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Problems With Contractor Loyalty Programs

  |  Posted in Contractors

Problems With Contractor Loyalty Programs

Contractor loyalty programs are starting to rear their ugly head again in building materials. They were a bad idea in the past, and they are a bad idea today.

On the surface loyalty programs, seem to make sense.  Why wouldn’t you give a customer some rewards in exchange for their loyalty to your company? The problems are many.

You Make it Easier for Your Competitors to Compete With You.

If you start a loyalty program, so can your competition.  If you offer a catalog of items to choose from, so can your competition.  If you offer a trip to Europe, they can offer a trip to Asia.

The point of difference becomes the reward rather than the quality of your product or the benefits of doing business with your company.

When I first started in building materials, one of my first tasks involved a loyalty program, a very large and expensive loyalty program.  My client, a large building materials manufacturer, had two major competitors.

I don’t remember which of the three companies started it, but it soon became the War of the Vacation Trips.  Each year, my job was to direct a creative team to develop the most compelling loyalty promotion campaign of the industry.

My assignment was to make going on a loyalty trip with my client more desirable than the competitors, no matter where they were going.  If my client was taking you to Paris and the others were offering Hawaii and Australia I had to make you want to feel that a trip with my client to anywhere would be more enjoyable than the others.

Eventually, it almost became an arms race where we were running out of places to go that were new and unique.  We even took contractors to Russia and Rio. We wondered what would be next, the moon?

We then did a little research on the contractors.  We found that more and more of them were choosing who they bought from based on the trip that was offered.  Each year, they would consider which offer they liked the most and shift their business to that company.  Any differences in products or companies were irrelevant.

My client and the competition stopped offering loyalty trips the next year.

Loyalty Programs Are Expensive.

When you add up the cost of the rewards, the markup and administrative fees of companies who sell and manage loyalty programs, it can be very expensive.  And the more successful the program is, the larger a bite it takes out of your budget.

You have less and less money to find new customers or spend on other ways to differentiate yourself.  Is the contractor buying your reward or your product?

There Are Better, More Effective, Less Expensive Ways to Instill Loyalty.

I interview contractors for my clients frequently.  I always ask them to tell me who their best suppliers are.  Companies that they can’t imagine doing business without. Companies they wouldn’t leave if they were offered a lower price. They can immediately tell me at least three companies.

When I ask them why, they tell all tell me, “Customer Service.”  They feel that the companies they are loyal to are more committed to their success than the competition.

Thier definition of customer service maybe the caliber of their rep, technical support, training, problem resolution, customer service department or more.

I have never heard a contractor tell me he is loyal because of a loyalty program.  To them, the best loyalty program is how you take care of them.

Better Ways to Gather Data.

Contractors can be a hard group of people to reach or track their purchases as they don’t purchase directly from the manufacturer. Loyalty programs are also sold as the only way to gather this purchase data on contractors.

Contractors live online in their business lives just like they do in their personal lives.  They frequently tell me that they want to go home at night and continue to do business online.  My favorite quote was from a contractor who told me, “I want to be able to interact with manufacturers at home at night while sitting in my underwear in my Lazy Boy chair with my laptop.”

You should be investing in your online presence and marketing automation instead of loyalty programs.  When you build an online relationship with a contractor, they will tell you a lot more than just their purchase data.

This level of online leadership is expensive, and you will need every dollar you can find without wasting any on a loyalty program.

Loyalty Programs Appeal to The Wrong Type of Contractor.

Successful building materials contractors are getting smarter, particularly about finances.  The best contractors realize that there is a cost for a loyalty program that they are funding, in the end. The most successful contractors can afford to buy any trip or trinket they want.

It is the smaller, less financially knowledgeable contractors who are attracted to loyalty programs.  When the next recession arrives, how many of these contractors will still be in business?  You should focus on the most knowledgeable contractors. The ones who aren’t attracted to loyalty programs.

3 Ways to Make Contractors Really Loyal to You.

1. Customer Service Leader

Improve your customer service until you are recognized as having the best customer service in your product category. Best customer service is defined by the contractor and not you or an online survey.

2. Knowledge Leader

Your sales reps should know more about your category of products than your competitors.  They should be the go-to person for information not just about your products but everything about your type of product.

3. Online Leader

You should be the online leader. Your website should be the contractors preferred source of information and the best place to get an answer to any of their questions about your type of product.

Do these three things and you will build more contractor loyalty than any trip or prize ever will.

I guess great minds work do think alike.  On the same day I wrote this, Steve Keleber of Kleber & Associates also wrote an article on Contractor Loyalty programs.  You can read Steve’s take on effective Contractor Loyalty programs here.

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About The Author

I am the leading sales growth consultant in the building materials industry, I identify the blind spots that enable building materials companies to grow their sales and retain more customers.  As I am not an ad agency, my recommendations are focused on your sales growth and not my future income.

My mission is to help building materials companies be the preferred supplier of their customers and to turn those customers into their best salespeople. Contact me to discuss your situation.