Feature Article - September/October 2016

Trending Up, 2016

The Stunning Post-Recession Rise of the Reward & Recognition Industry

By Rick Dandes

Gift cards are the most prevalent reward type in all programs except customer loyalty, Slagle said, which has a similarly high incidence of award points. Trips and travel is highest within sales programs and lowest within customer loyalty. Merchandise use is highest in channel programs. Gift card growth over the past 10 years has been pretty phenomenal, and that is reflected by the number of companies that are currently providing some type of gift card product or programs for clients.

Some of the reasons that gift cards are becoming more prolific, said Ira Ozer, president, Engagement Partners, of Chappaqua, N.Y., are:

  • Selection: Gift cards from retailers generally provide more selection than incentive catalogs, with far more choices in each category—for example, dozens of coffee makers instead of just a few.
  • Flexibility: Gift cards can be used online, in-store or given as gifts for others to use, giving more flexibility to the participant.
  • Retail Brand Experience: In addition to the brand recognition of merchandise items, such as Sony, Samsung, Levi's, etc., gift cards also provide the brand recognition of the retailer, such as Best Buy, The Gap and their associated online and in-store shopping experiences.
  • Timing: Gift card distribution companies such as Blackhawk and retailers such as Amazon have created advanced technology that allows incentive companies to integrate directly with their fulfillment systems to issue digital cards and codes in real time. So there's no need to wait for the merchandise item to arrive by mail in a week or more, when you can pick it up in store on the same day if you choose.

The impact of this trend, Ozer said, is that incentive companies are now being routinely asked to add gift cards to their catalogs, even though industry research indicates that the motivational impact of tangible merchandise items can be greater than dollar-denominated gift cards. This is a huge economic shift from the way many incentive companies have been run for decades, which especially affects incentive agencies and distributors with their own warehouses and the associated overhead, since incentive companies must now charge sponsoring companies fees for gift card fulfillment and program administration.

"All of this," Ozer said, "is pushing incentive companies to charge for their incentive program management platforms at higher rates than before, especially incentive companies that historically would give away the incentive platform for free because they were earning their margins on the merchandise. Leading incentive agencies and technology companies are now charging clients on a per-user, per-month basis, just as other SaaS (software as a service) companies, which is helping increase the profits they have lost from the shift to gift cards. And leading incentive distributors are providing faster fulfillment rates along with personalized customer service and client-branded award packaging, which adds value to the program that retailers cannot provide."