Departments - March/April 2012

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Mixed Messages

Economy Encroaching on Incentive Travel

By Deborah L. Vence

Contrary to opinions and forecasts in early 2011, incentive experts now say the economy is affecting the incentive industry negatively, causing some incentive planners to struggle with their programs.

This, according to the Incentive Research Foundation's (IRF) latest survey, released in December, which revealed that incentive industry planners are struggling with the effects of an increasingly volatile economy. More than 100 survey participants were made up of providers (e.g., incentive company); suppliers (e.g., hotelier, DMC, airlines); meeting/event planners; corporate incentive travel buyers; and corporate merchandise and travel incentive buyers.

"We see from other data in the survey that pressures from internal sources and the competitive landscape have subsided a bit. However, as these pressures ease, planners and business owners in general are faced with unpredictable outcomes from high market volatility, political instability and lagging job growth," said Melissa Van Dyke, president of the IRF, an organization that funds and promotes research to advance the science and enhance the awareness and appropriate application of motivation and incentives in business and industry, globally.

"This rightfully means that many planners and executives are keeping a very close eye on the precarious economic landscape," she said.

In particular, incentive travel programs were affected most from the economic outlook.

"Incentive travel budgets are, on average, higher than the typical merchandise or gift card, and, therefore, tend to be more sensitive to economic changes," Van Dyke said. "Additionally, because incentive travel naturally involves moving large groups of people both nationally and internationally, one would expect higher sensitivity to volatility in both the political economy here and abroad."

According to the survey, respondents stated that they are less optimistic than they were in the spring of 2011 about their ability to plan and implement incentive travel programs, and consider the economy as having a negative impact on their capability to execute programs that they would like.

For example, results from travel programs included the following:

  • 62 percent said the economy is having a negative impact on program planning—numbers that haven't been that high since July 2009.
  • While 28 percent expected their budgets to decline, 45 percent anticipate no change, and 27 percent actually expect an increase.
  • More than half of the programs will only be providing air tickets and covering no incidental expenses.
  • 41 percent will be reducing the number of nights.
  • 40 percent are shrinking 'non-meal' components.

With 28 percent of respondents expecting their incentive travel budgets to decline, that is higher than in the spring of 2011, when only 19 percent anticipated a decrease, Van Dyke said.

Also, with regard to travel accommodations, further data from the survey showed that 20 percent indicated "no change"; while 35 percent indicated that "on-site inclusions per participant will be decreased"; 32 percent indicated the "number of rooms will be reduced"; 25 percent indicated a "change to all inclusive pricing options"; and 22 percent indicated the "number of room upgrades will be reduced."

Furthermore, travel destinations reflect economic realities as well. That is, 83 percent of planners are providing incentive travel within the United States; 55 percent are going no further than the Caribbean; 52 percent are including Europe; and 29 percent are targeting Central America. Meanwhile, less than 18 percent are considering destinations in Asia, South America, Africa or the Middle East.

"Based on the most recent pulse survey, it seems that incentive marketers and planners will continue to be very judicious with their budgets," Van Dyke said. "Those with incentive travel programs will cut room nights, reduce air amenities and keep programs closer to home. Those with merchandise and gift card programs did not respond as strongly regarding the economy's impact. Here, the most commonly stated items used continue to be gift cards, apparel and electronics."

In general, though, respondents indicated that they anticipate most incentive program elements to remain the same in the coming year. Respondents reported that changes to their incentive travel program will have either a "decreased impact" or "remain the same" on employee morale. Most respondents (57 percent) perceive the economy to be either slightly or extremely negative in the coming year. And, while the outlook on the economy is largely "negative," respondents, overall, perceive "no change" with respect to: gift cards, merchandise awards, individual travel and incentive group travel.

Meanwhile, less agreement exists on the impact of the economy with regard to noncash merchandise incentive programs. That is to say, 24 percent of respondents see a negative impact; 27 percent anticipate no effect; and 25 percent expect a positive influence.

Other data included in the survey showed that the majority (65 percent) of respondents are not anticipating changing (either temporarily or permanently) from "group trips" to "individual travel packages" in the coming year. And, a combined 9 percent indicate that the consideration of award strategy moving (either temporarily or permanently) from "group trips" to "individual travel packages" in the coming year to decrease; while 28 percent indicate that the consideration of award strategy moving (either temporarily or permanently) from "group trips" to "individual travel packages" to increase in the coming year.

Moreover, 17 percent indicated no change to their merchandise non-cash incentive programs this year; while 16 percent indicated added merchandise as an option; and 13 percent indicated increased merchandise award value. Additionally, in reward and recognition programs, approximately one-third of respondents indicated that they use:

  • Golf items (35 percent)
  • Luggage (34 percent)
  • Jewelry (33 percent)