How Distributors Can Create a Successful Contractor Loyalty Program

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

In today’s competitive distribution world, distributors, wholesalers and dealers can set their organizations apart through loyalty programs that create additional value for vendors and customers while simultaneously driving top-line growth and reducing cost to serve.

Creating a contractor loyalty program will help add value. In fact, in the Drilling Down: 2022 Contractor’s Loyalty report, nearly 90% of contractors surveyed said they wanted to be rewarded for all purchases, regardless of channel. Contractors are factoring incentives into their decisions and expect to be rewarded for loyalty.

So, how does an organization build a successful loyalty program? Here are some frequently asked questions from channel leaders about implementing programs. When taken together, the FAQs form a guide for designing new (or improving existing) contractor loyalty programs.

Do Contractor Loyalty Programs Work? 

Before digging into how to start a program, let’s look at an example of why and how they produce success. 

A loyalty program can result in substantial growth. For example, ITA Group designed a wholesale distributor incentive program for a building supply retailer that resulted in an average 510% annual ROI .

The program is garnering remarkable growth because of its structure: the more a contractor buys, the more they earn

Here’s how it works:

  1. The contractor is only rewarded when they increase business with the retailer.
  2. The contractor earns points for every sale they make with the retailer (but they don’t get paid until they hit a preset threshold).
  3. Vendor sponsors pay the program’s fixed costs.
  4. The retailer only pays for points contractors redeem.

The beauty of this contractor loyalty program structure is it increases top-line sales with disengaged (or only slightly engaged) contractors. It also allows the organization to centralize development funds from multiple vendors into a single program that benefits everyone. And, at the same time, it makes your organization easy to work with for contractors. 

How Do You Create a Contractor Loyalty Program?

We’ve seen how well contractor loyalty programs can perform. So where do you start creating one for your organization? Begin by defining your stakeholder audiences and distribution channels. 

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

Consider these types of stakeholder audiences:

  • Corporate
  • Local operating companies
  • Vendor/manufacturer partners 
  • Customers, contractors, dealers, etc.

And these types of distribution channels:

  • E-commerce
  • Inside and outside sales
  • Counter distribution and special orders
  • Other channels specific to your organization and business model

Better audience segmentation creates increased alignment and productivity, which impacts your ROI. Understanding how the relationships between audiences work will also make it easier to get buy-in to participate in your program.

What’s the Benefit of a Contractor Loyalty Program for Each Audience?

A successful contractor loyalty program offers something to each audience segment. 

  • Manufacturers/vendors often don’t know who the end customer is or what is actually being sold. But with a loyalty program to track it, you will. Plus, they’ll have the margins to support purchase incentives (which you need).
  • Contractors/customers have a lot of options when it comes to buying products, and they typically don’t have a lot of loyalty. They tend to buy products in spurts as supported by their individual business cycles, so rewards can incent them to purchase from you.
  • You (i.e., the distributor/wholesaler/dealer) can use the program to connect the dots between vendors and contractors to sell more! Help manufacturers make their money go further through sales and brand awareness when they invest in your loyalty program. Give customers an incentive to buy the manufacturer’s products again and again.

How Does Data Play a Role in Loyalty Program Success?

With any successful loyalty program, accurate data is critical. For example, you can use past sales history to set attainable goals and appropriate point thresholds for each customer. Or, you can analyze current audience demographics to find new customers and contractors to enroll in the program. Data requirements for each stakeholder group will vary, as will their role in the program earning structure. 

Here are some examples of the necessary data to include in a program.

  • Sales down to the customer level by:
    • Product
    • Location
    • Vendor manufacturer
    • Distribution channel
  • Gross profit by product
  • Customer and contractor identities 
  • Sales goals broken down for each contractor
    • Base goal: Amount they need to purchase in order to get their points
    • Stretch goal: Amount they need above their base goal to earn points at a higher rate

Collecting this data and pairing it with your understanding of what’s important to each stakeholder segment makes it easier to get their buy-in. You can offer manufacturers information on what’s selling and where, helping them to know where and how to focus their promotions. You can also offer customers a choice of award (e.g., merchandise, gift cards, travel, etc.) for meeting purchasing goals with your organization.

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.

Why Is a Contractor Loyalty Program Communications Strategy Important?

Effective communication is often the most overlooked piece of the incentive puzzle. An airtight communications strategy and campaign allows your brand, product and messaging to penetrate the channel and define your channel partner relationships. Make sure your incentive technology platform is personalized, scalable and able to integrate new advances in digital marketing.

Related: Learn how to create buzzworthy communications that give your incentive program personality.

Key elements of an effective communication strategy for loyalty programs include:

  • Understanding which manufacturers to target with buy-in opportunities and how to convey the benefits of investing
  • Developing consistent touchpoints with manufacturers to give key updates for continued investment
  • Knowing which customers to target with the program, then inviting them to participate in the next step(s)
  • Sharing why customers should join and what they will earn, setting their thresholds accordingly
  • Providing ongoing communications about goal progress and new earning opportunities

Spend time thinking about your unique audience and the best ways to reach them. Consider how they work and what matters most to them. For example, if you’re dealing with contractors as your customers, you’ll want to look into SMS messaging in addition to email and direct mail so they’ll have quick, easy access away from the office.

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

What Motivates Contractor Loyalty Program Participants?

Not everyone is motivated in the same way. When participants have the power to choose their awards based on what motivates them, the awards have more value and invite participants to build an emotional connection with the brand. 

By using points earned by dollars sold, you allow contractors in the loyalty program to choose the award they desire most—tapping into the power of choice to build positive brand associations and channel loyalty. 

How Do You Establish Contractor Loyalty Program Goals, Funding Models & ROI Projections?

Establishing goals and funding models 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:

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

How Do You Evaluate Contractor Loyalty Program Progress and Results?

There are three kinds of measurement statistics to consider when evaluating a contractor loyalty program:

  • Financial: Program ROI and sales performance
  • Operational: Audience engagement and activity
  • Qualitative: Audience feedback

Prior to program launch, define output needs to establish the benchmarks to measure against.

A Strategic Contractor Loyalty Program Drives Results

These eight common questions, and their answers, are a great starting point to building contractor loyalty programs that yield impressive results. While the process may seem arduous, choosing the right loyalty program partner can help take the burden off your team and guide you through each step. The experts at ITA Group are ready to help support your organization’s incentive program strategy and implementation, maximizing results along the way. 

See a successful loyalty program in action by learning how one building supply client overhauled their contractor loyalty program to achieve a 275% program ROI.

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.