10 Compelling Benefits of Traditional Incentive Distributors
By Ira Ozer, CPIM
During the past few years, a number of incentive agencies and companies that sponsor incentive programs shifted the fulfillment of their merchandise from traditional stocking incentive distributors to large retailers, such as Amazon. The primary reason given was to increase their award product selection from a few thousand items to more than a million choices and, secondarily, that the prices seemed more compelling.
We are finding now that many of these agencies and companies are moving back to the distributors because these reasons were not completely accurate, or adequate to provide the level of service necessary to design and run incentive programs. I asked leaders of several major incentive distributors to share their thoughts about why they provide more compelling value than retailers. Here are the 10 reasons given:
1. Incentive Industry Experience
Most of the well-known industry distributors have years of experience designing, administering and fulfilling incentive programs. Dave Peer of Hinda Incentives explained that distributors understand the unique needs of incentive clients and are committed to delivering not just the right merchandise items, but an orchestrated system to reward and recognize program participants. Distributors help drive "trophy" (recognition) value, behavior change and improve business results. This is what our industry is about—not just a merchandise transaction.
2. Wholesale Pricing
Distributors are specially authorized partners for the brands that are relied on to buy huge quantities of goods and then pass along wholesale pricing to incentive companies, as well as corporate program sponsors that buy in bulk. Saro Hartounian, CEO of Harco Industries, explained that the product manufacturers provide volume discounts and "instant rebates" to distributors that are passed through the agencies and program participants. This is what provides exceptional value and makes traditional distributors more competitive than retail. Harco also offers "dynamic pricing" so that customers benefit from price changes and special deals immediately as they occur, instead of waiting until the end of the month or quarter, which is still common in the industry. To compete with "street pricing," distributors have lean, efficient operations, tremendous buying power and the brand relationships to get the best deals. Retailer pricing is the same as when sold to a customer off the street, or occasionally a few percentage points lower with a volume discount—but traditional distributors provide significant discounts to agencies and corporate program sponsors.
3. Credit Lines
Incentive programs often require significant amounts of merchandise items to be fulfilled to participants during a short time frame, sometimes millions of dollars' worth in a month, but corporate program sponsors usually will not pay until invoiced by the agencies after the goods have been shipped. Since big companies often take 60 to 90 days to pay, even though terms are net 30 and most agencies don't have credit lines to support this time lag, Hartounian explained that distributors act as a bank for agencies to support them and ensure that their corporate clients are satisfied because their program participants receive their awards on a timely basis. Most retailers require payment when the award orders are placed, which is not realistic in the corporate business environment.
4. Product Selection
On average, most incentive programs offer participants the chance to earn $300 or less in award value, so there really is no need to offer a million choices. This can actually be counterproductive from a motivational sense. It is more important to have participants browse an awards selection that has been selected to appeal to their interests and desires and then have them create a "wish list" that continually reminds them of their goals. So a specially selected catalog of 500 to 3,000 items is all that most programs need. When a very broad array is offered, participants are more likely to wait until the end of the program to see how many points they have earned and then shop using their points as promotional currency. This million-choice "awards buffet" structure can lack the motivational power of a focused assortment, or as Maritz calls it, a "purposeful selection." Hartounian explained that distributor merchandisers are trained by the brands to understand all of their product features and benefits, including subjects that do not apply to retailers, such as timing of product discontinuations, substitutions and the introduction of new models that can be included in incentive programs months in advance of their retail introduction. He added that leading distributors attend not just incentive industry shows, but the Consumer Electronics Show (CES), Housewares show and others to build brand relationships, gain deep knowledge and make special deals.
Jim Kilmetis, EVP of Engagement Technology, added that for programs in which an extremely broad array is desired, the Universal Rewards Exchange and similar services can be used by agencies to add products from multiple distributors and brands, while still negotiating their own direct pricing and terms.
5. Custom Merchandising and Catalogs
Incentive distributors recommend and inventory products that fit specific program themes, special events and participant preferences, such as sports, gourmet cooking, travel, safety, health and wellness, years of service, holidays, etc. Brian Galonek, president of All Star Incentive Marketing, said that they even provide non-traditional items, such as orchids and other perishable products, when the client calls for them. Many distributors also provide promotional products branded with the client's logo as part of the award assortment. Another service provided by many distributors is print award catalogs, in addition to online Web sites. Bill Gregory, director of sales for Quality Incentives, said that they have two catalog versions, one with a broad selection and plateau catalogs with individual price points to satisfy service award and other programs in which the participants get awarded a set amount of value. Although most incentive programs are run online, it is important to supplement this with an integrated communications campaign, including printed award catalogs, especially for audiences without regular access to the Internet, such as factory workers, drivers, etc.
6. Special Events
Peer said that Hinda and several other distributors provide a "run through the warehouse" experience, which is a fully-themed special event in which winning participants get to grab as many items off of the shelves as they can, during a specified time frame. He explained that this is possible because distributors control their physical space and can create motivational environments, with banners, music, lighting, food and beverage, photography and video and even marching bands. Galonek added that distributors also support special events that are offsite, such as at hotels and convention centers and that these require careful project management, including "kitting" products in advance with cases, gift cards, batteries and other accessories and related items, palletizing them and delivering them at specified times to the sites of special events. Distributors work in conjunction with incentive, advertising and promotion agencies and meeting planners to orchestrate successful motivational events. These services are not available from retailers.
7. Branded Packaging
It's not just the merchandise ordered that is important, but the way it's presented. Many incentive distributors provide value-added services, such as shipping cartons and tape with the client's logo, gift wrapping, personalized congratulatory letters, new product training inserts, special offers and other materials that thank and recognize participants for their accomplishments. More sophisticated distributors can even add personalized URLs (PURLs) to inserted materials, to drive participants back to the program Web site to stay engaged in the incentive program. Galonek explained that it is highly motivational and engaging to brand the award packaging for the client, instead of having participants receive boxes with logos from retailers such as Amazon, Zappos and others.
8. Customer Service
Everyone is treated like a VIP, with dedication and care by customer service representatives trained to understand the nuances of incentive programs. Retailers are not equipped or trained to deal with incentive redeemers any differently from any other retail customers, and in today's world this is often with indifference or haste. Mary Anne Comotto, president of Partners for Incentives (PFI), explained that incentive distributors usually have liberal return and exchange policies that retailers do not provide and are often able to deal with special requests to satisfy customers. And, they have the ability to make changes faster, because they can literally send someone into the warehouse to make order or shipping changes or adjustments.
9. Improved Fulfillment Metrics
To become authorized by the brands, distributors must keep in stock the lines of merchandise they carry, which ensures that they can fulfill to program participants within 24 hours of order placement. Hartounian explained that most brands have significantly pruned the number of distributors they authorize, usually to just a few within the industry. As such, they fulfill not just for agencies and corporate program sponsors, but for other distributors as well. Jon Hanson, CEO of RepLink/Database Direct Group added that their ShipQuick service, which connects agencies with reps and distributors, has high satisfaction and retention rates because they have an automated system to track shipments, payment status, etc. Even the networks and exchanges in the industry use traditional distributors to merchandise and fulfill products, brands and even entire catalogs. According to Jim Purdy, EVP of Bridge2Solutions, this ensures consistency of supply and access to special allocations and deals that retailers sometimes do not provide.
Most of the traditional distributors have been in the incentive industry for 20 years or longer and are financially stable. The purpose of their business is to support incentive programs, so there is little worry of them leaving the business, as Amazon did last year, without regard to the turmoil it created for incentive agencies and program sponsors.
When taken together, these 10 reasons create a compelling argument about the extra value that incentive distributors provide and position them as an important cornerstone of the incentive industry.