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2006 Incentive Industry Roundtable
June 30, 2006
By William Flanagan
On a beautiful spring day in New York City, 10 major players in the incentive market gathered at the Jumeirah Essex House with the publisher, editor-in-chief and editorial staff of this magazine to talk about the issues they face today. Below is an excerpt from the enlightening discussion, covering topics from trends in travel and merchandise to the importance of branding and how cooperation—even among competitors—is the key to growth in the industry.
Moderator: William Flanagan
Editor-in-Chief
Incentive
Tom Myers
National Sales Manager, National
Accounts & Special Markets
Nikon Inc.
Michael Landry
National Sales Manager,
Special Markets
Tumi
Arnold Light
CEO and Founder
The Light Group
Cindy Hoddeson
Director, Meeting and Incentive Sales
Monaco Government Tourist Office
Len Gilbert
Vice President, Gift Cards &
Partnerships
Barnes & Noble, Inc.
Jonathan Caplan
Senior Director of Global Sales,
Southeast/Incentive
Starwood Hotels and Resorts, Inc.
Adrienne Forrest
National Director of Special Markets
Bulova-Wittnauer Special Markets
The Bulova Corporation
Andrew Hodges
Vice President, Business
Development Marketing
Affinion Loyalty Group
Patty Saari
Director, Prepaid Card Services
Carlson Marketing
Dan Leong
Chief Operating Officer
USMotivation
Emerging Trends
Incentive Magazine: What trends do you see emerging this year?
Dan Leong: Health and wellness, and HR-geared programs...There's a general move that's generated by HR to incorporate appreciation. We are looking for vehicles...that motivate people. The catalog offering has to be geared in light of what these programs are trying to do, and so there's more exercise, things of that nature. Though we don't take them all out, we've been asked to [reduce] the red meats, the Omaha Steaks. But we still have not gotten to adding tofu yet.
Arnold Light: We've experienced what Dan has said in the health [area]. We're also seeing companies who never considered using any kind of incentive [becoming] aware of the fact that some type of loyalty, customer retention is critical to their business. How can they cross-sell [multiple products] to the client? So we're seeing companies trying to leverage the use of incentives. Not just as in the past, where you did a good sales incentive and got a 20 percent sales increase.
It's about customer retention and leveraging your business and your brand through the use of incentives.
IM: One recent survey said retention was 87 percent of their responding clients' concern. How can incentives improve retention?
Andrew Hodges: We're seeing some interesting trends in that area. Retention strategies revolve around the accumulation of points and the client's ability to keep the consumer. But there also seem to be other strategies being layered on top of that, like elite-level-type benefits, similar to the airline industry or the hotel industry, as well as additional bonus opportunities, and, recently, we've got a lot of inquiries about just straight-up "thank you" strategies. How are you going to surprise the consumer or your customer, and just deliver some kind of incentive without them actually asking for anything?
Also, in the banking industry, we're starting to see some of the larger banks become more interested in enterprise-wide solutions. They've finally realized that the multiple relationships they have with consumers can be leveraged across all of their different product lines, particularly with all the bank mergers going on right now.
Jonathan Caplan: We're seeing the trend toward well-being and balancing the personal and professional side. Even though there's still the incentives to exotic destinations for two, with so many people having families or maybe demographics changing a bit, we now see the people that qualify for incentive trips given choices that may be the same cost to the employer: whether to go on that great exotic vacation, or do something a little closer to home with their families.
Patty Saari: A number of clients have come to us specifically to say, "I want to give the choice to the end winner." So we've actually devised and put out in the marketplace a branded prepaid card, it's MasterCard/Visa branded, but it is segmented specifically with cardholders beyond that.
Travel, Merchandise and Gift Card Synergies
IM: Do you marry any merchandise with incentive travel?
Leong: It is based on travel opportunities. If we are sending their documents in a Tumi travel bag, for example, we also give them the option to earn the matching items that would go with it in the catalog. So they go, "Boy, I just got this, and I can get the suit bag with it now and everything else that goes with it." We also have clients that, because they pretty much know the perennial winners, their amenities will be a set of luggage that they get a new piece of every year.
That works pretty well.
Tom Myers: We've done some nice his-and- hers packs with cameras and binoculars, so there's no question that travel and merchandise can be tied in very easily.
Adrienne Forrest: With some of the more traditional areas of our business declining, such as recognition...we've expanded into markets with meeting planners, event marketing and travel planning, and the tie-in to bring in the merchandise with the trip or with the company's event has been very good for us. So we're going to continue to grow that part of our business.
Cindy Hoddeson: We find pre-travel, and during a trip itself, that merchandise is often supporting the travel product, and I would like to see that merged better. Rather than competition, as "coopetition." We've partnered extensively with merchandise, such as travel books and with companies like L'Occitane, because its products represent the spirit of the south of France and Monaco. As members of the Luxury Marketing Council, there's a wide range of luxury product that fits well with us. We're doing many things together...the end user is merging both merchandise and travel in many cases.
IM: We're all familiar with the positives and negatives of gift cards and everyone has their opinions, but what don't we know? Has the market reached a plateau?
Saari: We're now seeing a real ability to grow into new areas, the [chance] to put branding opportunities where they weren't before. And we have this debate in the office-and I am a huge proponent of merchandise and travel in the right applications-[but] I also see that there are new areas that merchandise and travel cannot impact as readily as [gift cards] or perhaps as seamlessly for the consumer, to modify their behavior. So I think it hasn't plateaued at all.
Hodges: I completely agree with that. In our business, we've seen gift cards as our largest growth item, year over year, for four years in a row. I'd also agree there are tons of additional opportunities out there for either merchants who haven't issued a gift card, or additional branding opportunities, or even non-dollar-denominated gift cards. Experiential gift cards-here's a piece of plastic that gets you an hour's rental of a sailboat or something like that.
IM: Is there a way merchandisers can take advantage of gift cards?
Michael Landry: This is kind of comical to me, because we historically have considered gift cards to be the enemy, and I think they're kind of anything but. Back in the day, incentive travel was the enemy. We thought, "They're going to take over our business!" But that didn't happen. Today, we're getting Tumi into travel programs, so that's great. But some of us that are a little more creative, and perhaps progressive, are initiating branded gift-card programs. I hope to have one by the end of the year. There are certain applications where they're perfect, and where they're probably more appropriate than merchandise, and I think you get some nice synergies between travel and merchandise and gift cards. They can all work together.
Len Gilbert: There are people who look at it and just say, "The margins are worse because merchants are only going to discount cash by so much"; then there are other people that look at it as something that's an add-on. Obviously we sell books, and books fit with travel pretty well. I think you just have to look at them together. It's not really an either/or type of thing.
Technology/Online Benefits
IM: What new technologies are coming out?
Gilbert: Online is a really big piece. We've started introducing our online gift card into the incentive business. A lot of people in that business really like the fact that there's no cost associated with it, and they don't have to ship it out. It's worked really well, especially in health care, because there's a lot of surveying and things like that that go on, and it's all being done online now. It's pretty easy to just send out a certificate and you're done. Down the road, RFID [radio frequency identification] is going to be very interesting, with gift cards and being able to instantly use the card.
Landry: In terms of technology, the online incentive programs, be it travel, gift cards or merchandise, have become extremely sophisticated from 2005 and on. It wasn't that long ago they were just kind of online images and model numbers, and you looked, you picked up the phone and you ordered something. Now points are redeemed on there, you can track them, you can do customer service functions. The capabilities are just unbelievable.
Saari: The other [part of] that is the administrative side. One of the most challenging things is the deployment with the client...how are we going to administer sending in the data; calculating sales; components that contribute to the point valuation and such.
Light: I totally agree. With an online reward program, it's there 24/7. You have a built-in motivator. Folks are online:
"How many points did I get today?"...In peer-to-peer programs...there's a huge benefit there. You talk about customer retention and employee retention; these people look forward to it. They can accumulate a few thousand dollars, or $1,000, or $500 dollars worth of points over the year. That's very huge...so it's been a great tool for us and some of our clients.
Budgets
IM: A recent survey we conducted showed budgets for incentives are increasing. Is that the overall budget, or the spend per person?
Hoddeson: We see the spend per person up.
Leong: A lot of [this increase] lately has been driven by the supplier costs going up. It's not a buyer's market anymore in the hotel business: Room rates have gone up, and you've got to house participants, feed them...Everything is going up, so the per person has gone up. And because the economy seems to be healthier, we're finding in many cases the number of people qualifying is going up, so it's sort of like a double hit.
Light: In the worst cases, you just reduce your ROI. If the cost of the trip goes up and you've got your 20 percent increase in sales, or whatever the goal was, you do the math, then instead of having 120 percent ROI, maybe you have 103 percent, so it's not a major factor. Either you're going to do an incentive program and make your number or you're not going to do it. It's what's in the planning stages, the level of the incentive trip, which causes the budget.
Landry: From the merchandise side, I'm not sure if it's a per person spend going up, but I can tell you that very clearly the trend is toward brands of all kinds. I mean, we don't buy bananas anymore, we get Chiquita bananas...So there is certainly more of a utilization of top-level brand names. Call them luxury if you want, but they're all aspirational.
Products, Branding and Luxury
IM: Regarding merchandise, are you seeing any emerging categories?
Forrest: We're finding the resurgence of the luxury products, and that's wonderful for our company. We've found that our price points that are up in the $800 to $1,000 retail range, and even more, are the most popular. Price is not the issue.
The more diamonds you can put on something, the more glitz it has, the better it's going to sell.
Myers: With the 35-millimeter film business basically gone, the emergence of the digital SLR and the ability to add a complete system is truly gaining ground very, very rapidly; starting off with a basic camera and adding to the whole system has been very, very popular.
Forrest: Brand is key now, especially with the younger consumers. They are looking for the hot brand name. It's not just the look; it goes everywhere, down to the iPods, to their cell phones, every product they're purchasing. So we've been integrating, doing more marketing, getting our brand name out there, making the brands more desirable.
IM: Everyone feels that their product is a luxury brand. How do you differentiate?
Forrest: Bulova Corporation has always tried to limit the distribution to the high-end department stores and independent jewelers. We don't sell to the major discounters, so we try to keep our brands clean. We never advertise at any discount, so we try to keep the perception of the brand fine.
Hoddeson: A former senior VP of Marketing for Bergdorf Goodman, I think, defines luxury as unique, one-of-a-kind things that are so rare, in [such] short supply, that uniqueness commands a premium price. He also says that a [luxury] product or service enhances quality of life or life experience. [It's] not the brand, but the object on which the brand's reputation rests [that] really drives a luxury product. It's the actual experience or the actual merchandise that really defines luxury, and the brand follows...not necessarily the price that drives something as luxury. It could be something relatively little that provides great satisfaction, such as good water [gestures to the Voss bottles on the table]...or how to set the table a particular way. So I don't think it's just price point that drives luxury, but uniqueness.
IM: Starwood offers many brands and price points. Do you see shifts within the brands from groups, such as companies or groups with lower budgets going to one brand versus another in your portfolio?
Caplan: I absolutely think there's a brand for everybody. The days where you see incentives maybe just going to a St. Regis brand or a Westin brand, it's still happening, but we're seeing a lot of meetings and incentive trips booked to the Sheraton brand, the W brand and so forth. Depending on the demographics of the incentive winner, all our major brands are really involved.
Travel Trends
IM: Do you see more or fewer travel programs?
Light: We've seen more travel programs in the last two years...almost double. However, I'm concerned that it's not going to continue, because when you're looking at $300 to $500 room-nights, and air seats that you can't get at any price because they're not [available], that's going to be a real negative. Clients are complaining that people have to overnight somewhere to get a flight out the next day, and the program has to be extended. How many 20 percent increases can you [take] when the price point gets [so high]?
Hoddeson: The group incentive still has many traditional qualities, and it's very, very strong, especially with salespeople who are rather comfortable or affluent in their own right, or companies who need to keep dealers loyal to their particular product. A travel incentive...doesn't necessarily have a price tag associated with it. You can offer experiences that-even though one is very affluent-you can't buy, no matter how much money you have-whether it be in Monaco, having your photo taken in the throne room of the palace or having dinner in the wine cellars of the H?tel de Paris, [or in one of] many destinations [that] offer unique experiences.
Leong: In the past, the VPs of sales or marketing would make the decisions on incentive travel: $1 million, 200 people, $5,000 apiece, and it would work. Now you've got procurement and everyone else in there going, "So what exactly are we getting? I would never pay $400 myself for dinner, so why are we doing that?" That's a big influence.
IM: Has the increase in procurement's role impacted you significantly?
Leong: Yes, totally.
Light: Very much. It's been an education process for them. I think we've migrated from them not understanding that you can't buy an incentive; you're buying an experience, and not a hotel room. After a while, they get to understand why you're spending that much, because you have to show them that it's not only a reward, it's [also] a motivation for next year to get the guy to go again. But the pressure...also is on cash flow. They want "just in time" payments, deposit schedules and things like that.
Caplan: And it's not even a cultural shift. It's not just incentive travel, it's booking a meeting for 100 people here in the city. It's been two years since procurement has become popular. As hoteliers, we are now used to working with procurement offices and procurement people. It's just a different way of doing business. Where the vice president of sales and vice president of marketing used to make that decision and sign on the line, now it's, "Have we gotten bids?
Where's our value?" Not really a justification, but to make sure it makes sense.
Leong: But that's where the procurement has a problem as we shift out of the travel and more into things like gift cards.
They go, "It's worth fifteen dollars, so why are we paying more than fifteen dollars?" And, "If we're going to pay more, why don't we just give them cash?" So that's been a tougher one, and that's why you've got to look at the value, add to it and almost pass through the end award; and your value add is in structure, and as Patty said, in the administration.
IM: Are you seeing more family trips, people who are trying to stay a little closer to home, or are they looking to explore new areas?
Hoddeson: We're seeing more lifestyle programs. Perhaps this also deals with comfort traveling overseas, but this year we're experiencing a 20 percent increase in bed nights booked out of North America over 2005. We think that people have gotten accustomed to certain circumstances, and the world has gotten smaller. A lot of companies are also doing business more often globally, and that's also pushing some of the choice in destination. The fear factors, post-9/11, much of that has passed.
Leong: We have seen a gradual switch from all-domestic to semi-safe [destinations]. Internationally, we've done a lot of Mediterranean cruises, because it's going abroad but you have a safe haven to go to every night. This coming year, we're starting to really increase our land-based European and South American programs.
IM: Are you seeing an increase in charter-flight usage?
Leong: Yes, because of [fewer flights], and in the destinations we're using,...the newer resorts are being built in very remote areas, and [clients] have to charter for it, depending on the size [of the] group.
IM: Is there any fear about the cruise markets? There was the recent fire on one of the cruise ships and the illness issues?
Leong: For some reason the cruise market just seems immune to that sort of thing. You can draw a bull's-eye on the side of the ship and people will still go on a cruise ship.
Hoddeson: And we have a huge growth in the cruise sector-not just our destination, but the whole Mediterranean, the Baltic, enormous growth in the cruise sector.
IM: What are the hot destinations in general?
Caplan: We're starting to see Asia come back a little bit in terms of travel, and specifically Beijing. We're really starting to source Beijing a lot. The only drawback is length of flight to get over there. But for the right trip, the right group... Domestically, I won't say there's any new destinations per se, but we have seen a lot of travel going out to Arizona in the last two years.
Hoddeson: I often ask people what other destinations they're looking at, so that gives me feedback in terms of what is going on. I think that China is very much on the map... And I think it's still very small, but India is starting to get on the map... I don't hear anything about, or very little about, South America. Greece has had a big comeback, post-Olympics, and they've refreshed their product.
Caplan: Yes, we've been sourcing India more and more.
Leong: It's interesting-you're the fifth person this week that has mentioned India. Evidently they have some very nice hotels, incentive-quality hotels, but I think there's a general perception of food, safety and poverty issues. But it's getting both a lot of press and a lot of word within the industry that this is the next big incentive destination. I personally have a tough time seeing it.
Hoddeson: Another destination that is very hot, but not for North Americans, is Dubai. My European incentives are booming to Dubai.
Globalization
IM: It seems a number of companies are trying to find a way to reward people equally across countries now. Has Affinion experienced that?
Hodges: Definitely. We get a lot of interest in combining North American programs with European programs. And during the last year or so, we have had several inquiries from Asia. The other interesting thing I just heard about recently, there's a new group called the World Award Alliance, and it's a consortium of merchandise suppliers around the world.
They're enabling companies like Affinion to step into these new markets without having to worry about getting partners on every continent or necessarily building for more technology to try to fill orders all around the world.
Hoddeson: I very much see a change. I've had to rethink some of my unique selling points because I would say, "Flying from New York City is only..." and they'll cut in with "Well, 20 percent of our potential winners are coming from Japan."
So frequently today, even though an incentive program may be booked and organized out of the headquarters in North America, only some percentage [of attendees] are U.S. and Canadian participants. We had 1,000 people in our destination in the summer, and people were from all over the world.
Caplan: On that same note, we've seen companies do a global trip and the size is very large because they have people come in from all over the world: 1,000 people, 1,200 people, 1,500 people. That somewhat limits your destination in terms of which hotels you can use, if you want everyone under one roof or under two roofs. So we're seeing a trend for the global trip one year. The next year, smaller trips happen among different regions, then the following year it's a global trip again.
Hoddeson: Or you have to boost the requirements so that a smaller audience is achieving the trip so that they can fit into certain properties.
Forrest: We've worked with some incentive companies in the States that have international clients, and we've had a couple of challenges because the product line we offer in North America is different than what we sell around the world... So we've had to tailor some of our European company programs to view our products that are coming out of Bulova Switzerland.
Myers: It's even more so in countries where there's a distributor involved, so it's not even a corporation. It presents a whole different barrier.
Hodges: This is also interesting: A lot of companies are expanding, such as ours, into investing in the technology to transfer data and host Web sites in multiple languages. But certain companies seem to be pulling out. I don't know if that's just a cycle or what...they're pulling out of a globalization kind of strategy-major companies, with a capital M.
Leong: The problem with [multiple] languages: People want them, then when they really isolate how many they need to address every country that [has] participants, typically they fall back and say, "Well, let's just use English."
IM: Patty, the trend toward globalization almost fits right into the prepaid card market, because they can travel anywhere.
Saari: Yes, they're ubiquitous, and we've certainly seen an increase. But the biggest challenge is the establishment of individual relationships in each country. It's when there's a requirement for local currency, local language, then you are into Web site and communication branding that's specific to that country-and that poses a challenge logistically and [in terms of] infrastructure and cost. But the fact that a magnetically striped piece of plastic can be used virtually anywhere in the world is a huge advantage and will place cards in a more positive light, globally, because it is challenging to ship merchandise overseas. We talked about procurement before playing a larger role in the fulfillment and the buying decision, and a big challenge to figure out is, can we buy in bulk and have it apply to everyone? [Clients] are coming to their providers to say, "How can you support a program for me that makes economic sense across the board, while we need to be regionally flexible?"
Emerging Audiences
IM: Gen X, Gen Y and now there's the Millennials, who recently entered the workforce. Do you have to find ways to adapt to these rapidly changing demographics?
Light: We've had a couple of clients for 10, 12 years, and a salesperson in their early 20s is now in their mid- to late-30s, and they have a family and children, and their needs change as they age. That's not an incentive phenomenon, that's a life phenomenon. But the Millennials, they're smarter than ever before. They're not as concerned about saving; they're spenders. They're not loyal, and they're very vibrant, and they want what they want when they want it, and you have to give it to them.
Leong: And they want the expensive toys. We used to enjoy fishing. Now they don't want a boat [ride], they want the $400 fly-fishing rod.
Forrest: And they want it now. It's not a matter of, "I'll save for it."
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