summer by the  fashion press, but the buyer took a risk and ordered a very large number for the following fall  since she had contrary information from the stores. The Uggs flew off the shelves with an 85  percent sell-through. The key here was staying in touch with sales associates who knew the  customer better than the fashion press. Still, the general pattern for the buyers was to attempt to  get off a trend sooner than the customer got off it so as to move on to the next surprise. As a  buyer put it, “We try to lead the customer into the next trend.”  THE BRAND  Anyone at Neiman Marcus could identify what their brand represented: fashion leader,  luxury, quality, exclusivity, and excellent professional clientele service. After 1994 when Burt  Tansky eliminated $45 million in lower price point merchandise and ended what he considered an  aberration from the true brand image that occurred with the “much better” strategy, there was no  deviation from the high price point strategy. Neiman Marcus targeted the wealthiest 2 percent of  the population, intending that these customers consider the organization the source of excellent KELLOGG SCHOOL OF MANAGEMENT 11  CUSTOMER FOCUS AT NEIMAN MARCUS 5-405-750  merchandise of impeccable taste, the best in fashion, true value for the price, unique, and of the  highest quality.  Neiman Marcus aggressively promoted “destination” designer brands, exclusive designers or  designer collections available only at Neiman Marcus. With designer merchandise Neiman  Marcus functioned as an endorser brand, i.e., if the designer’s goods were carried by Neiman  Marcus, the customer could be assured that designer was of impeccable taste, quality, and fashion  leadership. From the ambient layout of the stores to the designer architecture, art, wrapping, sales  associate attire, publications, and Web site, every communication with the customer radiated  fashion, luxury, quality, and exclusivity—the Neiman Marcus image. To reinforce the brand  image in the stores, the visual planning department developed the following guidelines within  which the stores were free to be creative. The purpose of the guidelines was to develop a  consistent brand experience.  1. Styling. The product/collection was to be displayed with artistic choices in color, lighting,  etc. For example, Roger Vivier’s shoes were featured with strobe lights because, after all,  they were jewelry for the feet.  2. Art. There were 2,500 works of art in the Neiman Marcus collection. All were real; there  were no reproductions. These were expensive, quality pieces like those the customers  might have in their living room.  3. Artisan. Any object used to display merchandise beyond hangers and shelves was crafted  by real artisans. Standard display tables were discouraged. Proper display tables were  custom designed.  4. Floral. All displays were real, with no artificial flowers or vegetables.  5. Technology. Whether in print, kiosk display, or interactive media, Neiman Marcus used  the latest to reach its customer.  6. Communications. From stationery to catalogs and the Web site, the look was professional  elegance.  Neiman Marcus built this brand for those in a position to pay for its merchandise and service.  Management clearly recognized that those who had no appreciation for fashion and professional  service were not its target customers; in fact, they were the ones engaging in frequent sniping at  the Neiman Marcus image. Nicknames such as “Needless Markup” and rumors of charging $250  for a chocolate chip cookie recipe were frequent. (To counter the cookie rumor, Neiman Marcus  put the free recipe on its Web site.) Still, if being exclusive had the consequence of nicknames  and rumors, Neiman Marcus was willing to run this risk rather than diminish the brand. Neiman  Marcus was exclusive—no apologies.  MAKING THE SALE  Connecting the Dots, Advertising, and Promotions  Once the merchandise was in place, the next step was selling it. To increase awareness and  entice customers into visiting the store and meeting the sales associates, Neiman Marcus followed  a tactic called “connecting the dots.” The dots were advertising and promotions. Neiman Marcus 12 KELLOGG SCHOOL OF MANAGEMENT 5-405-750 CUSTOMER FOCUS AT NEIMAN MARCUS had its own creative staff to develop the content for its ads, and corporate had the final say on the  content and timing of the ads although stores were encouraged to give input. Corporate also  decided on the placement of the ads, but this was usually based on local recommendations since  store personnel knew far more about the most effective media in their local market for reaching  the upscale customer. At selected times, small focused catalogs, special mailings, and trunk  shows (in-store displays of soon-to-arrive merchandise) were used to entice the customer into the  store. There were also special enticement gifts targeted to the individual customer’s spending  level, such as a gift certificate for a set of cocktail glass holders that was sent to prospective  customers. The holders were redeemable at the store, the intent being to get the customers into the  store. Once in the store, the customers found special displays featuring the designer and/or  merchandise featured in the advertisements and promotions. They also might notice a “designated  sales associate” (see the description of this position in the section on structure) modeling some of  that designer’s clothes. The next “dot” was in-store promotions or events, which were literally  continuous. One event might endorse a hip designer; another featured a local cosmetics celebrity  conducting makeover seminars in the store. Sales associates were given lists of preferred  customers who received the mailings and other solicitations so that the associates might be ready  for these customers when they came into the store or so that they might make their own calls or  mailings to these customers.  Supporting the Sales Associates  Sales associates reported to the customer, especially the elite customers. In turn, several  managers indicated they essentially reported to the sales associates, especially the “books” that  generated more than $1 million in sales. All sales associates were expected to build clientele  books, hence the management shorthand for sales associates—“books.” Neiman Marcus treated  the best associates as a brokerage would treat its star brokers. The key orchestrator of sales  support was the general manager of the store, who spent up to 80 percent of his/her time on the  sales floor, leaving merchandise managers to tend to the merchandise. General managers involved  themselves heavily in interviewing potential associates with established reputations at other stores  for future employment at Neiman Marcus. They also taught in the sales training sessions, where  key messages to associates were to not judge customers by first appearances and to learn all of  the merchandise in the store since they could not sell what they did not know. In addition, general  managers frequently participated in the weekly updates that informed associates of new  merchandise and designers and they ran team-building sessions and sales contests continuously to  keep the associates interested and motivated.  Store general managers were responsible for selling expenses (see the following section on  incentives). The more they spent to support sales, the higher their sales revenue had to grow so  that they could meet the sales-to-cost targets on which their bonus depended. One would think  this would make them rather conservative when it came to spending more on sales support. On  the contrary, Tansky taught them to “spend in advance” of the sale. They brought noted designers  in to talk to their associates; they covered expenses for sales associates who treated key customers  to lunch; they dedicated space for top-selling associates to have private “salons” for their top  clients. Moreover, top “books” could expect the general manager to supply them with sales  assistants who would run and fetch merchandise, wrap, sort, and record sales data so that the sales  associate could concentrate on building the client relationship. (The sales assistants considered  themselves lucky to have these jobs since they had the opportunity to watch and learn from the  best sales associates in action.) Store managers also hired “clericals” to reshelf or re-hang  merchandise, straighten out displays, change price tags, resolve claims, and send out thank-you  notes to customers. These kinds of expenses were charged directly to the sales budget, but store  managers considered them a good investment since it kept the best sales associates motivated and KELLOGG SCHOOL OF MANAGEMENT 13  CUSTOMER FOCUS AT NEIMAN MARCUS 5-405-750  concentrating on their clients. For example, one store manager recalled a sales associate that had  a client who did a Neiman Marcus wedding—everything from clothing to gifts, from the catered  meal to the floral displays came from the store. It did not take much thought to pay out of the  store budget for the $200 floral gift the associate wanted to send to the mother of the bride  congratulating her on this “special day.”  General managers gave their top books considerable autonomy to run their business. One  commented, “My top books don’t punch clocks. They are free to set their own schedules since I  can count on them to set their schedule to accommodate their clients. . . . One of my $4 million  books insisted on working four days a week so that she could get her hair done on Friday. I  offered to pay to have her hairdresser come to the store on Fridays.” The sales associate declined,  but $4 million books can.  Store managers supported selling in a number of other ways. One way was with seamstresses,  whom one store manager referred to as “the miracle workers.” Since fashion was mostly one of a  kind, these magicians could totally deconstruct a “creation” and rebuild it for a fashionista of  almost any size. Another noted that he constantly tinkered with space allocation so that the best selling merchandise and designers went to the best-selling locations. Store managers were also  charged with staffing sales to maximize both sales and sales associate income. One said he hired  part-time help for the busy season (the Christmas holidays) but relied as much as possible on his  full-time sales associates the rest of the year so as not to flood the store with extra associates.  Since they were all on commission, this would hurt all of them. He added associates when  replacements were needed and when he was relatively sure there would be an increase in  business. This was a very delicate balancing act. Managers had to guard against sales associates  cruising on the revenue of their regular clientele, even though most of the people with this  attitude were screened out in the hiring process. Finally, at the store’s expense, the best sales  associates were flown to Paris and other locations with big designer markets. These were not  junkets. These associates provided buyers and designers with valuable insights as to what would  and would not appeal to their “clients.”  Implementing the Neiman Marcus Strategy—Organizational  Design  Structure  The Neiman Marcus Group developed a divisional design with each division representing a  different business: Neiman Marcus Stores, Neiman Marcus Direct, and Bergdorf Goodman.  These businesses were relatively independent, although group marketing ensured a common  brand and image across all units (see Exhibits 4A through 4G for additional organizational  charts). The Bergdorf Goodman organization and these staff support functions are beyond the  scope of this case.  Neiman Marcus Stores had its own president and CEO, who reported to the president and  CEO of the Neiman Marcus Group (see Exhibits 4A and 4B). The president had the primary  responsibility of integrating the two critical functions, buying (four general merchandise  managers) and selling (see Exhibits 4C, 4D, and 4E). The executive vice president of stores had  three regional directors of stores who were responsible for personnel and expense planning in the 14 KELLOGG SCHOOL OF MANAGEMENT 5-405-750 CUSTOMER FOCUS AT NEIMAN MARCUS stores, refining plans for new stores, and overseeing total store performance. The marketing and  creative services department (see Exhibit 4B) was responsible for every communication of  Neiman Marcus to the customer since Neiman Marcus created all of its advertising “in house.”  Finally, a significant new organization was added in late 2001, merchandise planning (see its  description below).  The individual store’s structure was straightforward. Each store had a vice president and  general manager supported by a management team consisting of one or two merchandise  managers (depending on the size of the store) and managers of human resources, public relations,  loss control, visual and display, and operations (receiving, credit, alterations, etc.). Reporting to  the merchandise managers were the sales department managers, who were in turn responsible for  the sales associates. Sales department managers were responsible for coordinating with the  buying organization on displays, merchandise levels, and merchandise needs. Store merchandise  managers with the assistance of the best sales associates and sales department heads could make a  case for changes in the merchandise allocated to a store. Buyers made the final determination for  each store on merchandise selection and inventory levels. The stores had final authority on  displays, although 80 percent of what was displayed was driven by Dallas.  The merchandise organization was centralized and located entirely in Dallas (see Exhibits 4C,  4F, and 4G for the charts). There were three levels of responsibility: general merchandise  managers (GMMs; there were four of these), divisional merchandise managers (DMMs; there  were eighteen of these), and buyers (there were 115 of these, often with assistant buyers working  with them). GMMs were responsible for setting the merchandise strategy, exploring new business  opportunities, developing the businesses under them, and developing people. DMMs had the  same set of responsibilities for a narrower line of merchandise categories. Buyers’ responsibilities  were for an even narrower line of merchandise (e.g., men’s designer suits), with more emphasis  on buying and less on developing people. All of the people in these positions divided their time  between vendors and communicating directly with the different stores.  The buyers’ responsibilities evolved with the chain’s expansion. Up to the late 1990s the  buyer’s job responsibilities were as follows:  1. Analyze the needs of each store through information on trends, customer preferences,  store requests, and suggestions.  2. Identify and create relationships with the designers.  3. Select and perform financial analysis on the proper mix of merchandise from these  designers for each store.  4. Negotiate with the designer price, display, and the number of stores that would carry the  designer’s line.  It was the buyer’s responsibility to analyze point-of-sale data from stores along with store  requests and then try to convince the store that some of the requests were not justified by sales  volume and profitability. Naturally, store requests were based on faith in future performance  (“Don’t worry, a lot of our customers want this designer’s handbags”) while buyer response was  based on past sales (“This designer did not sell well in your store last year”). Buyers were also  responsible for each store’s allocations of merchandise and financial projections of the expected  performance of each of their lines, i.e., what percentage of each line of merchandise would sell KELLOGG SCHOOL OF MANAGEMENT 15  CUSTOMER FOCUS AT NEIMAN MARCUS 5-405-750  through at full price and what percentage would sell at discount. In addition to stocking the stores  with the right designers and the right mix of each designer’s lines, the other major responsibility  of buyers was the cultivation of relationships with designers in the United States, Europe, the Far  East, and other areas that provided Neiman Marcus with high-quality fashion merchandise. In a  typical month a buyer would have to deal with thirty to fifty designers and thirty-six store  departments (those that carried that buyer’s merchandise). In other months the buyer was on the  road visiting stores and vendors (see Appendix B).  As the number of stores grew, buyers simply could not handle the information load. It was  estimated that a buyer could pay attention to seven to twelve stores, obviously the largest, with  the rest getting the selections the larger stores got whether or not these selections were suited for  local tastes. As new stores were added, this problem worsened. One buyer said of the overload,  “Many of my buying decisions were based on patterns from the twelve largest stores. Other stores  got some mix of this.”  Neiman Marcus made several significant design changes to address the problem of buyer  information overload. First, the buyers relied more on the store managers. If store managers made  a small request and it worked, they gained credibility. For example, one store merchandise  manager who noticed a lot of kids shopping with their mothers persuaded the merchants to give  the store a children’s collection, which sold very well. Another requested two thousand pairs of  sunglasses, sold them all, and was then asked by the buyer how many she wanted—three  thousand more sold. Buyers also let the very experienced store merchandise managers fill in the  blanks on the vendor order forms (although the buyer always made the final decision). In  addition, if there were local designers, experienced store merchandise managers screened them  and recommended whether or not they were worth the buyer’s time. This approach saved time  and resulted in much better merchandise plans for a store. Of course, the inverse was also true; a  store merchandise manager who made decisions according to personal preferences, did not have  data backing up her request, and worst of all, did not sell what she predicted would sell had a very  hard time rebuilding credibility.  The second change was the creation of the merchandise planning organization. Beginning in  the late 1990s, each DMM had a planning assistant who helped analyze merchandise trends in the  division, and then in 2001 a separate department of merchandise planning was established. Each  buyer was paired with a senior merchandise planner, each DMM with a merchandise planning  manager, and the GMMs with the directors of merchandise planning. This department reported  directly to the president and CEO of Neiman Marcus Stores, not to the merchandising  organization, although planners were seated adjacent to the merchants they assisted. Although  some merchant resistance was expected, the unit’s contribution was so obvious that none  materialized. The activities of this unit saved merchants two-thirds of the time they had  previously spent in empirical analysis. Moreover, the planning unit had one other unanticipated  advantage. Store personnel could talk to planners about merchandise requests when buyers were  traveling, which was 30 percent of the time.  While the decision to send merchandise to a store remained with the buyers, planners  analyzed sales revenue, sell-through velocity, and profitability for each line of each designer for  each store. When stores made a request, the planners could tell them the exact performance of the  designer line or item they wanted and how that particular store had done in that line relative to all  other stores. Planners could also inform the store whether or not an alternative line would actually  give them more profitability than the one they were requesting. For example, if a store requested  a line based on data they had at hand, planning would be able to explain that the store data  neglected to adjust for a factor such as additional square footage due to a remodeling. All 16 KELLOGG SCHOOL OF MANAGEMENT 5-405-750 CUSTOMER FOCUS AT NEIMAN MARCUS stores—not only the large ones—could count on a more timely response than in the old system  with its overloaded buyers. Finally, if the planner agreed with the store’s request, in most cases  the buyer would also agree. Response from store merchandise managers was unanimously  positive with respect to merchandise planning. The smaller stores also came out from under the  shadow of the larger stores. Merchandise a store received was based on its own numbers, not  opinion or trends appropriate to the larger stores.  The third structural change was the addition in 1995 of the designated sales associate (DSA)  in the stores. If a designer had sufficient volume, a sales associate was assigned to that designer.  In an AAA store there might be sixteen DSAs representing the highest-volume designers, e.g.,  Chanel, Escada, Yves St. Laurent, St. Jacques, or Akis. DSAs were expected to sell at least  $100,000 per year, but their most important contribution was to know the local customers’ tastes  with respect to the designer they represented. Did the customers want more shorts than longs; was  there a customer for that line; what color combination moved; did the store’s customers prefer  younger and more contemporary fashion; what were the typical sizes; which items in the  designer’s collection were likely to do well? Merchants were unlikely to know all of these subtle  differences. DSAs also were expected to know who their top fifty customers were for the designer  they represented, and they accompanied the buyers to the market (New York, Paris, etc.) to  represent their store’s customers to their specific designer. In addition, DSAs frequently modeled  some of their designer’s best merchandise. Their core responsibility was to promote their designer  to other sales associates and to their store’s customers.  Information and Decision Support Systems  As of 2005, Neiman Marcus had thirty-six stores selling more than six hundred designers,  each with a multitude of lines, to several hundred key customers who drove a very large  percentage of the profit and to thousands of potential key customers. There were hundreds of new  designers clamoring to be “discovered” by retailers like Neiman Marcus. Fashion was not a  closely guarded secret. Fashion publications, designers’ Web sites, and celebrity galas  collectively blared tomorrow’s styles to Neiman Marcus elite customers and buyers alike. The  purpose of the information and decision support systems was to answer these questions: “What  does she want? Where can we buy it? How do we get it to her in her local store? Did she buy it?”  Through its point-of-sale (POS) system Neiman Marcus tracked whether what was bought  was sold. When merchandise arrived at the central Dallas warehouse, it was entered into the  system through a connection with the point-of-entry (POE) information system. Then as  merchandise was shipped from the warehouse, it was allocated to individual stores on an item-by item basis. Buyers in Dallas used information from the POS system as a primary means of  measuring individual store tastes and allocating merchandise accordingly. Since buyers could tell  each morning what had and had not sold the previous day, up-to-date sales information helped  them plan purchases. In fact, POS could aggregate data by vendor, color, size, and style on a daily  basis, giving buyers precise feedback on a vendor’s merchandise performance by department and  by store.  Whereas the POS system was ideal for revealing sales patterns, its limitation was that it  focused on the past. It did not fully answer whether what one could have bought would have sold  or whether different merchandise would be accepted in a particular store. Furthermore, the system  obviously could not respond in a timely fashion to customer input on designers not carried by that  store or by the Neiman Marcus chain. This is where the all-important call to the sales department KELLOGG SCHOOL OF MANAGEMENT 17  CUSTOMER FOCUS AT NEIMAN MARCUS 5-405-750  managers and sales associates came in with comments such as “Our customers are getting bigger,  and you have to send more larger sizes; everyone here is going wild over Nicole’s latest outfit.”  Buyers paid careful attention to this kind of input.  LOCKER STOCK AND STORE TRANSFERS  For designer lines that were expected to be popular, a certain percentage was allocated to  “locker stock,” although not all lines were available in this merchandise reserve. If a store was  about to stock out, it could order replacement merchandise from locker stock. Then when  merchandise was sold or transferred to another store, the salesperson keyed the item’s  merchandise code into the department terminal, thus removing it from company-wide and that  store’s inventory. Sales associates could also use “Option 7.” After a certain period of time a store  had to sell merchandise it requested, other stores could request its merchandise via Option 7.  Losing merchandise to Option 7 requests meant the store losing the merchandise had to make up  its sales goals with other merchandise. While the top ten stores, which of course had the more  experienced store managers, tended to get all the merchandise they requested, the mid-range and  smaller stores had to prove they could sell. As long as there was a reserve in locker stock, the  store could have more. With locker stock and Option 7, department managers in stores used the  POS system to bypass buyers when searching for merchandise that other stores had.  THE CLIENTELE BOOK  The primary source of information about what the customer wanted was the clientele books  maintained by the sales associates. Handwritten and jealously guarded, these books were packed  with little notes indicating sizes, fashion tastes, birthdays and anniversaries of relatives and  friends, and billing preferences. The books let the sales associate know whether the customer  preferred designer labels on her dress to show “who” she was wearing or whether she wanted no  labels so only the cognoscenti among her peers would be impressed with her taste. Indeed, which  outfit she wore to which occasion was a critical bit of knowledge that could prevent the  catastrophe of being seen in the same outfit twice or the same outfit one of her “competitors” was  wearing. For an experienced salesperson, this clientele book was typically a set of ten or twelve  5×7 inch smaller books (two or three letters of the alphabet per book) that easily took up two feet  of shelf space. Anything that might be useful for selling the customer the merchandise that she  wanted was in these books. Stanley Marcus commented on this book:  As obvious and simple as the clientele book system is, its use doesn’t come easily. It  requires constant supervision and reminding to persuade new salespeople to learn its  value. A fine-quality clientele takes time to build, but once it is built it remains loyal. It  has to be built like the pyramids, one stone at a time. One satisfied customer tells another  about an exceptional salesperson, so the task is one of selling satisfaction, just as the  founders announced in the opening day’s advertisement.  FASHION INFORMATION  The primary sources of fashion information were the designers themselves and the Neiman  Marcus offices in New York and in Europe. These offices screened new designers and noted  significant changes in established ones. In addition to communicating directly with these offices,  buyers also attended major fashion shows and visited designers manufacturing the lines for which  the buyer was responsible. 18 KELLOGG SCHOOL OF MANAGEMENT 5-405-750 CUSTOMER FOCUS AT NEIMAN MARCUS Store information about fashion was also important. All store managers said their customers  were an important source of fashion information and news. For instance, fashion-knowledgeable  customers often requested new designers they discovered on the Internet or from fashion  publications even though there were few surprises to buyers, who were also connected to the  Internet. Furthermore, sales associates frequently e-mailed key customers pictures of new  merchandise to get their opinions on it, and customers in return e-mailed fashions they had just  seen. Customers loved this since it gave them advance notice of incoming merchandise and let  them ask their sales associate to hold it for them. Store personnel also visited the competitors’  stores, Saks for high fashion and Bloomingdale’s for bridge wear. The CEO of the stores division  said sales associates had to work with their store merchandise manager to communicate what they  knew about the customers’ closets to the merchants. As an example, one buyer commented that  thanks to information from the stores she did know what was in the customers’ closets: “Last year  we didn’t give her black, so black it is this year; we haven’t given her espadrille shoes in years, so  this year we do with Christian Louboutan; we haven’t done enough in flat jeweled sandals, so  we’ll do more next year.”  To keep up with this flow of information and to inform the stores of new fashion trends  discovered by the merchants, the buyers themselves communicated directly with certain sales  associates, department managers, store merchandise managers, and sometimes store managers.  GMMs communicated directly with the director of stores and store managers on buying,  inventory levels, merchandising strategies, receipts of on-order merchandise, and markdowns.  DMMs communicated directly with store managers, assistant store managers of merchandising,  and even department managers (see Exhibit 5 for a diagram of these communication channels).  In fact, DMMs generally communicated with store managers two to ten times a week. A buyer  typically communicated with a store at some level five times a week. Assistant store managers for  merchandise communicated with three to four DMMs per day and, in the course of a week, spoke  to all DMMs. Department managers spent as much as 25 percent of their time talking with the  merchandisers in Dallas. Both merchandisers and stores initiated these conversations, and  increasing the number of stores added to this communication network.  Another system used by Neiman Marcus was the profit contribution reporting (PCR) system  that measured cost and profit throughout each store on a merchandise line-by-line basis. Because  all operational and selling costs were divided by square feet, managers could determine precisely  the profitability of a department or line of merchandise and allocate space accordingly. One store  general manager described himself as a real estate manager. The system provided a store-to-store  and department-to-department comparison of margins that permitted store managers to prioritize  location of departments. Furthermore, they could ascertain customer purchase patterns that  revealed which loss leaders were worthwhile to generate traffic elsewhere and which should be  discontinued or cut back. Ideally, all managers, whether working in buying or selling, would have  sufficient information from the PCR system to work toward the same goal of profit maximization.  Compensation and Incentives  Employees derived many benefits from belonging to the Neiman Marcus organization,  including a sense of pride and satisfaction. In addition, they felt as if they were members of a  large family, and friends and associates considered them members of the country’s most elite  retail organization. Compensation packages (most included some form of bonus) were designed  to offer generous financial rewards for the members of the Neiman Marcus team. Salary increases  were based on formal annual performance appraisals conducted throughout the organization. KELLOGG SCHOOL OF MANAGEMENT 19  CUSTOMER FOCUS AT NEIMAN MARCUS 5-405-750  Store managers’ incentives were based on a combination of revenue and expense goals with  revenue exceeding expenses by approximately 40 percent. On the revenue side, they had highly  granulated sales goals set by vendor and line of merchandise. Losing merchandise to another  store because of Option 7 or a buyer’s decision hurt the store’s ability to accomplish its sales  goals so there was a lot of pressure to sell fast and sell at full price. On the expense side, store  managers were expected to hit targets in advertising, staff training, store décor, and other factors  thought to be linked to providing excellent customer service. While spending less in these areas  implied unacceptable cutbacks in service or maintenance, overspending meant poor control of  costs. The one exception was that if sales were improving, store managers could increase  expenses known to drive sales even further. In short, store managers were expected to take risks.  Take the case of adding sales associates in anticipation of sales, which required expenses for  selection, training, and temporary salary draw. Neiman Marcus management encouraged this type  of risk taking, especially since non-productive new sales associates who did not justify their draw  were let go very quickly.  GMMs and DMMs were evaluated on meeting their profit-to-plan goals as well as their  performance in coaching and developing buyers. Just meeting the profit plan produced a bonus of  5 percent of base pay; exceeding the plan by 2 percent could produce a 20 percent incentive  bonus, and going over 2 percent could produce a 40 percent bonus. The other 50 percent of  incentive pay was determined by whether or not the company made a profit. Corporate staff  incentives depended in part on individual goals and, again, whether or not the company made a  profit.  Buyers’ incentive compensation was based on “profit against plan,” in other words, the actual  profits compared to their forecasts of the profit for each designer’s line. Since different lines had  different margins, buyers submitted a profit plan and estimated what percentage of a line would  sell through (no markdowns) and what percentage would need to be discounted for first call (25  to 30 percent markdown) and last call (65 percent markdown). Some lines and vendors were  much easier to predict than others. A new designer was by far the highest risk, followed by  designers in contemporary and modernist fashion. On the other hand, traditional designers, e.g.,  Escada, were lower risk. New designers were considered to have done well with a sell-through of  50 percent while established vendors usually approached 60 percent. Merchandise lines also  varied in risk. Cosmetics could be reordered, were low risk, and were expected to sell through at  more than 65 percent. Other lines were generally riskier. For instance, couture sell-through  expectations were only 50 percent, ladies’ shoes 60 percent, and accessories (e.g., handbags,  jewelry) 55 percent. Very high-end designer dresses could dip to 40 percent, and Galleria dresses  were typically at 50 percent sell-through. For most of these categories another 25 percent of the  merchandise sold at first call with the remainder at last call, and only 1 or 2 percent went to the  outlet stores. In men’s, the issue was not customer acceptance of a specific fashion but the  quantity ordered. Specifically, too high a number meant low full-price sell-through. Conversely,  too small an order resulted in disappointed customers and lost sales. On average, the sell-through  of all lines was 65 percent with no discount—here Neiman Marcus was the leader in the industry.  The key for the buyer’s compensation was to meet the profit goals. Even with a risky line like  fine apparel, the buyer could still get a maximum raise since it was the planned profit of the  merchandise that determined compensation. Since buyers did not determine the timing of  markdowns (the markdown calendar was set at headquarters by the stores president) they could  influence their incentive pay only by buying what stores could sell and allocating just the right  amount and items to each store to ensure maximum sales.  Buyers and their divisional merchandise managers were valued because they had critical  positions entrusted with key decisions about which designers or vendors to select and which lines 20 KELLOGG SCHOOL OF MANAGEMENT 5-405-750 CUSTOMER FOCUS AT NEIMAN MARCUS of their merchandise to carry. While “no one makes a lot of money in retail,” the salaries of  buyers were in the 60th to 70th percentile above market. New buyers began around $65,000, and  experienced ones could make twice this. Since Dallas had a moderate cost of living, buyers could  live well. But just as important as the financial compensation was the status and prestige of being  a Neiman Marcus buyer, which was earned by good buying decisions that put the designers’ lines  in just the right stores for maximum sell-through. The quality of these decisions in turn was built  on a rigorous selection process for the position of assistant buyer. Eighty percent never made it,  and 20 percent of those who did were eliminated in the first year. Beyond this, the buying talent  was enhanced by the information resources (point of sale and the merchandise planning  organization), development (assistant buyer to store department manager to merchandise planner  all before one became a buyer), and constant advice and coaching from divisional merchandise  managers and peers.  Buyer turnover was very low by industry standards—13 percent a year. As to how long it  took to become proficient in the buying position, opinions varied from two to three years. The  key was being in the position long enough to see the results of one’s buying decisions, usually  two to three seasons. In 2005, only 25 percent of the buyers had less than three years of  experience. Furthermore, novice buyers started in lines of merchandise that were easier to learn,  such as children’s and intimate apparel. Most buyers, however, hoped to “move up” to more  prestigious lines, such as couture. As of 2005, there were 115 buyers, eighteen divisional  merchandise managers, and four general merchandise managers. Because there was turnover in  buying, some lines saw a new buyer too often. Merchandise planning brought the new buyer up to  speed on the critical merchandise performance numbers while the DMM was expected to protect  relationships with the vendors.  While the buyers’ salaries were good, an equally or even more important motivator was, as  one buyer put it, “watching what you bought fly off the selling floor.” Buyers checked their sales  figures frequently. They competed with each other on sell-through. And there were always new  designers and new lines from all designers. The job was full of fast and frequent feedback,  constant competition, and daily challenge. People who wanted predictable outcomes were not  good buyers.  Sales associates were paid strictly on commission (with appropriate draws in seasonal  departments, e.g., furs, or for new sales associates just building their clientele). All sales  associates, regardless of volume, received the same commission percentage, which averaged 4 to  7 percent in the early 1990s and 7.5 percent by 2005. Commissions ranged from 7 percent for  bridge wear (because of the lower margins for this beginning price point merchandise and  because Neiman Marcus wanted the sales associates to move the customer up) or for merchandise  that was easier to sell (the time it took to sell one fur coat might be one-tenth the time to sell an  equivalent dollar amount of shoes). On the other hand, commissions for merchandise that took  time to sell could range up to 10 percent. Commissions were split in cases when one sales  associate referred a customer to another who might have more expertise in a certain line of  merchandise. While initial sales compensation was in line with local markets (after a year a sales  associate should expect to be making roughly $30,000), the upper end showed considerable  variance and there was no cap. The more you sold, the more you made. To illustrate, one AAA  store noted that it had eighteen $1 million “books,” and one associate sold $12 million in a year.  Books of $2–3 million were common. Because sales associates were free to sell any merchandise  in the store, although they were “anchored” in specific departments to ensure coverage, they had  incentive to learn multiple lines of merchandise. Sales associates were also given liberal discounts  on store merchandise. To motivate the sales associates, there were constant contests, prizes, and  very public rewards, often based on the associate’s rank in sales that week. Another benefit for KELLOGG SCHOOL OF MANAGEMENT 21  CUSTOMER FOCUS AT NEIMAN MARCUS 5-405-750  sales associates was autonomy. Once a sales associate was past the first year, there was no time  clock. “They are on commission and I trust them to run their own business,” said a store manager.  Sales department heads were salaried, not commissioned, with incentive compensation tied to  their department’s performance, store performance, and other intangibles (e.g., development of  staff). Likewise, store merchandise managers and store managers were salaried, and incentive  compensation was based on performance of their stores. Similar to GMMs and DMMs, store  managers who met plan received an extra 5 percent of their base as incentive compensation, those  exceeding plan by 2 percent received 20 percent, and those exceeding plan by greater than 2  percent got 40 percent. The message was clear: the more one sold while keeping expenses in line,  the more one could make. As a result, many managers felt satisfied with their jobs. One store  manager said, “These past six years working for Neiman Marcus were the best six years of my  life.” Another said, “Why go anywhere else once you become a store manager at Neiman  Marcus?” Since store managers typically put in sixty hours a week and department heads fifty,  rewarding them well was critical.  Personnel Policies and Practices: The People Element  Neiman Marcus viewed its people as a tremendous asset that made a significant contribution  to the success realized throughout its history. Employees were a stable factor in the Neiman  Marcus organization, partly due to the attentiveness to employee matters by the members of the  Marcus family. Neiman Marcus hired only individuals with significant retail experience and even  drew on its customer base for potential employees. Who would be more in touch with what  Neiman Marcus shoppers really wanted? In addition, Neiman Marcus invested heavily in  personnel development. For example, sales associates received two hours a week of training in  features of new merchandise, designers, and clientele selling techniques. Managers took  mandatory courses in diversity, sexual harassment, the art of sales leadership, and thinking  strategically. Aspiring managers began in the management development program. Candidates  began as assistant buyers, transferred to sales department manager positions in the stores, then  became merchandise planning analysts before finally becoming buyers. Depending on their  performance, they would move on to become merchandise managers in the stores, managers of  small stores, and then, depending on open positions and their career objectives, managers of large  stores or divisional merchandise managers. This system developed a deep talent bench. It also  gave Neiman Marcus senior managers who had worked in both of the key functions, selling and  merchandising.  Neiman Marcus had no rigid norms on hiring from the inside. Although 75 to 80 percent of  buyers and managers were hired from inside, good candidates from elsewhere were welcomed  because of the fresh ideas and insights they brought. The flow of talent was definitely from the  competition (e.g., Saks) to Neiman Marcus. Furthermore, Neiman Marcus believed in a  “welcome back” policy. If buyers became bored with Dallas and went to competitors in New  York, they were welcomed back if they became disillusioned with New York. The same was true  with store personnel. In addition to reacquiring talent, this system gave Neiman Marcus insight  into best practices of other organizations.  SALES ASSOCIATES  In the largest stores with the equivalent of 280 full-time employees, expectations for first year salespeople were that they sold $400,000 in the first year and $480,000 the second year. A  total of $750,000 was considered good performance. A typical large store would have at least 22 KELLOGG SCHOOL OF MANAGEMENT 5-405-750 CUSTOMER FOCUS AT NEIMAN MARCUS eighteen sales associates pulling in more than $1 million. Hiring sales associates was done with  great care. Like many customer-oriented organizations, Neiman Marcus constructed in-depth  profiles of the attitudes and values of its best sales associates: the general dimensions were ability  to build relationships, customer focus, drive for results, and convincing communications. These  were built into an online questionnaire which acted as the first hurdle. Managers commented that  it screened out about 40 percent of the applicants—and it even screened out some managers who  took it to see how they would do. When some of these called the head of personnel complaining  about the instrument, he told them it screened for sales skills, not managerial ones, and suggested  that they had better continue their management careers. Even if an applicant passed this first  screen, the second, an in-depth interview to probe their answers on the questionnaire, eliminated  about half of the remaining 60 percent.  Sales associates received two hundred hours of training a year. Two hours a week were  dedicated to information about products, designers, and the like. One course was called “shoe  school.” No matter what the sales associate was selling the customer, there was a chance the  customer would want shoes, so all sales associates needed to know how to sell shoes. Shoe school  taught them shoe stockroom navigation, proper fitting technique, and sizing up and down (you  can alter a dress, but you cannot alter a shoe). The rest were courses on client development,  telephone, writing skills, and the like. For new associates there was a forty-hour training course in  store rules, procedures, and register operation, along with a huge dose of Neiman Marcus lore and  tradition. Novice sales associates were then paired with more experienced colleagues in “easy-to learn” departments, e.g., children’s. After this formal training, sales associates had about two  hours a week of training concerning specific lines of merchandise, special promotions, and store  strategy. This training continued for as long as they worked at Neiman Marcus. Support  personnel—tailors, display people, and any others who might interact with a customer—were  included in this training except for the technical aspects of sales transactions.  The two biggest challenges for the sales associate were to learn the customer and the  merchandise. Both were critical to success. Beyond the technical aspects of selling, sales  associates were drilled in the art of clientele selling: how to present their business card; how to  ask when and how the customer preferred to be contacted; and how to ask for information on  sizes, age, taste, special occasions, and relatives and significant others without appearing pushy or  intrusive. There was constant drilling on avoiding judgment based on customer appearance,  judging the customer’s taste with one’s own, judging what the customer wanted to spend, and  judging when the customer had bought enough.  Employee turnover was low and satisfaction was high. While total sales associate turnover  was around 30 percent, this percentage reflected the expected higher turnover of new associates  in their first year (25 percent) and the deliberate weeding out of the poorly performing  salespeople. Managers commented that one could easily tell whether or not the sales associate  would be successful after one year. Typically 40 to 50 percent of the sales associates had been in  a store for five or more years. In one older store 45 percent of the sales associates had been there  for more than ten years. For middle managers (DMMs and assistant store managers) turnover was  around 11 percent, and for senior managers the turnover was less than 5 percent. On overall job  satisfaction, employees typically scored in the 70 to 75 percent range. Survey firms report this as  the highest in the industry. However, management was not satisfied and looked into any specific  area scoring this low. On the dimension “I know exactly what I am supposed to do each day,”  employees scored 90 percent. KELLOGG SCHOOL OF MANAGEMENT 23  CUSTOMER FOCUS AT NEIMAN MARCUS 5-405-750  Culture  The customer. The founding core value of the Neiman Marcus culture remained—there was  never a good sale for Neiman Marcus unless it was a good buy for the customer. The resolution  of many disputes was often “I have a customer who wants this!” and store managers really did  report to their best sales associates. One said, “The most important part of my job is helping these  people delight their customers and sell.”  Competition, winner takes all. Neiman Marcus was not egalitarian. Store managers at all  levels were clearly told that one treated a $5 million sales associate differently than a $500,000  one. Sales associates were polite with each other and supportive, if it was in their best interests,  but, if someone tried to poach a client, blood flowed. Constant sales contests, postings of the  weekly rank of sales associates, and public awards for achieving sales goals encouraged  competition. Sales associates competed with other sales associates, department heads with other  department heads, store general managers with the other stores, and buyers with other buyers.  Likewise, all store managers knew where their store ranked against all of the other stores.  Competition, however, did not diminish cooperation when it came to selling. Special keys on the  registers allowed sales associates to split commissions when they needed each other’s expertise to  complete a sale, and store managers bartered and swapped merchandise when necessary for a  customer. Competition also had its down side. Sales associates sometimes complained of the  resources given to superior sales associates, such as multimillion-dollar sales associates who had  their own salons and assistants. It was not personal, however, since everyone recognized how  much these “books” sold and knew they would get similar support if their numbers warranted it.  Competition also led some sales associates to hide merchandise, hoping it would be something  one of their clients wanted. Store managers said this kind of hoarding had to be delicately  managed. If the sales associate was right most of the time and sold what she hid, a blind eye was  turned. If sales performance did not result from hiding, a “polite” discussion ensued.  Never judge a customer by her appearance. There were numerous stories of non-customer looking customers that became solid gold customers. One was an apparent bag lady who carried  two shopping bags filled with cash and purchased $18,000 in art. Another tale told of a sales  associate letting some children have fun trying on jewelry. When their mother returned she spent  $14,000 on earrings and necklaces.  This is business. You get what you pay for. Premiums and special treatment for InCircle  members depended on their spending for the current year since points did not accumulate. The  definition of a good customer was one who spent a lot. For the customer, the up side was that at  certain levels of spending, the merchandise was exquisite and the service without comparison.  The downside was that some customers would be politely but honestly told that their spending  did not justify certain service extras or the time of a highly popular personal shopper. This was  business: the more you spent, the more service you received.  We are professional. Male managers and sales associates were expected to wear coats and  ties. These could be fashion statements, but always coats and ties. Women wore professional  attire, although exceptions were made for designated sales associates when modeling a designer’s  latest fashion statement.  Decisions are based on hard facts as much as possible but also on intuition. Intuition is best  when complemented with hard data; hard data without intuition is uninspired and cold. There was  no shortage of data to support intuition. With merchandise, every designer, line, product, and size  was tracked for its profit performance against the average of all the stores. With customers, 24 KELLOGG SCHOOL OF MANAGEMENT 5-405-750 CUSTOMER FOCUS AT NEIMAN MARCUS clientele books were voluminous, and InCircle records were extensive—even recording which  merchandise department individual customers entered through. With employees, managers knew  precisely what every sales associate was selling and to whom. Only if the data was analyzed  could intuition be informed, e.g., “This color or designer was doing well, but we should put some  money elsewhere in case this trend is at its peak.”  Entrepreneurship. Sales associates, managers, and all merchants were expected to develop  their own businesses. From building a book of valued clientele to building the best luxury shoe  business in the retail industry, Neiman Marcus depended on its people to make the decisions and  take the risks to achieve these kinds of goals. There was widespread appreciation that people had  to have the autonomy to grow their own business.  Try things and learn. Burt Tansky, the CEO, proudly discussed the addition of kiosks  (customers would not use them), Gallerias (all were closed since they drew insufficient business),  the location of some stores (traffic projections failed to materialize), and the “much better”  strategy (cancelled since it hurt the brand). Although all were mistakes, each was an important  learning experience. One store manager had more satisfied customers once he corrected a  persistent pattern of overpromising to customers, such as promising that major alterations would  be done in one fitting when it took two. In buying selection and allocation, mistakes were seen as  inevitable, and it was standard procedure to experiment with merchandise. Buyers constantly sent  new or daring merchandise to select stores to see if that designer would work. Stores also took  risks with pushing a designer’s price too high (e.g., Kate Spade handbags), which then had to be  corrected the next season. There were also constant experiments with sales in the stores, and the  Focus Store initiative made a three-year investment in extra promotion and advertising expense to  move merchandise of new designers. These stores took a risk in knowing their revenue quotas  would remain at what they achieved in the three years of extra investment after the investment  ceased. At Neiman Marcus people used data as much as possible, but when it was inconclusive,  they experimented. If the experiment failed, there was no retribution; the attitude was to learn and  move on. There was a widespread appreciation that growth required risk, and risk meant there  would be mistakes, but mistakes showed the way to more growth.  The managers’ job was to support those who served and sold to the customers, not to serve  management. Fittingly, the headquarters was on two of the top floors of the downtown Dallas  store, not in a separate beautiful building. One rushed sales associate asked a senior vice president  to take a pile of clothes to alterations. The vice president had no problem with this because it  allowed the sales associate to get back to the customer. Only one store manager, through some  error of design, had an office with a window and a nice view; no others did. All other store  managers’ offices rarely exceeded 100 to 150 square feet—“no sense wasting selling space,” one  said. The CEO’s office had similar square footage and a window—with a view of an adjacent  brick wall. Neiman Marcus was about its customers, not about its management.  Neiman Marcus was the best luxury retailer; people were proud to work there. One  commonly heard statements such as “We have the best customers, the best designers, the best  merchandise, the best professional service, the best sell-through rates, and the best value to our  clients, our shareholders and owners, and our employees.” KELLOGG SCHOOL OF MANAGEMENT 25  CUSTOMER FOCUS AT NEIMAN MARCUS 5-405-750  Expansion  In August 2005 Neiman Marcus’s board officially voted to be acquired at nine times earnings  by Warburg Pincus and Texas Pacific for $5.1 billion. Although real estate was expected to help  the investors realize some of the profit on their investment, Neiman Marcus would also have to  keep expanding. Plans were to add five stores from September 2005 through 2007 (see Exhibit 1).  Opening new stores presented challenges that Neiman Marcus had substantial experience in  meeting, for example, persuading key designers it was worth their while to let Neiman Marcus  carry their lines, learning the new local community and customer, and finding sales associates  with “professional” or “clientele” selling skills.  Because of designer distribution agreements, Neiman Marcus was not free to choose any  location it wanted. Toronto would seem an obvious target, but Holt Renfrew was already there,  and major vendors used it as their primary door. Were Neiman Marcus to open there, the  designers feared a decrease in exclusivity and competition with their existing boutiques and Holt  Renfrew. Opening without major designers crippled a store, as Neiman Marcus discovered when  it opened a store in Tampa Bay without a critical complement of big-name designers and the  manager of the new store was faced with the challenge of distinguishing his store on service  alone. Even Neiman Marcus had to earn its way into a new local market. High traffic, not just the  Neiman Marcus brand, impressed designers.  To meet the service challenge and to learn the new local customer, the new policy was to  locate the store manager and the store merchandise manager in the new area six to seven months  before the store opening. During this time, these two key managers would learn about the local  community through important charities, public events, society functions, the best advertising  media, and the local fashion elite. They also would search out people with experience in  “professional or client selling,” e.g., financial advisors from the financial services industry. In  addition, they set up specialized training programs if the local market contained cultural groups  that differed from the American mainstream, e.g., for how to approach Asians or Latin  Americans.  Still, expansion continued to be a challenge (see Appendix C). How many stores could be  added without diminishing the exclusivity of the brand? How many stores could be added in a  year while preserving and extending the culture and standards of professional client service? How  could the buyer’s job be kept challenging but not overloaded with information as more stores  were added with their semi-unique local fashion markets? Management seemed to achieve the  delicate balance between central direction, chain store economies of scale, reading and  responding to local fashion markets, and superior professional service to focus on the  client/customer. As Neiman Marcus moved to its target of fifty stores, or if it expanded  internationally, the maintenance of this balance might be more difficult. Case Analyses Guidelines • Please read and examine each case thoroughly, as if you were the marketing manager  responsible for the issues at hand. • You may want to take notes, highlight relevant facts, and underline the key issues in the case. • Each case study provides you with the background information of the company, and you will  be assigned with a specific set of questions to address in each case analysis. Please make sure  you analyze the current situation of the company, using course materials and external  research. • Please include the following contents or sections in your case analysis: cover page, main  body – summary of key marketing strategy issues, evaluation of key issues, proposed  solutions, recommendations, and reference page. Please clearly label each section, so that  both you and your academic coach know which section is included and which section is missing from your assignments. It is also a good way to organize your thoughts and write-up. Please see below for details regarding each section. 1. Cover page: be creative ☺. 2. Summary of key Marketing Strategy issues • Please use bullet points to summarize the key issues that are relevant and important to  the management. 3. Evaluation of key issues • Please evaluate each of the key issues that you have identified in the previous section,  and label them clearly. • Why do they exist?  • How do they impact the firm?  • Who is responsible for those issues? 4. Proposed solutions1 • Please provide specific, realistic, and feasible solution(s) needed for each key issue.  Note: you are required to propose your own solutions. Please label them clearly. • Explain why this solution is chosen and why it is going work. • Support this solution with solid evidence such as concepts/theories from class and  external research. 5. Recommendations • Discuss specific strategies for accomplishing each of the proposed solutions. Please label  them clearly. • What should be done? • Who should do it? 6. References • References should be in APA format. There are some links to APA guidelines provided  in the Getting Started section on Moodle. • Please make sure you provide both in-text citations and references in your case analysis.  Case Analyses Formatting Requirements • Please do not start each section on a separate page.  • Please do not include an abstract. • Font: Times New Roman, size 12, double-spaced. • Length: at least 5 full pages, excluding the cover page and reference page. You can write  more than 5 pages, but not less than 5 full pages. I would recommend at least 5 pages and  one paragraph on the sixth page to be safe. • Please submit your analyses in MS Word format. Do not submit in PDF format. • Points will be deducted for assignments not meeting the above formatting requirements.2 Case Analyses Grading Rubric Weak (0) Average (1-3) Strong (4-5)Total Points  Received  Under Each  Category (x 2)Summary of Key  IssuesFails to identify,  summarize, or explain  the main problem or  question, or represents  the issues inaccurately  or inappropriately. Provides a weak  identification of the  key issues, or does  not clearly explain the  them.Clearly identifies  and summarizes  key issues.Evaluation of Key  IssuesFails to evaluate the  key issues in the case.Partially evaluate the  key issues (answer at  least one of the three  questions: why? how?  and who?). Clearly evaluate  the key issues  (answer all three  questions: why?  how? and who?)Proposed SolutionsFails to propose any  possible solutions, or  proposes solutions that  are not relevant or  feasible to the key  issues at hand.Identifies and  proposes some  possible solutions but does not present them  clearly or logically.Proposes multiple  possible solutions,  and clearly and  logically presents  them.RecommendationsFails to provide any  recommendations, or  recommendation is not  relevant.Provides some  recommendations but  lacks details.Provides specific  recommendations  for each proposed  solution, with  details on what  and who.Application of  Marketing  Concepts/TheoriesFails to apply any of  the marketing  concepts/theories  introduced in this  course or from external  sources.Applies some marketing concepts/theories, but  does not apply them  appropriately.Applies marketing  concepts/theories  appropriately in  the analyses.Note: This rubric only provides you with the minimum requirements of case analyses. For example, if  you meet all the requirements listed in the column “Strong (4-5)”, your grade will start at 40 (4*2 + 4*2 +  4*2 + 4*2 + 4*2 = 40). To receive a grade higher than 40, please make sure your analyses are clear and  logical, and have sufficient depth.3 Turnitin • All original written case analyses will be automatically submitted via Turnitin text matching  service, which will be used to evaluate the originality of your work.  • You are not required to register an account with All case analyses  submitted on Moodle will be automatically checked via Turnitin. • You should be able to see your originality report shortly after submitting your assignment.  Once you have submitted, your Turnitin similarity score will appear under the “Submission  Status” area when you click on the assignment again.  • Case analyses must meet a 15% or less similarity threshold.  • You can ensure your submitted work does not exceed this threshold by revising and  resubmitting your assignments prior to the deadline. You are allowed to revise and  resubmit only UNTIL THE DEADLINE. Resubmissions that take place after the deadline  will be considered late assignments. Please note that subsequent Turnitin reports may  require up to 24 hours to appear. It is your responsibility to allow enough time for your  resubmission of case analyses. • Case analyses not meeting the 15% or less threshold by the due date/time will receive a zero  grade.4 An Exemplar Format of Case Analyses (Main Body) Summary of Key Issues • Key Issue #1 • Key Issue #2 • Key Issue #3 …… Evaluation of Key Issues • Evaluation of key issue #1 (why, how, & who) • Evaluation of key issue #2 (why, how, & who) • Evaluation of key issue #3 (why, how, & who) …… Proposed Solutions • Solution for key issue #1 (specific, realistic, & feasible) & why • Solution for key issue #2 (specific, realistic, & feasible) & why • Solution for key issue #3 (specific, realistic, & feasible) & why …… Recommendations • Recommendations for solution #1 (what & who) • Recommendations for solution #2 (what & who) • Recommendations for solution #3 (what & who) 

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