In this installment, we look at the loyalty program at Office Depot, the $17 billion office supplies retailer with 1,900 stores that recently merged with Office Max. Loyalty Makeover offers suggestions to retail brands for making the most of their loyalty initiatives.
In late 2013, Office Depot completed a $1.2 billion merger with competitor Office Max. In this Loyalty Makeover we’ll look at both programs, and we’ll examine the opportunities in merging them.
What the Office Depot and Office Max loyalty programs look like today
Office Depot Rewards lets members earn rewards for purchases of ink, toner, paper and copy/print/ship services. Members can also earn rewards for recycling used ink cartridges and completing member profiles. Members who spend at least $200 in a calendar quarter achieve Choice status, which allows them to earn extra points through purchases, made either in-store or online, for products in up to 5 categories they choose. (Choice status is revoked if spending falls below $200 in a quarter.) For every 1,000 points earned, members receive a $10 rewards certificate applicable towards future purchases.
In contrast, Office Max’s MaxPerks program is more straightforward. Members get 5% back when they spend at least $500 in a one-year period. Recycling ink and toner earns members $2 for each cartridge brought into the store, up to a limit of $20 per calendar month.
Expenses from the merger of these office supply giants, coupled with weak gross margins, led the combined company to declare a $205 million operating loss in 2013. Critical for the combined company’s future success will be boosting gross margins, which fell to 23.4% last year (vs. 26% for Staples), and a strong, unified loyalty program could play a major role.
Merging programs on this scale will be a huge undertaking for Office Depot’s executive marketing team. We humbly propose some ideas that could be helpful:
Personalize rewards. The Office Max loyalty program provides the same level of rewards for everyone, regardless of spending (above the minimum threshold), whereas Office Depot recognizes high-spenders with premium (Choice) benefits. The combined company should maintain the premium tier as an incentive for customers to spend more, but should carefully analyze the spend of its mid-tier customers to see if $200 per quarter is the right threshold. (It should be just higher than the average spend of those mid-tier customers, so that it effectively encourages them to spend more.) The chain should also send personalized, automated loyalty offers (“Double points if you shop this weekend”) to members who have not purchased for a while.
Expand earning opportunities. Today, Office Depot members who have not reached Choice status can only earn points for purchases in certain product categories. This provides little incentive for these shoppers to buy other products at Office Depot. The combined company should allow points earning across all product categories to capture a higher share of wallet. For strategic product categories, Office Depot could offer bonus rewards. Office Depot could also use its loyalty program to engage with shoppers between purchases, by rewarding actions such as reviewing products, browsing strategic categories, and linking social accounts. Similarly, the chain could reward people who always buy online for visiting a store, or vice-versa, to boost omni-channel engagement.
Expire rewards based on inactivity. Office Depot gives members a calendar quarter during which they can earn rewards and only 60 days to redeem rewards coupons. Office Max’s reward cards expire 90 days after issue. Office Depot should switch to an expiration policy triggered by inactivity — for example, rewards could expire some number of days after last purchase. This way the chain can send personalized, automated rewards expiration notices and offers (“Your rewards expire at the end of the month. Buy now to keep them and get an extra point reward.”) This structure better promotes long-term loyalty and can be used by sales staff to upsell (“You’re just 10 dollars away from your next reward level.”) An effective expiration period should be just shorter than the average purchase frequency of mid-tier customers.
Merge programs for cross-brand loyalty. It appears that, for some time anyway, both the Office Depot and Office Max brands will live on under the Office Depot corporate parent. If that’s the case, Office Depot should launch a unified loyalty program that promotes spending across the brands. One example of a company that does cross-brand loyalty well is 1800Flowers.com, whose Fresh Rewards spans brands including The Popcorn Factory and Cheryl’s (sweets).
Ashley Bienvenu is a Customer Retention and Loyalty Analyst at 500friends, which helps retail brands maximize the profitability of customer relationships. Is there a loyalty program you’d like to see featured in a 500friends Loyalty Makeover? Send her a note at firstname.lastname@example.org.
In this installment, we look at the loyalty program at JCPenney, the $12 billion department store chain with 1,100 stores and $1 billion in online sales. 500friends Loyalty Makeovers offer suggestions to retail brands for making the most of their loyalty initiatives.
What JCP Rewards looks like today
JCP Rewards members accrue one point for every dollar they spend. For every 100 points they earn in a calendar month, they receive a $10 coupon towards future purchases (up to a maximum of ten $10 coupons per month). At the end of every month, point balances reset to zero.
With a 2013 operating loss of over $1.2 billion, investing in customer retention and loyalty may seem like a luxury for JCPenney. However, to really get back on track, the embattled department store chain will have to prop up its gross margins, which fell to 29.4% in 2013 (typical department stores gross margins hover in the mid- to upper-30s). That means finding an alternative to discounting, which means boosting loyalty is critical. Compared to other department store loyalty programs, JCP Rewards is remarkably simple, but by eschewing a more robust loyalty program structure, JCPenney is missing out on important loyalty benefits.
Personalized loyalty rewards: Currently, JCPenney invests in loyalty at the same rate for first-time shoppers and the chain’s established, high-value customers. JCPenney has the opportunity to increase spend among its best customers by introducing one or more premium program tiers. This would allow JCPenney to show appreciation to its best customers while offering benefits (a higher rate of point accrual, for example) that encourage mid-tier customers to spend more. In addition, the company could send automated, personalized loyalty offers to customers who haven’t shopped for a while (“Double points if you buy this weekend,” for example), which can be highly effective at reducing churn.
Extend point expiration: With the current reward structure, a customer loses all of her loyalty status every month. A more liberal point expiration policy would help JCPenney better drive incremental sales and long-term engagement by giving customers the incentive to make an extra purchase down the road. The right expiration period depends on an analysis of the purchasing frequency of the chain’s mid-tier customers, and should be set so that expiration reminders effectively shorten average time between purchases.
Leverage loyalty to boost omni-channel engagement: Given that JCPenney’s online property, jcp.com, is a crucial piece of the company’s turnaround effort, JCPenney could do more to incent customers to engage through multiple channels. For example, JCPenney could offer double-points bonuses to in-store shoppers who make their first purchase online, and vice versa for online-only buyers who start transacting in stores. Making point balances and tier status available at point-of-sale would empower in-store personnel to upsell (“You’re just $10 away from your next reward,” for instance).
Questions? Or is there a loyalty program you’d like to see featured in Loyalty Makeover? Send me a note at email@example.com.
Zach Woith is Director of Loyalty Strategy at 500friends, which helps retail brands maximize the profitability of their customer relationships.
In this installment, we look at the loyalty program at Ace Hardware, the $3 billion hardware store co-operative with 4,700 locations. Loyalty Makeover offers suggestions to retail brands for making the most of their loyalty initiatives.
What Ace Hardware’s loyalty program looks like today
Known as Ace Rewards, the Ace Hardware loyalty program rewards members with in-store discounts (“Instant Savings “) and a points currency for all purchases. Members collect 10 points for each dollar spent and get 1,000 points for enrolling. Once they reach 2,500 points, they receive a coupon for $5 back on their next purchase, equating to a 2% funding rate. The private label Ace Rewards Visa Card allows members to augment their Ace Rewards point balances with up to 10 points per dollar spent.
Ace Rewards is unusual among retail loyalty programs in that its benefits include both a preferential member price as well as the accrual of a points currency. The generosity of the program is likely a significant driver of its strong enrollment, which has reached nearly 25 million members. In-store purchasers are attracted to the preferential member prices, while online shoppers benefit from the point currency. However, strategic changes to its loyalty program could benefit Ace Hardware’s member stores in their ongoing battle with the likes of Home Depot, Lowes, and Amazon.
Personalize rewards: A premium program tier would allow Ace Hardware to hold on to its top customers while giving mid-tier shoppers an incentive to spend more. Inactive shoppers could get a free gift just for stopping by the store.
Expand potential earning opportunities: As it stands, there the only way to earn points is through purchases (in-store or online). In order to drive engagement between purchases, Ace could award points for writing reviews, creating wish-lists or uploading project plans. This ensures that members are more invested in the currency and are more likely to repurchase sooner.
Introduce a points expiration policy: There doesn’t appear to be an expiration date on points earned by members. Ace should consider expiring points after some period of inactivity, as this will create urgency around repurchasing sooner. (The right period depends on an analysis of purchase frequency among mid-tier shoppers.) Sending “reminders” to members regarding upcoming point expiration will be an invaluable tool to drive higher retention.
Improve rewards fulfillment: Today, reward certificates (coupons) are mailed to a home address. Shoppers who purchase in-store must wait for these deliveries, and can use rewards only in-store. Instead, Ace Hardware should make rewards claimable and redeemable both online and at in-store (mobile coupons or POS).
Questions? Or is there a loyalty program you’d like to see featured in Loyalty Makeover? Send me a note at firstname.lastname@example.org.
Arif Damji is Director of Strategy & Development at 500friends, which offers THE complete SaaS loyalty solution for today’s CMO.