A financial services company intituted a cash incentive program to boost its bottom line. The staff consistently earned the extra cash but soon reached a comfort level, and to the dismay of the company, the team no longer strove to achieve. What to do? The company decided to add a travel award, a trip for the best performers and their spouses or significant others. The employees worked hard to earn the trip and showed a significant sales increase.
“It was the [travel] incentive that triggered [the response],” says Rodger Stotz, VP-managing consultant for Martiz Inc. in St. Louis (which managed the program).
The dollar still reigns as the No. 1 most popular type of consumer and employee incentive, according to PROMO’s second annual Premium & Incentives Study. But while recipients may say they want cash, companies have to consider the long-term effect of cash rewards and who they are directed toward, experts say. Employees like the ones described above, may become complacent with a cash incentive while call-center representatives making $7 to $10 per hour may place a higher value on a cash award because it has greater impact.
“Cash is great — as compensation. Cut out a cash incentive program and you’ve just cut that employee’s salary,” says Donna Oldenburg, president of Oldenburg Incentive Solutions, a consulting firm specializing in the incentive and recognition industries. “Employees don’t often talk to their peers about their last cash bonus, but they are always excited to talk about the incentive trip they took, or the flat screen television they just won. Tangible rewards create long-lasting emotional responses that cash just can’t match.”
Gift cards ranked No. 2 as the preferred reward, followed by gift certificates (consumer programs) and travel and vacations (employee programs). The least popular type of incentive for both groups was stored value cards, respondents said.
Deciding which award selection works best, when and why has been a question at the center of debates across the industry and has put many an incentive program planners in a quandary.
To address the issue, a new study is underway at the Forum for People Performance Management and Measurement at Northwestern University called Strategic Guidelines to Managing Cash and Non-Cash Employee Incentives. The study is sponsored by the forum and conducted by an independent research professor. Preliminary data is expected next year.
“The challenge is in the nuances imbedded in the psychological aspects of selecting awards,” says Stotz, a member of the study’s research committee.
Whether the reward is cash, a Coach bag, a trip to Las Vegas or a Coleman barbeque grill, the number of companies running both consumer and employee incentive programs is on the rise.
In fact, 49.1% of respondents to the PROMO survey said they are running incentive programs, up from 36.5% last year (see chart, p. 39).
“As the economy starts to rebound, spending on both employee and consumer incentive programs will continue to grow,” Oldenburg says. “With consumers spending more, companies will look to incentive programs as a way to maintain customer loyalty and capture a greater share of the market. Any forward-thinking company will also recognize that in order to capture and maintain those customers, it must first ensure it is recruiting and retaining the best and brightest employees. The most effective way to accomplish this is with well-designed incentive programs that reward and recognize employee performance and loyalty.”
Some 44.2% of respondents reported incentive programs for customers, 37.5% for employees, 32.5% for sales reps and 17.2% for consumers.
Respondents to the survey expect spending on employee (internal) incentive programs to increase slightly (1.3%) this year to an average $268,662 (from $211,354 in 2004). Spending on consumer (external) incentive programs is also seeing a small lift of 1.2% to $996,418 (from $862,222 in 2004).
The Incentive Marketing Association projects that spending on products and services used for incentive programs will reach $28 billion this year, up from $26 billion in 2000. And sales of promotional products hit a milestone last year, setting a new record at $16.9 billion, a 4.7% jump over 2003 figures, according to the Advertising Specialty Institute’s Industry Sales Survey, released in March.
Industry associations and other organizations continue to push the case, backed by solid research from reputable sources, that shows a direct correlation between employee performance and a company’s bottom line.
Many of these associations are educating their members and end buyers on the benefits of the use of promotional and incentive products as motivational and marketing tools.
The Promotional Products Association International recently developed the ADvocate Program to train and prepare its member volunteers to give 20-minute presentations before groups of prospective buyers on the effective use of promotional products as strategic selling tools.
The Incentive Marketing Association is set to launch its new five-year plan, which includes stepping up corporate outreach efforts combining education, research and public relations efforts to drive home the message that incentive programs benefit the bottom line.
Twenty-two percent of respondents to the PROMO survey said that events or marketing tour giveaways were the basis for promotional product distribution compared to 22.1% at trade shows, 19.7% on gift with purchase, 19.5% as contest, games or sweepstake prizes, as giveaways for sales reps (18.5%, at retail (10.5%), in exchange for personal information (8.3%), online (8.2%) and purchase with purchase (7%). The premiums that delivered the best results were shirts (13.3%), electronic devices (9.9%), pens (7.2%), caps (2.9%) and mugs (2.3%), the survey found. Written comments included a host of other products including chocolate covered strawberries, hydration backpacks, letter openers and pedometers.
Sales of branded or co-branded incentives are skyrocketing as companies look to dangle higher-value awards. Digital cameras are the hot specialty item for Canon USA Inc. for both employee and consumer incentives. The cameras helped push its sales in the incentive channel up by double digits over last year, says Terry Markwart, director and assistant general manger special markets consumer imaging group for Canon, Lake Success. He adds that the cameras have appeal to all ages.
Canon’s camcorders are also popular as they get smaller and smaller and can take both print and video images.
Canon, like other premium products suppliers, are partnering with other high-end brands to bring added value to incentive products and motivational awards.
In the corporate gift market, Canon has paired with Coach to put its digital cameras in Coach carrying cases and recently expanded the deal to its video group to package its camcorders in Coach cases as well.
“If [the incentive or award] doesn’t have a high perceived value, a quality look and feel, the perception is that [the company] really doesn’t think that much about me,” Markwart says. “If you get something from Tiffany’s or from Canon, they think ‘Wow, I really did do a good job here.’”
Since 9/11, family-oriented incentives, like digital recorders, have been in greater demand. The high price of gasoline has added to that trend as families opt for day trips, picnics, tailgate parties or hikes nearby.
At Coleman Co., the maker of outdoor camping gear and recreation equipment, products associated with getting the family outdoors, like its RoadTrip Grill, are top sellers in the premium market. Coleman has seen its branded specialty business grow an average 10% per year, says Paul Cernohous, director of sales of special markets for the Wichita, KS-based company.
“One of the biggest growth channels in promotional products is brand names,” Cernohous says. “The company’s that were giving out low-cost promotional products are looking to give their employees or consumers a brand name.”
Coleman has gotten into the gift card incentive arena as well, introducing its first branded gift card last September. One client, Trails-End Popcorn, made by the Weaver Co., is using the cards as incentives for boy scouts selling the popcorn in door-to-door fund-raising efforts. As of August, Coleman had surpassed its sales goal for the year in the gift card program, Cernohous says.
As the use of gift cards as incentives continues to grow, so too does the interest among legislators in regulating their use. Many recent legislative actions have centered on the application of expiration dates and dormancy fees following numerous consumer complaints. Just this year, four states-Arizona, Maryland, Oklahoma and Texas-enacted basis changes to gift card laws (see sidebar, p. 40).
“These changes are consumer friendly and, even though some people in the industry might gripe about them, are by and large good. The kinds of restrictions [the legislation would curtail] give any industry a bad name,” says George Delta, an attorney for the Incentive Federation. “The idea in a gift card is to foster brand loyalty and encourage consumers to shop and if you have an expiration date, it ends up creating a problem.”
The top goal for incentives according to PROMO’s study was to build consumer and brand loyalty (41.4%), followed by motivating a new purchase (35.9%), motivating sales reps (33.7%), motivating a team (28.4%), fostering employee retention (27%), motivating other top performers (23.1%), motivating top buyers (13.8%) and motivating top distributors (12.8%).
Twenty-five percent of respondents run their incentive programs online, another 20.5% use a print catalog and 12.2% reported using an Intranet. Another twenty-four percent wrote in answers such as: a variety of company resources, at point-of-sale, at company meetings, via direct mail and billing messages, in pack, on-site events, by phone, radio and TV.
”The Internet and other technologies have made it easier than ever to run incentive programs cost effectively,” Oldenburg says. “In the past, administrative costs could be staggering, particularly on big programs. In many cases, technology has given companies the ability to save on producing and printing costly catalogs, as well as on administration costs. With Web-based programs, companies can easily track progress, and most importantly can make adjustments midstream (change awards, add new ways to win, etc) thereby maximizing a program’s efficiency and effectiveness.”
Effectiveness is a key word. Quantifiable results are in high demand. As the economy slowed after 9/11, companies examined all expenditures on reward recognition programs. Budgets were reduced, programs were eliminated or postponed and C-level executives were asking the question, ‘What is my return on invest?’ That began to drive a heightened awareness and a heightened requirement to have solid practices in place to evaluate the programs. And as the economy rebounded and many companies primary strategy has turned from reducing costs to organic growth, metrics are being introduced into program structures with a focus on tracking results and reporting progress throughout the program, all with the ability to tweak or, if necessary, kill the program as it progresses.
According to the survey, the top means for determining a program’s success is incremental sales (49.3%). Another 18.9% said incremental productivity, 17% reported employee surveys, 16.8% employee retention and 16.2% said via a consumer survey.
Meanwhile, respondents appear happy with the results. Some 38.5% reported that the ROI on incentive programs was on target, another 7.3% said the programs were better than expected or far exceeded expectations, compared to 11.3% who said results were less or far less than expected.
Timely fulfillment has improved compared to the previous survey. Of the people who responded to the question, “Is your fulfillment company fulfilling rewards in a timely manner?’ 52% replied “yes” compared to 46% last year. And the length of time it took to fulfill rewards shortened to 2.7 weeks compared to 2.9 weeks.
“It’s really important to be able to deliver the product when the time is right,” Canon’s Markwart says. “When the president of the company is handing out the company watch or a digital camera or camcorder for their 15 years of service, he doesn’t want to hold up a picture and say, ‘It will be sent to you later because it’s on backorder.’”
Markwart says that timely fulfillment is the most critical component of the backside of the business.
“Timing is everything,” he says. “No matter how much you spend on the program, if a person wins a trip or merchandise, this great thing they’ve been working hard to get and then it’s not available, it doesn’t mean anything to them. You’ve defeated the purpose of what you’re trying to accomplish.”
As for 2006, experts expect growth to continue in all areas of the incentive industry, and changes in the structure of programs and types of awards based on demographic shifts in the U.S.
Maritz’s Stotz has been working on understanding how participant values are changing as the Baby Boomer group (born between 1946 and 1964), moves into retirement and the younger Gen X (1965-1979), with its oldest members turning the Big 4-0 this year, and Gen Y (born in 1979 or later) populations fill in the workforce.
Sixty percent of CEOs have not considered the aging of the work force and the impact of that lost knowledge in their long-range plans, says futurist Ed Barlow. As the average age of life expectancy extends and many boomers plan to work past traditional retirement at jobs they enjoy, keeping these older workers on the job will fall to incentive planning, as will strategies to retain younger workers. In fact, kindergarteners today will have four major careers holding at least nine different jobs in life, Barlow said last month at the IMA Executive Summit in Scottsdale, AZ.
“We are already making adjustments to our plans that will impact how we design plans, but also what type of reinforcers or awards are most appropriate; what choices would be more appealing based on demographics,” Stotz says.
Canon’s Markwart agrees. “As the boomers start waning away from the working world and going on to retirement, there are not as many people behind the boomers to take their place,” he says. “So companies are going to have to use incentive as a way to get people to stay and to motivate them to do a good job because the boomer group goes [to work] with the idea that they’re going to be there for a long time and the younger groups do not.”
METHODOLOGY: The survey was e-mailed June 1 to subscribers of the PROMO P&I newsletter in the manufacturing, retailing and service industry categories. Some 1,033 surveys were completed, resulting in a 5.5% response rate.
Are you running an incentive program now?
How much will you spend on incentives?
|2005 Incentive Budgets||Per audience|
|Less than $5,000||13.8%||21.8%|
|$5,000 to $24,999||27.1%||32.0%|
|$25,000 to $99,999||21.9%||21.8%|
|$100,000 to $249,999||11.0%||10.2%|
|$250,000 to $499,999||22.4%||11.6%|
|More than $500,000||3.8%||2.4%|
|Source: PROMO Based only on those responses that provided data.|
Few plan to cut their incentive spending
|2006 budget projections for premiums and incentives|
|Increase over 2005||40.0%|
|Stay the same||55.6%|
|Source: PROMO Based only on those responses that provided data.|
|Build consumer loyalty||41.4%|
|Motivate new purchase||35.9%|
|Motivate sales reps||33.7%|
|Motivate a team||28.4%|
|Foster employee retention||27.0%|
|Motivate other top performers||23.1%|
|Motivate top buyers||13.8%|
|Motivate top distributors||12.8%|
NEW LAWS FOR GIFT CERTIFICATES
A HANDFUL of states have enacted basic changes to their gift card laws this year — Arizona, Maryland, Oklahoma and Texas. Other states enacted their changes last year, except California, which added its new law in 2003, and it went into effect in 2004.
George Delta, an attorney for the Incentive Federation, outlined the following new changes last month during the Incentive Marketing Association’s Executive Summit in Scottsdale, AZ.
Arizona: effective Nov. 1, 2005, Arizona will require gift certificates to clearly and conspicuously disclose any expiration date, fees that may be imposed, and when such fees may be incurred. The disclosure must be conspicuously printed on the front of the gift certificate for paper certificates, made orally before purchase for telephone sales, and made accessible online before purchase for online sales. Gift certificates must be honored in accordance with their disclosed terms.
Maryland: Effective July 1, 2006, Maryland will prohibit gift certificates from expiring before four years and from imposing dormancy or any other fees that reduce a certificate’s value during that time. Expiration dates and fees that take effect after four years must be disclosed in at least 10-point font on the card, on a sticker permanently affixed to the card, or on an envelope that contains the card. Terms and conditions on gift certificates cannot be changed after the date of purchase or issuance, unless the change improves such terms and conditions. Fees or expiration dates that violate the new law will be invalid.
Oklahoma: effective Nov. 1, 2005, Oklahoma will prohibit gift certificates from expiring before 60 months and from imposing dormancy or any other fees that reduce a certificate’s value during that time unless some very stringent restrictions are met. The new law applies only to certificates that can be used to buy goods or services at a single merchant or a group of merchants that have common corporate control. In other words, it does not apply to bank-issued stored value cards.
Texas: Effective Sept. 1, 2005, Texas will specifically permit expiration dates and fees if they are conspicuously disclosed at the time the card is issued or sold. An expiration date and fees that reduce the card’s value must be legibly printed on it.
These new laws contains an exemption for gift certificates distributed by an issuer pursuant to an awards, loyalty or promotional program, as long as the recipient does not give money or any other thing of value in exchange (other restrictions vary by state). For details visit www.promomagazine.com/premiums.