Loyalty in the Distribution Industry

Much has been written about the massive transition happening in the world of distribution sales organizations. Companies who built competitive advantage off of massive local sales teams have been leveraging digital experiences and selling tools to increase the productivity of each sales person.

While navigating this transition, holding onto customer loyalty is critical to maintain a sustainable and profitable distribution business. A loyal customer base provides all kinds of benefits to a distributor, including:

1. Predictable revenue: Loyal customers ultimately lead to more repeat purchases and predictable revenue flow.
2. Referrals and networking: Satisfied customers are a strong form of customer acquisition, who can have strong influence in both local and niche markets, securing greater market share.
3. Negotiating leverage with suppliers: A strong and stable customer base is valuable for your suppliers and allows you to expand gross margin over time

The challenge is to drive customer loyalty systematically by augmenting the individual relationship with data and digital tools. Leading edge loyalty programs in retail / B2C industries are currently being driven based on points programs and personalized offers based on propensity models.

For a distributor, it’s critical to understand that loyalty is not a commodity that can be bought with cash or gift cards. Instead it is nurtured over the account’s lifetime through authentic relationship building and perks that come with increased growth.

"For a distributor, it’s critical to understand that loyalty is not a commodity that can be bought with cash or gift cards. Instead it is nurtured over the account’s lifetime through authentic relationship building and perks that come with increased growth."

The digital ordering initiatives of the last five years have a potential to change the game for better or worse. Digital ordering and self-service is a foundational capability of a modern distributor, but when the sales team has shrunk and nothing else has changed, customer engagement can devolve to transactional in nature.

Those distributors who are winning with data and digital are intentionally avoiding a pure transactional relationship and instead using technology to reinvigorate their customer relationships. These companies recognize the importance of continuous and intentional engagement across all channels of communication. We recommend using a Service Design methodology to holistically design the intentional customer experiences and touch-points.

Loyalty and perks programs fit into this model by providing extra value to customers in exchange for continuing purchases. The traditional model provides rebates or cash equivalents (similar in nature to airline miles), which is a 1:1 transfer of value between organizations - for a certain spending level, you will receive a gradually increasing percentage rebate.

While cash back programs have a place, distributors ought search beyond rebates for the sweet spot of value. This is done with purposeful customer interactions, research, and analysis to understand what drives their business forward. Distributors who offer these programs provide additional service to their customer base in exchange for higher spending levels. When it works right, the value is greater than the cost, so there is a value creating exchange between organizations.

Flexible delivery schedules and order sizes, and advanced access to new products are examples of value-added perks. Integrating these perks and others like them, distributors will set themselves apart from competitors by strengthening their customer relationships.

This article was originally published on Kin + Carta on October 25, 2023.