In December, Steve Miller and members of the Holmes Lumber sales staff will enjoy a weeklong vacation in the Bahamas. They'll have a good time, no doubt, but the trip is far from a boondoggle; in fact, it won't be considered a success unless the sales team returns to its home base in Millersburg, Ohio, having forged deeper relationships among the pro customers who earned passage to the island by redeeming points earned from their LBM purchases. “The trip certainly rewards our customers, but it's also an effective way for us to build on those relationships,” says Miller, general manager for the three-location subsidiary of Kent, Ohio–based Carter-Jones Lumber.
In an ever-competitive market for pro dollars, a circumstance heightened by housing's recent slowdown and continued consolidation, dealers are evolving the concept of customer rewards, incentives, and other recognition efforts to retain and build contractor business. Gone are the days of cash rebates and discounts, which are being replaced by travel and merchandise redeemed with points earned from purchases. At their most sophisticated level, rewards and loyalty programs facilitate networking opportunities and enable pinpoint buying trend analysis and targeted, personalized marketing efforts to grow pro accounts. “Today, it's much easier to capture and make available customer data and use it to create a unique currency, such as points from purchases, which can't be duplicated [by another dealer],” says Scott May, senior vice president of marketing for Loyaltyworks, an Atlanta-based consultancy.
The concept has matured even further in some markets, where third parties create consortiums of local dealers and suppliers and administer a rewards program for builders and contractors based on combined purchases from all member vendors rather than from just one source. “Dealers aren't in the business of planning trips,” says Todd Langenhorst, director of the Kansas City Builder's Incentive Group (KC-BIG), a nonprofit organization that manages rewards programs for nearly 50 suppliers and serves more than 1,400 pros in that market. “And builders appreciate being able to combine their purchases onto one program.”
In addition to creating opportunities for dealers to network and gather more detailed purchasing information about their pro customers, consortium programs such as KC-BIG and Builder's Circle in Minneapolis, as well as a growing number of dealer-run rewards programs, also deliver more immediately tangible benefits by awarding points only for purchases that are paid within terms. “A lot of our [supplier] members are able to get discounts from their vendors because they have a more reliable cash flow that allows them to pay on time, as well,” says Langenhorst.
Regardless of the reason or goal, or even who administers the program, the key for dealers is to put something in place that recognizes, rewards, and hopefully retains pro customers. “People expect a rewards or loyalty program in B2B [relationships],” says Chris Hall, president of Chris Teel Hall & Associates, a customer loyalty and marketing consulting firm in Boston. “If you don't have one, they'll find another supplier that does.”
An Evolved Species Before KC-BIG entered its market in 1994, McCray Lumber, a seven-location, $160 million dealer in Overland Park, Kan., had made a few attempts at rewards programs for its pros, but with limited success. When the dealer turned over the reins to Langenhorst, however, president Chandler McCray realized a bevy of benefits. “With so many high-profile suppliers [as members], the program really appeals to customers,” he says. Pros also like that KC-BIG is proficiently managed and offers a higher level of rewards than what an individual dealer might muster, he says. “It's easier than doing it on our own.”
Participation in the program not only breeds loyalty (“Once they get a taste, they don't want to let it go,” says McCray), but also creates opportunities for the dealer to engage in a soft sales conversation about other categories under its umbrella; while the builder may buy lumber and panels from McCray, for instance, he may not be as aware of the dealer's millwork or truss operations ... until he hears more about it over dinner or on the golf course. “It's a great opportunity to grow out different product lines beyond LBM,” he says.
Membership also provides McCray Lumber with a competitive edge that protects its market share. According to the KC-BIG bylaws, once a product category (of which framing lumber is one of several) achieves a 40 percent market share among its existing supplier members, no other dealers or vendors are allowed into it. “It protects the value of the program for members,” says McCray, by limiting the dealers from which local pros can earn points, yet still giving them choices.
The consortium concept also has a national model. Launched in late-2003, Builder's Circle enables pros anywhere in the country to earn points by purchasing brand-name products through their local dealers, specialty outlets, and even subcontractors. Participating manufacturers, including Alcoa, Dal-Tile, and Atrium Windows and Doors (among 24 total, mostly in non-traditional LBM categories), “hope that pooling resources breeds crossover customers among them to gain more points” toward merchandise and individual travel packages, says general manager Larry Findglass.
The service specifically targets small- and medium-sized builders and remodelers who often feel shut out of dealer-run rewards programs because they lack the purchasing clout to earn significant points and/or buy only from a limited number of a dealer's product categories. “This is worth it because they're getting an aggregate total instead of little or nothing from each of their [local] suppliers,” says Findglass.