By John Favalo
Hard-nosed or soft-hearted? Which is the business-to-business buyer when it comes to brand loyalty? And, how do distributors factor in the brand loyalty equation?
I’m in the advertising business, and have been for more than 40 years. I’ve spent a lot of those years building brands. After all that time, you’d think questions like these wouldn’t get air time today:
Are brands really important to grizzled B2B buyers?
Is building brand preference worth the investment?
Should distributors play a key role in building the brands they carry or should they work on building their own businesses’ brands?
Things haven’t changed that much since I started that work, and today, smart people still question the efficacy of brands, especially in business and trade categories like welding, construction and assembly.
Here’s a question I get asked a lot: Is loyalty building worth the effort and expense? The answer is, “Hell, yeah,” if you define brand loyalty the way The Business Dictionary does: “…faithfulness of consumers to a particular brand, expressed through their repeat purchases, irrespective of the marketing pressure generated by the competing brands.” What brand or business wouldn’t want that level of customer relationship?
MANY OTHER BENEFITS
There are other reasons to covet brand loyalty. According to long-recognized B2B marketing experts Philip Kotler and Waldemar Pfoertsch, the benefits of brand loyalty include:
Higher levels of repeat purchases
More willingness to try new products
Less time and investment to close a deal
Owning a larger share of customer spend
Willingness to pay a price premium
Less sensitivity to price increases
Advocacy
Consulting firm Bain & Company adds more specific dimensions, saying that leaders in loyalty typically grow 4 percent to 8 percent above the market’s performance.
RESEARCH INSIGHTS
At Eric Mower + Associates (EMA), we’ve done research that confirms the importance of brands, even for the most hard-nosed customers. EMA surveyed 400 B2B buyers in four different business/trade categories and asked questions about brands and their purchasing patterns. Our research confirms brand power.
Here’s a sample of those respondents’ answers to our survey questions.
To the question, “How influential is a strong brand name when it comes to purchasing materials and tools”:
For materials:
27 percent said “very influential”
58 percent answered “somewhat influential.”
For tools, the picture was even more positive:
46 percent answered “very influential”
51 percent said “somewhat influential.”
Going deeper, we asked what made brands important. The interesting chart above shows survey results.
BRAND STRENGTH
Several factors contribute to brand strength, but the most important ones are results, trust and value.
If a given brand can be trusted to deliver the best results, it will likely hold high value in the eyes and mind of the buyer.
One B2B buyer we spoke to said: “Brands matter because they can represent values that are important to me and my customers. Values like reputation, dependability and warranty. I even use recognized brand names as marketing tools with customers. I tell them I’m using first-grade products on their jobs and not cutting corners.
And, I will pay more for quality products that last.”
We believe brands have significant influence in the buyer’s journey and that they have appeal for both rational (e.g. performance) and emotional (e.g. trust) reasons.
WHOSE INVESTMENT?
Our research convinces us that brands are worth the investment. But the question is, who should make that investment?
Conventional wisdom would dictate that the manufacturers/brand owners benefit most from brand strength and, therefore, should shoulder the responsibility and cost. Said another way, manufacturers invest in brands, distributors invest in relationships.
One B2B buyer we spoke to reinforced the impact of distributor relationships. He said: “I prefer the personal relationship…you build trust…(distributors) help you out if you make a mistake…you can get a lot of help if you build a good relationship.”
Another decision-maker responded: “By default, the (smaller buyer’s) brand loyalty will be to whatever brand is carried by his favorite distributor. On the commercial side…brand loyalty is both short-term and fluid. (Manufacturer) people and policies change very frequently…and the (buyer’s) loyalties shift with those policies.”
BUYING CYCLE INFLUENCE
In some respects, distributors can be seen as more stable. Clearly, distributors carry a lot of weight. However, we wanted to know more specifically about distributors’ influence in the buying cycle. So, we surveyed those 400 buyers about why they preferred one source of products over another. The graph on the left shows what the group said.
As it illustrates, distributors excel in delivering outstanding service, building relationships and having critical knowledge that the buyer can use. They also excel in providing product availability and delivery, credit and training.
If distributors have a choice between investing in these qualities or building the brands of their lines, the best potential for return on that investment seems obvious. A distributor we spoke to noted: “(Buyers) rely on distributors to do a lot of heavy lifting like product options, stocking levels and training. For example, small…outfits can’t afford to invest in a lot of inventory the way we can.”
VALUE AND COMPENSATION
If in the buyer’s mind there is little differentiation between two brands, then there is little reason to be loyal to one or the other. In cases like this, it’s the distributor’s voice that rings true. So, wouldn’t distributors be better off building their own business’ brands than investing in building their manufacturers’ brands? This issue has swirled in the space between the channel/supplier relationship for years.
Distributors believe they should be compensated for the value they deliver beyond being mere conduits for products. Yes, there is “ordinary” compensation in the difference between the manufacturer’s selling price to the distributor and what the buyer pays for it. But often, that margin is variable, and can be too little to compensate for what it cost the distributor to train a customer on the proper use of a product and on safety precautions, plus offer special job packaging, delivery and so on.
There are, however, relationships in which distributors do earn more from manufacturers. One of our clients, for instance, offers its channel partners year-end rebates based upon annual volumes, plus incentives for joint marketing programs or promotions run during the year. The supplier also provides services that reduce the distributor’s costs if the distributor commits to stocking a minimum number of product lines from the supplier’s full range.
One distributor we interviewed said this about “mutual loyalty”: “We have a loyalty relationship with some of our suppliers. For instance, (one) division has a tight focus on the GE brand. We try to push out the benefits we derive from this loyalty to our customers, in turn building loyalty with them.”
But, even these forms of compensation don’t solve all the problems. There is evidence that buyers will switch sources of supply rather than switch brands.
L.E.K. is a management consulting firm that specializes in several business categories, one of them construction, a trade category. L.E.K found that during the building slump that followed the financial meltdown, contractors preferred switching channels to purchase trusted brands at promotional prices, rather than trading down to lower-priced products. Were I a distributor, I’d be thinking about how to project my value more aggressively.
LOYALTY FACTORS
It’s clear to us that regardless of whether you’re a manufacturer wanting to build loyalty for your product brand or a distributor wanting to build loyalty to the business, creating more loyal customers is a challenge. So, what factors build loyalty?
I’ve mentioned trust a few times. Obviously, if a buyer places his trust in a brand or a distributor, that goes a long way toward achieving loyalty.
Bain & Company emphasizes true and meaningful differentiation. A product or brand must be different from competitors in a way that is obvious and consequential. And, so should a distributor. Many distributors carry the same brands, so when a buyer wants product brand XYZ, why should he pick you? You better have a good reason, otherwise, good luck.
Our research indicates that loyalty building isn’t an “either/or.” There’s no silver bullet.
BALANCING ACT
Loyalty building requires a balance between brand owners and brand sellers. In our interviews with buyers we discovered four qualities that, in balance, make loyalty attainable. The figure on page 35 illustrates those four points, also in balance.
NO GOING IT ALONE
It should be apparent that neither manufacturers nor distributors can do it alone. Brands and their manufacturers must focus on innovation and differentiation, along with durability. Distributors balance the equation with all aspects of service and, along with the manufacturer, deliver on the product or service promise – factoring in reliability, consistency, availability and warranty.
Other aspects of this balanced equation are implied but no less important:
Both manufacturers and distributors must work to create strategic and economic value for the buyer’s business.
The buyer must see a quantifiable advantage that makes his business more competitive or more money.
Lastly, both brand and channel partner will gain loyalty if they, individually or collectively, simplify daily operations for the buyer, i.e. improve buyer’s work life.
As is so often the case, there’s no one way. Building loyalty is a collaboration between brand owners and distributors ̶ the brand sellers. It’s a partnership that leverages not only rational motivations like product innovation and performance, but also emotional drivers like trust and peace of mind.
THE CUSTOMER AS COMMON GROUND
So, if achieving loyalty is a partnership where both manufacturers and distributors cooperate and benefit, what truly is the basis of a magnetic relationship? What’s the common denominator in the equation?
In my opinion, the answer is simple, but not easy. It’s customer centricity.
When the customer becomes the common bond ̶ the magnet that brings manufacturer and distributor together ̶ magic happens:
The manufacturer makes products that customers love and buy repeatedly because they were inspired by real needs and wants, and fueled by how that customer works and makes money.
The distributor becomes a brand’s real-time eyes and ears, going beyond great service and becoming customer advocates.
Together there is more than customer focus, there is more personal intimacy drawn from understanding the customer’s business situation and motivations. There is a mutual commitment to embrace the customer’s requirements for success and work in unison to achieve it.
A former client of mine from the manufacturer side put it this way: “Loyalty builders need to be obsessive with the customer. Think of it this way, your marketing department is like a team of detectives. They need to understand the customer’s business, how it works, and how it makes a profit. Then, they need to address those things from the standpoints of products and services in a way that solves customer problems and helps the customers improve their businesses.”
When manufacturers and distributors see each customer as their own, collectively, then purpose, passion and people become aligned with customer satisfaction and success. When the customer succeeds, and knows that an important part of that achievement is the partnership between distributor and manufacturer, loyalty to both is a matter of course, not luck or a mystery.
John Favalo is executive vice president of Eric Mower + Associates’ Group B2B. He has worked for more than 35 years with many well-known national and international companies that sell through distribution. His work spans the spectrum from brand creation and building, new product development and launches, distributor- relationship programs, loyalty programs and more. Favalo can be reached at
[email protected],
315-466-1000, and on LinkedIn.
