Loyalty programs have become a useful tool in today’s cutthroat corporate environment for boosting client engagement and fostering loyalty. Nevertheless, these initiatives can have a significant negative financial impact on businesses, showing up on the balance sheet as a “loyalty program liability“. An organization’s capacity to maintain its financial stability depends on its ability to recognize this obligation and manage it well.
According to Harvard Business Review Research, having loyal customers is in the interest of both the shareholders and management. Revenue growth for loyalty leaders is about 2.5 times faster than other businesses in their sectors. It also provides 2-5 times higher returns to shareholders over the next 10 years.
Understanding Loyalty Program Liability
Customers receive loyalty points for purchasing goods from the brand as a reward, which encourages them to return to collect more points. These loyalty points are funded by a variety of buckets (MDR, Commissions, Promotions, Sponsors, Marketing, and so on) and are subsequently moved to the liability side upon issuance to the member.
Put another way, they are recorded in the P&L by deducting the appropriate amount from the budget and adding it to the points liability; this reduces the impact on cash flow because the points are not spent as an outflow until they are redeemed. This obligation will logically develop and multiply enormously each year as your business expands and your goals are met. This entire exercise will also foster long-term customer liability.
This suggests the following:
- The brand’s customer lifetime value has grown
- The price of the points has been calculated.
- The expense of acquiring new consumers is surpassed by the rising value of current ones.
5 Key Things to Keep in Mind for Making B2B Loyalty Work
1. Learn more about your business buyers by doing research
Successful loyalty programs start with a well-considered ideal customer profile (ICP). The first step in doing this is figuring out which consumer segments you serve. However, getting an understanding of your B2B audience is more complex. B2B purchasers are under-analyzed, to start. Since the buyer population is more dispersed and access to them is more difficult (partially because transactions are conducted under the customer-company auspices, making it difficult to locate the relevant people), buyer segmentation is also more difficult. It is imperative to identify the economic opportunities and value drivers in every client category, including subsegments.
2. Determine the best customer behaviors and support them
Pay attention to both the new behaviors you hope to elicit and the desired ones you are already focusing on; these behaviors will assist your overall company objectives. These activities could include motivating customers to write product reviews, referring new business to you, increasing shelf space for your items, or having them buy a wider variety of goods from you.
Determine which behaviors are most important, then design incentives accordingly. Additionally, be aware that the behaviors you aim for may change depending on the buyer’s role, store kind, size, and location. While it’s crucial to maintain consistency in program incentives to ensure that individuals within the same organization receive the same rewards for similar actions, you should also be able to customize certain benefits through promotions and other channels.
3. Make your program as simple as possible
The most effective loyalty programs are easy to use for customers and sales representatives, enabling them to encourage membership. Begin with a basic idea for a loyalty program. The more variables you start with, the more difficult it is to isolate their impact, and it is difficult to predict which features will produce outcomes until you try them. Make sure the loyalty program is user-friendly and has a simple and easy-to-navigate user interface. Have clear instructions on how to use the app/interface. The program’s fundamental structure, including its levels, benefits, and point accrual and redemption scheme, should be straightforward.
4. Take the lead via digitalization
For the sake of accelerating customer engagement, B2B loyalty programs must adopt the same digital-first approach as B2C programs. Some innovative businesses, such as LoyaltyXpert, have created mobile apps with dashboards that give their customers and salespeople a clear view of their customers’ operations. These dashboards can show customer sales breakdowns, inventory details, product mix, industry-specific trends, and performance in comparison to competitors.
Customers may optimize their businesses with the use of this data, which increases profits for both parties. Small and medium-sized enterprises (SMEs), many of whom lack a native digital strategy, find this benefit extremely alluring. Additionally, you can deliver the program through a variety of digital platforms to accommodate the diverse needs of your client. You can also use data to customize your loyalty programs based on the interests, buying patterns, and preferences of your customers.
5. Provide the greatest experience for your customers
Top B2C initiatives generate passionate supporters and endorsers. They provide consumers opportunities to have memorable, satisfying brand experiences and they are receptive to input and insights. Even though financial incentives like volume-based discounts have historically been well-received by B2B clients, they are more expensive and don’t really benefit SME clients. The greatest programs show that you are concerned about your clients by assisting them in fulfilling their needs.
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Ways to Reduce Loyalty Liability
Reduced loyalty program liability is a critical component in managing loyalty programs. Given below are a few tactics that businesses can use:
1. Increasing interaction with customers
Customers who are actively involved are more likely to use their points, which can reduce outstanding debt over the course of a customer’s lifetime. Enhancing consumer involvement can be achieved through personalization, appealing redemption alternatives, and efficient communication about the program’s benefits.
2. Swiftly redeeming points
Encouraging clients to redeem their points sooner can aid in decreasing the responsibility. This can be achieved by offering limited-time redemption offers or lowering the number of points required for redemption.
3. Present the points expiry
Introducing an expiry date for points can also aid in managing obligations. However, this technique requires careful preparation to avoid consumer unhappiness and should be a long term measure, not a temporary fix.
4. Controlling redemption expenses
By negotiating better terms with their incentive partners or by providing rewards that are less expensive but still enticing to customers, businesses can also control the cost per point.
5. Enhancing program structure
Liability can also be managed by designing the program so that the rate of point redemption and earning is balanced. In addition to being visually appealing enough to boost sales, the structure should promote redemption.
Conclusion
Loyalty programs prove their value by driving incremental sales, improving customer retention rates, and increasing overall lifetime value. As the benefits become more apparent, we can expect loyalty initiatives to rapidly gain popularity across the B2B sector, especially as the economy recovers from recent challenges. This intrinsic value exchange gives businesses a competitive motivation to invest in cultivating better customer experiences through loyalty. Those who recognize loyalty as a pathway to sustainable growth will be well-positioned to capitalize on enriched client partnerships and the measurable bottom-line advantages they provide.
Your search for a loyalty program specialist ends here at your one-stop solution. You may create loyalty programs that turn consumers into brand advocates with the assistance of LoyaltyXpert. The state-of-the-art features and branding tools of their loyalty software enable you to develop dynamic and captivating programs. To spur corporate growth, you can carry out financial analysis as well as create, administer, and oversee loyalty programs.
Book a free demo today! The future lies in fostering true loyalty rather than transactional relationships.