Champagne Tastes

Despite the economic downturn, more companies are offering customer-based incentive programs in hopes of boosting their bottom line.

That’s the top-line theme from marketers in Promo’s 2008 premiums and incentives survey.

Of the 216 respondents, 42% offer customer or prospect-oriented incentive programs, up from 35% last year. And 11% expect to create one within the next year. Even better, 39% plan to boost spending in 2009, whereas nearly the same number say their budgets will stay the same.

“Organizations realize they need to take extra measures to have products or services noticed by a consumer base that’s reluctant to purchase,” says Karen Renk, executive director of the Incentive Marketing Association. “In a down economy, there tends to be a knee-jerk reaction to cut costs. But smart companies are making sure they’re continuing to utilize recognition and incentive programs.”

What’s the top award for customers? The answers vary. Gift cards are favored by 23% of the marketers polled, followed by cash, travel/vacations and gift certificates. Also popular are gas cards and grocery cards, thanks to soaring gas prices and food costs, says Rich Killian, past president of the Incentive Gift Card Council, and president of consulting group RK Incentives.

“If you want your award program to sizzle, pop a gas card in there,” Killian says. “There’s much more appeal for merchants. Giving away a gift card will get people to spend more.”

What about return on investment in incentives? About 60% that measure it use incremental sales as a basis. But a surprising 14% don’t measure ROI at all, compared with 10% last year. That’s a mistake, says Bob Dawson, chairman of the Incentive Research Foundation’s Research Committee.

“People are missing the boat,” Dawson argues. “Folks who aren’t measuring are saying, ‘I don’t want to open a Pandora’s box.’ They’re trying to keep things under the radar.”

In fact, firms that track ROI have reason to be pleased. The metric is on target for more than half, and below expectations for just 14%.

As in past surveys, premiums are again the top ROI driver. They deliver a better return for 55% of those questioned. Ad specialties do this for 15%.

“It’s no surprise,” says Steve Slagle, president of Promotional Products Association International. “Premiums have a high perceived value.”

Yet fewer firms are boosting premium spending. Some 28% increased their premium budgets vs. 35% last year. Slagle attributes the lower spending to the recessionary business climate.

“Given the economy, customers are tightening their belts,” he says. “This is reflected throughout the industry. We’re not anticipating a huge increase in sales.”

How are most premiums distributed? Almost half of respondents use events or marketing tour giveaways as vehicles.

“You can never underestimate the value of the human connection,” explains Rick Blabolil, president of both the Incentive Marketing Association and Marketing Innovators. “Hand-delivery of premiums for consumer promotions is becoming popular because it ties the incentive into an experience. It’s really about relationship management.”

EMPLOYEE PROGRAMS TAKE A HIT

What about employees? Of the companies polled, 25% run an internal incentive program, a slight dip from 2007. But 12% intend to establish one within a year. Among firms that offer programs, 67% have them for sales reps, down from 75% last year. Fifty-seven percent give incentives to non-sales staff, up from 51% in 2007.

“Employee recognition programs usually get hit in the beginning,” notes Bruce Bolger, managing director of the Incentive Performance Center. “Companies feel they can cut down on them in tough times. What happens later in a recession is that spending generally goes up.”

That seems to be the case. Thirty-nine percent indicate they’ll increase employee-incentive spending next year, while 43% expect it to remain the same. But those budgets will still be far below the average 2006 outlay, and low compared with spending on customer programs.

“More companies are seeing they should do something, but the flip side is they’re cautious about how aggressive they get in a down economy,” Blabolil adds.

How are employers rewarding workers? More than half give cash awards, vs. just 37.2% last year.

“Cash will always be king,” Killian says. “It’s the ultimate gift.”

Gift cards are a more distant second choice than they were last year. Experts say that tracks with the overall economy, where gift card sales are down 10% to 20% from 2007.

“We aren’t concerned yet,” Killian adds. “It’s not a major gift time. Gift cards will continue to grow, maybe just not at the pace they have the last two or three years.”

INCENTIVES ENHANCE PERFORMANCE

Beyond cash and gift cards, industry experts say it’s important to offer rewards that appeal to the masses. And choice often is best.

Case in point: Amazon.com’s Merchandise Rewards program. It targets firms like USMotivation and Maritz, which manage employee-incentive programs for other businesses. Firms reward workers with points redeemable on a company-branded Web site for items such as apparel, books, DVDs, electronics and music.

“Companies want to create solutions that reward their clients and give the selection people expect,” says Hans-Eric Gosch, Amazon.com’s senior business development manager, who manages the service.

Blabolil agrees.

“A program must offer enough choice so that each individual employee can be rewarded with something he or she feels a personal connection with,” he says.

When it comes to tracking an employee program’s success, nearly all companies are monitoring ROI. That’s good news, Dawson says.

“It’s a good thing you have that many people saying they at least look at something,” he adds. “Five years ago, that number would have been less.”

More than half base results on incremental sales. A similar number say their ROI is on target. It’s better than expected for 14% and worse for 12% (but that number is up from 6% in 2007).

“ROI tends to fluctuate with the economy,” Dawson explains. “Usually, it depends on the severity [of a downturn] and how companies change their focus.”

There’s been some improvement in fulfillment. More than half feel rewards are being delivered in a timely manner (an improvement over 2007). For a third, they’re arriving in less than two weeks.

But it takes four to six weeks for almost as many, and that number has risen over last year.

“There’s no question that part of a good incentive program is timely presentation of awards,” Renk says. “Fulfillment is an issue. It’s something the industry has to work harder on. It’s on everybody’s radar screen.”

Methodology

This survey was conducted for Promo magazine by Penton Research, an in-house firm. It was e-mailed in July to 8,911 Promo subscribers who indicated they held positions in manufacturing, retailing, marketing agencies or premium suppliers/distributors.

Results are based on 216 questionnaires returned by qualified participants.