Hi Marketing Leaders,

I stopped by Office Depot yesterday to purchase some office supplies. While I was waiting (for an extremely long time), the representative asked if I was a member of their loyalty program called Worklife Rewards. It’s always an interesting question, and many times my answer is: “I think so.” I DO know I am a member of six frequent flyer clubs; seven hotel guest clubs; and several other retail loyalty programs.

Office Depot offered a free program with cash-back. Hey, it wasn’t another credit card – how bad could it be? I joined because I can easily see myself purchasing ink toner, paper and other supplies and getting a “kick-back” in the process – that’s future loyalty in a one-person sample of everyday life.

There are only two problems with loyalty programs as I see it:

  1. On-boarding – it takes an eternity (or three to five minutes) to sign-up, and you hold up other busy customers so you can “join the club.” Retailers need to streamline the on-boarding at POS with an integrated member sign-up in the debit / credit kiosk. That’s another blog though.
  2. George Costanza back problems – we have way too many member cards in our wallets or purses. You can throw out your back as George does in the hilarious “Seinfeld” episode where his wallet is full of junk causing him discomfort when he tries to sit. We need a single, secure card that stores all of our loyalty program info (club #, social media and digital passwords) and eliminates back pain. Social media fragmentation is leading the charge as networks are working towards a use single-user authentication across networks. Yes, many programs allow you to look up your info via your phone number, but a simple swipe of a secure card would speed it up. Loyalty clubs are getting on board with iPhone apps and through social apps like Foursquare.

After climbing those small hurdles, you set off towards loyalty bliss with points, rebates, discounts and even cash-back.

  • So, does loyalty really matter that much to your firm?
  • Are your loyalty programs working?
  • Are they profitable?

Our recent survey data from 100 global B2C marketers shows the answers to those questions are all “yes.” Marketing leaders still see substantial value in loyalty programs. We found that 77 out of 100 B2C marketing leaders stated they would increase loyalty program budgets in 2010 trailing only digital (e.g. social, online) and market research.  And of 16 choices ranging from print advertising to promotions, marketing leaders selected loyalty programs as the area they were least likely to decrease budgets.

Industry and academic research (V. Kumar, 2008) shows loyalty programs are often costly mechanisms that don’t generate incremental customer lifetime value. A loyal customer would purchase again, or more, regardless of the additional discounts or rewards given by a marketer.

Nearly 1 out of 5 marketing leaders we polled are increasing budgets on loyalty in 2010. Let's make sure those budget increases working smart. Forrester will continue a series of blogs and research on building effectively loyalty programs that drive loyalty, but more importantly, increase customer lifetime value and profitability for your firm.

Please share successes and ideas on what loyalty programs should look like in 2010 as budget dollars start to grow again.