Pros and Pitfalls of B2B Customer Loyalty Programs

Pros and Pitfalls of B2B Customer Loyalty Programs

B2B customer loyalty programs can enhance customer relationships and reduce the likelihood that a customer will leave, or even shop around. Here’s what to keep in mind as you consider whether you should offer your customers any of these four types of perks.

The Pros and Pitfalls of B2B Customer Loyalty Programs

Just because an organization sells to other entities (B2B) rather than directly to consumers (B2C), that doesn’t mean that they aren’t still selling “people to people” (P2P!) That being the case, we decided to break down the pros and pitfalls that might accompany four different types of customer perks to help businesses that want ideas for B2B customer loyalty programs.

Loyalty matters: In a 2014 Responsys survey about why consumers might decide to ‘break up’ with a brand, 72 percent of US adults said that when a brand they love rewards them for being loyal, it makes them want to have a long-term relationship with the brand. And nearly 60 percent said that the brands they love do reward them for being loyal with special discounts and coupons.

That being the case, it might be difficult to determine whether long-term B2B customer loyalty is born out of the benefits that people perceive a brand is bestowing on them or whether brands are thanking their customers for patronage, which is breeding loyalty over the long term. However you interpret the data, the inter-relationship between rewards and B2B customer loyalty is undeniable – after all, B2B buyers are people too.

4 Ways to Cultivate B2B Customer Loyalty and Improve Retention Rates

Rewards for early payment

As opposed to retail business models that generally collect customer payment in advance of shipping or at the time of sale, many B2B sellers invoice their customers for payment. The lag time between delivery of goods or completion of services can negatively impact cash flow, in turn restricting the organization’s ability to take on new business quickly, replenish inventory or compete for bigger accounts due to low cash flow.

Some B2B sellers might decide to extend a customer reward for early payment in the form of a discount. Many B2B buyers would happily pay up more quickly in return for a reduction in expenses. On the other hand, many B2B buyers choose to do business with organizations that can offer extended payment terms so that they have a chance to produce a return on their investment in order to help satisfy the amount they owe.

While it might be tempting to incentivize customers to pay early for a discount on the amount of an invoice, that may not be the most financially profitable scenario for the B2B seller. For instance, if the customer will receive a 5% discount for paying within 30 days, the B2B seller might find that it would be more profitable to factor the invoice at a lower discount rate, and receive payment on the same day the invoice is generated, rather than potentially wait four weeks for the customer to pay. A faster turn on cash flow can also give the B2B seller the ability to negotiate discounts with their own vendors.

Likewise, in the second instance of extending a customer perk of extended payment terms, a B2B seller can still eliminate the time they would have to spend waiting for the customer to pay if they factored the invoice with an invoice factoring company. Since they receive payment the same day that the invoice is generated, the B2B seller can instantly reinvest to pursue new business, replenish inventory or go after larger accounts, and extend longer customer payment terms as a customer loyalty perk.

The bottom line: Ask your customers which type of benefit they would prefer, and tailor their loyalty reward to their preferences (while keeping your own bottom line in mind!)

Volume, quantity or frequency of purchase discounts

Many businesses offer their clients discounts based on the volume or quantity purchased at the same time or on how frequently they purchase. While many retailers now track customer purchases electronically, some still use “punch cards” to help their clients visualize how much they have earned or how much more they need to purchase to receive a reward.

B2B sellers can also extend quantity or frequency discounts to clients; however, it’s important to remember that this will affect margins and cash flow. Sometimes this is more than offset by reduced administrative costs, cost of transporting goods sold or in other efficiencies. Make sure that you are making up the difference in margin in some way, so that reduced margins do not end up leaving your business short of cash.

Auto-replenishment, reordering or rebooking

Who wouldn’t love getting their clients re-booked at regular intervals or establishing a set-it-and-forget-it schedule of recurring sales with their best customers? Discounts or incentives provided to customers who agree to automatically recurring transactions may be more than offset by savings in the cost of goods sold or efficiency, commissions, advertising and administrative costs.

Getting customers set up on a regular schedule of replenishment can also help your organization in planning and negotiating purchasing discounts of your own. As with discounting on volume purchases, the downside in this approach may be found in reduction on margins.

Plus, there is a risk for the B2B seller if a client cancels a recurring order with little or no notice. Rather than get stuck holding the bag if a client cancels a replenishment without notice, it is important to have a contingency plan already worked out (such as a negotiated return policy with your own vendors or a list of other clients who may want to purchase at that time).

Straight-up rewards and free add-ons

Cash-back rebates, non-monetary rewards and free gifts-with-purchase can all help to incentivize repeat business and engender the feel-good that leads to buyer loyalty. What’s important in this instance is to make sure that any reward granted should be commensurate with the level of purchase, length of loyalty and potential for long-term profitability represented in any one client relationship.