Prizewinning growth

Marketers spent $24 billion on premiums in 1997, with growth in consumer and business-to-business premiums boosting the category 6 percent. The segment has grown at that rate for the last three years.

Dealer network promotions and employee incentives made up the fastest growing segment, up 7 percent to $19.9 billion. Spending on consumer premiums rose 4 percent to $4.36 billion, fueled by loyalty promotions that build brand image, sales, and consumer databases.

Spending on travel incentives rose 3 percent as companies with fewer employees used travel as a performance incentive and to bring far-flung staffs together for face-to-face meetings.

“Although we are not seeing the tremendous increases in premium incentive spending of the late 1980s and early ’90s, the industry is still producing significant upward growth,” says Peter Edmunds, co-director of the New York Premium Incentive Show.

“People like stuff,” says ceo Regis Welsh of Regis Marketing Group in Milwaukee. “The premium segment will continue to grow.”

Business-to-business efforts account for 80 percent of premium spending, according to a 1997 Incentive Federation study, sponsored by the Association of Incentive Manufacturers, Union, NJ; the Incentive Manufacturers Representatives Association, Naperville, IL; the New York-based Society of Incentive and Travel Executives; and the Promotional Products Association International, Irving, TX.

Conducted by Ralph Head & Associates, Morris Plains, NJ, the study was the industry’s first in five years.

Consumer promotions account for 18.5 percent of U.S. companies’ total outlay on premiums. Loyalty programs are one trend driving the premium fulfillment business at United Marketing Services, Lubbock, TX.

“We are going to double our business this year,” says ceo Bruce Lokey. “The large consumer continuity brand loyalty programs are doing very well.”

Loyalty programs that offer high-value premiums encourage consumers to collect points through repeat purchases. Such programs enable manufacturers to track loyal consumers and build increasingly more detailed databases.

“The use of frequency programs is growing in inverse proportion to the cost of database marketing,” says Bruce Bolger, principal of Selling Communications, a sales and marketing consultancy in Irvington, NY.

Bolger predicts “an explosion” of premiums as more brands adopt loyalty programs that help marketers find a brand’s best customers while building its image among a highly targeted audience.

Making points Frito-Lay’s Planet Lunch and Anheuser-Busch’s Bud Gear, both launched in ’97, brought new energy to premiums-for-points programs. The biggest breath of fresh air may have been Pepsi-Cola’s Pepsi Stuff campaign, launched in 1996 and repeated in ’97 with a sports-fantasy sweeps overlay. But some consumers were put off by what they perceived as lower-quality merchandise for high point totals. Pepsi replaced the loyalty program this summer with an under-the-cap collect-and-win sweeps called Pop Culture.

A-B ran afoul of lawmakers in California when it began testing Bud Gear there in summer ’97. A Los Angeles court ruled that Bud Gear broke a California state law that prohibits prize giveaways to induce drinking. A-B reintroduced the program as Bud Rewards this summer in five southeastern states and Puerto Rico, placing Tap Room catalogs with prizes ranging from denim shirts to refrigerators into retail stores.

Tobacco marketers meanwhile have put their premium programs on automatic pilot this year, unsure whether federal legislators will ban tobacco-brand premiums as part of legislation under debate this spring in the U.S. Senate. Philip Morris extended its Marlboro Gear catalog to Aug. 31 from its original June 30 expiration date, but held off developing a new catalog.

In other product categories, longstanding loyalty programs like Kraft Foods’ Wacky Warehouse for Kool-Aid and Sargento Foods’ Cow Chips promos continue to build steam. Wacky Warehouse has posted increases in consumer participation and in prizes redeemed every year since it started in 1986. More than 100,000 prizes are awarded each year, from partners including Nintendo, Mattel, and Nickelodeon, says Kraft spokeswoman Pat Riso.

Consumer panel research shows that shoppers buy more Kool-Aid when they participate in the program, Riso adds.

Financial institutions have rediscovered premiums as cost-effective motivators that pay off. First USA Bank developed six different prize catalogs, each aimed at a different consumer segment, in a points-for-prizes program that offers awards like a Fuji mountain bike or a Kenneth Cole luggage set for points earned on credit card balances carried from month to month.

Even condom-maker Durex jumped on the points-for-prizes bandwagon, rolling out its Condom Cash initiative in conjunction with college fraternities.

High-charged catalog programs are redefining premiums as high-value prizes closely related to the sponsoring brand. Taking its cue from Pepsi Stuff and Marlboro Miles programs, Goodmark Foods launched its first points program for Slim Jim meat snacks: Premiums are imprinted or custom-designed to reflect Slim Jim’s positioning. Prizes are tied to NASCAR racing and World Champion Wrestling, sports that share Slim Jim’s audience.

As corporations outsource premium buying, promotion agencies have been among those stepping in to meet the new need. Cyrk, Inc., Gloucester, MA, bought Simon Marketing, the maker of premiums for McDonald’s Corp. Aspen Marketing, Evergreen, CO, sources premiums to serve a wide variety of promotional needs from customer acquisition and retention programs to gift-with-purchase promos to self-liquidators. The company’s growth plans attracted investment last year from GE Capital Services, Stamford, CT. Besides providing a $6.5 million line of credit, GE made a $2 million investment.

“We find it to be a very rich environment.” says Mark Gudis, senior vp-commercial finance for the huge mortgage and investment firm, GE Capital.

Premium use tends to be cyclical since consumers and industry segments grow tired of the same marketing techniques, says Chris Sutherland, vp corporate marketing, Aspen. “Rental car companies haven’t used premiums for years. Now they are starting to throw them back into the mix,” he says, noting Budget Rental Car’s recent offer of a free golf club.

Solo flights and dealer deals Travel spending comprises 37 percent of total incentive spending.

“Individual travel is growing at a much faster rate than group travel,” says Bob Vitagliano, exec vp of the Society of Incentive & Travel Executives, New York. That means more small companies are using travel programs instead of merchandise or cash. It also means companies with stripped-down staffs can’t afford to send off more than a few employees at a time.

Dealer network incentives make up the biggest chunk of premium spending – 42 percent. Much of the activity is from electronics and computer marketers working to “brand the channel,” or build advocates within the supply chain to get distribution and build sales with end-users.

Employee incentives – for sales and non-sales staffers – account for some 40 percent of premium spending, as companies explore ways to spark productivity among non-sales employees. Prize programs with high-quality merchandise and travel continue to be cornerstones to these internal incentive programs.

The federation study found that companies that use premium incentives are committed to them. Nearly 40 percent of respondents said they used more premiums in ’96 than in ’95, and 47 percent planned to use even more in ’97.

For consumer promotions, 85 percent of respondents said they used the same amount or more premiums in ’96, and 87 percent planned to use more in 1997.

Room to move The federation study found that 74 percent of companies surveyed don’t use any premiums, merchandise or travel incentives. Though the number was higher than anticipated, industry officials say it points to a large growth opportunity. There are also opportunities for the 36 percent who use premiums to increase their use of merchandise and travel incentives.

While 60 percent of respondents use cash as an employee incentive, “it doesn’t necessarily motivate people” who begin to look at cash awards as part of their overall compensation, says Karen Renk, executive director, Incentives Manufacturers Representative Association. Fifty-one percent of survey respondents use merchandise premiums; 54 percent use gift certificates.

* Spending rose 5 to 6 percent to $24 billion.

* Business-to-business spending grew 7 percent.

* Dealer incentives account for 42 percent of premium spending, the largest segment.

* Continuity programs are fueling use of consumer prizes. Financial services companies are among those jumping on the band wagon.

* Points-for-prizes gain favor among marketers looking to identify their most loyal consumers.

* Growth potential is huge: 74 percent of American companies don’t use premiums

* The most popular incentives are cash and gift certificates.