Trending Up, 2016
The Stunning Post-Recession Rise of the Reward & Recognition Industry
By Rick Dandes
Since the economic downturn in 2008, when the Great Recession crippled American markets, leading to widespread corporate budget tightening, including cutbacks in funds allocated to reward and recognition programs, growth in the non-cash incentive market has been on a remarkable comeback—with trend lines showing a strong upward growth trajectory, according to an Incentive Marketplace Estimate Research study recently released by the Incentive Federation. With 84 percent of U.S. businesses spending $90 billion annually on award points, gift cards, trips and travel, and merchandise, the Incentive Federation study also found that overall the businesses spend $14.4 billion annually on incentive travel and $75.6 billion on award points, merchandise and gift cards to reward sales staff, employees, channel partners and customers.
In addition, the Incentive Research Foundation (IRF) Fall Pulse Survey 2015 "… confirmed that the non-cash incentives market grew a remarkable 17 percent since our last market estimate study in 2013," said IRF president Melissa Van Dyke.
The purpose of the 2015 Incentive Federation survey was to collect data from a national sample of nearly 1,400 business executives in order to estimate the current size and characteristics of the non-cash incentives marketplace. Some of the results even surprised Van Dyke and IRF Chief Researcher Rodger Stotz.
"When the economy dipped in 2008-2009," Van Dyke said, "the net number of individuals who were decreasing their budget was much stronger for incentive travel than it was for merchandise and gift cards. It was fascinating. Incentive travel was very responsive to the economy. Gift cards and merchandise are less responsive to the economy. They certainly rise and fall with GDP and expectations of GDP, but not as much as incentive travel. So, when the economy began to rebound, and we started to have growth in 2010 (2 percent growth in GDP) that same year, with gift cards we had more positives than negatives, in terms of people increasing rather than decreasing their budget." It took travel longer to come back from the recession.
It also appears, Stotz added, that a third of this marketplace is driven by smaller businesses ($1 to $10 million in annual revenue), whose budgets may be tighter, but whose total volume generates $29 billion a year, and firms with up to $100 million in revenue accounting for 84 percent of the total spent on non-cash incentives. (See Figure 1.)
The bottom line, Stotz said, "… is we're seeing an increase in the percentage of companies that are using non-cash merchandise. What was once an alternative reward is now becoming more mainstream. The employee market and the focus on engagement and recognition has really increased with the number of companies and the volume of awards being used."
The increase, he added, is also a reflection of the economy. "Sure, a lot of things go together," Stotz said. "There is interconnection. But the increase appears to be greater than even before the recession, so that is what is exciting."
Incentive Federation Managing Director Steve Slagle made some other observations:
- Employee rewards and corporate gifts are the most prevalent forms of non-cash incentives, with 72 percent of businesses having both types of programs.
- Non-cash sales incentive programs are present in three of five U.S. businesses, and non-cash customer loyalty programs are used in 45 percent of firms, while 41 percent of firms use non-cash channel programs.
- Merchandise, Slagle said, has been a staple of the incentive marketplace for many years. Initially there might have been concerns that as gift cards grew in popularity, merchandise might be left behind, but actually it works to their benefit. "A lot of redemption on gift cards is for merchandise in the special markets area of the brand companies," Slagle said.
- The incidence of firms using non-cash rewards to thank clients, prospects and partners increased by 36 percent from 2013 to 2015. And the change was consistent across firm size. This increase is offset, however, by a decrease in reported spend in this category. The net impact of these changes is a larger number of firms utilizing non-cash items as appreciation, but a decrease in overall spend in the market—down 32 percent to $10.5 billion. (See Figure 2.)