September, 2004

Opdyke Lumber's Bonus Baby

ProBonus program builds loyalty, reduces late payments

By Mary Shafer

About eight years ago, Frenchtown, N.J.-based H. J. Opdyke Lumber Co. instituted a cash-back rewards program for its pro customers. The ProBonus program came out of a discussion about credit card cash-back rewards between president Jack Opdyke and his marketing consultant, Win Bottomley.

"The idea was to get them to come in and have fun with it,” says Opdyke. Yes, they wanted to build loyalty, but there was a second, equally important ulterior motive: "We were trying to get to the top of the bill pile by encouraging customers to make timely payments.” And it worked.

Opdyke’s vice president, Mary Masters, says that, "In the long run, it helps us in our days-out receivables. They have definitely improved since we started the program and it has brought down our outstanding receivables. Though I don’t have an actual percentage of decrease,” she says, it’s a noticeable difference.

Program Points

Customers accrue "good as cash” credits with each purchase, with the amount tied directly to timely payment: 0.5% on all purchases paid by the tenth of the following month, or 0.25% on purchases paid by the end of the following month (excluding sales tax).

Only accounts with no past-due balances are eligible to accrue ProBonus credits, unless there is a mutually-agreed dollar amount in dispute. Credits can only be applied to future purchases, and not to pay down outstanding balances.

Each accrual period runs from January 1st through December 31st, and points cannot be carried over from year to year. Credits must be used by the follow- ing March 31 or they are forfeited, but Opdyke is reasonably lenient about latecomers.

"The idea [of the deadline] is not to take the credit away from them, but to get them to use it,” says Opdyke. "We want it to be a positive, feel-good thing; more of a marketing tool. We don’t want to penalize anyone, which would turn the positive value into a negative.”

Originally, customers had to enroll in the program, but Opdyke found that was potentially a negative, too. "We ran into a lot of people forgetting to register and we don’t want to cause hard feelings. So now we just tell our staff to automatically sign up new customers. If you’re a pro contractor, you’re in the program.”

Who's Using It

Smaller home builders and remodelers have been the most receptive to the program. A few larger builders take advantage of it, but many find that the payment schedule restrictions don’t fit into their cash flow cycles. Opdyke believes this is actually a positive characteristic. Though the program is offered to everyone, the ones who really benefit are the builders who are often left out of rewards programs geared toward the big guys. "Our rewards are offered even on small purchases. If you spend a dollar, you qualify. No one feels left out, and the appeal is that whole, ‘I got something free for doing what I was going to do anyway.’”

Opdyke introduced the program through its contractor newsletter, envelope stuffers, flyers, counter signs, and through its sales staff. The annual cost has averaged between $35,000 and $40,000, and Masters says administrative costs are minimal. "Month-to-month upkeep isn’t great. Daily posting makes it easy, since it’s already integrated into the Excel spreadsheet we use in our A/R department.”

The largest effort comes in February, when notification letters are sent out to report everyone’s accrued credits for the previous year. However, many of the participants call or come in at other times to check on what they’ve built up in their ProBonus accounts. "At any given time,” says Masters, "someone can get their total. More and more, our larger builders are asking if they can use the credits on a monthly basis,” which they can.

Not surprisingly, March is the heaviest period for cashing in credits, although the run can begin as early as December. "Some of our builders will actually bring in their lead carpenter, job super or other key employees to pick out something as a Christmas gift,” says Opdyke.

This part of the process "has really built enthusiasm for shopping that I haven’t seen before in men,” says Masters. "We rarely see that.”

Opdyke agrees. "I’ve seen a group of guys almost giddy over picking out a ‘free’ toolbelt or power saw.” Moreover, he adds, "it gets them into the store and on the floor. It even gets some of our biggest customers in the yard, who otherwise we’d only deal with on the phone or the Nextel. This kind of face time is important to keep them in touch with what we’re doing, new products we have to offer. And it’s also where a lot of the relationship-building goes on.”

Not only does the program build loyalty among existing customers, Opdyke believes it has been "one of the tools we can use” to lure new business. "It won’t be a huge up-front factor, but it can tip the scale when it comes to opening new accounts and also at the time of a purchasing decision.”

Best of all, it generates buzz. "We have had contractors talk to others about it,” says Opdyke. "That usually has the most punch toward the end of the year when those dollars mount up. I would definitely recommend other dealers doing a similar program. The best thing is that it’s all-inclusive. No one gets left out, and there are no hard feelings.”