The Dual Nature of BTB Customers
Any analysis of loyalty in the business-to-business space breaks down to two questions. Can a loyalty program help you increase share of customer and provide ROI within your particular buying-selling dynamic? If so, what best practices should you follow to ensure success?
The best BTB loyalty programs exploit a phenomenon that we call the Gemini Effect. Simply, the Gemini Effect states that BTB purchasers have two heads - one rational and focused on the bottom line, the other emotional and focused on ego gratification.
The best programs take advantage of this dichotomy, leveraging the principles of reward and recognition against the business bottom line and against the ego of the individual purchaser in the organization.
BTB marketers understand better than anyone the importance of key accounts, share of customer and lifetime value because they've practiced these principles since the dawn of the modern business age. Because the target audience is so much smaller than the consumer audience, marketers must squeeze every drop of value from each account. Much of what we now would call traditional relationship marketing was thus developed in the direct sales channel.
The advent of modern database technology let business-to-consumer marketers refine these direct sales principles, centralize the knowledge base and seize chances to increase efficiency. The perception therefore has been that the BTC world has surged past BTB in its use of sophisticated, database-driven direct marketing and CRM.
With that in mind, here are a few tips on how to exploit the Gemini Effect:
Get a handle on your data. The first step in designing a loyalty program is to segment the customer base. Who are the customers you want to reward, and whom do you want to ignore?
To do this, get a handle on data capture and hygiene. Is the buying location part of a larger corporate entity with multiple sites and addresses? Does the account have multiple contacts? Is the guy who signs the PO the actual decision maker? Business data also tend to degrade quickly because job functions, titles and addresses change.
Critical to maintaining clean data is establishing a dialogue with customers through personal contact, a call center, Web site or all of the above. A loyalty program can help facilitate that dialogue, but enlisting the aid of your existing communications channels early is key to getting off on the right foot.
A loyalty program is not applicable to every BTB business model. If your company deals heavily in contract pricing, then that roadblock may preclude you from starting a program altogether. Likewise, if your organization tends to sell to customers who have full-time, dedicated purchasing agents whose job is to negotiate deals and contracts all day, every day, then a loyalty program might not work.
The most obvious space where a loyalty program can be a tiebreaker is in small business marketing, in which one large company sells to a lot of small ones. This dynamic mimics the sales environment in the consumer world.
Do the math. When determining whether a loyalty program will contribute to profitability, there are two main cost factors to consider. The first is variable cost, or the program funding rate. For example, if you put 5 percent of every dollar your customer spends back into the program value proposition, then your program's variable costs are 5 percent of revenue. The second factor is fixed cost, which reflects the total hard cost to you of running the program yearly.
It's critical to compare these costs to the size of your customer base. If you lack a broad-based customer universe, then you need to ensure that the incremental lift you gain from your program is enough to offset both the fixed and variable costs.
Explore the Gemini Effect. Though examples exist of BTB loyalty programs that offer only cash rebates or rely strictly on in-kind rewards, the best programs appeal to the business bottom line and to the individual ego.
In terms of rewards, program designers are limited only by their imaginations. Rewards can take the form of business travel, PDAs, laptops, business seminars, leather briefcases, company golf outings - anything that can result in a meaningful reward or event for the purchaser, but also can be leveraged by the business.
However, when marketing to businesses, you must avoid the appearance of impropriety. There's no faster way to lose the loyalty of a company owner than by giving him the impression that his company's loyalty has been purchased.
Making your program ethically sound requires subtlety and creativity. For example, it may be unwise to reward the purchasing manager of a key account with a fishing trip for him and his wife. You've given him a selfish reason to buy from you, and his boss will be pretty hot if he gets wind of it. But what if he could redeem points to charter a boat for a recognition day for his department?
If your company's products and services are first rate, and if your program structure and value proposition are sound, you'll have built relationships with customers without requiring an $80,000-a-year sales rep to visit every quarter.
But here's one note of caution. No loyalty program, however well designed, can compete against your direct sales channel. Not only do you need their buy-in, but you're also best served to find ways for it to benefit them explicitly. Use your program to increase the sales team's perception of their power and influence.
If the real untapped opportunity in loyalty lies mostly in the small business market, then that's because of the traditional nature of BTB coverage strategies. Fortune 1000s are usually covered by face-to-face sales teams. The midlevel accounts may be covered over the phone or by resellers or distributors. But that last tier of small business accounts is historically underserved.
These customers have a high upside in terms of share of customer, but typically feel slighted by suppliers who neglect them in favor of larger accounts. With a solid loyalty program, small businesses get the recognition they deserve. The dialogue established can improve sales coverage and pricing for these small but lucrative accounts.
But once you've built and launched your program, have seen ROI and demonstrated profitable behavioral shifts in your customers, what then? All that data you collect is useless without leveraging it to strengthen your hand. Communications should reflect individualized knowledge of each customer. Both content and product/service offerings should become increasingly relevant and reflect respect for program involvement.