est practicesMaking the case for customer incentiveand reward programsRoger PartingtonContractors expect a lotfrom their distributors,and they frequently viewrewards as a symbol ofpreferred status.Roger Partington is amanagement consultantspecializing in distributionchannels, channel relationships,and sales & marketingstrategy for manufacturers anddistributors. He can be reachedat roger@coherentb2b.com.Customer purchase incentives/loyalty programshave been around the industry since Day One,and every distributer of fers some variation.Manufacturers, too, have a big stake in thes e programs,as they provide considerable funding.The extent and variety of these programs hasexpanded over the last several years. Why? Becausethey work! Any marketing person will tell you theirprogram shows measurable sales increases whilehelping foster better relationships. Contractors expecta lot from their distributors, and they frequently viewrewards as a symbol of preferred status.In a world where competing distributors are oftenviewed as providing equivalent value, the right incentiveprogram will tilt the playing field. Contractorsnow have a variety of incentive programs from whichto choose. They also know the best way to capitalizeon these rewards is to channel a larger share oftheir ongoing purchases to the distributor with theirpreferred program.What works best?Loyalty program performance has more to do with executionthan design. The key is customer engagement,where there is no substitute for an enthusiastic salesforce and local service teams. While national programshave advantages, branch and regional promotions canbe a very effective part of the mix. Typically, these areshorter, seasonal promotions; it is easier to ramp-up theexcitement for a three-month promotion than maintainit for an annual trip or ongoing points program.Loyalty-style programs succeed when they effectivelyuse communications, analytics and customertargeting to build results over time. Because of theirscale, they can leverage communication tools andinformation technology to engage customers at keydecision points. A distributor has the flexibility toexploit the loyalty program for a myriad of short- andlong-term sales goals by adjusting points, leveragingspecial offers and targeting communications.Getting the most from a loyalty programAt the outset, programs must be built around thecustomer segments you wish to target. Payout ratiosmust offer an attractive incentive that’s competitivewith other programs. By building in reward tiers,special promotions and growth incentives, you canbetter tailor the program to maximize ROI. Customercommunications, program roll-out and sales forceengagement must keep the targeting consistent. Theprogram must strive for a high ratio of engaged customersversus those customers who earn rewards butdo not change their purchase patterns.In operation, loyalty programs must be responsiveto business opportunities. This is where analyticscome in. For example, knowing which customers areactive partcipants can guide sales strategies; knowingtheir purchase patterns can trigger opportune emailsor sales calls. Incentives that are not directly relatedto purchases but other marketing goals (i.e. training,product demos or atten dance at events) should beoffered. This way, the loyalty program is part of theentire customer engagement cycle.Communication should be personalized, frequentand engaging. Fortunately, your customer is naturallycurious: How close am I to a free trip? What are myreward possibilities? How can I earn points faster?While you have their attention, you should includelinks to new products, special of fers, new servicecapabilities and upcoming events. Capturing qualitycustomer demographic information will help youpersonalize communications and special offers.Program measurement is part of the analyticscapability and, over time, will guide the types ofpromotions and communications you employ. Analyticsdemonstrating sales performance and customerengagement also helps you justify program supportto a manufacturer.The challengeLoyalty programs are a big investment in dollars andmanagement resources, but a well designed andexecuted program will improve ROI by targeting andengaging the right customers, and making the casefor manufacturer support. Better ROI justifies investingin the analytical and communication capabilitiesthat will allow you to stand out from the competitionand earn a larger share of the contractor wallet.22 Spring 2011 • Distribution & Supply
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