Consumer Strategies Report April 15 2003/Industry + Strategy

Last year, I attended the Incentive Show mainly for the free stuff. Yes, I met a few executives, but walked away without any serious understanding of the function of the industry. This year, again at Javits Convention Center here in New York, was different, since I spent quality time talking to vendors of incentive programs and trying to understand unique ideas and ROI.

BOTTOM LINE: Traditionally, incentives have mostly been cheap shochkes given away to customers or employees as a quick thanks. Free logo'd clothing like tees are a great example. However, as marketers discovered that their products could be used as superior incentives than cheaper shochkes because of the value of their brands, they turned to this market aggressively. As a result, incentive programs are alternative channels for retailers and manufacturers to connect with their customers and employees. The ROI is low cost customer and employee loyalty and retention.

Although there are companies involved in servicing just this channel, the industry is composed mostly of very big marketers such as Blockbuster, Starbucks, and Panasonic looking for alternative channels for their products. A top concept marketed by just about every exhibitor in the last couple of years, but more so this year, were stored-value gift cards, credit programs, and coupon programs.

Stored-value programs have virtually replaced gift certificates of the last decade. They're plastic, so they're as convenient as credit cards. They're easier to sell as impulse items. They're pre-paid, so there are no risks for the company. And, best of all, they tend to get lost, leaving companies with up to $2 billion in "breakage" or the amount left on the card at the time of loss. Since the gift cards are prepaid, companies book these as sales right away, even though the entire value of the card may never be used.

Credit programs naturally bare increased risks as defaults are always likely (just look to Sears and their current credit business difficulties for an example). However, since they're similar to credit cards, and typically issued to consumers that probably couldn't get as much credit as they wanted to get with a normal credit card, that increases your risk, as well as your reward, by being able to charge interest rates as high as 30%. A properly managed credit portfolio can be extremely lucrative. And if you don't want to manage it internally, there are companies such as GE Capital or Household Finance that are more than capable of managing your portfolio profitably.

And finally, coupon programs offered by brands with great equity offer customers opportunities to try brands they probably would never have tried before. Although we've discussed potential pitfalls in previous REPORTS, new companies trying coupon programs work. Although exhibitors promoted their wares mostly as employee incentives, all can easily accommodate marketers interested in incentivizing customers.

Ultimately, I have a problem with having to bribe a consumer or employee for their loyalty. As I'm sure you've experienced in your lifetime, even paying an employee a great salary with benefits sometimes isn't enough to keep them settled at your company, or at the very least from talking negatively to others about your company. So, how would associating your brand with SONY (to give them a free television) or gift card effectively connect your brand with a successful enough positive experience that they would become permanently loyal?

Incentives are not a part of the al berrios & co. Consumer Value Model. The experience a consumer has with your incentive impacts the incentive, not the brand that offers it. I do believe that if a company is successful in gaining a customer or employee's loyalty, it is temporary, typically lasting out the value of their last experience with your brand. Therefore, in order for an incentive to be an effective component of your relationship with your customer or employee, it must be branded by your company and follow at least 3 of our CVM's components.

Disclaimer: The recommendations, commentary and opinions published herein are based on public information sometimes referenced via hyperlinks. Any similarities or likeness to any ideas or commentary from any other sources not referenced is purely coincidental. al berrios & co. cannot control any results occurring from advice obtained from this publication nor any opinion(s) conveyed by any reader of this publication.

(c) 2004. All Rights Reserved. al berrios & company, inc. Published by al berrios & co. This Report may not be reproduced or redistributed in any form without written permission from al berrios & co., subject to penalty.

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