Factoring Rewards into Purchase Decisions

Greater appreciation by contractors and suppliers of their mutual dependency may be among the many byproducts of the pandemic’s disruptive impact on the global goods supply chain. But relationships have surely been stressed given materials shortages, shipment delays, and price spikes, meaning some may lie in disrepair when the dust finally settles.

One outcome that contractors might prepare for is more supplier aggressiveness to retain business they’ve gained or win back business they’ve lost due to the pandemic. And one tactic they might be inclined to employ more aggressively is rewarding loyal and big-spending customers.

Recent surveys suggest programs that shower rewards on contractors for their business are popular among suppliers and generally valued and considered by contractors as the divvy up their materials spending.

An October 2021 survey of 250 mostly small contractors done for Rewards Paths, a loyalty program marketer, found 72% of contractors surveyed (and 63% of the sample’s 50 electrical contractors) belonged to rewards or loyalty programs offered by suppliers. The channel where rewards are most often found is chain retail. But contractors find availability is about half as common from both independent retailers and specialty distributors/wholesalers they patronize. Among the various types of rewards, purchase discounts are the most valued and available. Ninety percent of those who belong to a program said they get discounts, which are by far the most popular type of reward, with half saying that’s the perk they value the most (Fig. 1 and Fig. 2). Billing statement credits, points/miles redeemable for goods or services, and “special privileges” scored lower overall. Electrical contractors stood out for getting rewarded with points or miles at a higher rate, and discounts at a lower rate. And they prefer billing statement credits at a higher rate.

In another survey done earlier in 2021 for HMI Performance Incentives, What's Influencing Contractor Decisions (channelmkt.com), three-quarters of 750 contractors (9% of whom were electrical contractors) surveyed said that at least one of their suppliers has offered them a purchase incentive or loyalty program. They most commonly take the form of gift cards/merchandise rewards and volume-based cash rebates; less common are credits on future purchases and travel rewards.

And the HMI survey found evidence that such programs perform their intended role. Three-quarters of respondents indicated they could be swayed by perks, 44% saying they’d “possibly” switch business to a supplier who offered them, and 30% saying they would if pricing and services were comparable. Still, 41% say their overall purchasing decisions are not influenced by such programs, while 53% said they’d purchase more from an offering distributor.

Boiling it all down, perks appear to be something that contractors do and should weigh when deciding where to direct their materials purchase dollars, says David Gordon, president of Channel Marketing Group, which conducted the HMI survey. They are one of many criteria that come into play in choosing suppliers, but any time savings or other benefits can be readily realized and compounded over time, the value is evident.

“The way to think about these programs is that they’re often the cherry on the cheesecake for making a decision to purchase from someone,” Gordon says. “The programs try to affect the ‘where’ it is purchased, but, in reality, it’s probably 25-40% of the time the ‘where’ is affected. For a contractor, these programs should be secondary in nature as the primary decision needs to be ‘what is the right purchasing decision for your business?’” 

Once commerce begins to normalize, suppliers could be eager to help contractors answer that question, and incentives could be some of the currency they use more aggressively to influence behavior.

Tom Zind is a freelance writer based in Lee's Summit, Mo. He can be reached at [email protected].