Guest Column - September/October 2009

Discontinued: A Four-Letter Word

By Jon Hanson


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t this exact moment, there are three swirling storms rocking premium and incentive programs: volatility, technology and expectations. Each of these is changing the way motivation programs are planned, managed, executed and fulfilled.

Change has never occurred at a faster pace and with more impact than right now. Consider the traditional incentive program. It has grown from a catalog of a few hundred items to a cornucopia of online merchandise chosen to ignite the passions of the unmotivated. These Web-based programs have become a huge collection of price points and categories offering choices for the recipients and frustration for program managers.

Like children, products are a growing challenge as they change and mature. From the very start of your incentive program, the merchandise you've selected is being bombarded by a host of issues that directly impact each item and its ability to be shipped.

And while the ebb and flow of these products may be as natural as childhood tantrums, it doesn't make it any easier to tell an employee they can't have what they've worked hard to earn. That's when "discontinued" becomes "disincentive."

Nobody wants to disappoint. Certainly, suppliers don't discontinue items in your program without good reason. When items go away, it's probably because they've been hammered by one or all of the swirling storms that have become part of the three-ring circus of product distribution. Here's a look at the three elements we have been tracking.

While the merchandise world has always been an ebb and flow of new items replacing old, the pace of replacement today is staggering. In the RepLink database of 60,000 active incentive products, 40,956 (68 percent) were deleted during 2008. And as products were being removed, suppliers added 39,869 new items. A nearly one-to-one ratio.

While the pace of product changes continues in 2009, the ratio of old to new has shifted. Through July of this year, 54 percent of the items have been deleted and 49 percent have been added. This might be a factor of tighter credit impacting development of new merchandise or suppliers shedding underperforming products to help control costs.

The increasing rate of product volatility is a frustrating problem for today's program planners and managers. As products in a program are discontinued, the time required to manage the replacements and substitutions goes up along with the costs.

To measure the impact of these product changes, we created a measurement system called RepLink2000. Functioning a little like the Dow Jones Industrials, the RL2000 identifies the most popular 2,000 items that were put into proposals by reps and then reports what happened to these products 90 days later.

For example, from January through March 2009, 12,849 proposals were created in RepLink. Of all the products placed in these proposals, we selected the most popular 2,000. In June, 90 days after the test program was set up, 424 of the 2,000 items had been modified and 70 more were discontinued. By July, an additional 411 products were changed and 37 more were discontinued. All this volatility means that after just 90 days, nearly 21 percent of the items had been modified!

Without careful tracking and ongoing product management, today's incentive program can create less-than-ideal results. And the problems that come from excessive volatility can take a lot of time to fix.

Today, the vast majority of incentive programs are redeemed using special online Web sites. But as convenient as the Web is for recipients and program planners, it can cause major inventory problems for suppliers.

For example, catalogs used to require plenty of advanced preparation and this meant a lot of yellow flags for suppliers to hold and grow their inventory. With online technology, these same programs can be assembled and launched in just days and often suppliers and reps get no warning there is an active program running until orders start coming in. When this happens, many suppliers have a difficult time shipping products because they may not have built adequate inventories.

And because Web programs are simple to launch, there is often little time taken to check the accuracy of the product data being placed. This can be disastrous. As we've seen, if products for the program had been submitted 90 days ago, it's possible that 21 percent have already been modified and probably need to be replaced.