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Carrots for Clients |
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Today's customer-incentive programs are integral to overall marketing goals, more sophisticated than ever and demand demonstrable ROI. Read on for your guide to smarter client gifting.
Mary Naylor has a simple goal as CEO and founder of Alexandria, VA-based VIPDesk, a call-center company that uses home-based staff: In addition to providing good service at competitive prices, Naylor is intent on continually thanking her current clients for their business and continued loyalty.
And she uses gifts as the central driver to do it.
"One of the key things in developing a meaningful professional relationship is to get to know your client as both a corporate person and an individual,' says Naylor. To Naylor, the "corporate' person gets the best possible service, while that same person, in his guise as an individual, will often get a gift. Sign a contract with VIPDesk, you'll get a gift. Sign on for more extensive business, you'll get a gift. Have a birthday, wedding anniversary, child, or business success of your own ... well, you get the idea.
"We send flowers or something special to clients who send referrals to us,' Naylor says. "If she likes gardening, we'll sign her up for the plant-of-the-month club. If he likes golf or bourbon, we'll send those kinds of gifts. It's good customer-relationship-building, period.'
It's a business cliché that current customers are vastly more important than new ones, and hugely expensive to replace. In what manner and how effectively businesses address this is another matter. Excellent products, implementation, service and follow-up should already be in place. With that assured, client incentives make sense to help add incremental sales, boost market share, and reinforce loyalty.
Many individual marketers and salespeople send out thank-you notes or selected gifts (for birthdays, holidays, etc.) to their valued customers. These kinds of ad hoc outreaches are generally modest, a simple acknowledgment that both a personal and business relationship is appreciated.
In addition, gifts can recognize current clients for the marketing resources they are. Customers can be incentivized to refer others to you, of course, but also issue a press release that mentions your company, participate in a case study that can be disseminated to the media or industry, write a testimonial on your behalf, or agree to be interviewed by key influencers, such as researchers and analysts.
"Good business practices are really the guidelines for all incentive programs,' says Karen Renk, executive director of the Incentive Marketing Association, based in Naperville, IL. "The companies underwriting these programs need to understand what their goals are, whether it's to reward loyalty, to introduce your company to a potential new customer, or to increase sales.' In other words, client gifting should be as "sophisticated as any other marketing effort,' she says, rather than an occasional, isolated event.
Lessons From Retail
Customer incentive and loyalty programs have long been a fixture in the retail and business-to-consumer world: Buy six sandwiches and get a seventh free, open a checking account and get a toaster, rack up miles or points to get a free hotel room or airline ticket.
Maritz Loyalty Marketing recently studied 2,178 American shoppers who had made at least one purchase from any of 11 retail categories in the previous six months. For this study, Maritz defined rewards programs as either store or membership programs, or private or cobranded credit cards with a points-based reward system that the customer could use to purchase items of his choice.
The study found that the young participated more than their elders, women more than men, and people from the Northeast and West much more than those from the South or Midwest. With these kinds of demographics in hand, b-to-c marketers have a much better chance of picking the right merchandise offerings, as well as devising other types of marketing outreaches to those less enthralled by such loyalty programs.
"Knowing the demographics of the customers you want to incentivize is critical,' says Scott Siewert, region manager with USMotivation, an incentive house based in Atlanta. "If you're incentivizing someone in their 20s or early 30s, rewarding them with iTunes downloads might be appropriate. But that might not work for someone in their 60s.'
Like many other incentive houses, USMotivation gets around the appropriateness barrier by letting the customer choose his own reward. Its online program, called Ovation, offers a points-based system similar to a frequent-flier program, whereby the customer gains points in reward for purchasing behavior, which he then can redeem for gifts, travel and the like.
"The customer is basically telling you what motivates him,' Siewert notes.
Motivation experts like Siewert stress that a well-designed customer gifting program begins with strict analytics. Customer longevity is important, helping to lower the churn rate. But Siewert underscores that a company's true goal should be incremental sales. "Potentially, you may want to raise the reward if a customer doubles his purchases with you, perhaps in the form of double points. What you're trying to do is isolate the objective, and then reward for that objective.'
Most motivation experts are unanimous in stressing the importance of a planned gifting program, versus the ad hoc kind that just sends a turkey to the house at Thanksgiving. The reason: Determining the all-important return on investment.
"How do you create organization in what's just an unorganized series of events?' asks John Farrell, who oversees a variety of customer relationships for Minneapolis incentive house Carlson Marketing, of ad hoc gifting. "An incentive program starts with the fact that it's an organized marketing program rather than a rewards program.'
Follow The Money
Farrell says that an incentive program, particularly in the business-to-business space, should be self-funding and based on incremental performance. If a year ago a customer purchased 100 units of a product, and your incentive program rewards all purchases in excess of 100, you have the basis of the program.
"Importantly, the gift is the result of a performance level that the company has prescribed,' Farrell says. "An after-the-fact acknowledgment and recognition of a job well-done. A gift is not provided in hopes of a job well-done. You get the Super Bowl trophy after the game, not before.' Farrell also observes that this kind of rationale helps eliminate the stigma that some may still perceive of client gifting - that it's a quid pro quo for something the company wants in return. When understood as a
reward, not a prompt, it tends to overcome ethical concerns.
Farrell also approves of any gifting mechanism that provides choice for the recipient. Thus, points-based systems can be redeemed for a variety of rewards, and can include name-brand merchandise or stored-value cards, travel experiences or gift certificates.
One Carlson client (who requested anonymity), a major credit card company, asked Carlson to help it regain sales volume and market share among its sales channel of travel agents in an increasingly competitive environment, and to set its services apart from the competition.
Carlson set up a program where agents receive points whenever their clients use one of the company's payment products, being rewarded for incremental revenue growth with gift cards and certificates. Month-over-month transaction goals were provided to all participants - everyone knew where they stood - and the program was promoted via monthly e-mails, a program Web site, and ongoing surveys.
According to Carlson, the program's ROI has been positive every year since 1996, achieving 50% market penetration, with some 70% to 80% of all agents redeeming their points, representing excellent engagement. And 16% of participants achieved "premier' status, meaning they produced significantly higher product usage rates.
The self-funding nature of the program makes it go down easy. A company may, for example, earmark a certain percentage of the incremental sales for the incentive reward or gift; for example, $1,500 in incremental gross margin rewarded at 10% would produce the equivalent of $150 in gifts or points.
It's not out of pocket. It's out of found money.
"The beauty of an incentive gifting program is that it upholds pricing integrity,' says Farrell. "It does not erode the price point in the marketplace. An incentive program can be turned on and off, but price discounting has a longer-term impact. Further, price discounting is an expense, but an incentive is an investment program that yields more than it costs.'
Products That Work
A 2005 study by the Incentive Federation Inc., an umbrella organization representing the incentive industry, studied a variety of gifting programs, including those aimed at consumers/clients and dealers. The report found that gift certificates and electronic items are most popular for consumer and user promotions. Favored electronic products included computers, accessories and software (cited by 28% of the respondents as important), cameras and accessories (19%), home entertainment products (15%), and telephone-related items (9%). Writing instruments, food and beverage, apparel, watches and clocks also figured high on this list.
Gifts deemed most appropriate for incentivizing dealers - considered a hybrid form of customer cum employee - fell into generally similar categories, with the notable addition to the list of sporting goods.
"Considering the importance of sports, one of the best choices might be to combine merchandise with gift cards,' says Nancy Serrato, director of corporate gift cards with a large provider of third-party gift cards based in Pleasanton, CA. "For example, if you know your client is a golfer, you might give him a new driver or putter, along with a gift card for a round of golf. Or you might deliver a San Francisco Giants cap together with a card your customer can use to buy tickets, merchandise or concessions at the game.'
There is consensus on the appropriate ROI for these programs: According to the Incentive Federation study, most companies say that a revenue volume increase of 16% to 18% is a realistic goal. Profits on incremental sales are also a common measurement, as is increased market share.
Reprinted with permission of Successful Promotions, copyright 2006
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