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Survey Says: What's the No. 1 Objective of Incentive Programs?
February 13, 2009
A look at current trends in the incentive industry reveals improvement of sales and profits is the No. 1 objective of incentive programs
By Rodger Stotz
It comes as no surprise that 2008 was a challenging year for the incentive industry—and 2009 continues where 2008 left off. In the midst of a continual drumbeat of poor economic news, it is important to keep perspective and sort fact from fiction. That was the purpose of the "Vertical Markets Trends Study" conducted by The Incentive Research Foundation in October and November 2008. While the survey was focused on learning about incentive program design, implementation and measures of success, it also unearthed early signs of the impact of the economic downturn on incentive travel and merchandise budgets.
As could be expected, the survey reflected the slowdown in the economy. As early as last fall, the 2008 incentive budgets were decreasing. The decrease reported was greater for merchandise budgets than for incentive travel budgets. Of course the timing of the survey preceded the media focus on incentive travel tied to Troubled Assets Relief Program (TARP) recipients, which predictably might cause an accelerated decrease in incentive travel budgets.
Travel Budgets Turn South
The percentage of respondents reporting decreases for incentive travel budgets averaged 27 percent across all industries, with 17 percent of Insurance Agency/Brokerage respondents and 33 percent of Commercial Banking respondents reporting lower budgets. This compares with an overall 61 percent of merchandise respondents reporting a decrease in incentive budgets. The percentage of respondents indicating decreased merchandise budgets varied by industry segment with the highest being the Telecommunications Reseller industry (65 percent) and the smallest being Commercial Banking (57 percent).
The reasons given for the reduction in incentive travel budgets were:
• Cost of airfare and transportation (73 percent)
• Reduced number of attendees (27 percent)
The reasons offered for the reduced merchandise budgets were:
• Lower value of award offerings (64 percent)
• Reduction in gift card budgets (24 percent)
• Reduced number of qualifiers (12 percent)
Reflecting on the data, one might question why the percentages of merchandise budgets being reduced were greater than the percentages of incentive travel budgets reduced in 2008. The reason could be attributed to the longer term nature of incentive travel planning, commitments and operation. It is just not easy to change an incentive travel budget in the middle of a year since the qualifying programs may have been in place more than a year in advance of trip fulfillment, and signed agreements and payments have long lead times. This is compared to the shorter timeframes involved with merchandise incentive purchases where the time between specific program award commitments and actual purchases can be simply weeks or months.
Another interesting finding in the Vertical Market Trends Study involved the setting of program goals. The respondents listed relationships as the "most valuable goals when designing an incentive program." Specifically, the three highest rated goals of an incentive program were:
• Build customer loyalty/trust
• Start new relationships
• Maintain existing relationships
Only one industry segment—Telecommunications Reseller—placed more emphasis on "recognizing performance" and "creating new markets" than on "starting new relationships" goals.
Determining Program Value
This finding raises a question about how program managers determine the basic value or success of their incentive programs, and more importantly in these economic times, how they justify the program and its budget. When asked how the respondents "measure the success of their programs," the number one objective (cited by 79 percent of respondents) was total incremental improvement of sales/profits over program objectives.
Incentives Do Work
So the question is: if the measure of success is incremental improvement of sales over objective, why would companies decrease or eliminate incentive programs at this time? Could it be that this "incremental sales" approach is not accepted by the CFO, that this approach is desired but not fully implemented, that reliable ROI data is not tracked and reported, or that incentives are viewed as discretionary spending rather than critical investments with positive ROI? This is definitely a topic for further study.
Although the industry in general and individual organizations specifically have increased the discussion of program returns (ROI), it appears that the long standing "understanding" of the fact that 1) these programs work, 2) they offer a competitive advantage and 3) that they are excellent investments, have minimized the requests for actual data. However, the current economic environment could cause this to change.
Finally, while there were significant differences among the industry segments regarding their use of "outside incentive companies," the one observation from this data is the tremendous opportunity that exists for incentive companies. While the Computer Component Manufacturing industry segment reported that 60 percent of the respondents use "outside incentive companies," only 20 percent of the Telecommunications Reseller segment used outside firms. The other segments reported usage of outside incentive companies in the 27 percent to 43 percent range.
Insights into these numbers can be gleaned from the answers provided to the question: "Why do you not use an outside incentive company?" Eighty-three percent of those respondents not using an outside firm said: "our in-house resources have more than enough ability to perform this without outside assistance." Another response from 42 percent of the respondents was "costs associated with utilizing outside companies" (note more than one answer was allowed).
So what is it that the "survey says?" First, the incentive industry continues to change and be impacted by the economic and political environment. Second, there is a serious need for greater reporting of industry data, which will allow the industry and individual organizations to understand where we are and more importantly, where we are going. And, third, now may be the time to refocus incentive sales and marketing efforts to industries currently with a low use of incentive service providers. Even in tough times, there is opportunity.
Editor's Note: Read all of the strategies and best practices from Incentive's Survival Guide at www.incentivemag.com/survivalguide. New articles daily!
A speaker, author and business consultant to major corporations, Rodger Stotz is Chief Research Officer of the Incentive Research Foundation (IRF). As a Certified Compensation Professional, Rodger is a faculty member for WorldatWork (formerly the American Compensation Association). He has also earned the designation of Certified Performance Technologist with the International Society for Performance Improvement. Rodger holds the designation of Certified Professional in Incentive Management from the Incentive Marketing Association.
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