Feature Article - September/October 2019

The Incentive Impact

A Look at the State of the Incentives, Recognition & Rewards Industry

By Deborah L. Vence

Plenty of research has been conducted this last year showing the impact incentive programs have on organizations.

"The most frequent and dominant research studies conducted this past year were done by the Incentive Research Foundation (IRF), whose primary mission is to conduct a variety of research projects addressing nearly all aspects of the incentive, recognition and rewards industry," said Steve Slagle, managing director of the Incentive Federation.

For example, the IRF's "Industry Outlook Study 2019: Merchandise, Gift Card and Event Gifting," conducted in late 2018, "covered lots of bases and focused on what many consider is the real core of the industry," Slagle said.

Conducted in partnership with the Incentive Engagement Solution Providers (IESP), a strategic industry group of the Incentive Marketing Association (IMA), the study "revealed opinions about the impact of the economy and regulations on businesses' use of incentive programs, explored the average per-person spending on non-cash and recognition programs, reflected the most used categories of merchandise and gift card types, dug into the types of gift cards most prevalently used by clients, and explored the outlook by clients on their use of incentive programs," Slagle said. "In short, the study answered many of the principal questions often asked by parties interested in the 'state' of the industry and its well-being."

Melissa Van Dyke, president of the IRF, said the foundation releases a continual stream of data that focuses on the incentive industry's needs. "We have 17 projects in various stages of completion at any given moment, and in the past 12 months alone we have released 12 different reports—all focused on key industry aspects," Van Dyke said. "One of the key data points to emerge from research done by the Incentive Federation is that 84 percent of all U.S. businesses use non-cash rewards and recognition in some manner. This means that the vast majority of U.S. businesses now use these tools to engage their employees, sales people and channel partners.

"The question," she said, "is no longer if U.S. businesses are using non-cash rewards, but how and where are they doing it most effectively? More importantly, how are the outliers, the 'truly successful' organizations implementing these tools?"

For example, in early 2019, an IRF study revealed that executives at the most successful technology organizations in the U.S. "… were twice as likely as average-performing technology businesses to regard their reward and recognition programs as a competitive advantage to what they do (86 percent versus 44 percent); this is counter to just doing some reward and recognition to stay competitive." They were also more likely to believe that rewards and recognition are effective recruitment tools and that they are a critical tool in managing company performance.

"These top tech organizations were also significantly more likely to consolidate their programs under a common purpose or umbrella, to design and manage their programs with strong cross-departmental collaboration, to structure their programs with the goal of reaching every individual, to have tiered programs, and to look for outside partners for expertise," Van Dyke said.

"This list is only a synopsis of the key incentive and recognition design patterns helping driving one of the fastest-growing sectors in the U.S. This research is key to shifting our industry efforts to the types of information that help us truly understand what program design patterns are most effective and how these patterns present themselves in each sector of the U.S. economy," she added.

Donna Chrobak, CPIM, vice president of sales and marketing, Summit Recognition Solutions, and board director of the IESP, said there are "some great annual research studies" on her "go-to list," including the Deloitte Global Human Capital Trends, Gallup's State of the American Workplace and the IRF's Voice of the Market Study.

"However," she said, "one of the most impactful studies" she's seen this year is the IRF's "deeper dive into how organizations in industry verticals are utilizing incentives and recognition programs. These include, 'What Top Performing Financial Services Firms Do Differently for Incentives and Rewards' and 'What Top Performing Technology Companies Do Differently for Incentives and Rewards.'"

These studies, she said, "… provide incentive and recognition providers with targeted insight into specific goals and objectives, pain points, and mindsets of buyers in a particular industry. Good incentive and recognition solutions are not a one-size-fits-all, and having industry-specific data allows us to design programs to address these needs. These studies are also valuable to the businesses. The information helps them gain insights into how other organizations in their industry are addressing incentives and recognition."

The question is no longer if U.S. businesses are using non-cash rewards, but how and where are they doing it most effectively?

While a number of studies have been revealing, according to Mike Donnelly, CPIM, president, Hinda Incentives and member of the IESP, he has "found two studies that came out in the past year insightful."

The first is the IRF's Signature Study—"2019 Voice of the Market: The Use of Non-Cash Rewards & Recognition." "These annual Voice of the Market studies always reveal something fresh, and this year, Hinda was a sponsor of this study," Donnelly said. "What really stood out to me this year is how unaware most program owners are of the deep experience, expertise and resources available to assist them." The study revealed "most front-line program owners do not have strong professional networks in place specific to reward and recognition."

The study points out that "Many do not know anyone else with responsibility for designing and operating a program; some have one or two companies they reach out to for ideas."

"It seems as an industry we have done little to expand awareness down to mid-market companies," he said. "This finding, combined with some of the data on the substantial size of the spend in total in the mid-market, could reveal new opportunities to add value to this underserved market that has been forced to take a trial-and-error approach in the past. But, this means looking at new ways to provide them assistance that may look much different than our traditional sales and consultative sales approaches with large organizations."

The second is a study released by Hinda in September 2018, called "The Reward Delivery Experience: How Award Packaging Affects the Recipient's Perceptions of the Award and the Company Behind It," which builds on the IMA's 2015 study that showed how awards are presented has an effect on the participant's perception of the award and the sponsoring company.

"We were stunned to discover how small changes like shipping an item in a white box and using a sealing tape with a message imprinted on it demonstrated to the recipients just how important they and their contributions were to the program sponsor," he said. "Add the human touch of neatly folding tissue paper around the award, and you multiply that effect exponentially."

Hollis Thornton, senior account executive, CashStar, Velocity B2B, a Blackhawk Network business, and board director, Incentive Gift Card Council (IGCC), noted Blackhawk Network's recent study that analyzed the different and changing buying and giving habits of generational cohorts. (The "Consumer Research" study was conducted by Murphy Research on behalf of Blackhawk Network between Feb. 4 and Feb. 12, 2019.)

"The research documented noticeable differences among generations—especially in the habits of younger generations like millennials and Gen Zers—including how they interact with incentives, payment tools and more," Thornton said. "Having a solid understanding of how these up-and-coming generations interact with different types of rewards can significantly help inform marketing strategy and provide businesses with insights into which incentives will resonate most with consumers to create long-term engagement, boost the bottom line and drive loyalty."

She also said e-gifts are on the rise among younger generations, adding some noteworthy stats:

  • Purchase of e-gifts is more frequent among younger generations and is catching up with physical cards. Forty-one percent of Gen Z and 39 percent of millennials surveyed purchase e-gifts at least once every three months. Fifty-one percent of surveyed Gen Z consumers and 47 percent of millennials shop for a physical card at least once every three months.
  • Younger generations, led by millennials, are open to using e-gifts as branded payment tools. Seventy-two percent of millennials surveyed have used e-gifts. Of Gen Z consumers surveyed, 63 percent have used e-gifts to make a payment.

What's New?

When asked what's coming for the industry, Slagle noted several things.

"First … the use of artificial intelligence for database management and analysis and in marketing will continue to increase and grow in importance," he said. "According to some bright leaders in the industry, based on the AI and machine learning trends, Account Based Marketing (ABM) is enjoying a massive renaissance. We are seeing the creation of entirely new roles for many companies—'Account Based Marketers' are becoming the task masters of our client data.

"Their goals are to design client-specific campaigns that drive higher employee engagement, more and faster lead signups, convert more deals within a shorter window of time while improving overall purchase behavior and consumer return frequency. Alongside AI and machine learning, Account Based Marketing, more than ever, can generate significant results for clients—this is the key to client retention.

"Secondly, the increasing ability to quickly access information has resulted in a mandate for truly 'frictionless' rewards."

Third, he said, "emerging 'digital platforms' are a natural evolution for technology. These platforms or applications are being used internally by clients to develop and manage several reward and recognition programs for employees, often without the assistance of third-party providers."

Fourth, health and wellness is one of the fastest-growing reward categories, driven by wearable technology that instantly connects with individual wellness Apps, such as Garmin, Fitbit and Apple.

And fifth, experiential rewards are becoming increasingly important. Travel and experiential rewards continue to see major year over year growth, and this trend will continue as younger employees prefer experiences over cash.

Meanwhile, other industry pros like Nancy Alderman, IP, TSYS Loyalty & Prepaid, and president of the Incentive Travel Council (ITC), said that "Around incentive travel we are starting to see more solo travelers, more women traveling alone, an increase in wellness travel and a strong continued dominance of cruise travel."

And Jeffrey Brenner, director, special markets, Seiko Watch of America, and president of IMRA, added that "Technology continues to play a significant role in the industry, meaning how a program speaks to the consumer and/or recipient. The tools that a recipient has at their disposal via their mobile device connects their points/miles and progress to a single portal with merchandise, gift card, travel and charitable options to select. These technologies only continue to grow and make the 'recipient experience' easy and time-efficient."

One of the key data points to emerge from research done by the Incentive Federation is that 84 percent of all U.S. businesses use non-cash rewards and recognition in some manner.

Thornton said "With e-gifts growing in popularity, the incentives industry is likely to start seeing digitally enabled incentives becoming more mainstream. Examples include digitally delivered bundled offers and e-gifts as rewards for making certain purchases. Currently, there aren't many, if any, turnkey solutions for delivering these types of offers. As consumers and incentive program managers start to demand more digital incentive options, brands and brand aggregators will be challenged to step up and provide impactful solutions. These digital promotions can be modeled after what has been done in more traditional ones (e.g., offering a $10 coupon or discount for buying $50 in merchandise)."

Referencing the IRF's 2019 Trends study, Van Dyke noted key areas "coming down the pike for the incentives industry."

The first "is an ever-increasing focus on security, specifically data security for most programs," she said. "The issue with this focus is that, if not executed correctly, it can be at direct odds with the need for reward personalization. Behavioral economics tells us that for programs to be impactful they must also be personalized at the individual level. For this to scale, however, individuals must first give program owners the data to help personalize the program. Once we have the data, it must [be] deemed as wholly secure. Tools like predictive analytics can then help in getting closer to the goal of using the data to make programs more impactful.

"The second area is an increased focus on experiences, particularly transformational experiences," she said.

"Our behavioral economics study showed how personalized gifts are more impactful to engagement, specifically if they are framed around a 'time experience.' For example, this is the difference between giving a mug that says 'My Coffee Mug' and one that says 'My Coffee Time.' Or the difference between giving a gift card and giving one with a note that encourages "private time to shop with your favorite person," she said, adding that the IRF's Participant Study also showed how focusing on who delivers the reward, how it's communicated and what professional impact accompanies it are actually (cumulatively) more impactful on the experience than the reward itself.

Donnelly said "Personalization has been getting more attention lately, but the integration of the customer experience and personalization are what we believe is getting more and more attention, and rightfully so. That's a trend that will only escalate and accelerate moving forward. It will continue to evolve, blending the participant experience deliverables with personalization attributes.

"In the future," he added, "look for incentive rewards portfolios to include participant reviews, videos and more 360-degree images. Expect more gathering of personal information and slicing and dicing of the data to understand the participants in a more personal way. Then, analysis will help infer what they want."

He added, "All this tech and data open new worlds of personalization to us. But, committing to creating personalized member experiences will take real investments to deliver. We're talking about investments in predictive algorithms, machine learning and artificial intelligence. That's what makes it so hard to scale a personalized approach across your entire membership.

"The future will change the industry in ways we couldn't even have imagined only a decade ago," he said. "Get ready."

Awards and Their Key Role

The types of awards that will continue to play a key role in incentive programs include travel, which Alderman said "will always be the aspirational reward and the one that creates those moments that matter. Travel rewards that are more curated to the individual traveler is definitely a continuing trend in many incentive programs."

Brenner noted "Wellness, outdoor and anything that has a relationship to family and travel. The consumer requires quality and brands that have a proven track record, longevity combined with being useful."

And Chrobak said "Rewards fulfillment as we've known it is being turned on its head. Gift cards continue to be popular, and the payment industry continues to develop innovative new card products and ways to incorporate them into programs. Employers and employees want ease of use, selection, personalization and expediency in awards. Organizations are also looking for more experiential and lifestyle-driven award selections."

Aspirational and luxury items will continue to play the key role in incentive programs, according to Donnelly.

"While the items will change and what was considered aspirational or luxurious only a few years ago isn't today, incentive program reward portfolios have always centered on the participant getting something they might not normally get for themselves," he said. "Today, these may be things like upscale home goods, robotic vacuum cleaners or high-end electronics. But no matter the category or the award type, it's about being aspirational and special to the individual participant.

"But, that also means it has to be the newest, the latest and the greatest," he added. "Staying just ahead of the curve has always been the challenge for reward portfolio providers like us. That's why we change out around 200 items each and every month."

The IRF's research "shows that all rewards continue to play a role in incentive programs, with the vast majority of organizations using more than one award type—points, merchandise, gift cards and incentive trips included," Van Dyke said. "Some organizations use all four, and, interestingly top-performing organizations, specifically in the tech industry, tend to use all of these awards at a higher rate. Eighty-two percent of top-performing tech firms use award points; 65 percent use gift cards; 55 percent use merchandise; and 31 percent use incentive travel."

Additionally, she said, the market is highly optimistic about the use of gift cards and merchandise, with the "Industry Outlook Study 2019: Merchandise, Gift Card and Event Gifting" showing the IRF's proprietary net optimism score reaching a peak 43 percent. This number shows the excess of buyers and providers alike who are more optimistic than negative on the U.S. economy's impact on reward programs.

"In good news, 33 percent more corporate program owners are positive than negative about overall merchandise spending increasing next year. The good news is that this translates into many types of merchandise in use as well. Eleven of 13 categories IRF researched for reward programs were used by at least 20 percent of the corporate audience. Logoed brand-name merchandise was the most used, with three quarters of all corporate programs using them in their programs, followed by electronics (63 percent) and then clothing/apparel (59 percent)."

Similarly, Slagle said "… it appears that logoed brand merchandise in a variety of categories, electronics, apparel/wearables, sunglasses, sports/recreation items and food gifts lead the list. Having said that, the research also shows a growing use of gift cards, and for some applications these cards are the most prevalent."

Future Challenges

As for the future, "The industry needs to understand AI and how we can utilize this in our solutions," Chrobak said. "Organizations are incorporating AI into their business plans, and they expect us to understand how it applies to incentive and recognition programs."

Though the legislative and regulatory environment is relatively calm now, according to Slagle, he said a couple of significant issues emerged in 2018 that have carried forward into 2019. "The first was the June 2018 U.S. Supreme Court ruling in the South Dakota vs. Wayfair case that states have authority to collect sales tax on goods and services delivered from remote sellers that don't have a physical presence in their states." Second, "is the imposition of tariffs on imported products from China and other countries that has increased the price of those products, in some cases significantly."

For Donnelly, three big challenges immediately come to mind.

"Two are related to information, data and personalization and [the] other is what I like to call the devil on your shoulder," he said.

"We talked about the move toward more and more personalization to deliver a unique experience for each participant. That requires gathering more and more information about participants," he said. "When you're gathering information like that, you have to take responsibility for protecting the individual's privacy. As we look to engage participants and learn more about them, their habits and their preferences, we must be good stewards of that data. It is our responsibility to protect our participants, and that means making technology investments to keep them safe and secure.

Technology continues to play a significant role in the industry, meaning how a program speaks to the consumer and/or recipient.

"As an adjunct to this," he said, "we have to make sure not to misuse what we learn. There's a fine line between people offering us information to make things more convenient for them and feeling like Big Brother is watching them. Providing tools to allow participants to automatically order a certain item when their account has the points to redeem for it is a convenience. Sending a message telling them they have enough points to order an item they only clicked on once and didn't place in a wish list feels intrusive.

"Finally," he added, "there's a devil on [the] shoulder of reward providers. It whispers, 'Just give them unlimited offerings. Why wouldn't you want 10 million items in your catalog? It's easier. Who cares where it's shipping from or who's shipping it? As long as they ship it in time, what difference does it make?'

"That devil sounds reasonable. More is always better, right? But we know that too many offerings can be overwhelming to participants. Choice is good as long as the items are aspirational, but when you're just absorbing tens of thousands of items through an API, you're probably putting lots of USB cables in your catalog. And I don't know about you, but to me, that isn't aspirational," he said. "For me, giving into temptation and taking the easy route by adding tons of uninspiring items in the name of choice is abdicating our responsibility to help both your clients and your participants. We should be delivering purposeful offerings appealing to aspirations of people and inspiring them to perform."

While most experiences with incentives are positive, Thornton said, "fraud can be an unfortunate challenge within the incentives industry, just like most others. However, incentive program managers and incentive providers … have plenty of tools available to help curb fraudulent activity related to incentive redemption, tracking and issuance. For instance, experienced incentive providers can help businesses mitigate fraud using industry best practices that provide added security for reward storage, distribution, packaging and delivery."

Van Dyke said: "In a word: data. As we look to a future with potentially more austerity, program owners will be pressed to use our business acumen and more detailed analytics to tell a program's decisions-makers a story that highlights the reward program's positive financial ramifications on both budgets and outcomes. IRF research currently shows that less than 30 percent of corporate buyers track return on investment (ROI) or even return on objective (ROO) and 53 percent of corporate buyers for merchandise and gift card programs say they use no reporting or analysis for their program.

"The good news is, program owners are also oftentimes sitting on vast stores of untapped data through programs that, with the right tools or partners, can be a boon for helping the organization understand, at an individual level, what behaviors are driving change and, therefore, how the program is driving success."