Guest Column - September/October 2008

When Premium Products Become Premium Problems

By Jon Hanson, CPIM

A Minneapolis startup company hoped to jump-start its new line of baking products by using a brand-new marketing strategy called incentives. It was 1929 and the General Mills Company had just created Betty Crocker to help build awareness. To motivate customers and create loyalty, they invented box-top coupons that could be redeemed for Oneida silver-plated flatware.

It was a simple marketing idea that many believe started the $46 billion premium and incentive industry! General Mills used Oneida incentive merchandise for the next 77 years. It resulted in millions of beautiful table settings and billions of dollars in worldwide sales. The program filled American kitchens with the smell of fresh baking, and it filled the heads of ingenious marketing pros with new ways to build loyalty, motivate employees and reap new profits. The simple campaign energized shoppers and launched a local food processing company on the path to become an industry giant.

The incentive program worked well partly because General Mills used just one supplier, and Oneida offered just one pattern of flatware that was updated only once. The consumers' incentive choice was knife, fork or spoon.

Fast-forward to a new century and a world filled with savvy consumers, stressed employees, companies trying to cut through clutter and incentive programs offering thousands of choices. Today's marketers face a world of new media, new marketing tools, new customers and the ongoing objective of building business success as efficiently as possible.

Through the years, the one marketing strategy delivering measurable "bang for the buck" remains the motivation program that features a collection of desirable brand-name products. Since the early days of Betty Crocker, the concept of reward, recognition and incentives has taken on increasing significance. Business has learned that if their issue is motivation, the answer just might be brand-name products offered in an innovative incentive program. It worked during the depression and through several wars, and it continues to perform today.

The Dark Side of Incentive Merchandise

But as powerful as incentive merchandise can be as a behavior tool, it also has a dark side: the pesky inverse rule of demand and supply. It seems that about the time an employee or customer is ready to demand their incentive reward, the product is discontinued and the supply goes away. And as the prize goes unshipped, so does a big dose of the motivation.

If you look at today's consumer products marketplace you'll find clues to the source of the supply problem. To begin, the retail consumer market demands constant innovation and that means a continual supply of new merchandise. This pressure to be fresh and new puts additional strain on supplier inventories as the old is replaced by the new. The speed of these product replacements is numbing with some traditional merchandise undergoing upgrades several times a year.

Secondly, the majority of the products we use in incentive programs are manufactured and assembled elsewhere. That means lead times are stretched and the inventory for many suppliers is in the hull of foreign freighters.

The ability to warehouse products has another dimension. Inventory is expensive to acquire and maintain. With "just in time" becoming the management standard, a supplier's ability to stock products in sufficient quantities to meet retail and incentive demands becomes an increasing challenge. This is why professional incentive buyers say their number-one problem is not selecting the merchandise, but coping with discontinued products. Too often they don't discover that a product can't be redeemed until the customers start ordering the merchandise. And by then, the motivation program is nearly over and little time is available to find a replacement.