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Channel loyalty marketing is catching the imagination of marketing managers across the world. In countries like India, the phenomenon is witnessing a rapid growth and acceptance across a wide number of verticals, according to channel loyalty expert Nag Rumasubramani at Direxions Marketing in India. This article is copyright 2014 The Best Customer Guide.

One of the reasons for this sweeping change is the realisation that the channel partner occupies a critical position in the brand value chain. To begin with, the channel partner is the face of the brand as far as the end customer or user is concerned.

At the same time, the channel partner also has an in-depth understanding of the market, albeit at a microscopic level, and they do have the choice of representing other brands in an often-crowded market place.

So marketing managers are increasingly putting in serious effort to establish and nurture strong relationships with their channel partners.

Of course, that's good news for loyalty marketing professionals as the demand for their services is bound to increase.

However, this enhanced focus and the resulting increase in the activity levels in channel loyalty are accompanied by several challenges - and it is going to take a lot of effort by managers from both the programme owners and their agencies to address these. Some of these key challenges include:

  1. Lack of understanding of channel loyalty
    The concept of channel loyalty is perhaps the most understood among marketing concepts. Most channel loyalty initiatives are launched without a proper channel loyalty philosophy or a channel loyalty vision properly defined by the marketing team. In addition the misconceptions about loyalty programme range from viewing it as a sales stimulation programme, a channel acquisition aid or in extreme cases, a discount scheme. Understanding of the phenomenon of channel loyalty will go a long way in earning the loyalty of the channel partners.
  2. Unrealistic expectations
    As we success stories emerge in the channel loyalty space, they are also giving rise to wrong expectations. Marketing managers expect the channel loyalty programmes to work like magic. The expectation is that “turns the switch on and watch the sales grow”. The Vice President of one of the mobile services provider asked me recently if we could demonstrate the results in six months from launch! Clearly here is a case of wrong expectation arising out of a complete misunderstanding of how loyalty works. Loyalty gets built over a period of time and its results do not show in months.
  3. Confusing sales incentive programmes with loyalty programmes
    Very often the client launches a sales incentive programme and calls it a channel loyalty programme. The point is not that you should not have a sales incentive programme. But the roles of a sales incentive programme and a channel loyalty programme are different. It is definitely possible for the two to co-exist but one cannot substitute for the other.
  4. Lack of understanding of the channel expectations
    Not much time is spent in understanding the expectations and pain points of the channel partner. And a programme is put together based on what the marketing team feels is right. While this approach is not entirely wrong, it may lead to several glitches in programme design. For example, the programme may place too high a threshold for earning points. Or it may make the process of claiming points very difficult. These defects can be avoided if we start with the understanding of partner expectations.
  5. Inability to look beyond reward points
    Most of the programme managers from the client side (and sadly some from the agency as well) cannot think beyond a reward points programme. And the argument for the dominance of the rewards programmes is that the primary motivation of the channel partner is money. This is a shortsighted approach and does not build loyalty in the long run. Many of the channel partners in the premier tiers are people who earn more than the senior most executives running the programme and are not motivated by sheer rewards. They seek to be part of co-creating the vision for the brand and want to be treated with respect within the principal organisation. A dinner with the Managing Director of the organisation is more valuable for them than a physical reward.
  6. Lack of leadership involvement in the principal organisation
    This is probably the biggest challenge that channel loyalty initiatives are facing. The loyalty initiative is often handed over to a junior member of the team and the leadership team takes a 'hands-off' approach to building channel partner loyalty.Understandably, this lack of involvement is what leads to a lack of loyalty vision which was discussed in point no 1 above. Unless the senior management is involved in building loyalty among the channel partners, the programmes launched with this aim in mind cannot do well.
  7. Unilateral programme changes
    programme managers do not think twice before taking critical decisions that involve programme rules. Technically there is nothing wrong with this practice because the programme manager usually enjoys the right to make modifications to the programme . But it has the potential to affect the relationship adversely. Since any change to programme rules has an impact on the way the member earns or redeems his points, the member feels cheated if these changes are made unilaterally.
  8. Loyalty programmes are launched for the wrong reasons
    One of the reasons for launching a loyalty programme is the fact that everyone else in the industry is having one! Another- though less common- reason is that having a loyalty programme will help the sales team acquire more channel partners easily. Not to mention that many marketing mangers think that a loyalty programme is just another way to give 'disguised discounts'! There are quite a few examples of such programmes floundering in the market place as they neither make the member happy nor produce loyalty in the long run.
  9. Lack of commitment to the programme
    There are three different situations where this happens: One when a team conceives of a loyalty programme and hands it over to a programme manager without involving him in the process. The second situation arises when there is a change in the programme manager and the new incumbent does not have the 'loyalty mindset'. The third situation where this challenge surfaces is where the programme manager is already managing a large portfolio of initiatives and does not feel that loyalty deserves to be top priority. The result in all three cases is that the programme manager feels that the loyalty initiative is an imposition on him and does not devote time to understand or develop the programme.
  10. Budgeting and funds flow is not managed properly
    Even when a team has avoided all the above pitfalls, it could fall into the trap of erroneous budgeting and poor management of funds flow. This can have serious repercussions in meeting commitments to the members in terms of awarding points or fulfilling the redemptions. The reason for this problem is that the finance departments are not included at the programme design stage. It is important for the design team to involve the finance team of the principal organisation in the financial projections. The finance team can help build several scenarios and help the programme manager prepare the budgets accordingly.

There are of course several other challenges in making channel loyalty initiatives a success. In reality channel relationship management is far more complex than a channel loyalty programme. It involves initiatives to stimulate sales, reward partners for achieving target, recognize outstanding performers and build lasting relationships with channel partners. That is why it is important that the marketing organisation and the agency work together to hammer out a shared vision for building channel loyalty before they embark on the loyalty journey. Commitments from both the principal and the agency towards programme are crucial in making it a success. If those three – vision, trust and commitment are there then the teams can work towards eliminating the challenges listed here and build initiatives that will deliver results both in the short terms and the long term.