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Loyalty trends and best practices

Loyalty Makeover: Office Depot

by Ashley Bienvenu
March 11, 2014
Loyalty Makeover: Office Depot

office_depot


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.

First impressions

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.

Makeover ideas

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:

  1. 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. 

  2. 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. 

  3. 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.

  4. 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 ashleyb@500friends.com.


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