PROMO’S 2009 P&I Survey Finds Signs of Change in Customer Incentives

As with many other marketing channels this year, flat seems to be the new up for companies surveyed in the 2009 Promo Premiums and Incentives survey.

Promo found that 38.6% of those companies polled in this year’s survey said they offer a promotional incentive program to customers or sales prospects. That’s down slightly from the 42.1% who said they ran such programs last year.

That slippage was echoed through three of the four industry verticals tracked in the survey. In 2008, 48.6% of goods manufacturers polled said they ran a customer incentive program; this year, only 42.4% of those respondents said the same. (It should be noted that a surprisingly large proportion of respondents in this category—9%—said they “do not know” if their companies offer such programs.) Retailers offering customer incentives declined to 50% of respondents this year, from 52.9% in the last survey. And marketing agencies offering such programs slid from 34.3% in 2008 to 31.9% this year.

Only providers of branded services showed a slight increase in customer-facing incentives in this year’s survey, up to 50% from 47.5% last year.

And those who don’t currently offer customer premiums seem mostly determined to keep their non-participant status at quo for the coming year: Six in 10 of those with no current incentive program for customers said they had no plans to offer one in the next year. And the 17% who said they would launch a premium program were outnumbered by those who are undecided (22%).

Interestingly, a vertical look at those who say they’ll institute such a program in the coming year shows that goods manufacturers dominate (25%), followed by retailers (21.4%)—two of the verticals that showed declines in programs actually up and running in 2009.

Shifting Money
In budget terms, the largest proportion of respondents to this year’s Promo P&I Survey (15.5%) said they expect to spend less than $5,000 on customer promotions this year. That’s comparable to last year’s result in which 13.6%—again the largest category—said they would keep premium spending below the $5,000 mark.

But this year’s survey shows sizable growth among those planning to spend between $5,000 and $100,000 on their customer incentive programs. Where the 2008 P&I Survey found only 6.4% forecasting $5,000 to $24,999 for premiums—fewer than those claiming they would spend nothing—this year the $5,000 to $24,999 category almost doubled to 11.8%.

And those marketers expecting to spend $25,000 to $99,999 more than doubled to 6.4%—equal to the percentage who expect to spend nothing this year. (Results at the far end of the budget scale are highly volatile because one big spender coming in or dropping out of the survey can skew the results heavily.)

Looking at 2009 spending projections by vertical, goods manufacturers appear to be downshifting on their premiums while keeping the programs running. Last year 17.6% of manufacturers surveyed said they expected to spend $100,000 to $249,000 on customer incentives, while 5.9% anticipated spending $25,000 to $99,999. This year only 7.1% of goods makers say they will spend the higher amount, while 14.3% expect to keep their premium spending in the lower bracket. And the number of manufacturers predicting premium spending of less than $5,000 grew from 11.7% in last year’s survey to 21.4% this time around.

Retailers and service providers showed the same tendency to ladder down spending into the lower categories in their 2009 projections. For example, last year 15.8% of service providers polled said they would spend $5,000 to $24,999; this year only 9.5% said the same. And the proportion of retailers expecting to keep promotional spending below $5,000 grew from 16.7% in the 2008 poll to 35.7% this year.

It’s also worth noting that a very high percentage of respondents—more than 50%—answered that they “do not know” how much their companies will spend on customer incentives this year, higher than the proportion in past surveys who were unable to project spending. That could indicate that marketers are keeping the door open for incentives launched on the fly as needed to stimulate business during the second half of 2009.

As for what will happen to incentive spending in 2010, poll respondents were a bit less optimistic than a year ago. This year about a third said they expect their budgets for customer premiums to grow; that’s a shade less than the 38.5% who foresaw budget growth in the 2008 poll. The numbers who expect budgets to stay flat year to year were almost identical. But those who expect to spend less on customer premiums in 2010 increased to 17.3% of the response group, from 7.7% in the last survey.

Next Page: Cards Up, Cash Down

Cards Up, Cash Down
2009 saw an interesting reapportionment of the types of premiums and incentives brands prefer to offer to their customers and prospects. Among the established premium categories in the Promo P&I questionnaire, gift cards rank as the top giveaway among almost one-fourth of respondents—about the same proportion as in 2008. But this year dining and entertainment vouchers and certificates turned out to be the second most popular reward format, with just more than one in 10 respondents naming them as their preferred form of customer incentive.

At the same time, hard cash dropped far down in popularity as a premium. This year only 10% of those polled said they chose to dole out money as an incentive; that’s off sharply from the 15.4% who opted for dollars in 2008.

Other categories—gift certificates, travel, and stored value cards that customers can fill up again once they’ve spent them down—remained fairly steady.

The venue for distributing these customer gifts has also changed over the last year, to judge from the survey results. Last year, 44% of respondents said that they hand out premiums at events or on marketing tour campaigns. This year only a quarter of those brands polled said they distribute premiums in that way, and events/marketing tours fell steeply from the top-ranked distribution channel in 2008 to number four this year.

The apparent pullback from live events as distribution channels plays out across the vertical segments in this year’s poll. Goods manufacturers said last year that 41.2% of them handed out premiums at these events; this year, that proportion is only 28.6%. Service providers handing out premiums through events and tours dropped from 52.6% last year to 28.6% this time. And retailers using events and tours to incentivize customers fell from 38.9% in 2008 to 14.3% in this year’s study. Marketing agencies were off more than half, declining to 23.3% this year from 54.2% in 2008.

All the other distribution channels declined between two to four percentage points in this year’s survey, with the exception of premiums handed out at retail, which saw an increase of almost five percentage points. This seems due to a big increase in the number of retailers themselves who say they’re using the channel to get premiums out to their customers: 21.4% of respondents in this survey, compared to only 11.1% of retailers polled in 2008.

Do Premiums Work?
Asked how they measure the return on investment from their customer incentive programs, 51.8% of respondents cited incremental sales, the largest category. But that was off from the 60.4% last year who looked to sales growth to validate their premium spending.

The question is, what measure takes the place of incremental sales? Long-term or lifetime value increased in popularity for this year’s poll, rising slightly to 27.3%.
But the 10-percentage-point increase in those who said they “don’t know” their premiums’ ROI may spell trouble for the incentive industry.

For Employee Incentives, a Downsizing Year
Voluntary pay cuts. Compulsory furloughs. “Doing more with less.” You’d think that this would be a banner year for employee incentive programs.

But the 2009 Promo P&I Survey found that it’s business very much as usual for programs aimed at rewarding employees and building workplace morale. If anything, the number of marketers polled who report incentive programs within their own companies has dropped from about one-quarter last year to one-fifth this time. And only about 10% of the holdouts say they plan to launch a workplace rewards program in the coming year.

Cash payouts rank first among employee rewards at the companies who grant them. That makes sense, since companies with incentive programs say they most often aim them at sales reps (75%), although 66.1% say they include non-sales employees.

Not surprisingly, then, respondents who offer employee incentives most commonly said they measured the ROI of those programs by tracking incremental sales (47.5%), although the proportion using sales as a metric of effectiveness is off somewhat from last year’s 53.7%.

Notably, more marketers say their companies are using incremental productivity and employee attitude surveys as gauges for the impact of their internal incentive programs. Year over year, employee retention has actually slipped five percentage points as an ROI metric to 20.3%—perhaps simply indicating that employees have more reasons to stay in a job these days than a restaurant gift card.

Methodology:
The 2009 Promo P&I Survey is based on surveys mailed on June 4, 2009, to companies and agencies involved in marketing, including manufacturers of brand goods, providers of brand services, retailers, marketing agencies, suppliers and distributors of premiums. Results are based on 285 completed replies.