Feature Article - September/October 2018

State of the Incentive, Reward & Recognition Industry

Where We Are, Where We're Headed

By Brian Summerfield

When you look at the corporate rewards and recognition industry today, it's easy to be sanguine about the future. There's a spirit of optimism among the provider organizations and trade associations in this space. Spending on non-cash rewards is going up overall, and the majority of U.S. companies currently offer them to their employees and external partners in some form or fashion. And, incentives have received a big boost from technology in the past decade, both in terms of new merchandise offerings and the platforms that administer and track these programs.

Still, it's worth remembering that things looked pretty great across the board to real estate agents and stock traders back in 2005, too. Almost everyone in those fields seemed to think that everything was peachy keen, and the good times would only get better. Of course, in just a few years they discovered that wasn't the case: A confluence of dangerous yet largely unforeseen developments sent these industries reeling and caused the biggest economic downturn since the Great Depression.

Now, this isn't to rain on anyone's parade, nor is it to insinuate that there's trouble in store for whoever's reading this. The incentives, rewards and recognition industry has grown a great deal and, by all accounts, will likely continue to do so for years to come. The point here is to emphasize that continued success within this space rests on the ability to realistically appraise what's going on right now and prepare for any potential challenges ahead.

To figure out the big picture, we spoke with some of the leading voices in rewards and recognition. Here's what they had to say.

Positive Signs

It's not really hyperbole to say that the incentives industry is as good as it's ever been. Start with the numbers: Steve Slagle, managing director of the Incentive Federation, cited research from the Promotional Products Association International Sales Volume Survey, which reported a rise in sales in 2017 of more than 9 percent, with the biggest increases coming from the larger firms. Additionally, Melissa Van Dyke, president of the Incentive Research Foundation (IRF), pointed to findings from her own organization showing that more than 90 percent of the people who run rewards and recognition in top-performing businesses report that leadership sees these programs as a competitive advantage.

"In 1996, when the Incentive Federation conducted its first incentive market study, we discovered that only 26 percent of U.S. businesses were using non-cash incentives, and in 2000, the industry was measured as being $27 billion," Slagle said. "In 2016, our research showed that 84 percent of businesses use some form of non-cash incentives, and the expenditures had grown to $90 billion."

For those and other reasons, the people interviewed for this piece consistently reported that the state of the industry is "strong."

"The state of the industry is strong as it has been in the last eight to 10 years with the economy on the upswing—and perhaps in a transformational mode as well due to the decline in baby boomers as employees and AI gaining momentum to replace some of the human aspect of workers, but also relative to the vendors' services provided," said Brant Dolan, current president of the Incentive & Engagement Solution Providers (IESP), a strategic industry group within the Incentive Marketing Association (IMA).

"I'd say the industry is strong, has elements that are stronger than others and is undergoing some transition: transition as in some steady consolidation, strong as in continued growth with gift cards and with few reports of serious issues or loss of business," Slagle said. "Anecdotally, there are some reports of companies having a difficult year, but from what I hear, most seem to be doing well."

"The industry is absolutely strong," Van Dyke said. "There's been more than 200 percent growth in the use of non-cash rewards over the past 20 years. There are a number of drivers behind that, but when you have 86 percent of all U.S. businesses using non-cash rewards in some manner, that tells you that this is no longer a tangential part of doing business in the United States. They're a key part of incentivizing employees, channel partners and salespeople."

The IRF has regularly gauged optimism among practitioners within the incentives space for about a decade now. And although overall optimism dipped a bit in Fall 2016 from the previous year—which Van Dyke attributed to the general sense of uncertainty around the presidential election—it rebounded and rose in the fall of last year. Also, she pointed out that since the IRF started measuring it, there's only been one time when there was a net-negative outlook: in Fall 2009, right in the thick of the Great Recession.

Slagle listed a litany of research that projected growth this year: the IRF's 2018 Trends Report, the Society of Incentive Travel Excellence's 2018 Index, the Promotional Products Association International's 2018 First Quarter Market Outlook Report, and an IMA/IRF study on the gift-card segment of incentives.

"Certainly, the long-term trend of growth in the numbers and percentages of businesses moving toward non-cash incentives and rewards, and the increase in the absolute level of expenditures, has to be a positive," he added. "In 1996, those of us involved in the Federation and in various aspects of the industry were discouraged by the use of cash by businesses to reward sales teams and employees. Gift cards weren't really on the radar with the research back then, and the use of gift certificates typically resulted in a redemption for merchandise rather than the broad range of choices we see today. Rewards points are another form of recognition or incentive that wasn't used much in the 1990s, and now we all see rewards points being redeemed for all types of things, including travel, merchandise, food, entertainment, etc."

"According to the unbiased research I see as provided by corporate practitioners, it is a growth industry," Dolan explained. "It's also evidenced by recent industry buyouts, mergers and more investment capital providers entering the space. These people do their homework and attempt to mitigate their risk. They're seeing something!"