Your customers are your most important asset, and that’s why it’s worth taking some time to examine your customer loyalty initiatives and how they might be adjusted to drive incremental profit.
When distributors hear “contractor loyalty,” they think about travel destinations, employee loyalty, or reward types—and that can be an expensive approach. Achieving contractor customer loyalty involves more than just points for prizes. It’s about driving up the perceived cost to go somewhere else. It’s an ongoing mindset, a series of business processes, and ultimately, a simple concept. In fact, driving real loyalty doesn’t have to cost a fortune. Many of the most critical and powerful elements can cost very little.
Before we dive into loyalty, let’s address that critical piece: price. It’s a contractor’s number one criteria for channel selection, and the more sophisticated, larger contractors understand that total cost includes the impact of several factors. Delivery speed, stock on-hand for immediate purchase, important contractor services, etc. In other words, the price isn’t just the cost of an item. If you’re already competitive in those areas, please read on.
A good way to explain switching costs is to look at Tiger Woods. When he was winning tournament after tournament, he wouldn’t have sold his putter for a million dollars. Then it seemed he couldn’t make a 3-foot putt to save his life and probably would have traded it straight up. If we assume it’s the same putter, what changed? Not a thing—except his perceived cost to switch. During his winning years, Tiger Woods would have foreseen personal loss and significant risk in changing putters. Just like Tiger with his putter, people ultimately become loyal to companies and brands due to their perceived cost of switching.
Switching costs are simply any costs, whether real or perceived, associated with switching brands or suppliers. It can include anything important to the contractor, from service levels and brand quality, to a friendship with a counter person, or the chance to go on a cruise. Whatever is important to a contractor can be leveraged as a potential switching cost. To discuss loyalty without strategically considering how to increase your customers’ perceived switching costs is to miss the point entirely. It’s all about switching costs.
What can you offer your best, or best potential, customers to drive up their switching costs?
Positive Brand Experience
Let’s consider a frequent flier. So, flying today is rarely a very positive experience. That said, airlines do have to get the basics right. If the planes are always late, the flight attendants are rude, or the seats are filthy, she’s not coming back. But it doesn’t cost them a dime to move a Platinum-level frequent flier to an unsold First Class seat—a move that isn’t just about the miles earned, but one that dramatically improves his experience and keeps him loyal.
Valued Tools & Support
Why is he really loyal? And why is loyalty important? He sometimes gets moved to First Class, is allowed on the plane first, anticipates an empty seat next to him, or has access to a top-notch representative at a separate customer service number. All of these are valued tools and support that make his experience better. They’re things the competition will not offer him because they don’t know how much he could be spending with them.
Recognition & Rewards
He’s awarded Platinum status and receives special offers. He accrues reward miles faster and can redeem them more easily. He may be invited to special events. He is recognized as important and rewarded with tangible items and experiences. This is where the critical emotional attachment is formed.
A Deeper Dive
Brand Experience (or just “Experience”)?
Distributors often don’t give “brand” a great deal of thought. It seems more like something for Coke or Pepsi to worry about. Unfortunately, that’s a dangerous misconception. If we don’t get hung up on the word “brand,” it makes far more sense, as every aspect of a contractor’s interaction with a distributor is that distributor’s brand.
Simply put, the contractor’s experience is what it’s like to do business with your distributorship. In the model above, it means the product has to be good. It’s simple, but important. No loyalty program on the planet can make up for a bad product.
An acquaintance in the hotel industry once said, “The loyalty program is completely irrelevant if the hot food isn’t hot, the cold food isn’t cold, and the sheets aren’t clean.” He’s right. The basics have to be right for the loyalty program to have an impact.
So, the positive experience begins with a phone call, or on the website, and continues on through selection, with order fill rate, speed of delivery, appearance of vehicles, attitude and knowledge of staff, and everything in between. What is and is not positive, of course, is completely in the eye of the customer.
Tools & Support
This is critical in a B2B relationship and is the greatest opportunity to drive incremental loyalty with little direct expense. What could you offer your best customers? What do they value, other than the lowest price? One challenge here is the tendency to open up such service enhancements to all customers. We come up with a great idea and immediately (and understandably) imagine the impact and cost of opening it up to everyone. That’s where loyalty thinking comes in.
While it may make little economic sense to offer some benefits to your entire customer base, making it easier for your best customers to do business with you usually makes a great deal of sense. And if your competition sees it as something they cannot afford to offer? So much the better. Nothing will create more loyalty or drive higher perceived switching costs than offering unique and valued tools and support to your best customers. Below are a few examples pulled from our heads and from some secondary research on what contractors would value.
- Exclusive manufacturer-led training events
- Sneak peeks at new products
- Deeper support in the bid process
- Online specification and estimating tools
- Delivery guarantees
- First-in-line customer service, and so on.
With a little time and a few conversations with your customer, you can develop a list of non-price-related support that your contractors would value. The key is to integrate that with other elements to establish a program. The main thing is to determine the reward solution that drives the greatest return on investment.
Recognition is a thank you that can have a long-term effect. It’s a visible, overt acknowledgement of the degree to which a customer is appreciated. It can be expressed with plaques, signs, trips, etc., or in the form of respect: membership on councils, interaction with leadership, and one-on-one time. This is the part of loyalty that has little to do with rewards and more to do with connections.
The more successful the contractor, the more important recognition becomes. Car and insurance companies learned long ago that if you want to motivate the well-to-do, you must use recognition. Because they can afford that trip to Paris on their own, we must give them an experience in Paris they cannot buy. Rather than being about money, it’s about pride, and being noticed and heard.
For many people discussing loyalty, this is where the conversation begins. The right rewards are critical to success, yes, but they are not the sole foundation of a good program. So, how do we use rewards strategically? That’s a difficult question, but it depends on who we’re discussing and when. It depends on market conditions, and many more things as well.
You’re likely asking, how can we build one program that drives the right behaviors across the entire customer base? First, take a strategic look at the customer base, define the desired behaviors, and then figure out a way to pay for all of those behaviors without spending more. Why? Because incentive programs can increase performance of an individual and teams by 20-40%. The key thing to remember is: What do we want people to do that they’re not doing today? And why aren’t they doing it? Once those questions have been answered, it’s possible to assign a value to each behavior and use that currency to drive it across the customer base.
Loyalty is a state of mind. One that can be elicited with a program that has these essential three elements: a positive brand experience, valued tools and support, and recognition and rewards. Though there are many challenges faced by today’s distributors that even the best program may not address, a well-designed loyalty program can drive incremental bottom-line results for both you and your contractor customers. Want to know more? Give us a call.