James Steidl/Kyle Gruba

Manufacturer and dealer programs that reward contractors for loyalty generate a greater amount of business provided they become the customer’s first choice, new research by Principia Consulting suggests.

A Principia survey of more than 1,100 contractors found that if the customer was in just one manufacturer loyalty program involving a product category, that program’s brand was likely to get 62% of the contractor’s total spend in that category. In addition, Principia says a manufacturer’s share of the customer’s wallet grows faster than if the enrollee weren’t in the program—and that enrollees' revenues grew faster than their peers. The survey was conducted in October, with first results reported in January.

But in general, loyalty programs still have a lot of potential customers to win over. Of the 1,100 contractors Principia surveyed, only 42% of the pros specializing in windows and doors said they were in loyalty programs offered by dealers. The share ranged upward to 47% for the trim and molding category, 48% for roofing, 49% for decking, and 58% for siding, so only one of the five categories had participation topping half.

The penetration of loyalty programs offered directly by manufacturers also was low. Again, of the 1,100 contractors Principia surveyed, only 46% of the pros specializing in windows and doors said they were in manufacturer loyalty programs. The share ranged from 45% for the roofing category category, 56% for trim and molding, 61% for decking, to 70% for siding.

Seek out the Smaller Fish
“Some of your best prospects aren’t in any program at all, regardless of purchasing levels,” says Rick Dunham, a research manager at Principia who was one of the report’s primary researchers and author. He believes that manufacturers too often “go for the big fish,” even when those pros already are in one or more loyalty programs.

Instead, Dunham believes that “finding contractors on the way up is crucial. There’s a much bigger pond with lots of smaller fish who aren’t in any program.” And if you can hook them and then keep them close to you, he says, your prospects for revenue growth likely will top what you can get from one big company.

Ken Jacobson, Principia’s senior researcher and partner, says that by combining their own offerings with those of a manufacturer, a dealer can make its loyalty program stand out and thus win contractors. “If you can buy decking from dealers A, B, or C, and all the dealers have the same manufacturer loyalty program, how does one dealer distinguish itself from another?” Dunham asked. “By having a contractor loyalty program that’s separate and distinct.”

Nearly half of contractors (49%) reported being enrolled in dealer-offered loyalty programs in addition to manufacturer programs. Of those, 92% of contractors stated the benefits offered by dealers overlap with those of their manufacturers, while the overlap is 88% at specialty dealers, allowing contractors to "double dip" on benefits for a single purchase. While there are additional benefits to be gained by enrollment in a dealer offered program, Principia believes only a subset of them are effective.

Dunham said a top-drawer customer loyalty program has five elements, each of which matters and each of which requires varying levels based on the customer’s activity. It starts with enrollment—typically requesting no more at first than a name, email address and telephone number. Doing so brings the manufacturer low value, but it in turn is offering low benefits.

“The manufacturer can work on making them big fish after that signup", Dunham says.

Balance Participation with Rewards
The next element is participation—“a real balancing act,” Dunham says because the benefits being offered based on certain levels of participation need to be tiered, achievable … and never-ending.

“Some respondents who were big fish slowed participation or stopped because they didn’t have additional benefits to go after,” Dunham says. “So what do you do? You look for another program that has greater benefit or divert some of your purchases to another program to gain additional benefit. Though there has to be a highest tier, there needs to always be an opportunity to earn more benefit.”

Loyalty program creators also take care to offer a variety of benefits within a tier, because what will spur customers will vary. “Sometimes you’ll hit a program that’s focused on a monetary or merchandise benefit, or on training and certification type benefits, or marketing and sales support benefits,” Dunham says. “We found the preferred programs offered elements of all three. One guy might want T-shirts for his staff, while another wants to take his wife to Paris.”

Marketing success for manufacturers almost invariably means teaming up with a dealer as well as turning manufacturers’ sales reps into proselytizers, because dealers and manufacturers’ reps figure in 57% to 68% of signups, depending on what the pro installed. (See chart)

Principia Consulting slide on contractor loyalty

The final element, technology, figures because manufacturers sometimes are unaware of how technically savvy customers have become, Jacobson says.

To purchase the report or learn more about the scope and content covered, contact marketing vice president Brooke Cowell at bcowell@principiaconsulting.com.