by Leo Jakobson | September 01, 2010
RYAN: One of the things that I’ve seen a lot of organizations do is brand debit cards to link them to the external brand. The look and feel of the debit card will speak to what the brand value proposition is. That allows an organization to focus the employee’s role on keeping that promise, and also create a little miniature billboard out in the marketplace. I think that’s a nice way to kind of close the entire loop—not in terms of the way you execute multiple programs, but the way you bring it back to a meaningful message, that the organization as a whole is focused on this.
  
LOMBARDO:  At the end of the day in an incentive or recognition program, the end user is a consumer and they’ll be driven emotionally and they’ll want to have a selection, have a choice. Representing over 20 brands, we have seen some brands do better than others, especially in these challenging economic times. We’ve seen evidence of a shift to more practical value brands. Restaurants are doing well in some segments, and surprisingly, luxury brands are doing well.

VAN DYKE:  They don’t want to use their cash for it.

LOMBARDO:  People have been getting points, they’ll see the value of gift cards that they’ve been holding on to, the value of points programs, and certainly using all the vehicles at their disposal.
  
INCENTIVE: Where are you selling gift and debit cards in this market? Are broad employee recognition programs getting a larger share from more sales-focused programs?
 
LOMBARDO:  Sales incentive, employee recognition, and credit card rewards programs are doing very well.

INCENTIVE: What are people redeeming for in gift card programs?

PEER: We [at Hinda] sell a significant amount of gift cards. I’ve always been anti-gift card, and I'm even more anti-debit card for the economics as well as the old cash versus non-cash discussion. What we’re finding is that our clients are asking us to re-assort their gift card offering to make them more cost-effective and yet still drive behavior. They are becoming more resistant to the Targets, the Walmarts, the gas cards where there’s little or no discount in terms of what you can get the card for. There’s a recognition that [gift cards] do have place in our industry, we do need to have that kind of offering.
It is required, but many of our clients are asking us to come back and reengineer the program because in these economic times they are looking for every economic benefit that they can get. Kathleen was right, we’re seeing a move to more luxury offerings in gift cards because there is ordinarily more discount. Usually, the greater the utility of the card, the lower the discount, meaning if you can take it to a gas station, if you can take it to a Walmart you’re not going to get much discount, whereas if you can take it to a Macy’s or Bloomingdale’s or jewelry store, you are going to get more. And so it’s kind of a nice conjunction of what our industry is about, in terms of behavior as well as profitability.

DITTMAN: We also offer a full range of merchandise and a significant offering of gift cards. I think the only other observation we’d make is that during the course of the last, roughly, 18 months, the percentage of redemptions for gift cards, as a percentage of the total, jumped up dramatically. Literally by about 30 percent. To a great extent we think it was because people were not, at that point, getting raises. Many have taken pay cuts, wage freezes, everyone was kind of focused on what do we need at the moment. Many of our programs do cross demographics of an entire company, so it’ll have bank tellers and vice presidents. 

Each has different needs, but that was the one thing that was actually consistent: Gift cards were just a higher and higher percentage.

PEER: Well that’s interesting. In a prior life, what we saw was a devolution of incentive programs into compensation programs. The big automotives would offer all of their dealers various reloadable debit cards, and what effectively happened was it turned the dealership into a restaurant, where the sales people lived on tips —spiffs—given by the automotive firms. That became their compensation, it wasn’t an incentive, it was compensation. 

The other thing that we saw with gift cards is that, in our experience, the introduction of Amazon dramatically reduced the incidence of redemption on gift cards because Amazon was in itself a glorified gift card. So what happened was, a lot of that gift card redemption migrated over.
  
LOMBARDO:  Another channel that we've seen growth in is the charity channel. We have a specific charity choice gift card, which is actually a donation card on a gift card platform. We’ve seen a lot of growth in that area as companies become more socially conscious and the charities themselves are alerting their supporters that they can actually redeem their points—any credit card rewards card they have in their wallet—as a donation.

PEER: That’s a great change maker, so that if you redeem for the TV and you have points left over, you're sweeping them into charity.

INCENTIVE: I’ve been hearing about the cards themselves becoming green, whether it’s a recycled PVC or corn-based card blank. Is that’s something buyers are interested in?

PEER: I think cards themselves are fast becoming obsolete. We’re going into a digital world, we’re going to be going into a mobile gift card capability. Companies like Best Buy are using recycled materials and so on and that’s a great idea, but the physical card itself will quickly be obsolete.
 
LOMBARDO:  Right. A couple of merchants of ours offer e-cards, e-service online, and consumers were embracing them. We don’t have a lot of requests in the B-to-B space, but I believe that’s evolving as security issues and technology [are resolved].

PEER: As soon as the merchant point-of-sale capabilities evolve, you're going to be taking your BlackBerry or your iPhone and you're going to swipe it at the point of sale. It will become so fast getting to the point of instant gratification: You will be earning points and redeeming points simultaneously at the cash register. 

INCENTIVE: Have you seen any changes in the types of companies or industries that are using gift cards? Financial companies aren't using as much travel right now, because of perception issues. What are you seeing?

PEER: As I said, the clients that are pushing us to help them with their gift card assortments are the ones that are under terrific financial pressures. Everything about them is the cost of the award versus what the perceived value of the award is. So there is enormous pressure to improve the delta between the acquisition cost and the redemption expense of awards, and gift cards don’t measure up so well. I think that’s also a challenge to travel, because travel is an expensive redemption option. It’s a benefit to merchandise and we’re seeing the big financial institutions migrate into merchandise because they recognize that the delta between acquisition cost and redemption value is more substantial, and that’s important because they're all about managing their balance sheet.

INCENTIVE: Are spot recognition programs still growing? 

LOMBARDO:  I heard spot rewards were used quite effectively in safety programs.

RYAN: Yeah, they're actually on the rise. More and more organizations are looking to push performance improvement into the hands of the manager. They want the manager be the eyes and the ears of the organization. They recognize that the managers, when they're connected to the employee, drive all types of positive behaviors. Not only job performance, but a higher level of employee engagement.

They want to give managers tools to be better mangers and increasingly, what we see is organizations allocating a high proportion of discretionary funding for managers, so they can not only recognize [good] behavior when they see it, but also use it as a way to coach an employee into certain areas of improvement. Because a manager is going to know if a particular individual needs to improve in one area or another. Plus, that could be market based: A manager will know what their competition is doing, a manager will know what the expectations of their customers might be in certain areas. So it’s a very healthy thing for organizations to be doing and we see a lot of it. 

VAN DYKE:  That maps back very well to all of the engagement data saying that the manager is the critical element in the engagement pipeline. So it would fit that the growth in the recognition market is organizations saying, “Well, then, that’s where we’re going to have some discretion, allowing managers to do what they need to do. 

DITTMAN: That is one of the two points that I was going to make. It’s been know for a long time that people when they resign, they don’t leave companies, they leave managers, and that’s irrefutably true. One of the great services that we can do is to make the job of recognition easier for managers: Make sure that they know how to do it, make sure they don’t forget how to do it, and we hear more and more calls for on-the-spot recognition programs. The one caveat, though, is everybody has to keep in mind is that there is nothing that can be abused greater than an honest inventory of cards. 

So it really needs to be done within the framework of the program’s structure and the structure has to have accountability to it. You have to have authorizations and everybody in the end—whether it’s because of Sarbanes-Oxley or because you don’t trust your own people—has to know exactly where every one of those cards went and, generally speaking, the reason why.
  
RYAN: The other side of it is ROI. Good systems have the ability to look at when a manager was giving out awards, and how that manager’s performance was in that particular area. The ability to connect the dots in terms of what a manager was doing and how that particular office or location performed is a great way for an organization to demonstrate their recognition works.

DANNA:  I'd say spot awards are critical in any mix of recognition. I would encourage our clients to incorporate that into a technology platform that provides the accountability and security, but also provides the recipient the ability to choose. Imagine giving a Starbucks card to somebody who doesn’t drink coffee. It’s very important to tailor the reward to the recipient and, many times, allowing that recipient to choose. Making it easy for the manager to issue and the recipient to choose. 

INCENTIVE: Any final thoughts?

DITTMAN: Just two quick thoughts. The first one is, please, let’s all join together and agree that we will resist every attempt to commoditize us an industry. 
The second thing is, the last 18 to 24 months has been the scariest time since I’ve been in business. In 33 years, we never had a lay-off [before this]. We actually had a lay-off, and it brought tears to my eyes. But then we kind of marched forward and said okay, what are we going to do about it? I believe many of the things that we did are probably the same things that everybody else did: Reexamined ourselves, and our value to our customers, from the bottom up. I would suggest that that’s something we have to be doing on a more regular basis, not waiting for hard times to force us to do it. 

But it was valuable in the sense that we were kind of going through the same thing our clients were going through. And as a result, I said, “Okay, what are we are going to do internally to make sure that our people stay engaged during these most challenging times?” [We created a] happiness committee. Their responsibility was to meet every two weeks and come up with ways to have fun, to make work fun, and to reenergize things with a creative, family feeling. Some of the stuff they came up with was kind of goofy and off the wall. The only difference was the stuff that we used to do cost a great deal of money. [For instance], close the company down for a day, take everybody to the racetrack, give them a bunch of money to gamble with, and then have an open bar.
  
These [happiness committee] things were inexpensive or had no cost whatsoever. It underscored the fact that these are not normal times, but it also underscored the fact that you are critically important, we want you to be happy here, and we value your contribution. We took a lot of those messages out to our own clients. 

KEENAN: I just wonder if there isn't a way that we can push our brand—incentives—down to the employees and have them think, this is something we should have? If I have a “stretch” goal it would be taking [the incentive] brand to the people at the bottom and getting them to say to their manager, “Why don’t we have recognition program in this company?”