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Amazon Enters Incentive Market
September 12, 2007
By Leo Jakobson
The online retail giant is looking to do for the incentive industry what it did for retail shopping: Change everything
When Ben Alderson was told that he could increase the number of items offered in his rewards catalog from 3,800 to well over one million, and save money in the process, he jumped at the opportunity.
The manager of sales operations, national rewards and incentives, for AT&T's wireless division, Alderson oversees myRewards, a points-based, commission sales incentive program for front-line cell phone service salespeople. Run by Atlanta-based incentive house USMotivation, Alderson's program was among the first to use online retailing giant Amazon for reward catalog fulfillment.
"USMotivation told me the Amazon opportunity would give me the ability to offer a greater variety of awards," Alderson says. Over the past six months, "I have been extremely happy," he adds. "We have seen more participation and a lot more satisfaction. I can't tell you of any hiccups, disruptions or concerns. I would certainly recommend it."
Amazon is moving aggressively into the incentive merchandise fulfillment market because there is "a huge need for something we can supply," says Tony Small, senior manager of corporate accounts for Seattle-based Amazon.com. "We want to be drop shippers for the incentive industry. Our expertise is shipping items in 40 product categories to millions of customers. We are not incentive experts and we don't want to learn incentives. We want to sell to incentive houses like USMotivation."
Amazon is approaching the market in two ways, Small says. Incentive providers that want to incorporate Amazon.com into their own online incentive management programs can do so through Amazon E-Commerce Services, which will let them pull any or all of the Amazon catalog into their own system. "An incentive company can say, 'I have a relationship with suppliers in five categories, but I want to use Amazon for the rest," Small says.
Amazon has also partnered with incentive fulfillment firm Bridge2 Solutions Inc., which has created a turnkey online fulfillment solution based on Amazon's offerings, as well as travel and event ticketing.
"Amazon is the 800-pound gorilla," says Craig McLaughlin, executive vice president of Asheville, N.C.–based Bridge2 Solutions. His partner, Andrew Althauser, also an executive vice president, notes, "It is not going to pay for every incentive company to build its own [fulfillment] system. A rewards catalog is one of a dozen things an incentive house does. We focus on this one area."
McLaughlin adds: "This gives a small incentive house the ability to say, 'No one has more buying power than us.'"
Deciding to partner up with Bridge2 Solutions to offer the Amazon catalog wasn't hard for USMotivation, says Michael Ruege, senior vice president of sales, marketing and communications. "Amazon takes it to the next level," Ruege says. His clients' participants land on a sponsor-branded page that automatically recalculates Amazon's prices into points, and the only time they see a logo is when the item arrives in an Amazon box. And of the first 10,000 items redeemed, about 7,400 were unique items, so participants are taking advantage of the selection.
Aside from Amazon's pricing based on huge volume discounts, shipping and handling is free on items over $25—the same deal retail consumers get. AT&T's Alderson notes, 'There is definitely a cost savings associated with Amazon."
But the key, Ruege says, is "we had to have a partner that valued customer service like we do." And that's where a great deal of the skepticism from existing merchandise fulfillment companies comes in.
"I think they clearly will be competitors," says Michael Arkes, CEO of Chicago- based fulfillment specialist Hinda Incentives. But he doesn't sound too worried. "If you need [a print catalog], they're not the answer," Arkes says. "Do you need special packaging or a special insert? We do a lot of custom packaging and inserts. Clients shipping to programs with many participants, especially in consumer programs, want that branding.
"But there is a bigger question," Arkes adds. "An incentive company is in business to give incentive participants the best possible experience. Will [Amazon] be able to maintain that level of exceeding customers' expectations? We ship big-screen televisions by a logistics company. They take it out of the box, put it where you want in your home, and remove the debris."
Then there is the question of dissatisfied customers. Arkes recalls a participant who called upset when the gas grill he redeemed points for arrived requiring assembly. "It's assembled in the picture, [even though] it says 'needs assembly' in the text," Arkes says. "They were an elderly couple, they were not able to do it themselves. So we found someone in Oregon who could put it together for them. That's the kind of thing we'll do. If something didn't go right, will [Amazon] resolve it to the customers' full satisfaction?
"Amazon is saying, 'We offer selection,'" Arkes adds. "We surveyed our clients. They want flawless execution. I am targeting the decision maker; they are targeting the participant."
In a broader sense, of course, Amazon is targeting the entire incentive fulfillment industry. "From some people in the industry, you hear 'Amazon will ruin manufacturers reps,'" Ruege says. "The industry has changed. Our job is to focus on the clients."
That said, not all manufacturers reps are too upset. "If they get involved and participate and understand the market, and are not just looking for a chance to make a few million extra sales, then that's great," says Terry Markwart, director and assistant general manager of special accounts for Canon USA's consumer imaging group. "The channel will be improved, and all the rest of us will have to be sharper."
One issue Amazon and Bridge2 Solutions have addressed is inappropriate material, most notably the pornographic movies Amazon sells. "We have proprietary filters," Bridge2 Solutions' Althauser says. "We pulled out all the X-rated material. We made a corporate decision not to risk complaints." Customers can adjust those filters as they see fit—AT&T added lingerie to the excluded list.
Finally, Amazon's huge catalog of movies, music CDs and books lets it offer awards at a lower price point than most programs, Ruege says. "In a typical catalog, most items start at $50, here there's plenty in the $10-$15 range," Ruege says. Alderson agrees, noting: "Most of the 3,800 items in our [old] catalog were in the mid to high category," he says. "Amazon gives us more opportunities to motivate individuals who do not accumulate as many points. It is important to recognize and reward the middle 70 percent."
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