Getting Started With Contractor Loyalty Programs

By: Pat Pelischek
Two people discussing a contractor loyalty program in manufacturing environment

In today’s competitive world of distribution, setting your organization apart is all about creating additional value for your vendor partners and customers while driving behaviors to increase top-line growth and reduce cost to serve.

The way to successfully do this is with a contractor loyalty program.

Don’t know where to begin? Here are a few common questions asked about implementing contractor loyalty programs and our answers to them.

Does It Work? How?

A contractor loyalty program can truly result in substantial growth—check out an example of a wholesale distributor incentive program ITA Group designed that resulted in an average ROI of 510% annually.

This program is garnering incredible growth because it’s a well-structured program. The main premise is the more a contractor buys they more they earn. See how it works:

  1. You only reward a contractor when they’ve increased business with you.
  2. The contractor earns points with you for every sale they make (but they don’t get paid until they hit the threshold set by you).
  3. Vendor sponsors pay the fixed costs of running the program.
  4. You only pay for the points contractors redeem.

The beauty of structuring a contractor loyalty program this way is it increases top-line sales with customers who are not at all engaged or only slightly engaged. It also allows you to centralize development funds from multiple vendors into a program that benefits everyone and keeps it simple to work with you for your contractors.

So how do you create a program like this for YOUR contractors?

Identify Your Audiences & Channels

Define your stakeholder audiences (corporate, local operating companies, vendor/manufacturer partners and customers/contractors/dealers, etc.) and your distribution channels (e-commerce, inside and outside sales, counter distribution and special orders, among others, depending on your organization and business model).

By segmenting and understanding the relationships between your stakeholder audiences and distribution channels, you ensure the program design meets everyone’s objectives.

Better audience segmentation creates better alignment and increased productivity. And that impacts your ROI. Understanding how these relationships work will also make it easier to get buy-in from each audience to participate in your program.

Related: Top-performing organizations have their own unique ways of looking at rewards and recognition programs as effective recruitment, retention and engagement tools. Here are the top 10 strategies that set them apart from the rest.

So what’s in it for them (and you)?

Manufacturers/Vendors often don’t know who the end customer is (but you do), don’t know what is actually being sold (but you do), and have the margins to support purchase incentives (which you need).

Contracts/Customers have a lot of options when it comes to where to buy their products, have little loyalty and who they buy it from, and tend to buy in spurts as it is supported by their individual business cycles.

You (the Distributors/Wholesaler/Dealer) can connect the dots in the middle and sell more stuff! Help the manufacturers make their money go further (sales and brand awareness) by investing in your contractor loyalty program to give your customers an incentive to buy from you again and again.

Determine Data Requirements & Availability

With any loyalty program, accurate data is critical to the success of the program and to the identified stakeholders (your vendors/manufacturers). Data requirements for each group of stakeholders will vary, as will their role in the program earning structure. Data needed includes, but is not limited to:

  • Sales down to the customer level by:
    • Product
    • Location
    • Vendor manufacturer
    • Distribution channel
  • Gross profit by product
  • Who your customers and contractors are (so you can enroll them in the program)
  • Sales goals for each contractor based on past history (so you can set a points threshold)
    • Base Goal—amount they need to purchase with you in order to get their points
    • Stretch Goal—amount they earn at a higher rate after they go above and beyond their purchase goal

Having this data and pairing it with your understanding of what’s important to each stakeholder segment means you can get their buy-in. You can offer manufacturers information on what’s selling and where, helping them to know where they need to promote more and to who. You can also offer your customers a reward for reaching sales goals by purchasing from you, they get to earn any kind of reward they’d like (merchandise, gift cards, travel, etc.).

Related: Today’s world of distribution is ultra-competitive and ever-changing. Learn how to use your data to differentiate yourself and drive results with this ebook.

Determine an Effective Communication Strategy

An airtight communication strategy and campaign allows your brand, product and messaging to penetrate the channel and define the relationship with your partners. Make sure your incentive technology platform is personalized and scalable, and that it integrates and supports the advances of digital marketing.

Effective communication is often the most overlooked piece of the incentive puzzle. Learn how to start a buzz with creative communications that give your incentive personality.

Key pieces to an effective communication strategy include:

  • Understanding which manufacturers to target with buy-in opportunities in your program—you need to convince them to invest and reap the reward of knowing who, what, where and when.
  • Consistent touchpoints with your manufacturers to let them know reporting updates will be key to continued investment.
  • Knowing which of your customers to target with the program, then inviting them to participate is the next step(s).
  • Understanding why they should join and what they will earn, then setting their thresholds accordingly.
  • Ongoing communication about their progress and earning opportunities.

Think through the best way to reach them. Often if you’re dealing with contractors as your customers, you may want to look into SMS messaging in additional to email and direct mail.

We highly recommend working with a creative communication group to help map these touchpoints and make sure they resonate with your stakeholders.

Create an Awards Strategy to Motivate Program Participants

Not all people are motivated in the same way. When participants have the power of choice based on what motivates them, awards have more value—and often an emotional connection.

Emotional connections are created through memorable experiences. According to the Incentive Research Foundation Pulse Study, 42% of program owners are increasing the number of experiential rewards within their offering. Experiential rewards connect people with your brand, and that brand connection can transform the power of channel loyalty.

By giving your contractors in your loyalty program points earned for the dollars sold, they are able to redeem that for whatever they desire most. Whether that is merchandise, gift cards, trips with their family—you are giving them the power to choose a reward for the hard work they’ve done for you.

Establish Goals, Funding Models & ROI Projections

This step is critical to ensure your contractor loyalty program is developed in a way that provides a positive return on its investment. Recommended next steps following the receipt of customer data are as follows:

  • Complete customer segmentation analysis
  • Re-confirm program objectives
  • Define program earning structure
  • Set customer goals, if applicable, by segment
  • Complete financial modeling by segment to begin to determine financial impact
  • Begin defining additional program details to finalize the funding amount for your company, your vendors and your local operating companies

How Do We Evaluate the Progress and Results?

Three kinds of measurement statistics to consider when evaluating a contractor loyalty program include:

  • Financial—program ROI and sales performance
  • Operational—audience engagement and activity
  • Qualitative—audience feedback

Defining output needs prior to program launch assists in establishing benchmarks to measure against.

How Can You Choose the Best Contractor Loyalty Program?

Choosing the right loyalty program partner to develop and administer your program makes all the difference in getting optimal results. ITA Group is an expert with 50+ years of experience in performance improvement. While at first glance this process may seem arduous, ITA Group ensures the bulk of the labor occurs on our end. We make incentive program strategy and implementation easy to follow, understand and get excited about.

But don’t just take our word for it—see the results. Learn how one manufacturing client is leaving competitors in the dust through a strong partnership and streamlined experiences.

Pat Pelischek
Pat Pelischek

Pat has over 20 years of experience in developing and implementing contractor loyalty programs with some of the biggest building materials wholesalers in the world. As a Sr. Business Development Manager at ITA Group, Pat operates with one guiding principle, "I will always and only work in the best interest of my clients." He prides himself on providing data driven recommendations, actionable reporting and remarkable experiences for the clients he serves and their customers.