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Nov 29, 2005
How To

Business-to-Business Loyalty Marketing –- How to Stop Your Most Profitable Accounts from Deserting

SUMMARY: Sending your best mid-to-big business customers a holiday card isn't going to cut it. Over the next 12 months you'll inevitably lose some clients. What loyalty programs can you put into place today to begin to stem the loss? MarketingSherpa's new special report on B-to-B loyalty marketing includes a mini-case study on a real-life loyalty program that works. Plus, you'll see stats on why business customers leave, and five steps to start enhancing loyalty today.
By Dianna Huff, Contributor

“When you’re a customer who spends a lot of money with a company, you don’t want the ordinary rules to apply to you,” states Nick Mavrick, VP, Global Strategy & Marketing for Volvo Rents, a construction and industrial equipment rental chain.

“You want to know you are special. Maybe you don’t want to pay shipping charges. Or you need to have your big delivery on a Sunday morning. Bending over backward for your best customers –- that’s what loyalty marketing is all about.”

Although business-to-consumer and Small Office/Home Office (SOHO) loyalty programs are well-covered in the marketing press (see below for our fave resource), until now there’s been almost zero info on business-to-business loyalty programs targeting mid-large enterprise clients. We wanted to know:

-> How are business-to-business companies rewarding larger organization customers?

-> What types of B-to-B loyalty programs work best?

-> Why do enterprise customers leave?

The answers are surprising yet at the same time obvious (hint: it’s about the customer).

Why points programs won’t work

“For B-to-B, loyalty is all about maximizing relationships with particular clients,” says Carlos Dunlap, VP Strategic Services, Maritz Loyalty Marketing. “Discount programs and reseller initiatives (i.e., co-op dollars and other rewards) can exist within a loyalty program, but B-to-B loyalty is not based on price or rewards. True loyalty is when your customer is resistant to competitive threat and insider machinations.”

Which is why points programs aren’t the best method for B-to-B companies who want to keep customers for life.

Unlike retailers or financial services who are marketing to individual consumers and/or the SOHO market, B-to-B companies are marketing to enterprise organizations and dealing with various people (i.e., influencers, purchasers or buying agents, decision makers). And, unlike consumer and SOHO companies who are marketing to the masses, B-to-B enterprise companies are marketing complex products with long sales cycles to a known universe.

Hence, B-to-B loyalty programs must by their very nature provide true value in order to be effective.

Rewards programs do nothing to stop customers from leaving. Here’s a chart showing why business customers do leave (and the startling disconnect between why they really leave and you thought they left).



Says Catie Fitzgerald, Contact Channel Consultant, Enhanced Training Solutions, “Think about the printing industry for a minute. Maybe a company used a local printer for years. But thanks to technology, you can send your print job to Fed-Ex/Kinkos via email, have it printed in 24 hours or less, and have it delivered to you at no charge. They save you money, time and give you peace of mind.

“It’s this combination of quality, customer service and value that either gets people to change vendors – or makes them incredibly loyal customers.”

Fitzgerald has discovered rewards-based programs can actually backfire on a company because after awhile, business clients begin to perceive loyalty rewards as "standard" treatment rather than "royal" treatment and begin to demand more concessions to feel special.

She notes, “A loyalty program that doesn’t offer your customers true value can make your company look amateur and unsophisticated. Logo hats and coffee mugs may thrill a B2C client, but in the B-to-B world, this approach could actually lower your reputation.”

So how do you keep business customers loyal for longer? The answer is simple: develop real relationships with your customers, view them as people with real business needs and work like hell to give them what they want.

Five specific steps to start your customer loyalty program

Because loyalty programs are based on your customers’ needs, developing a program takes time, buy-in from the top and to some extent, organizational change. “This is not something you can do on your own,” says Fitzgerald.

Step #1: Segment and profile your best customers

Loyalty programs are generally used to reward the 20% (or less) of customers generating 80% of the business. The only way to determine who are your best customers is to analyze purchasing/activity levels and then create a tiered customer list and loyalty program based on their values and needs.

First, clean up and enhance your client contact database. In addition to the typical tasks of collecting names, telephone numbers, email addresses mail addresses, and job responsibilities of key people within organizations, you also need to know where the power and evangelism lies (often two completely different people) as well as to whom they report in the organization.

Says Dunlap, “You should also analyze your data elements, including segments defined by company, industry verticals, product profit margins and channels. You must also know how each contact prefers to get his or her information.”

Plus, add data from the customer service, account rep and technical support departments showing complaints, install time, potential problems, past problems solved, etc. You need a full view of each major account through every complaint-touch point in one place. (Note: this is the number one step most companies fail to do.)

Step #2: Benchmark current client satisfaction (and typical problems)

Fitzgerald advises companies to benchmark customer satisfaction at the start of a loyalty program and then routinely conduct in-depth customer surveys to ensure the program is working. “A phone survey with multiple choice answers works best for a VP but a Web survey is better for tech people.”

Key: you also have to be sure your organization is willing to make changes should your survey show trouble brewing on the horizon.

After obtaining buy-in from sales, contact top clients directly. Perhaps do a ride-along with an on-site exec or technician on your team. Or have a lunch at major trade shows or customer gatherings where you can get quality one-on-one time in with client-side decision makers.

These visits have a two-fold purpose: to create more human connections with the client-side (people do business with people, not institutions) and to garner more feedback for your client satisfaction database.

Key: You must interact regularly with your customers –- and we don’t mean send them email blasts announcing new products. Visit job sites and shoot the breeze. Make it easy for them to contact you by giving them your email address, phone and mobile numbers. Break down barriers and get to know them as real people. What are their career goals? What problems are they encountering in their jobs? How can your company solve those problems?

The more you know about your customers – and the more you remember about each one individually – the less likely they’ll be to start all over again with someone else (providing you’re giving them what they want, of course).

Step #3: Find out why former customers (really) stopped doing business with you

As you may have noted from the ‘Why Business Customers Leave’ chart, most companies have no idea why past clients left. With research you may find, for example, you should divert some R&D funds over to improving customer service or product usability. Why the disconnect? It’s not because marketers and sales reps are stupid, it’s often because of past customers’ white lies. Once they’ve gone through the agony of deciding to leave you (and all the committee meetings that often entails) they don’t want to be “re-sold” or be asked to reveal problems they already spent hours or weeks complaining to your service department about.

They want to get out of the relationship gracefully, quickly, and politely. No hard feelings, no harm, no foul.

So when you call to ask, “Why?” chances are they’ll give you a white lie. Often it will be about something you can’t re-sell against such as budget, internal politics or dramatically-changed technical needs.

(In fact, if someone tells you they can’t afford you anymore, chances are they are lying.)

Two ways to determine the real truth:

-> Check your customer service logs and anywhere else a complaint might be registered. The bigger an organization you’re in, the more chances are the information may be siloed in another department or database.

-> Hire a third party research firm to call customers who have left. (Note: This should be an experienced specialist not a telemarketing house that could further damage your reputation with an amateurish scripted call.) Past clients will often speak far more candidly and extensively to a neutral third party than they would to you.

Step #4. Launch a loyalty program

When you know what customers really want, choosing what elements would make a high-impact loyalty program are easier. It’s not about the holiday card or the coffee mug, or even a company blog.

Often, it’s service related –- giving a “valet-level” of white glove service to customers who count the most.

One marketing director we interviewed learned from a sales guy that their largest client didn’t want to call the main 800 number to place orders. “They were doing so much business with us, they wanted their own 800 number and a dedicated order taker. So we gave them both.

“We also learned they were waiting three months to get their test reports back from another vendor. We devised a special online tool that allows them to run the same report in minutes. Sales increased 200% in first three months.”

Strategy #5: Don’t forget to get buy-in from the channel

One of Dunlap’s clients, a consumer package goods manufacturer, wanted to understand more about their end-users in hospitality, hospitals and office buildings. However, the data resided with distributors who were wary of sharing information with the OEM.

The first thing the OEM did was put together a straw man design of what a loyalty initiative might look like and then asked their distributors, “If you were assured we would not sell directly to end-users and that we would help you drive sales, would you participate in this program?”

Says Dunlap, “95% of the distributors surveyed responded with a ‘yes’ and that they would share end-user data with the OEM as long as the company kept its word. The company ended up rolling out a full-scale loyalty program and is getting coveted end-user data in return.”

Mini-Case Study: Loyalty program grows “loyalist base” by 150%

“We knew that 35% of construction equipment is rented and that the industry is expected to grow to 50% by 2008. So when we decided to franchise our equipment rental stores in 2001, the first thing we did was analyze who our customers were,” says Nick Mavrick, VP, Global Strategy & Marketing for Volvo Rents.

First, Mavrick and his team segmented the customer base into three groups based on how much business each group generated. These were Loyalists, Future Loyalists and Testers.

The 10% of Volvo Rents customer base who were in the Loyalist category generated over 60% of the business. “This worked out to roughly 50–100 people per store spending tens of thousands of dollars per year,” Mavrick says.

Next Volvo Rents set out "white glove service" rules for these Loyalist top 10% clients. This service could include making a delivery at midnight or opening a store on Sunday morning –- whatever it was the customer said he needed most.

Volvo Rents was able to accomplish this feat because store owners were empowered. “Our store owners and their employees are the brand. As such, they needed to make the decisions on how to best care for customers. We saw our job as helping them do that by giving them marketing dollars and customer data. If a store owner needed to sponsor a customer’s favorite charity or wanted to send a valued client a case of Omaha steaks as a ‘thank you,’ he had the dollars to do so.”

In addition to special service for Loyalists, Volvo Rents also provided a marketing budget for “extra touch” service for other segments of the database. “We worked hard to turn Future Loyalists into Loyalists because we found that Loyalists generate the most value for our company,” states Mavrick. “We spent few dollars on Testers.”

One store owner, for example, brought a grill to job sites and made lunch for that customer’s employees. Another store owner provided freshly baked cookies and trail mix.

“Anyone can give out branded hats,” says Mavrick. “We refused to do that. We wanted to provide an authentic experience that built an emotional relationship with our customers. Because once you have that emotional component, you have customers for life.”

Last but not least, Mavrick’s team changed new customer acquisition strategies.

“Once we started looking at segmented information, we realized mass marketing was not going to work for us in acquiring new customers.”

Based on the current customer demographic profiles, Volvo Rents began identifying potential customers and developing specific programs to acquire them. What made their program different was the decision to spend big dollars to acquire each customer. Instead of spending .20 cents per 100,000 people for a mass marketing campaign, Volvo Rents carefully targeted 100 people and spent $20 -- $50 per prospect to acquire them.

“Basically,” says Mavrick, “we picked our customers before they picked us. Then, once they became a customer, we set up unique rules for each one based on what they needed from us.”

Results: Volvo Rents’ customer base has grown over 70% in the last year (Mavrick says part of this is due to new store openings) while the number of customers who are now in the Loyalist category has increased by over 150%. “We really think about loyalty in terms of how much a lost customer will cost us. Losing even 3% of our top customers means a gigantic impact on the company. So we work to keep them."

“You can run your business one of two ways,” he sums up. “Be a mass marketer and treat everyone equally and risk having your service or product become a commodity. Or you can design systems and processes to offer customized service to your best customers in the way they want it – and in turn, increase sales. You can only do that, however, if you focus on the few.”

Useful links for this article:

MarketingSherpa's IT Marketing Benchmark Guide 2005-2006: Data for Software, Hardware, and Services Marketers http://www.sherpastore.com/IT-Marketing-Benchmarks-Data-200
.html


Right Now Technologies http://www.rightnow.com

Enhanced Training Solutions, LLC http://www.enhancedtrainingsolutions.com

Maritz Loyalty Marketing http://www.maritz.com

Colloquy.com – Our favorite resource site for B-to-C and SOHO loyalty marketing tactics: http://www.colloquy.com

Volvo Rents http://www.volvorents.com

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