Premium Incentives: Motivational Skills

PREMIUM INCENTIVES: $26.9 BILLION

Premium incentive spending rises 2.3 percent.

Spending on premium incentives grew to $26.9 billion in 2000, according to a report from the Center for Concept Development commissioned by the Incentive Federation, Westfield, NJ. The figure reflects a 2.3 percent increase over spending in 1999.

Of that total, $8.7 billion (or 33%) was devoted to sales incentives, $8.3 billion (31%) to dealer incentives, $6.3 billion (23%) to end-user (consumer or business customer) incentives, and $3.6 billion (13%) to non-sales employee incentives. Spending on merchandise accounted for slightly more than spending on travel incentives.

“More and more companies are motivating their employees,” says Howard Henry, executive director of the Incentive Federation. “It costs so much to train an employee today that, if you can keep them, it’s worth a lot of money.”

Among the major trends in 2000 were a continued push toward premiums with high-perceived value, as well increased use of “lifestyle” premiums such as trips and sporting equipment. Watches, luggage, electronic devices, name-brand apparel, and other “high-end” items were also popular.

Trends in the premium incentive market “mirror consumer spending,” says Peter Edmunds, director of The New York Premium Incentive Show. Thus, “things they don’t already own or things they’ll never do [such as adventure trips] on their own are popular” as motivational tools, he says.

About 32 percent of companies conducted motivational programs in 2000, up from 26 percent in 1996 (the last time the Incentive Federation conducted a study). Of that total, 64 percent used premiums for sales or dealer incentives and 62 percent for non-sales employee incentives, 57 percent for business gifts, 44 percent for consumer promotions, and 33 percent for dealer incentives.

“Companies were investing more in business-to-business strategies than they were in consumer programs,” says Karen Renk, executive director of the Incentive Marketing Association, Naperville, IL. “As the economy slows, we are expecting consumer programs to increase as merchandisers try to get consumers to notice their products.”

Merchandise is the primary incentive offered, used by 71 percent of respondents, followed by cash awards at 69 percent. Discounts and rebates were third at 57 percent.

Perhaps the most remarkable finding of the survey is that two out of three companies still are not using incentives, suggesting the presence of a major untapped source of future growth.

As the economy slows in 2001, there are no signs that incentive spending will decline, says Renk. “In a slower economy, when some employees are asked to take on extra responsibility, incentives will be used to keep the sense of community alive.”

Indeed, 35 percent of survey respondents said they would increase their “motivational” budgets in 2001, with the average increase pegged at 17 percent. Only five percent said they would cut spending, with 60 percent saying they planned to hold the line on allocations this year.

Give Me Something Good

The use of gift certificates as a premium became increasingly popular, thanks to their low cost and high perceived value. The tactic also lets brands work together for mutual benefit: Tampa, FL-based Champs offered consumers a gift certificate good for a CD at any of Musicland Group’s 1,345 music stores nationwide for every $100 spent. Likewise, H.J. Heinz, Pittsburgh, used gift certificates for the Sam Goody chain as a prize in its summer 2000 promotion. Hormel, Pepsi-Cola Co., and Nabisco also used gift certificates as major components of campaigns.

Marketers polished up the giveaway in other areas as well, realizing that inexpensive tchcotchkes were no longer enticing. Battle Creek, MI-based Kellogg Co. returned to in-pack premiums for the first time since 1995 in January 2000, dropping Sesame Street Mini-beans into 25 million cereal boxes. The line of 24 plush tolls represented the most expensive premium the company had ever offered.

The value is often added through technology. The decades-old spoon offer on cereal boxes got an upgrade last year as Chicago-based Quaker Oats put battery-operated spoons that barked into Cap’n Crunch and Life Cereal boxes in a tie-in with Walt Disney Co.’s 102 Dalmations. General Mills, Minneapolis, offered a Buzz Lightyear alarm clock (in a promotion with a Disney direct-to-video release) as a mail-in offer.

“The message is pretty clear. It’s all about more functional toys and interactivity with kids. Their expectations are a great deal more than they used to be,” says Kevin Astle, executive vp at the Marketing Store Worldwide, Oak Brook, IL, which has worked with client McDonald’s to make Happy Meal toys as inventive as anything found at retail.

However, “instant gratification used to be for kids only, but now it’s far broader,” says Astle. The Marketing Store last year handled a McD promotion in Canada that gave away lottery tickets to adults; an encore performance is scheduled soon.

CDs, DVDs, and videos are also popular items. “You can get them cheaply, and they have some of the highest perceived values around,” says Tom Baer, senior vp at DraftWorldwide, Chicago.

Premiums that tap into the target audience’s lifestyle have also become de rigeur. In addition to consumer electronics and entertainment products, sporting goods and outdoor leisure equipment are extremely common. “It’s not going to be sheets and towels anymore,” says Henri.

Leading marketers are also looking for ways to offer exclusive prizes, products or experiences that consumers can’t obtain through any other means. Last March, Plano, TX-based Dr Pepper/Seven Up tied into the Touchstone Pictures release of Mission to Mars with an on-pack sweeps dangling trips to Russia for a flight in a MIG-25 Foxbat jet fighter.

Travel incentives are also taking a turn for the adventurous. “People are really into going to out-of the ordinary destinations and learning things like river rafting or hot-air ballooning,” says Edmunds. Trips to less-likely destinations such as Arizona, Colorado, and Texas are now more common, he adds.

Companies are also beginning to tailor travel programs with specific employees — or even employee — in mind, instead of choosing packages that will appeal to the greatest number of staffers. The thinking is that a personal trip with the family is a better motivator than a weekend away with the sales staff. “Individual travel certificates are a big thing to make incentives more flexible,” says the Incentive Federation’s Henry. Instead of the group trip, “a person can now earn a weekend at a hotel,” says IMA’s Renk.

Ocean cruises were extremely common, again because of their high perceived value, says Len Daykin, senior vp at Don Jagoda Associates, Melville, NY. And the family is getting invited along more often. “The programs are becoming more humanistic,” he says, although trip durations are decreasing to offset the additional costs that brings.

Virtual Motivation

The Internet is becoming an increasingly important aspect of motivational programs, primarily because of its ease of use and lower costs. Using e-mails to remind constituents about a campaign or to notify winners, for instance, is much cheaper than printing collateral material. “If I were to single out one factor that’s affecting the incentive industry, this is it,” says Daykin. “The Internet provides a highly visible and very accessible tool for participants.”

Still, only about 15 percent of companies surveyed in the Incentive Federation study said they have used the Internet for their programs. Of that, 48 percent say they used it to source vendors and suppliers, 31 percent to communicate with participants, and 30 percent to purchase merchandise and services. Surprisingly, while 83 percent said they had a Web site, only 16 percent use incentives as a means of driving traffic.

Dunkin’ Donuts, Randolph, MA, used this strategy in late 2000 for a Bring a Bagel to Work campaign targeted to office workers and designed to boost bulk sales. The chain ran an online instant-win game offering such prizes as new chairs, vacation days and, of course, free bagels. Daily e-mails were sent to participants reminding them to return to the site for another chance at winning. The campaign improved site traffic by 92 percent. WatersMolitor, Minneapolis, handled.

Online currency is also becoming a popular incentive, says Daykin. Rewards offered by such consumer promotion sites as CoolSavings.com, MyPoints.com, and Flooz.com are relatively inexpensive, easy to fulfill, and offer a choice of prizes. “The novelty is, you don’t have to lift a finger. But the drawback is [winners] are limited to using the currency at certain merchants,” he says.

SNAPSHOT:

• Spending on premium incentives rose 2.3 percent to $26.9 billion.
• Spending on end-user (consumer and business) incentives was $6.3 billion, with the remainder devoted to employee or dealer efforts.
• Marketers continue to look for higher-value premiums that cater to more discerning consumer tastes.
• The Internet is evolving into a vital tool for the industry.