…it all depends on the objectives you’re trying to accomplish.
When asked, a wholesaler will tell you their objective is “to increase sales”. Yes, that’s theirs, yours, and everyone elses too. It has to be much better than that.
The single most important element in an incentive promotion is planning. Just as a house can’t stand without a good foundation, an incentive promotion can’t be successful without good planning.
Whether your objective is to increase the sales at your counter, increase the purchases of higher margin items, introduce a new product line or increase the sales from one month to the next, there’s an incentive promotion designed to achieve it. But which one?
Should you run your own, ours, or a vendor’s? And what kind? A trip or frequent buyer promotion? A counter or premium promotion? Or how long do you run it? This month, six months, a year? You must choose an objective and make a plan on how to accomplish it.
Before you run your next incentive promotion ask yourself:
- Did we identify an area of weakness we’d like to improve upon or an area of strength we’d like to take advantage of?
- Did we establish realistic and attainable objectives for that area?
- Are we designing or getting the professional help needed to design an incentive promotion to attain these objectives?
- Do we know for a fact that it will be profitable?
Believing Incentives Cut Margins…
If one of your customers told you that he’d give you $1,000 more business this month than he gave you last month in exchange for a $40 item, would you do it? What if 100 of your customers said the same thing? Would you accept the $100,000 in extra business for $4,000 in incentives or would you say that 4% is to much to give back to the customer?
There are many reasons to offer incentives and only one not to. Most distributors have the capacity to easily handle more business at little extra cost. Utilities remain the same, you’re already sending a truck their way and have them on the phone. When you increase the dollar amount of the sale, the cost per transaction goes down!
Our clients who extensively track their promotions tell us that margins on customers who earn gifts are higher than on customers who don’t! Also, would you rather have 15% of $100,000 or 0% of nothing? The only reason not to offer an incentive is if you have more business than you can handle.
After a profitable promotion, don’t believe that you would have received the extra business without it. Don’t think that for the first time in 50 years a January was better than a December, or you sold more of a certain product than you sold before because the business “just happened to be there”. Don’t believe that it was only a coincidence that business was up, you ran a promotion and achieved your goal.
Wholesalers who believe this think that the incentive promotion was a liability and reduced their margins. This type of distributor generally cancels future promotions or makes the next incentive so unattainable that it fails. More than likely they will never again see that type of spike in sales. Successful wholesalers see that the promotion created the success and look for new and better promotions. More sales spikes are on the horizon for them!
Incentives when done correctly will increase sales. When sales are written correctly they will increase profits.
Rewarding False Positives…
Don’t reward False Positives or other customers who don’t merit it!
At the end of the promotion, there will be four customer groups:
- Those that knew of the promotion and increased their purchases to earn the gift.
- Those that knew of the promotion and didn’t increase their purchases enough to earn a gift.
- Those that didn’t know of the promotion, but increased their purchases enough to earn a gift.
- Those that didn’t know of the promotion and didn’t increase their purchases enough to earn a gift.
Only Group 1 should be rewarded. This is the only group that was motivated by the incentive to buy more. Too many wholesalers reward customers from all 4 of the customer groups! Somehow they justify why they should give the customer the incentive even if they didn’t deserve it. All this does is tell the customer that they are “special”. This customer knows that they are in the group who can continue to buy less but expect more. If you design your rules correctly you won’t have to reward the False Positive group. This can be the deciding factor on whether a promotion is profitable or unprofitable.
After the inception of the incentive promotion, include only those customers who are truly interested in participating, not those who aren’t. Most promotions designed by distributors, and firms who don’t have experience working with wholesale distributors, usually make this mistake. It’s a big mistake to make.
Our customers don’t unknowingly make this mistake.
Not Promoting Your Promotion…
Probably the single biggest killer of any promotion.
Incentive promotions are only a tool used by companies to help increase sales and profits. Just because they run an incentive promotion, doesn’t mean they’re guaranteed to increase their sales and profits.
We advise our clients to have their entire company participate in the support of a promotion. All the way from the president to the delivery driver. Once employees buy into an incentive promotion, so will the customers. This may also include having employees earn incentives for themselves.
Incentive promotions that include employees are always more successful than those that don’t – anywhere from 25% – 30% more! They’re motivated to sell it because they have a stake in it.
Finally, there are eight ways for you to be in touch with your customers. Employees are directly involved in four of them. For your incentive promotion to keep going strong you must take advantage of using all eight ways to promote your promotion.
Avoid this pitfall by making sure your employees are involved in every possible way. Promote your promotion to the fullest.
Waiting On Vendor CO-OP…
We had a FORMER client scrap a very profitable incentive promotion because he couldn’t get $500 in co-op from a vendor. He couldn’t get past this. Based on his size and the experience of our other clients who ran the same promotion, we projected he would have increased sales over 1/2 million dollars with profits over $100,000. This guy still wonders why we couldn’t make him money.
Savings = $500
GROSS Profit loss = $100,000
Remember, incentive promotions are based on increasing sales and you control the numbers in advance. Set up a promotion at the beginning without too much emphasis on vendor co-op participation. Then, when a vendor does come through, it’s icing on the cake.
We’ve heard it all. “Incentive promotions don’t work in this part of the country” or “we don’t want to become McDonalds”, and the best one of all, “our customers are different, that doesn’t work here”. The fact is that they can’t believe that they can get an order any other way than traditional means. A LOT of distributors would rather lose the order than change. For some reason changing the way they do business makes them feel inferior or that somehow they have failed.
Times are changing and some companies refuse to change. These companies are then bought by companies who change them.
With the consolidation of businesses, wholesalers are now regional, even national. There are many who now compete directly with you in your area that never did before. Also, there will be others who may not compete with you directly, but will grab an order from you when they can.
Sharper competition has lead to similar product offerings and price structures – customers see this! This leaves everyone talking about service. Everyone has heard it all about service, so it has lost a lot of its meaning. Contractors assume good service. It’s only a factor when it’s bad.
So, with price and product offering being nearly the same and service losing its meaning, what breaks the tie in contractor’s minds? What makes your company their first choice? – Incentive promotions.
The companies that offer incentives hold the advantage over their competition. Remember, if it is done right it’s not an expense. It’s an investment back into your customer based on “Plus” business or “profit sharing”.
How can reinvestment into your customers and increased sales make you feel or look inferior?
Snailing and Bailing…
The worst thing a wholesaler can do in an incentive promotion is to take a good experience and make it bad. Customers will dislike you twice as much for twice as long and may never come back!
We had a wholesaler who ran a “Plus” business fishing rod and reel promotion that was extremely successful. He made well over $50,000 net margin on it! Unfortunately, after Snailing for six months he still hadn’t awarded the gifts to his 123 customers. We know he probably will, but at a high cost.
Now, while we’re sure several of those customers have completely forgotten about those rods and reels, others have not. Every day that passes makes them a little more bitter than the last. In good faith they gave the wholesaler more business to get a gift they didn’t receive. Now they feel ripped off. Most of his customers won’t complain and sometime in the future the distributor will wonder why certain customers’ business has slipped.
That’s how to turn a good experience into a bad one. How would you like to do that to a couple of your best customers? It happens a lot!
Unfortunately, it gets worse. We’ve heard of a wholesaler who Bailed on his customers by pocketing all the “Plus” business gift money – not one customer got their gift! They’re not in business anymore.
Reward your customers their gifts as soon as you can and you’ll keep them coming back again and again to earn more!
The Right Bang for the Buck…
OK, you want to run a promotion. How much extra business do you ask for? What incentive do you offer? Is the value of the incentive gift worth the business you are asking for. If you offer too little, the promotion is doomed to fail. If you offer to much, you will give away profits. Making the right choice is an art.
Against our advise we had a wholesaler offer his customers a sweat shirt with the vendor’s logo emblazed on the chest. The sweat shirt was a great idea. But asking the customer to purchase $2,000 more this month than they did last month was a mistake. When only one earned a sweat shirt, he called the promotion a failure.
Customers didn’t perceive its value to be in line with the $2,000 in additional business that was being asked for. Customers weren’t willing to change their buying habits for his sweat shirt.
If you want to increase profits you must increase the number of participants in the promotion. The value of the premium, as compared to effort your customers need to exert to earn it, is VERY important. Give them the most bang for their buck! Remember, control the numbers at the beginning of the promotion. Know the cost and more importantly the value of the gift. Then you’ll be able to correctly “profit share” back.
Our recommendation was to give away 3 sweat shirts for $1,000 in “plus” business and embroider the customer’s name on the sweat shirt. Through experience we knew this would work.
Customers can and will do extra business if the premium is right and they perceive value in it. Many times, we’ve had client’s customers increase their purchases over $20,000 in one month to earn a premium or incentive gift!
In many cases the wholesaler believes he was getting most of the contractor’s business. They are shocked to find out that the $20,000 in extra business wasn’t from special orders or jobs, but from everyday business! The contractor simply diverted $20,000 in purchases away from other wholesalers he was buying from.
The Know-It-All Syndrome…
You’ve heard it before. A little knowledge can be dangerous!
As we’ve touched on in this booklet, there’s a lot to consider before you can run an incentive promotion successfully. Just when you think you’ve seen it all, something new and challenging comes along.
This pitfall is one of the most avoidable ones. Too many times we’ve seen wholesalers run incentive promotions on their own with too little past experience. They usually spend too much money, don’t have enough time, offer the wrong incentive, receive too little in return and expose both themselves and vendors to the unnecessary risk of loosing money instead of making more profit. They are the wholesalers who eventually say incentive promotions don’t work because their customers don’t participate in them.
It takes months, even years to build trust with customers and vendors. Why jeopardize it? Pay a little extra and seek the advice of a true marketing professional to assist you in running your next incentive promotion! It will be well worth it!
It’s easy to give up. Running a successful incentive promotion is hard work. Hard work isn’t for everyone. Knowing everything there is to know about running a successful promotion isn’t easy. It’s not easy to know everything. Also, there are so many reasons on why you could give up. Reasons like, “I don’t have time to plan a promotion”, “Incentives cost me money”, “I end up giving the incentive to everyone anyway”, “We never do a good job promoting the promotion”, “It’s too hard to get our vendors to participate”, “Incentives don’t work here”, “I hate paying for the incentive”, “I don’t know what to offer”, or “I’ve designed some promotions in the past and they didn’t work”. Sound familiar?
If you have ever said any of these things and been part of one of the nine pitfalls, or you think you might, call DMM today.
Don’t give up. Incentives are easy, and most importantly profitable, if you have the right people in place.