Incentive promotion budgets are important parts of sales plans and in the 21st century, sales budgets amount to about an $800 billion per year investment. For reference, U.S. companies only spend about a third of this on advertising. Incentives are used as a vehicle to align direct/indirect sales rep behavior with that of the organization. Promotions should ideally be designed so that salespeople maximize their rewards, while the company maximizes their profits.
Large global corporations, especially in the travel industry (like airlines) have this down to a tee. As an example, “the four top four airlines—American, United, Delta, and Southwest—generated a combined $9.5 billion of revenue [in 2016]…from frequent flier programs,” estimates Jay Sorenson, President of IdeaWorks Co., a firm specializing in airline revenue.
However, one of the earliest successful examples of a complex third-party promotional ecosystem was entirely paper-based and occurred in the consumer industry.
The Green Stamp
In the 19th century, the growth of urban centers meant that local markets and merchants began to thrive as people became weekly recurring visitors. To enable customer retention and increase sales, vendors ran basic incentive promotions, like a “buy 10, get one free.” Zichermann and Cunningham note that this 10:1 model remained the standard until Sperry and Hutchinson Co. introduced S&H Green Stamps as a loyalty rewards promotion in the early 20th century. Customers received small green stamps after purchasing an item from their catalogue, with stamp quantity dependent on the price of the good/product purchased. Price was directly proportional to quantity of stamps; for example, a refrigerator would give the purchaser more stamps than a set of linens. Stamps were collected and the catalogue featured partner retailers where green stamps were the only form of payment. The idea of a virtual loyalty reward ecosystem is born.
The S&H Green Stamps ecosystem was brilliant for five reasons:
- B2B partner loyalty was maintained because the stamps were only acquired by shopping at participating retailers.
- Customers were motivated to spend because they received a reward and given some personal choice in redemption options, so wallet share increased.
- Customer retention profits covered distribution and other operational costs within the ecosystem.
- The nation-wide appeal showed that incentive promotion programs were scalable and attractive.
- By blurring the lines of how much a dollar to green stamp was worth, S&H created an arbitrary value per stamp and this made customers less sensitive to prices, therefore increasing sales.
Alabama.com reports that by the 1960’s, “collecting stamps was so popular that S&H claimed it issued three times more stamps than the U.S Postal Service.” They hit their peak in the 1970s with Sperry and Hutchinson expanding nationwide and generating $850 million in stamp revenue, moving literally billions of stamps. In the second half of the 20th century, with improving technology because of increased computing power, data-storage capabilities, and the popularity of the television, we see the expansion of these incentive promotions strategies to other verticals and industries.
Furthermore, a Nielsen survey found that about 60% of customers in the Pacific region agree that “they’ll buy from a retailer with a loyalty program over one without.” However, it is imperative to keep the customer in mind because recent research by the Direct Marketing Association found that 72% of consumers cited “rewards that are exclusive to me as the top incentive for their loyalty.” This means a dynamic and efficient rewards payout is also imperative to customer retention. Flexible rewards mean there is something for everyone.
“We know a strong loyalty program drives repeat business, delivering bigger and better returns for owners,” says Cynthia Liu, VP Operations, Howard Johnson. The competitive advantage lies in those companies that can offer “standout experiences and personalised offers…through digital channels,” states the Chief Marketing Officer (CMO) Council.
The Age of the Customer
It’s no longer just about the stamps or points organizations give; it’s also about the entire customer experience they provide, both to consumers and, subsequently, to partners. Airline loyalty programs offer increased probability of upgrades, free checked baggage, and other perks to make the experience memorable—all concepts that can be applied to the B2B loyalty model. The concept of loyalty begins with creating value and trust, thus there is merit to Forrester’s concept of B2B Loyalty, the B2C Way. They proclaim “loyalty programs may be a B2C construct, but the concepts apply in B2B marketing. As B2B marketers get serious about loyalty, they can jumpstart their efforts by embracing some B2C approaches.” Using B2C tactics like surveys for collecting pain points, consumer (or partner) touch points for data and insight, consumer (or partner) specialized tiers, building loyal followers, and others, will ultimately drive sustainable long-term success in the “Age of the Customer.”