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Inventive Incentives

By Sep 01, 2006

Last month, the Coca-Cola Co. topped 2.5 million registered users for its My Coke Rewards loyalty program, largely by dangling incentives such as cruises for two to branded T-shirts to drive purchase via an on-pack program. Granted the seven-month-old program has the one-two punch of a powerful well-known brand behind it, but the millions of registrants show that the use of incentives is a powerful motivator to drive trial, repeat purchase and to build brand loyalty. Coke loyalists have been busy buying Coke products, enough to redeem for more than 543,000 rewards as of last month.

In fact, two-thirds of respondents (66.1%) to PROMO’s third annual Premium & Incentives Study indicated that their incentive program is designed to build consumer/brand loyalty, 56.1% said it is to motivate a new purchase and 50% to motivate sales reps.

This summer, Neutrogena used coupons to entice trial of its new sunblock as part of a major sampling program. Brand ambassadors zipped around on Segways in beach parking lots in Venice Beach, CA, Miami Beach, FL and on the New Jersey shore to spray down about 3,000 beachgoers with the new Neutrogena Fresh Cooling Body Mist Sunblock. Some 2,500 $1-off coupons were distributed that could be redeemed at local retailers.

“Coupons are very effective when sampling products, as there is usually a high propensity to purchase the product after trial,” says Jeff Frumin, CEO of Universal Consulting Group, New York. “Coupons are especially effective when consumers are given a time limit for redemption and have a retail location nearby where the product can be purchased.”

A time limit was given to the 18-to-34 year olds that McDonald’s is targeting with a mobile coupon campaign promoting its late night offerings in the New York area via its Late Night Lounge Web site. The campaign, which runs through mid-September, lets consumers opt in at the site to receive digital coupons on a weekly basis via their mobile phones. The coupons — have a call to action around special offers. Consumers redeem coupons within the week at participating McDonald’s between 9 p.m. and 5 a.m. by showing the offers on their phones to the cashier.

“It’s a beautiful thing,” says Ken Ebo, New York region marketing director for McDonald’s. “Eating can be impulsive and if suddenly someone is incentivized there’s the possibility that they could say ‘wow’ and decide to stop by McDonald’s in the late night hour.”

This month, two offers feature a free medium French fry and drink with the purchase of a premium chicken sandwich and a buy-one-get-one-free offer for a Quarter Pounder, Big Mac or FiletOFish.

“We know, especially in that target age group, that the mobile phone is a very social device,” says Mike Baker, CEO, for Boston-based Enpocket, which handles the campaign. “We expect this target market will be showing [the coupons] to peers and bringing friends into the store.”

He says this market segment is a perfect fit for a mobile incentive.

“This age group doesn’t clip coupons,” he says.

Despite the success and interest in such programs, spending on consumer incentive programs is expected to dip this year to a median $25,000 from $30,000 last year with the largest percentage (23.3%) reporting they spent between $25,000 and $99,000 on the programs. However, more respondents (28.3%) say they are running consumer incentive programs this year, compared to 17.2% in 2005. And spending continues to rise, although not as quickly, with 49.4% of respondents saying their budget for incentive spending will increase in 2007 by an average 10.2%, compared to 40% this year at an average 32.0%, according to PROMO’s survey.

For the second consecutive year, respondents cited building consumer and brand loyalty as the top reason for launching incentive programs (66.1%). Motivating a new purchase holds the No. 2 spot (56.1%), followed by motivating sales reps (50.0%).

Respondents reported using a myriad of premiums and incentives, including trendy items with a high-perceived value such as iPods, computers and home entertainment centers. Marriott and other hotels attracted attention last month by offering shampoos and other toiletries as incentives to travelers caught off guard by the sudden changes in rules for carry-on luggage at airports after the British intelligence agency MI5 thwarted terrorist attacks on airliners. Gift cards for gasoline are high on the list as the average price of gas topped $3.04 per gallon last month. Shell is running a 1 million gallon giveaway and General Motors unveiled a program that caps the per-gallon price consumers pay for gas at $1.99 when they purchase select 2006 and 2007 full-size utility and mid-size cars.

“These issues are very timely and show that marketers can respond quickly to the marketplace,” says Karen Renk, the executive director of the Incentive Marketing Association (IMA). “Here is a case where the brand is responding very quickly to the economy and recognizing the fact that its customers are feeling the pinch of increased gas prices.”

Also in favor are cash, stored value cards, travel and vacations as well as dining and entertainment incentives.

Motivation matters

The number of respondents running incentive programs in the corporate world is also on the rise. Some 43.9% run employee incentive programs versus 37.5% in 2005. Fifty percent run programs for sales reps, compared to 32.5% in 2005 and 58.9% have incentive programs for customers, versus 44.2% last year.

More than one-third (36.1%) of respondents reported that cash was the most popular incentive program they offered employees and or/sales reps with 19.5% favoring gift certificates or gift cards as the second most popular, according to the PROMO survey.

Cash rewards, however, have fallen in favor with businesses as a motivational tactic. Human resource executives find that tangible rewards equate to better bottom line results and happier employees. Employees can show off the reward and boast to family, friends and colleagues, instead of using a cash award to pay off bills. Respondents to a recent survey by The Forum for People Performance Management and Measurement ranked cash (59.1%) as the fourth most used motivational tactic.

The Forum found that non-cash programs are seen as being considerably more effective for activities designed to positively impact both internal operations as well as customer relations. Gift certificates were cited as the second most popular employee motivational tactic (65.5%), behind employee recognition (83.8%).

Many HR execs are incorporating gift cards into employee incentive programs, selecting specific retail cards or letting employees go to sites like Giftcertificates.com to choose where they would like to shop. At the site, employees can pick one retailer to spend a $100 gift certificate award, or spread the prize out across four retailers with $25 gift cards.

“We don’t want to encourage cash gifts,” says Rich Killian, executive VP of the Incentive Gift Card Council, a special interest group under the Incentive Marketing Association and the president of RK Incentives, Orlando, FL, a consulting group focused on improving corporate and consumer gift certificate sales programs. “We promote the use of merchant gift cards because it has a trophy value. We feel the employee will remember it longer, which results in increased motivation and productivity at work due to a reward that is remembered.”

Riding that trend, brands have become more willing to partner with other non-competitive brands in multi-retailer gift cards programs to enhance the experience for the recipient.

Earlier this year, Blockbuster added a new product to its corporate incentive program: a movie and a meal card that combines a $15 dollar Blockbuster gift card that can be redeemed for movies or game rentals combined with a $35 gift card from Brinker International that can be redeemed for food and beverages at its restaurants: Chili’s Grill and Bar, Romano’s Macaroni Grill, On The Border Mexican Grill and Cantina, Maggiano’s Little Italy and Corner Bakery Café. (Consumers can also purchase the duel gift cards at Vaughn’s grocery stores in California).

Gift cards are a huge market. Sales were projected to reach $18.5 billion during the 2005 holiday season, up 6.6% from 2004, the National Retail Federation said. And gift card marketers are getting smarter about finding out who is using their cards so they can establish and build a lasting, fruitful relationship with that customer. A growing number of retailers are asking consumers to register their cards online as way to gather consumer data, as well as to provide security for a replacement should the card be lost or stolen. Starbucks promises “exciting” and exclusive offers, as well as surprise gifts as added benefits for those who register their cards at Starbucks.com. Registrants also get protection for the value of the cards against theft or loss.

Spending on employee/sales incentive programs has also dipped to a median $15,000 this year versus $20,000 in 2005.

And, for the first time, the survey found that incentive programs are now most often approved at the CEO level (36.1%), followed by 25.6% for VPs, 21.1% for directors and 15% for managers. In both 2005 and 2004, VPs lead the charge for such programs. And CEOs are not too happy. Some 17.8% indicated that the ROI generated by incentive programs was “far less than expected” or “less than expected” compared with 11.3% in 2005. However, more (13.9%) said results were “more than expected” or “far more than expected” than in 2005 (7.3%). Nearly half (48.9%) said that ROI generated by their incentive programs is on target with what they expected, compared to 38.5% in 2005.

The majority of respondents (72.8%), measure incentive program ROI by incremental sales. Another 25.6% use consumer surveys, 25.6% by incremental productivity, 23.9% by employee retention and 20.6% by employee surveys.

In response to the growing importance of showing bottom line results to clients, the IMA has restructured the Principles of Results Based Incentive Program design course it offers to members and the corporate community, to focus on the ROI measurements that should be built into an incentive program. The course is a cornerstone of the association’s Certified Professional of Incentive Management (CPIM) program. It is offered several times during the year, including at the Motivation Show, scheduled for Sept. 26-28 in Chicago.

“Our customers need to show what the bottom line results are for any investment they make,” the IMA’s Renk says. “We are stressing to membership the importance of building in ROI measurements.”

Delivering the goods

Three in 10 respondents to PROMO’s survey (29.9%) said that premiums deliver better ROI, while 12.5% said ad specialties. Some 33.7% spent more on premiums in the past year, while 27.2% spent more on ad specialties.

Respondents distribute customized rewards featuring their brand’s name or product an average five times per year. They are most likely to distribute premiums at trade shows (40.4%) or as event or marketing tour giveaways (40.0%). Some 31.7% distribute when sales reps visit B-to-B or retail customers, 30.8% through contests, games or sweeps prizes and 27.7% through a gift with purchase. Electronic devices (19.4%) and shirts (18.8%) deliver the desired results, followed by pens (9.4%), caps (4.5%) and mugs (2.7%).

Respondents said that an average 42.5% of their reward programs are built on premiums, while 31.6% are built on ad specialties.

The strength of the economy last year and the recognition that promotional products should be included in marketing campaigns helped boost spending on promotional products 5.1% to $17.8 billion in 2005 — the third consecutive year of increases and a new record, according to The Advertising Specialty Institute.

The Promotional Products Association International says that sales of promotional products reached $18 billion in 2005. Wearables made up the largest percentage of sales (29.98%), followed by writing instruments (10.61%), calendars (7.46%) and drinkware (6.25%).

Some 76.1% of recipients could recall the advertiser’s named on a product they received in the last 12 months, 75.4% found the item useful and 20.2% thought it was attractive. the PPAI said.

High-end enterprises that have been traditionally retail focused, such as Coach, Tumi, Swiss Army, Movado and others have developed specialty markets divisions to expand their offerings to the promotional products industry.

“It’s no secret that most of these brands are more expensive than the typical promotional product and they have an application toward business gifts to customers or rewards to sales team,” says Steve Slagle, the president of PPAI. “They carry a prestige. They are known at the retail marketplace and they have a higher perceived value.”

The vast reach of the promotional products distributor network has helped to bring new premium products into the marketplace, Slagle says.

“[These manufacturers] are finding that the distributors are a very effective sales force,” he says. “The distributor network, with 21,000 companies across the country, gives them another avenue to reach many, many more clients.”

Fulfillment companies are making headway. Some 51.7% of respondents reported that their fulfillment company redeems rewards in a timely manner, compared to 46% in 2005. Another 41.1% do not use a fulfillment company and only 2.8% said that their fulfillment company does not fulfill orders in a timely manner, compared to 6% last year. Respondents said it takes an average 2.7 weeks to fulfill a reward, on par with last year.
Amy Johannes contributed to this report.


METHODOLOGY: The survey was e-mailed in July and August to subscribers of the PROMO P&I newsletter in the manufacturing, retailing and marketing agency categories. Some 448 surveys were completed, resulting in a 1.5% response rate.

*2004 brands include only manufacturers, not service companies.

COFFEE PERKS

Caribou Coffee is brewing up a new incentive for its loyal customers — free credit.

The coffee chain is out with a new spin on loyalty programs incenting customers to use its debit/gift card, the Caribou Card. Customers who use the Caribou Card through Oct. 8 and spend at least $1.50 per visit over 10 visits, will receive a $4 credit on their Caribou Card.

“These are our very best customers,” says Kathy Hollenhorst, senior VP-marketing for Caribou Coffee. “We wanted to give them something back.”

Customers must register their Caribou Cards at Cariboucoffee.com for the promotion. Caribou Coffee will notify customers via e-mail when they will receive the $4 credit on their cards. Consumers can qualify for the free credit up to eight times during the promotion.

The reloadable card launched in 2003 to give customers added value and convenient paying options, Hollenhorst says. Since then, some 50,000 customers registered their cards and another 10,000 have signed up since the promotion began July 31.

The limited-time promotion builds off Caribou Coffee’s punch card loyalty club, which gave consumers one free drink with every 10 card punches. The latest promotion will help the Minneapolis-based coffee chain test the waters for a bigger and better loyalty program it plans to launch in 2007, Hollenhorst says. Online materials, e-mail and in-store signage support.
Amy Johannes