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Most people are big users of loyalty programs in their everyday purchasing decisions. Booking a flight, hotel, or car rental typically involves earning or using reward points in a myriad of available travel reward programs. The same goes when gassing up your vehicle, going to the grocery store or pharmacy or even buying a bottle of wine.
And we’re quite likely to pay for all of these purchases with a credit card that offers points, enabling us to double-dip and earn points from the vendor in question and more points from our bank. Loyalty programs are everywhere. They effectively and cost-efficiently influence purchasing for tens of millions of consumers every day.
But what about businesses? After all, they make purchasing decisions too. They actually make more purchasing decisions than a typical consumer. So, why aren’t there more B2B reward programs out there?
The reality is, there are a lot of B2B reward programs, but they are usually targeted and not as visible to the public. However, they can be just as effective, if not more so, than a B2C program so long as they are correctly structured and administered with a B2B audience in mind.
This article will compare the differences between B2B and B2C loyalty programs but first, let’s look at the similarities.
Both types of programs ultimately seek to accomplish similar goals:
And both types of programs may include similar features:
These program business models help drive increased sales and longer-term growth and profitability for the companies that offer them.
Consumers and business decision-makers are two very different target audiences, with very different needs and opportunities. How these two groups approach and use loyalty programs varies significantly. These differences need to be understood and reflected in a program’s structure and how the program is administered by the company offering it.
A key difference between consumer-facing programs and B2B programs is centered on reward attainability – the total reward value a participant can earn in a program. For most consumer programs, that value is very low.
In 2019 the average household had about $60,000 of annual expenditures*, with most of those going towards housing, insurance, healthcare and other categories that don’t tend to employ loyalty programs. As a result, the average consumer has less than $30,000 per year to spend in the categories where vendors typically offer loyalty programs, such as gas, grocery, pharmacy, and specialty retail.
Simply put, once that discretionary spending is spread across the 5 - 10 consumer categories, the average consumer has few opportunities to load up and earn reward points or frequent flyer miles. As a result, businesses offering programs must seek to engage consumers and build loyalty using more “soft” rewards (discounts, birthday offers, special newsletters, etc.) because there simply isn’t enough spending and associated margin to direct a lot of “hard” reward value at them.
On the other hand, businesses vastly outspend a consumer household.
Depending on the type of business involved, purchases of goods or services may comprise more than 50% of the company’s total revenue. Even a small retail operation with $1,000,000 in sales could spend as much as $500,000 (or more) a year on goods and services. Depending on how many vendors need to be involved, that spending volume could translate into significant reward attainability. As a result, a B2B program has a bigger opportunity to influence purchasing behavior using a modest point structure, costing 1% - 3% of sales.
A business owner who embraces a vendor’s loyalty program and begins to direct more of their spending to them could easily earn a number of rewards annually.
These same business owners will often put many of the loyalty program purchases on a point-earning credit card as well, enabling them to double-dip on a significant volume of their annual purchasing.
The benefits of participation can add up. For this reason, business owners have become some of the biggest users of loyalty programs.
Most consumer programs are very inclusive. Virtually anyone can join, and there is usually no cost to do so. The retailer is looking to secure the customer’s contact information to begin a dialogue with the consumer. They marry the profile information provided (age, sex, location, zip code, etc.) with their transactional data to create customer journeys and target them with offers that make sense for their customer type or segment.
B2B loyalty programs tend to have more restrictions regarding who can join a program largely because many customers may be ineligible to participate. Most companies will exclude national accounts because those customers already receive preferential pricing, and the vendor will not wish to further erode margins by adding rewards to the mix. Municipalities and government agencies are also usually not eligible or legally allowed to participate, and e-commerce retailers are also frequently excluded from loyalty programs.
Some B2B programs take the exclusions too far. While the notion of an exclusive VIP program, limiting participation to customers who spend a minimum amount in a year, might be appealing, it is often strategically a bad idea because it ignores the potential for growth among small to medium-sized accounts.
The biggest customers are typically already well serviced by a company’s sales team, helping to drive engagement and capture as much market share as possible – but what about the hundreds or thousands of smaller accounts that aren’t frequently (or ever) called upon? They may be buying the bulk of their purchases from a competitor but make the odd purchase from the company offering a VIP program. They won’t join if they feel they can’t reasonably attain the minimum annual spend for participation – and this is the failing of such a program.
Smaller accounts often have the most significant growth potential – especially in aggregate – but are ignored by the program. A better strategy is to have a more inclusive loyalty program, based on growth vs. the previous year (or same quarter in the previous year), rewarding customers more and more as they hit and surpass various growth tiers. Such a program can include a VIP tier, whereby the top customers get extra rewards, reflecting their value to your company. In this manner, the program recognizes and rewards the value of the bigger customers while also leveraging the huge potential for growth with all the other small to medium-sized customers.
Let’s be honest, many consumers have a problem with impulse purchases. Malls and websites are full of people looking to buy things they probably don’t need but make them feel better by addressing a psychological or emotional need. Just take a look at the explosive growth of storage facilities for all our unneeded and unwanted “stuff.” There are TV shows about hoarding and buying storage locker contents. Many B2C loyalty programs take direct aim at this sort of emotional buying. They employ customer journeys to help consumers make more and more unnecessary (and necessary) purchases
A business owner is not going to buy things they don’t need just to earn some points. They either need the item or service, or they don’t. A loyalty program is the vendor’s way of increasing the odds the customer buys what they need from them versus the competition.
The era of big data is most assuredly upon us. The amounts of data accessible to companies is growing exponentially each year and is helping them refine their targeting abilities to influence purchasing. For most consumers, the misuse of their loyalty program profile data or contact data is highly alarming. Concerns about privacy and identity theft are very real, and excessive use of personal data by companies selling to consumers can create a backlash, harming the consumer’s trust in a brand, eroding brand engagement and harming future sales potential.
B2B loyalty programs have a much different opportunity to use program data – but in a way that is not threatening to their customers. Most B2B programs do not collect personal data. A business owner or buyer could be from any demographic group or geographic area. The use of data in B2B programs is more transaction-focused and is based on the business customer’s account number. Transaction data is used to identify purchasing trends and associative purchasing (matching products that are bought together – like paintbrushes and paint trays) so that the vendor can identify customers with purchasing gaps or opportunities and then make reward-based bonus offers on items not being purchased. This helps to reduce the number of purchasing gaps and drives incremental sales.
Unlike consumers who may be alarmed that a company knows too much about them personally, a business owner will more often appreciate the opportunity to earn bonus rewards on things they were going to buy anyway – but from another vendor. It’s a win-win for the customer and the vendor offering the reward program. The customer consolidates their spending with the vendor and earns more rewards, while the vendor secures a greater share of the customer’s total spending.
In summary, B2C and B2B loyalty programs are both about engaging customers and increasing their lifetime value to a company. However, how and why this is done varies dramatically between each. It is clear that loyalty programs are an amazing opportunity for any B2B company.
*Consumer Expenditures 2019 – US Bureau of Labor Statistics
Lift & Shift offers a powerful B2B reward platform that can help your company leverage its sales data to drive incremental purchases with customers and channel partners or motivate sales staff. We work with manufacturers, distributors and service providers to analyze sales data, identifying purchasing gaps and other valuable targeting opportunities.
We create and deliver highly relevant offers to customers, in-house sales staff or sales associates, motivating your target audience to respond, using a wide array of appealing reward options as influencers. Our performance-based reward structures deliver an unparalleled return on investment, with absolutely no wasted budget.
Our customizable reward platform enables clients to easily benefit from a robust loyalty reward program. It's affordable and includes Lift & Shift’s turnkey professional program administration. We take care of everything so you can focus on your key initiatives.