The cost of running a B2B loyalty program
By Ko de Ruyter, Debbie Keeling and David Cox
In part one of our trilogy about cost and loyalty we focus on the three areas over three blog posts; the cost of running a program, the impact that has on the cost of business, and loyalty in times of a cost-of-living crisis
We start with costs to consider when running a loyalty program. Firms have to navigate very choppy business waters these days. Markets seem to be caught in a broadening whirlwind of parallel crises that are systemically impacting business-as-usual. Covid, the War in Ukraine, the energy crisis, inflation, stagflation, the interest rate crisis, the soon-to-arrive mortgage crisis and, overall, a huge cost-of-living crisis. Bad things are happening left and right, and many clients have asked us in various states of despair, ‘what does it all mean for my program?’ That is not an easy question to answer. And usually, while we take the time to reflect on what to say or write, many program managers beat us to the answer by echoing Boris Johnson’s Brexit mantra; ‘we need to take back control of our costs’. Is this the onset of Lexit - the not so quiet leaving of loyalty programs? No, we do not think so, but, yes, we understand the need to get a grip on the costs of running a loyalty program, but it is equally important to do this in a way that makes sense.
So, we are always happy to ponder on the fixed and variable costs of a B2B loyalty program and share those insights. But before we start spotlighting costs, it is good to realise that there is more to consider when trying to be cost conscious. Running an effective program can also drive down the cost of business. If you can boost customer loyalty, you can increase revenue and profits, so it is key to focus on the return on investments in a program. At the same time, there is no denying that loyalty programs are a two-way street. That is, the current cost of business and cost of living crises may make it harder for your customers to stay loyal. It is really crucial to be aware of the struggles of your customers and ask yourself how your loyalty can help you through these difficult times that make doing business anything but usual. In our cost “trilogy” we will cover some of the basics of customer loyalty, to get our bearings, to remind you why running a loyalty program makes a difference.
So, what does a B2B loyalty program cost?
It is quite challenging to get one’s head round the various cost items associated with establishing a program and managing a budget. It is also easy to overlook costs associated with developing, deploying and running a successful program. The exact dollar amount will depend on the type, size and scope of the loyalty program you think you may need. But as a recap, here is an overview of what we think are important costs to consider:
Development costs
There are still businesses out there that develop their own, proprietary software in-house. This triggers a whole and often unnecessary range of costs, varying from hiring tech-skilled employees, investment in specific hardware systems and extensive training and execution. Alternatively, you have the option to work with a specialist agency, in case of which you will gain access to (white label) facilities, resources and expertise based on specified management and maintenance fees.
Comms costs
Once you have a program up and running, you need to invest in making your customers aware of the fact that you have one and develop campaigns to promote the use of the program. This requires vigilance and constant attention. Again, in terms of costs it is important to realise that this means investing in specialist and specialist knowledge about how to run a program on a daily basis by staying in touch with your members.
Costs of benefits
These refer to reward redemption and accrued liability, as well as softer benefits that foster recognition and member-to-member events. One of the most effective ways to establish a bond with customers is through gratitude and offering customers an experience that is unique and that they will remember. Unique benefit propositions to create member experience is perhaps something that is best left to specialists in event organizing, so you can buy-in expertise at much lower costs (and timescales) than developing it in-house.
Customer care costs
You need to consider the level of support you want to offer to your members and engage member-facing resources. Again, working with a specialist agency would give you the benefit of proven technical and account management support.
The hidden cost of time
A cost that is less obvious to companies is how much time needs to be invested. Especially, the in-house development and design of a program takes a great deal of time and energy. Opting for an existing but tailored program allows you to focus on how the program fits with the strategy of the business and how it generates returns and how it caters to the needs of your customers.
A strong focus on cost may make you think about driving up the cost of business and it has deterred business from implementing one. In our next blog post, we will argue that an effective loyalty program can lower the cost of business and, most importantly, drive growth to restore some balance in your perspective.
Part 2 of our trilogy will focus on Loyalty and the cost of business.
