Loyalty Marketing In B-to-B
You’ve heard the data about the importance of retention marketing. It was a full ten years ago, in 1996, that Frederick Reichheld’s The Loyalty Effect demonstrated to the world that a 5 percentage point decrease in customer defections can improve per-customer profit anywhere from 25% to 85%, depending on industry.
Davidow and Malone put it another, equally compelling, way in their book The Virtual Corporation: Retaining an additional 2% of customers has the same effect as cutting costs 10%.
The world of loyalty marketing has thrived over the years, ranging from dear old S&H Green Stamps in grocery stores, to department store credit cards, to airline frequent flyer miles. These programs for consumers are linked by one characteristic: rewards for purchase in an effort to motivate repurchase and prevent defection.
But in business markets, loyalty programs have evolved differently. Business purchases are less likely to fit the frequency model that supports points programs. Most companies that sell to other businesses find the Pareto Principle stretched to the limit: A few major accounts can represent well over 90% of the revenue. In many industries, a complex network of distribution channels makes the definition of “customer” difficult. Furthermore, doling out rewards to individual buyers may be counter to corporate policies on accepting gifts from vendors.
But on a customer by customer basis, a business account represents far more value than a consumer household. Even more critically, the universe of prospects is smaller — numbering in the thousands, versus the millions. So loyalty marketing is essential to success in B-to-B.
As they play around with loyalty programs, B-to-B marketers have created a variety of approaches. They come in all shapes and sizes, but generally fall into one of three buckets.
- Differentiated Service Levels
- Partnership Strategies
- Rewards Programs
Differentiated Service Levels
Top customers deserve special treatment. You can afford it, and they expect it — and thrive on it. So business marketers will shower their best customers with perks, goodies and attention, that both make it easier for them to buy and recognize their importance. The most basic of such treatments is a dedicated sales rep, who knows the client company thoroughly — and may even have an office at the client’s site.
But there are myriad other ways to provide special services to top accounts, among them:
- Dedicated 800 numbers, answered by an inside sales person who is knowledgeable about the account — even knows the names of the buyer’s family members. Buyers won’t hesitate to call when they know they will reach a reliable, knowledgeable and caring person at the other end.
- Intranets, which are dedicated websites built behind client firewalls that allow their employees to solve problems — and place orders — 7 by 24, with complete security, and according to the blanket terms and conditions negotiated corporate-wide.
- A peek under the tent. Key accounts love being invited into the inner sanctum. Put them on a special advisory board. Invite them to brainstorming meetings for product development. Brief them early and often on trends, developments and big ideas on the horizon.
Partnership Strategies
Partnering is about moving a normal customer relationship to the next level, where both parties gain advantage, and the whole is greater than the sum of its parts. In B-to-B partnerships make sense for many reasons, among them the fact that many of your best customers may also be your suppliers. Furthermore, industries tend to develop tight communities, where referral and networking provides abundant opportunity for not only sales, but also product development, manufacturing, and attracting superior employees.
So the best business-to-business customers look for ways to build strong partnerships. Look at Sapient, the business innovation consulting company based in Santa Monica, which two years ago introduced a client loyalty program, in the form of an exclusive client conference.
According to Sapient director Patti A. Birbiglia, the 3-day Summit is held three times a year to strengthen the relationship between Sapient and its key clients. Only 18 to 20 clients are invited — senior VP’s, CIO’s and executive VP’s — for 3 days of meetings, roundtables, and golf outings. Senior Sapient execs are of course in attendance, but no selling is allowed. “The Summit lets our key clients feel like they are a part of Sapient,” notes Birbiglia. “It’s not like, say, the Marriott rewards program. Instead, we provide our clients with a great experience, but its impact is behind the scenes, invisible.”
How do they know if the program is successful? A combination of hard and soft measures. Sapient captures sales leads emerging from the events. They also track feedback from client reps. “The clients love the networking among their peers,” says Birbiglia, “But I also keep an eye on account growth rates before and after the event, and compare them to growth in non-attending accounts. We may not see real results for 18 months.”
Rewards Programs
Classic loyalty programs have a place in the B-to-B world, particularly in categories that involve frequent purchase or multiple unit purchases. Examples abound among business marketing categories than straddle consumer and business markets, like office products and hospitality. Staples, for example, has a very popular rewards program in place for its small business customers. The OPEN program from American Express is another program that combines rewards with partner companies like FedEx and Hertz with frequent flier miles from airline partners like Delta. OPEN also provides a variety of tools and resources at its website, to help small business owners manage their companies more easily.
But rewards programs are also found in less traditional sectors, like building supplies. Look at the Value Alliance Club that was created by the Palatine IL agency Interline Creative Group to serve a variety of non-competing companies selling to contractors. [Click here to view the Value Alliance Club web site.]
The original participant was Sloan Valve, a company selling specialized plumbing fixtures. This is an increasingly competitive category, and the rewards program has become an important strategic weapon for Sloan to encourage repeat purchase.
Sloan developed the program six years ago, in search of a way to attract contractor repurchase without offending its distributors. The program is set up to reward all parties, according to their participation in the bottom line. When an electronic faucet is sold, the contractor gets points, but the distributor also gets a point distribution at the rate of 10%.
Contractors and distributors can redeem pointsfor prizes. Before September 11, the rewards were all in travel deals, like vacation packages. Now, the program has expanded to offer merchandise like lawn mowers and pool tables.
“The beauty of this program,” says Jim Nowakowski, of Interline, “is that it’s as flexible as a spif, but adds more value.Instead of giving $5 when a contractor buys a product, you can give points for all kinds of behaviors, like richer points for trying out a new model, or reducing points to protect margin on certain products.”
Another brilliant stroke by Interline was amortizing the fixed cost of running the program over a half dozen non-competing clients, like T&S Brass and Leonard Water Temperature Controls.
Of the 40,000 contractors in the U.S., Sloan does business with about 5,000. Of them 30-40% are playing the Value Alliance Club game to the hilt. “They clearly concentrate their purchasing with Sloan, and the result is, they are taking their kids to Disneyland for free,” says Nowakowski.
Loyalty programs in B-to-B need to be crafted carefully against business objectives, the competitive landscape, and buying behavior. Observes Mike Capizzi, vice president of Frequency Marketing Inc., the best programs combine emotional and rational rewards.He also notes that business marketers have an advantage in the loyalty business: access to data. “Most consumer manufacturers would kill for the direct end-user access that business marketers enjoy,” says Capizzi. “If they would just think it through strategically, and then take advantage of that asset, loyalty marketing can be a huge advantage in business-to-business marketing.”