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[ Issue Table of Contents ]
Feature Article:
Creating a Successful Premium Incentive
Program
This article provides a step-by-step guide to structuring an effective
incentive program using merchandise and other tangible rewards. It addresses
setting objectives, writing rules, awarding points, communications, training,
and other key elements of a successful program.
INTRODUCTION
For many companies, incentives are a simple proposition: Do this and
you'll get that. This approach usually works, but your company will get
more mileage out of its incentive programs if it recognizes all the factors that affect performance: motivation, skills, understanding
of the goals, recognition, and ability to measure progress.
To make your program as productive and measurable as possible, we recommend
that you create an Incentive Planning Worksheet outlining all the steps
of your plan. We have provided recommended worksheets for many of the
following sections. Adapting them for your program will help ensure you
that you have covered all the key steps.
STEP 1: UNDERSTAND THE ROLE OF INCENTIVES IN
BUSINESS
Incentives are used to get people to focus both on your goals and what
they can do to achieve them. Offer your employees, sales team, or distributors
a valuable enough incentive and they'll do anything they can to meet your
goal. But, you'll be wasting your money if, to do it, they sell unprofitable
business, offend a lot of customers, or convince customers who would have
bought anyway to buy during the contest period. Incentives work best when
they focus people on sales, productivity, or quality goals, as well as
the steps they can take to achieve those goals.
Companies use tangible incentives, such as merchandise, to distinguish
their incentive campaigns from cash compensation or pricing issues so
that the campaigns do not become an expected part of an employee's, agent's,
or dealer's income. Merchandise is used in business to recognize and thank
people for performance in much the same way that people give gifts in
their social lives. We tip the doorman and waiter as a bonus for good
service; we give gifts at holiday time or other occasions as a personal
sign of appreciation. Nothing beats cash as a form of compensation or
bonus, but it's a poor way to demonstrate appreciation for people who
have gone the extra mile for your company, and it's dangerous if your
company does not intend to run incentive programs on a regular basis.
Finally, incentive programs cannot mask problems caused by shoddy products,
poor management, or misguided marketing.
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STEP 2: IDENTIFY THE GOALS OF YOUR INCENTIVE
PROGRAM
In concrete terms, define what your company wants to accomplish with
respect to a designated area, such as sales, unit volume, defect percentages,
or customer satisfaction. Make sure that you can translate the goals into
numbers measurable from one comparable time-period to another. Sample
goals: Increase sales by 10 percent in dollars in the fourth quarter versus
the fourth quarter a year earlier; decrease the number of product defects
from 2 percent to 1 percent of production; increase percentage of repeat
customers by 10 percent next year versus this year.
List the internal and external factors that could affect your goal, such
as competition in the marketplace, introduction of new technology in your
manufacturing process, a major new advertising campaign, or labor problems
resulting from an expired union contract under negotiation.
Review your company's overall goals, as well as its mission statement,
to make sure your goals are in line with the big picture.
Incentive Planning Worksheet: Spell out in a sentence or two your goals,
along with the factors that could affect the outcome negatively or positively.
STEP 3: DETERMINE THE NEED FOR AN OUTSIDE SUPPLIER
If the potential audience for your incentive program involves an annual
budget of $50,000 or more, chances are you can get help from one of about
100 to 150 incentive companies and agencies that handle incentive programs.
Otherwise, your company will probably have to use its own resources to
run the program. (See 3010 and click on Types of Suppliers)
STEP 4: DETERMINE THE PEOPLE WHO CAN MAKE THE
DIFFERENCE
Specify the people inside or outside your organization who can have the
most impact on achieving your goals, such as internal salespeople, dealers,
dealer salespeople, production employees, and delivery personnel.
Incentive Planning Worksheet: List the people by title, function, or
name, depending on the size of the company. Provide a description for
each group involved with your program, including your estimates of their
demographics, interests, hot-buttons, problems, etc.
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STEP 5: INVOLVE ALL THE PEOPLE WHO COUNT
After identifying the people who can help you meet your goals, meet with
them to find out:
- is your goal feasible?
- what is standing in the way of your meeting it?
- what actions can these people take that could help you meet your
goal?
- how can they measure or monitor the quantity or quality of those
actions?
These meetings work best when chaired by an outside facilitator who knows
how to draw out each participant and ensure that the findings represent
a consensus. No more than eight people should participate in this sort
of meeting. This process should yield recommendations on:
- what you or the company can do to achieve the goal, i.e., increase
advertising, improve research, obtain new technology;
- what the people involved can do, i.e., make more sales calls, learn
new assembly line techniques or, in the case of retailers, put up more
displays;
- how you can measure their progress.
If your incentive program is part of a long-term effort to make your
people more performance-driven, you may want to conduct a written survey
that measures their morale, knowledge, interest, demographics, and lifestyle.
Incentive Planning Worksheet: Spell out the findings
of this process, organized by what your company can do and what the target
audience can do to achieve your goals. Make sure you note those obstacles
perceived to be standing in the way of success.
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STEP 6: DETERMINE YOUR OVERALL INCENTIVE STRATEGY
Here's where you specify your goals and what people must do to achieve
them. You must also identify the time frame of the program and attempt
to estimate the sales or profit value of the anticipated goal.
Also, be sure to look at the problems or obstacles identified in Step
5 and determine the extent to which you can address them. If you can't
address any of the problems identified by your group, you'd better reduce
your goal.
Obviously, this process is based on the results of Step 4, so that everybody
concerned feels that your final strategy reflects their input.
The most important question to answer in this step is: How will people
qualify for their awards? You can choose one of the following options
or use a combination. For example, you might want to have a program that
uses an open-end program to reward the average performers who improve
and a closed-end approach for the top performers who merit repeated recognition.
The three most common types of incentive programs are:
- Closed-end programs single out only the top performers,
such as the 10 people who improve their performance the most. These
programs are easy to budget but tend to recognize the people who probably
would have performed well anyway.
- Open-end programs award all people who achieve a
predetermined level of performance. The open-end approach is more difficult
to budget but generally gets better results, since it gives you a better
chance of motivating the 60 percent of people in your organization who
are average performers.
- Plateau programs are a variation on the open-end
approach. You simply divide each level of achievement into three to
five increments, with the award level changing at each increment. That
enables people to win ever-larger awards based on sales or productivity
increments. This structure is used to motivate people to push themselves
a little harder when they have come close to achieving the next award
increment.
Incentive Planning Worksheet: Write a two- to three-paragraph
description summarizing your strategy so that you can articulate it clearly
to all concerned.
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TIPS ON STRATEGY
- Compare your goals to past history: Has your company ever obtained
that rate of improvement before?
- Make sure that you can measure performance in terms that you can
benchmark against comparable earlier-year periods.
- Make sure that the actions promote both productivity and quality.
You don't want to meet a goal if service, customer satisfaction, and
quality suffer.
- Take into account what it will take to track or administer your program.
Will extensive record keeping or complex computer programming be required?
If so, your program is probably too complicated.
STEP 7: DETERMINE HOW MUCH MONEY YOU CAN SPEND
In Step 5, you estimated the bottom-line impact if your goal were to
be accomplished. If it's an incentive program to increase sales, that's
easy; most companies estimate the profit margins on incremental business.
Incentive programs to improve productivity and quality require more judgment,
however. What is the value of decreasing defects by 10 percent versus
the year before? What is the value of increasing customer satisfaction?
Generally speaking, your arguments will carry greater weight with accountants
if you are conservative in your estimates. Also, some seemingly subjective
goals have highly objective measures. For instance, improved customer
satisfaction can be measured both by surveys and the rate of customer
retention, whose profit impact generally can be quantified.
The profitability of increasing the number of calls performed per year
by service technicians can be determined by calculating the cost-per-call
(total service employees' costs divided by number of calls) and comparing
the result with past history.
After estimating the dollar impact of your program, determine an amount
you are willing to invest to achieve your goal (usually a percentage of
the dollar goal). For instance, surveys by Incentive magazine
indicate that companies invest up to 20 percent of anticipated incremental
sales in the awards, communications, and training necessary to achieve
their goals.
Incentive Planning Worksheet: State the anticipated
dollar impact of your program, specify the percentage you are willing
to reinvest, and the dollar amount into which this translates.
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STEP 8: SPECIFY THE AWARDS
Many organizations shoot from the hip in award selection, even though
this is one of the most critical steps in program planning. Not only can
the awards you select have a direct impact on motivation, they can affect
the way people view your company.
If your program asks people to make significant changes in the way they
do business, your award selection had better relate to the effort involved,
or people will do little more than pay lip service to your goals. If you
give away low-quality awards, people will think your company is cheap.
If you use cash or the same merchandise award options every time you run
an incentive program, people will come to expect your programs and will
view them as compensation rather than as recognition for a goal accomplished.
Your program should contain an element of surprise to prevent employees
or dealers from expecting the same old stuff. In addition, awards should
be:
- commensurate with the actions needed to obtain them;
- available to all who improve their performance;
- in keeping with the image of the company giving them;
- changed from one incentive program to another.
You will probably need to determine two or three award levels: a top
tier for exemplary performance, a middle tier for significant improvement,
and a starter tier for anyone who has improved performance. This pertains
particularly to companies that use the plateau structure outlined in Step
6.
Finally, you will have to consider how those awards will be delivered
and by whom, along with what form of communication. The greater the recognition
value of your awards, the greater the impact.
Tangible award options include brand-name merchandise purchased from
manufacturers through their incentive representatives, retail gift certificates,
group incentive travel, individual incentive travel, debit cards, catalogs,
and airline mileage programs.
Incentive Planning Worksheet: Spell out the types of
awards you have selected for your program along with what they will cost.
Be sure to leave room in your incentive program for communications, administration,
and training, which can easily eat up half of any incentive budget. Determine
which type of supplier can give you the best combination of service and
awards for your needs.
STEP 9: SPECIFY THE TRAINING, COMMUNICATIONS,
AND ADMINISTRATION YOU'LL NEED
You should make sure that the people involved in your program have the
training they need, that they understand the goals and the steps they
can take to achieve them, and that they get regular feedback that shows
their progress and makes suggestions. Your program might involve special
training, and it should be promoted regularly in company newsletters or
other mailers. You might consider using promotional products or teasers.
You will probably want to develop a simple software program to track results.
Specify such things at the start so that you can make the proper allocations
in your budget.
Incentive Planning Worksheet: Specify what you will
do in training, communications, and tracking systems, along with estimates
of how much you will spend. Designate who will see to it that each step
gets done.
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STEP 10: WRITE THE RULES
Every contest has rules, and an incentive program is no different. In
fact, the rules for incentive programs are not unlike those you see in
ads for consumer sweepstakes. Rules provide a blueprint for what you expect
from the participants in a program, so it's important to write them down
before finalizing your budget. Although they should be simple and easy
to follow, your rules should specify what is expected of people and cover
every loophole.
They should specify: the time period of the program, who can qualify,
how people can meet their goals, how they will be measured, what will
be awarded and when, what is not included in the program, what actions
will not be allowed, and any disclaimers.
Before announcing your program, consult with legal counsel in your area
to make sure you are not in violation of any laws or regulations. In addition,
be aware that the awarding of prizes or cash to program participants can
create tax liabilities for you as well as for your award winners. Again,
check with legal counsel so you understand your responsibilities in reporting
any prizes or cash awarded.
For additional advice, see Doc. 3035 or call Raymond Patt, counsel to the Association of Retail Marketing Services,
at 212-725-2967. He will answer basic questions at no charge.
Incentive Planning Worksheet: Write your rules just
as you will on the incentive promotional material, numbering each element
and keeping them as simple as possible. Show them to an attorney, especially
if your program involves outside organizations or contractors. To make
sure the rules are understandable, share them with a friend, a family
member, or other person not involved with your business. If it takes anyone
more than a couple of minutes to grasp what they have to do, the rules
are too complicated.
STEP 11: FINALIZE THE BUDGET
After you've determined the total you can spend and the amount of awards,
administration training, and communication you will need, it's time to
develop your final budget. Here, you allocate the anticipated overall
budget by category as well as finalize the budgeting strategy. If you
are using an open-ended budget approach, you will want to create a spreadsheet
with "what if" scenarios based on different performance levels.
A rule of thumb: Budget your costs for a best-case scenario. The accounting
department won't mind if you spend less than budgeted if results don't
meet your expectations. You'll probably encounter more problems if costs
soar far beyond your budget, even if sales or other program results far
exceed your forecast.
Incentive Planning Worksheet: Create a budget spreadsheet
showing the most you expect to spend on each aspect of awards, training,
and communications.
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STEP 12: DEVELOP YOUR CAMPAIGN
Much like advertising, incentive programs begin with a formal launch,
proceed through a specified time period, and end with an assessment or
measurement period. The training, communications, and feedback should
operate under a unified strategy with similar themes and reinforced messages.
The theme should reflect the goals of your campaign, those of your company,
and whatever is being marketed to the consumer or employees. Specify what
devices you will use to communicate your program, how you will deliver
it, and how frequently.
Make sure any acronyms you use have no unintended double meanings, and
make sure the image conveys quality and authority. Use humor carefully.
If you have a hunch that something will offend somebody, it probably will.
Incentive Planning Worksheet: In a one-page condensed
marketing plan format, spell out your game plan, including the theme,
method of program launch, type of training, and type of communications,
along with how and when they will be delivered.
STEP 13: GET THE APPROVAL OF THE PEOPLE WHO
COUNT
At this point, you should have an opportunity to catch last-minute problems
and make appropriate adjustments. Using your Incentive Planning Worksheets
as a guide, create a memo outlining your program and submit it to:
- representatives of the group you consulted in developing the program;
- upper management;
- the accounting department;
- heads of other departments that could be affected by your program.
STEP 14: LAUNCH AND THEN REGULARLY MONITOR
THE PROGRAM
Using the game plan outlined in Step 12, get going. Do as much work as
possible at the beginning on your communications and tracking effort so
that you meet all of the deadlines specified in your plan. Even if it
means making personal phone calls to participants, make sure that everybody
is aware that your program has launched and that they know what they have
to do to win. You don't want to hear later that people didn't understand
what they were supposed to do. Review performance reports as they come
in and look for problems. Be on the lookout for improvements that individuals
or groups should make. Include advice or other useful information with
standings reports sent to participants.
Incentive Planning Worksheet: Check your progress against
your game plan to determine if any course corrections are required. Perhaps
more training is needed or more emphasis on one aspect of the program.
Maybe there's something one employee has discovered that others could
use to improve a process.
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STEP 15: CELEBRATE SUCCESS
When your program concludes, make sure you have a system in place to
quickly celebrate success. People should know as soon as possible when
the overall goal is reached and what role they played in achieving it.
Make sure your awards are delivered rapidly and with a personal touch.
STEP 16: STEP BACK AND REFLECT
Did your program accomplish exactly what you wanted it to? What worked?
What didn't? How did the people involved feel? Consider another meeting
with key participants or a survey. Two important considerations:
- If you are planning another campaign, change everything, including
the timing, the awards, and the communications. You don't want your
program to be predictable.
- Although you may change the goals and the measures, track the same
performance measures from the program(s) before. That enables you to
see what happens with performance in areas not being emphasized in your
current incentive program.
RESOURCES
- Spa Finder is an interactive Internet site that
not only provides an extensive network of premier spas worldwide, but
features spa specials, shopping online, Spa Finder magazine,
and recipes. Spa Finder also offers turnkey incentive programs and Spa
Finder Day Spa, and Stay Spa gift certificates which can be used within
the spa network. Call 888-ALL-SPAS; go to http://www.spafinder.com.
- http://www.IncentivesAtWork.com.
is a joint initiative of Incentive and Potentials magazines. This comprehensive site includes information on the status
of the industry, how to motivate employees, increase company productivity,
and generate new business. There is a section on incentive travel plus
job market sources, suppliers, event calendar, and industry resources.
- Winning with Promotion Power: 100 of the Best Promotions is a compilation of case histories drawn from recent winners of the
Reggie Awards, which are presented by the Promotion Marketing Association.
Call Dartnell Corp. at 800-621-5463; go to http://www.dartnellcorp.com.
- Incentive Marketing Association provides case histories
of successful incentive programs. Call 630-369-7780; go to http://www.incentivemarketing.org/.
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© 2004. Copyright Selling Communications, Inc. Reprinted with permission from Incentive Performance Center (Article No. 3020).
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