Incentive's 2008 Industry Roundtable: Full Version and Transcript
July 03, 2008
Every spring, Incentive magazine gathers about a dozen leading incentive planners, travel and merchandise providers and corporate incentive managers and brings them together in New York for a wide-ranging discussion about the state of the industry. This year's roundtable, held in the Millennium Broadway hotel in Times Square, was a particularly good one, with some surprises, some contrarian positions staked out, and some controversy. We think you'll find it's worth the read.
Also, a podcast version of the audio recording of the event may be accessed at www.incentivemag.com/podcasts. Enjoy!
Moderators
Jennifer Juergens, Incentive magazine
Leo Jakobson, Incentive magazine
Alex Palmer, Incentive magazine
Particiapnts
1. BRIAN MARTENIS
Managing Director
Incentive Worldwide Travel
2.MARCELL KING
Senior Manager, Sales
ACI Gift Cards
(Exclusive gift card provider for Amazon.com)
3.STEVE MASELKO
VP, Individual Incentives and Gift Cards
Marriott
4.NORMA JEAN KNOLLENBERG
Owner and CEO
Top Brands Inc.
5.PAMELA VALDEZ
Director of Travel Industry Sales
Millennium UN Plaza, New York
Millennium Biltmore, Los Angeles
Millennium Broadway, New York
6.BRETT HATCH
Global Corporate Gifts Manager
Maui Jim
7.TIM HOULIHAN
Vice President, Reward Systems
BI
8.GAIL FITZGERALD
Vice President, Hotel Sales & Marketing
CityCenter Las Vegas
9.DAMON RIDDLE
Automotive Incentive Manager
American Suzuki Motor Corporation
10.MICHAEL ARKES
CEO
Hinda Incentives
11.DENNIS BORST
President and COO
Patriot Marketing Group
12.GLORIA LANDOW
President
Group Travel Specialists
MR. JAKOBSON: The obvious thing to start with is: what trends are you seeing on the horizon?
MR. MASELKO: Well, in the Incentive industry, one would expect, with the high cost of travel, to see travel dropping. In all candor, it hasn't. A lot of our hotels are still seeing very strong Incentive travel. Actually the weakness of the U.S. dollar is bringing a lot of foreigners to the United States to take the flavor of U.S. experiences like Disney World or Las Vegas or New York—places where you'd expect occupancy opportunities, where rates might be depressed, but it's not happening. There is still a lot of demand out there and incentive programs are still using resorts. New York is just astounding me as far as the occupancy pressure but it doesn't stop. Incentive programs are still going here.
In the Incentive travel area, also we're seeing more people use higher end experiences. People want to travel to exotic locations like maybe Miami that are not necessarily your standard vacation places. It's again more boosting the ego and appreciating and recognizing some of these accomplishments with these incentive program. Their travel planners, or their incentive programs administrators are helping them to get there and maximize their experiences. Other elements that we’re seeing bubble up are eco-tourism and things like that in Central America and South America, and hotels are starting to build programs around that. Actually, more of the people like BI are actually developing those programs to work with your customers. It allows our hotels to deliver against those experiences.
MS. LANDOW: I, personally haven't seen a major change in Incentive Travel. Travel Programs haven't been eliminated; however, budgets for the program have been somewhat reduced. My clients still want upscale properties but in order to keep the cost down, are cutting out some of the gifts and other amenities that are given to the participants on site.
MR. HATCH: And in the incentive travel—because we focus on that with the sunglasses—we’re also seeing just everything is going actually up. It's still a seller's market. The rates are still good. Occupancy rates are still high.
I'm definitely seeing a lot of the trend towards the green movement. Over in Europe, 75 percent of the planners will even shun or avoid an area that's not eco-friendly. I don't know if that's true [with the rest of your clients] or not. More and more companies are really jumping on the bandwagon.
MR. KING: On the gift card side we're also seeing increasing uses of the green affect in terms of leveraging electronic codes [that can be used like a gift card online]. We're also seeing companies leverage codes to create eco-friendly [virtual] cards. So, I think the green effect has had an impact on the industry overall.
MS. KNOLLENBERG: Overall, the biggest movement right now is the whole eco thing. In the merchandise side, we're being asked to provide merchandise that fits into that theme. Everybody wants it. It's almost part of the social cause-related thing as well. People want to contribute in some way; businesses are [finding that] a great way to do it is through incentive programs, because it gives them a theme that they can build upon [for their incentive program].
MR BORST: On the employees' side of incentive and recognition program, we have noticed that there's a real movement towards wellness programs. In regards to the eco-friendly [trend], [I'd mention] employee ride-share and alternate transportation programs. We have created two products that operate online, and those have been the door-openers for us over the past couple of years.
MR. ARKES: We're also seeing clients asking for merchandise that is green. We've taken that and we work with the [client] company to develop a corporate responsibility theme [for the incentive program].
We have a group called Helping Hands that we work with, a social enterprise that actually has products that they make and by making these products they are fulfilling their social missions. So, we offer a theme of green products and socially responsible products to corporations. I was talking to Steve [Maselko] earlier about how responsible a company like Marriott is—they take this very seriously. It seems like many companies are recognizing this trend and reacting to the market. So, I think that's an important trend.
I think the other thing we talked about was that the recession hasn't hit our business. It seems like—and this is what I read—the recession has been industry specific. So, home improvement and construction isn't in good shape. Retail isn't in good shape. But there are a lot of industries that are in good shape or haven't been impacted [by the economy] and that seems to be the bulk who are using incentives. So, [the incentive industry] hasn't seen the impact yet.
MR. HOULIHAN: On the eco question, and forgive me for sounding cynical, but I think that we are ahead of the curve. Requests by client sponsors for eco-friendly travel or eco-friendly merchandise products are rare. Also, I don't see the recipients of those programs demanding it or really acknowledging it. I think our clients think, "Well, it's nice to have." Right now, we're waiting for the participants and client sponsors to catch up with what the incentive industry is offering.
MS. KNOLLENBERG: I wonder if it's too early.
MR. HOULIHAN: It could be. It could very well be that we're still sort on the verge of it. But even after 9/11, I remember we had client companies that were just, "We’ve got to make sure that all of our participants have the opportunity to make donations." And there was a speedy response to making sure that we had all these agencies lined up so that people could exchange points and turn them into donations. From my perspective, the amount turned into donations was miniscule.
MR. ARKES: That never happened.
MR. HOULIHAN: Yeah, that's the nature of incentives. It still comes down to, "What about me?"
MR. ARKES: I'll agree with you completely on the donations. People say, "You've got to have donations." And we say, "Fine. No problem. We’ll charge you a fee, but it’s not going to be used." But we do find that there is a niche of people who are interested, and when they choose [a socially responsible product we offer], they are very engaged in the program. We gave out some socially responsible gifts, and one of the wives of the recipients, brought us a thank you note when they got the card, and brought us another thank you note when they got the gift. So, clearly this had a personal connection to the person. If you send out a hundred, you're going to get a hundred letters but there is a small percent for who this is very meaningful, and if you're going to try to engage people in the program, there is a small chunk that are truly engaged by [socially responsible products].
MR. MASELKO: [I have] another example of a socially responsible program that I was part of, not too long ago. Mike [Arkes] remembers this because he was part of it. It was a small incentive trip I was on that recognized some of our best customers, and as part of that, we spent an afternoon working on a Boys' and Girls' Club—renovating it and doing rehab on the facility, which is used by people in a part of Las Vegas is really poverty stricken. I think that event brought a lot of our customers so close together, in that one particular experience—there's nothing we could have done as a team-building event that would have accomplished that.
So, it is not necessary to have a program featuring a green or social responsibility theme. But we've seen how powerful and how potent [including that] can be at changing the people who are participants on an emotional level. I've never seen anything that can do that before.
MR. HOULIHAN: I don't disagree that there is a tremendous amount of power in that, and it's very potent stuff when it happens. What I don't see is a sense of the demand from the participants that, "On our next trip, I want to make sure that we are going to do something [socially responsible]." I see the client sponsors saying, "We believe we need to represent this."
MS. VALDEZ: I just think it's a matter of a stronger campaign. On the hotel end of things, we're up a thousand per cent in the business from last year. My market is basically international, but I see it as the automobile and pharma and we have had non-stop of these incentives. They come here for seven days, six days minimum, and not necessarily be the only stop. We have a key destination and it's all about the experience. It's all about the lavishness of the experience. So, I do think that there's an interest in being part of the Green Effect as long as it doesn't sacrifice their - - . It's really great but it has to look and make me feel right.
MR. KING: I think that you have to cater to the individual's needs. It's all about personalization and making sure that each reward is meaningful to that individual. One individual may say, "Hey, I want it green." Another may not. So it's important to provide that level of choice and flexibility [in an incentive rewards program].
MS. VALDEZ: Again, the indications of the awareness are massive. Because I have, for example, some doctors here from Greece and my thank you gift to them was a banana cotton bag with a book that says, "Great Ways You Can - - Your Personal Life." Now, I have to explain what's in the book and really make it fun, because to him it's like, "What's up with this little crumply bag?" And he's giving us big business and all these doctors are here and have private helicopters and all these great things they're doing and the person thanking him for his business is giving him a little crumply bag. So, I think it's really awareness in finding ways we can target this market where it's blindside - -and this would be good for them.
MR. JAKOBSON: Are you seeing interest in green rewards from the end user side?
MR. RIDDLE: We haven't gotten a good feel from our participants if they’re even interested in it. As everybody's kind of pointed out, it's the experience that they really want. People are working hard to earn these incentives. They want some type of big payoff at the end. It is that lavishness, that exclusivity that they want. It doesn't necessarily mean that it's green. Sure, but it's probably going to have to be something fantastic for them to really appreciate it.
MR. JAKOBSON: If we can move back to the recession for just a minute, is anybody seeing the effects? At the IMRA Show in March, both Rick Blabolil, the president of the IMA, and Karen Rank both said that their feeling is that the companies that see incentive programs as an investment are going to keep going regardless of where the economy is, whereas companies that see incentive programs as a cost might cut them. Has anybody seen any real effect at all?
MS. VALDEZ: I see it a little different on the financial side. The banks are not traveling. You can direct them to things that are dependable but they're not coming. That's on the international side. On the domestic side of things, insurance companies are changing the experience. For example, it used to be, bring your spouse and have this lavish day. Well, now it's become a long weekend with family. So, let's make the eighth floor a romper room because we travel so much you no longer want to leave your family.
MS. LANDOW: I haven't seen a discontinuation of incentive travel. I've just seen where the thought is that we have to cut the budget a little bit, and not cut it in terms of going to an upscale place, but in terms of perhaps some of the gifts that we might be giving them. So, it still really has no effect in incentive travel where I'm concerned.
MR. HATCH: I would agree with her on the incentive travel side. Everything is good. We're kind of a luxury brand. You still have to have incentives for your top performers. The only area in which I've seen a little fall out—and some of the other people may agree or disagree—is maybe with training meetings and stuff like that. But on the incentive side, if anything it's just gotten stronger.
MR. BORST: I've watched the economy go up and down for the 30 years I've been doing this. In every case when the economy was down, it was a great opportunity for talking to companies about engaging, and increasing morale and recognizing employees. I really see the downward economy as an opportunity rather than a challenge.
MR. JAKOBSON: Can we shift back to something we touched on earlier: Non-sales programs, notably peer-to-peer recognition. Those seem to be growing rapidly, yet I hadn't even heard when I started five years ago at this magazine.
MR. HOULIHAN: Today versus five years ago, there's more being spent on individual recognition and employee programs. And, I would add, that it's making a difference. The best companies in our country have figured out how to maximize retention through improved employee recognition. However, in the past year, budgets have tightened. The economy is affecting this. With things tightening up, clients believe that employees aren't going to be so comfortable quitting if they're not getting the rewards they expect because jobs are not plentiful. So, clients really don't have to spend as much as they did in more progressive economic times to keep their employees loyal.
MS. LANDOW: I'm finding the same thing in terms of cutting budgets, but I think any time the country is in a recession it's more important to motivate. You were talking about non-sales, but in terms of sales incentives it's even more important to motivate them. You really want them to get in there, you want to get as much business as you can.
MS. KNOLLENBERG: I think that, first of all, we are hearing of budgets being cut for incentive programs because of the economy. Not a lot, but we are being asked to quote on large programs where they're looking for maybe one item as opposed to [several].
The Incentive Federation Research Study did show that the majority of the -- and I'm spending on the merchant's side -- is going toward the non-sales incentive arena.
I think that employees that have been in a company for a long time are not going to go anywhere, but when you’re dealing with Millennials now, you've got to do what you need to do if you want to keep them, give them a reason to want to stay. One of the nuances of the Millennials is they like instant gratification. So, the companies may still need to put together incentive programs. Maybe not spend as much money on them, but still do something to motivate [the Millennials] and reward and recognize them, so that when this [recession] is over they think it's a good company and want to stay.
MR. JAKOBSON: Are retention concerns changing loyalty programs? Everybody's been talking about the forthcoming Boomer retirement, but are you seeing the effect?
MS. FITZGERALD: We'll know at CityCenter Las Vegas in 2009. We're going to hire 12,000 people. So, we're definitely interested in making sure that our good employees stay with us, and I think the non-sales programs, the wellness programs, will help with that. Our company just instituted a day off to go to the doctor—take care of your wellness, and if you need an extra day free to do that, then take it. [This program] hasn't been in existence more than two weeks [as of early May. -Ed.] and several people have already used their day. It's very important, especially in Las Vegas. The pool of employees is limited, so, we're interested in keeping those employees.
MR. MASELKO: Even with [Marriott], in my department, we've got associates that are very much into that type of instant gratification: "If you aren't looking out for me today or helping develop my career, guess what, I'm not that loyal." Even in the tough economy, I want that talent.
MR. KING: Instant gratification is something that we're seeing in spot rewards programs [that frequently use gift cards as awards]. It's easier to maintain gift cards than [merchandise award] inventory, so they are in a lot more use as spot rewards, as instant gratifications. The electronic codes play into that as well, because they can be issued via email. When you're talking about the Millennials, that appeals to them.
MR. JAKOBSON: Okay. Dennis, did you have something?
MR. BORST: Well, I was just going to say a lot of what's going on now with client companies is we're being asked more and more to do employee referral programs. They're looking to take unhappy high achievers from other companies and are willing to put referral programs into place to do so.
Cut comment -- Not authorized to talk about it
MR. JAKOBSON: Getting back to Millennials for a minute, are you seeing differences in the kinds of merchandise products they want?
MR. ARKES: We haven't seen any differences. It's up to us to have the best possible products, the cool new models, and deliver them promptly. I don't think one generation is different from another from our perspective. We provide a broad enough assortment so that something in [the catalog] appeals to everyone. It may not be the same product that appeals to everyone, but if I have a broad assortment, they’re able to identify something they want within that assortment.
MR. JAKOBSON: I did want to touch on ROI for a bit. Is it getting more important in this economy? Do clients want to see it when they’re doing things like loyalty retention programs?
MR. BORST: Where we're seeing most of the concern with ROI—and actually the fastest growing area of our business—is in consumer promotions for customer loyalty and customer retention. We're a division of a very large media buying company, and with the segmented audiences in television and radio, and the decline in newspapers, the [advertisers] are looking to put their money in places where they can better target their customers. And that is in incentive programs and sweepstakes. They're getting a much greater return on their investment by doing that than they were doing when trying to find a segmented audience on T.V.
MR. JAKOBSON: Okay, anyone else want to address retention?
MR. MASELKO: As far as ROI, I do want to tell you one of the experiences that we’ve had that has stepped up a little. Travel is a very ambiguous thing to value. The perceived value is always higher than what our company is buying products for. What we’ve seen is a lot more companies asking, "What is the perceived value of a hotel?" We’re getting a lot more of those requests, and I think that's starting to factor into some of those ROI calculations for our customers. [They can say], "I spent … let’s say $1,000 for this and it's worth $1,400. So there's a 40 percent premium on this." I think it's becoming more and more prevalent for people to talk about their buying power, even with travel.
MR. HOULIHAN: Who's coming up with that delta, the difference between, in your example, $1,000 and $1,400?
MR. MASELKO: [Clients] are asking us, "What's the perceived value of that trip?" For example, we have one certificate for our Ritz-Carlton hotels that has a price tag of $1,000. But when you start to look at where people are redeeming those certificates, and the average rates for those hotels, you're looking at places like New York that are running $1,400 a night or Vail in Colorado where it’s $1,500 a night, $1,600 a night. Moscow, a $1,000 a night; Tokyo at $1,400. So, you start to look at what those true perceived values are—what our regular guests pay out of their own pocket to stay, that's how we determine what the perceived value is. It's incredible when you start to see this.
We ask [our clients] "How are you using this information?" They say, "Oh, we have to convince our clients of the value of this program." So, I think ROI is still a more powerful tool that's becoming more and more prevalent. As a sponsor, we rarely see how it's being used, but I tend to think the more we get asked about that perceived value, the more ROI is starting to play into the equation.
MR. KING: We're getting customers that ask, "What can you buy with a $25 gift card on Amazon.com?" And not only how much, but what are the different types of gift cards that I can actually redeem through Amazon.com gift cards. They want to understand, what is the value that they’re giving to the end-user recipients. So, if I'm limiting it to a selection of products, the value is not going to be as broad to a broader group. So, they're looking at "How can I provide as much value to the broadest range of participants in my program?"
MS. KNOLLENBERG: On the merchandise side, we've been dealing with that for years. You know, customers wanting to know why MSRP prices are significantly more. [They want to know], what's the everyday price? When you have the Wal-Marts and big box stores, it's very, very difficult to continue to show a perceived value to the award winner who says, "You want me to do what? I found [that award item] at Lowe’s for less."
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I was [talking to the representative] of a major company recently and he said that the program he had just structured was to his dealer base. The award was a huge big screen T.V., a $1,500 big screen T.V., and the distributors had to sign up for the program. Then they could earn credits to pay for the T.V. He got a call from one of them who said, "I just saw the same T.V. out there for $1,399." [The representative] said, "But did you get it free. I mean, the way this program is structured, you’re going to get this T.V. free." It was just mind boggling to him that somebody would complain about a $100 difference when they were getting it free. It's brutal out there when it comes to perceived value.
MR. ARKES: There's easier access [on the Internet] to check out what the market value is for a specific product. That's one change in the marketplace. The other change is, we're seeing customers ask us to show them their price and then show them the market value, and show them where we obtained market value. So, when we present a quote—in some cases, not every one—we need to be that thorough in defining market value.
MR. JAKOBSON: Is that more of an issue in companies with younger employees?
MR. ARKES: These are large corporations. There's a broad spectrum of people who have been trained in these practices.
MR. BORST: What we have started to do in a few cases, is to bundle the gift packages—say, a weekend certificate at a Marriott, a couple of beach towels, a couple pair of Maui Jims—and make it far more difficult to search for something like that online to do comparative pricing.
MS. KNOLLENBERG: That's what we're doing.
MR. HATCH: Actually, besides the perceived value, we do quite well just because we're a brand that's not discounted at retail. But with perceived value, it goes back to what Tim [Houlihan] was talking about. It's the experience. These people want the experience and they want the "wow" factor. I think I was reading in your publication last year that when viewers go to a theater, they don't just go to the show, they want to meet the cast afterwards. When you play golf you want to actually have a pro out there teaching you how to play. I mean, people need that "wow" factor in that experience. That's what these top performers want. They're used to having those things.
MR. MARTENIS: I have a couple points to make. One I think you might find interesting concerns loyalty. At the [floor covering manufacturing] company I was with, I was the figurehead. I was the incentive guy. I was the white haired guy that, when they saw me at the airport, they said, "Ah, I’m safe now." This was something that we really capitalized on especially since 9/11. American groups like to feel comfortable and secure, and so we would make everybody feel very comfortable, whether they were going to St. Petersburg or Miami.
Over the last say two or three years—a couple of individuals [at that company] got involved with the incentive travel program and decided that Europe was too expensive. Now, let me just say this. That’s not true. It just depends on what you're going to purchase in Europe and who you're going to talk to. You are going to find, as an American coming in there, a lot of European hotel chains, DMC's, what have you that are very anxious for American business. These days you have to do it a little bit differently—you have to be willing to negotiate in American currency a couple years out. That's the way you deal with Europe. If you're going next week, it's not going to work. But if you're willing to say, "Look, I'll give you this piece of business in 2010, 2011, there are some beautiful deals out there, believe me.
Anyway, when the company that I was working for when decided that Europe was out of the question, I said to them, "We have customers that depend, year after year on our European program." We also had people that depended year after year on a January Caribbean program. The bottom line is, we lost a substantial amount of business when we decided that Europe was too expensive—which, again, it wasn't. I did a little a study, and showed them exactly how much money they lost because, I can tell you there were certain customers—talk about royalty—whose business wasn't [just] cut in half, it completely disappeared. They were so not loyal to my company. They just wanted that trip to France. They wanted that trip to Rome, to London, to Paris.
MS. KNOLLENBERG: Could you choose another location. It had to be [the Caribbean]?
MR. MARTENIS: They just decided, "We're just going to run one Caribbean trip, and that will be enough." I actually did try to point out some domestic destinations like the Napa Valley with San Francisco, which worked very well. But I also priced out some European destinations showing them what I could do if we were willing to guarantee something a little bit out. Some people, I find, once they've made up their minds, it's very difficult to change them, unfortunately.
MS. JUERGENS: Were your competitors going to Europe?
MR. MARTENIS: No. Our competition would get into, and then get out of it, and then into it, and get out of it. Certain competitors would maybe be into it for one and two years. We were in for the long run. My company was running incentive travel programs for, if you can believe it, over 45 years. They were very truly pioneers in incentive travel programs.
With my new company, one of the pieces of business I'm going go after are the people that have done it and not very well. I'm going to show them how they can do it. Because there are a lot of people, unfortunately, that don't do it well.
MR. JAKOBSON: Damon, what are you seeing with the programs you run.
MR. RIDDLE: I run mostly debit card programs.
MR. RIDDLE: Obviously, sales in the automobile industry have started to fall off a little bit. We have to focus [our incentive programs] in a new direction. Do we focus more on ideas? Do we focus more on consumers? Do we focus more on salespeople? What's going to drive the business for us? We're still kind of playing with those models a little to figure out what's the right fit for us.
I have an interesting question for you, Dennis. We choose debit cards because a few years ago we took a look at merchandise and tried to figure out what was going to be the best incentive for our dealer base, specifically our sales people within those dealers. And it was instant gratification. It was the cash now. We had done it a little before that for quite a few years before through checks, and we were trying to evolve the program. Turns that they became dependent on that money, and obviously cutting them off from that cash would have been detrimental to us. So, we had to stick with it.
MR. ARKES: So, you had a cash program that changed cash to a debit card?
MR. RIDDLE: Yes.
MR. KING: I'm curious why you didn't do gift cards.
MR. RIDDLE: Gift cards?
MR. KING: As opposed to just debit cards.
MR. RIDDLE: I think it was just the economics of the program for us. It was easier to do a re-loadable card. I thought about gift cards more from the perspective of the kind of dealers that goes for their customers, but I don't like the idea of giving a sales person a gift card more than giving them a real debit card for their own sense of their own--it seems to be better connection with them.
MR. VALDEZ: It depends on the angle. Millennium is highly creative and awards their employees highly. Obviously, I'm in sales. What they used to do was American Express Checks and gift cards. Now, American Express has come up with Teen cards. Instead of giving me something, they sent my daughter a Teen American Express Card—I thought that was pretty cool. Because it does make you feel like you stand out amongst the company. They are being creative, [about how to retain employees], how to keep them loyal.
MR. ARKES: - - I just read that there's been research, their company being one of the predominant and there are professors who've done research to compare the effectiveness of cash versus non-cash, and they find often that the participant preferred cash but that’s a forerunner for non-cash.
MR. RIDDLE: I actually followed up on some of those, and we've done extensive surveys with our audience. As I said, the hard part for us is making the transition. I would love to get it from cashing centers, but it's the evil we created, and I have to stick with it now, unfortunately. Not stick with it but if we move away from it, obviously it's a slow process. We're looking at ways to pepper the program a little bit with maybe a little bit of merchandise; quarterly incentive programs and see if we can get him to agree there's a little bit more. But right now, especially now with the recession, or the economy being what it is, cash is the big seller.
MR. KING: One of the interesting things that we've seen with the Amazon.com gift card is that some businesses are trading in their American Express cards because those cards can lose value—like there's maintenance fees, dormancy fees—whereas gift cards don't. Obviously, I like it but it was just interesting to see that dynamic.
MR. BORST: One of the things on the cash. I've been involved with converting a number of companies away from cash to gift cards and merchandise, and the key thing if you survey the employees, they'll always say they want cash, but the reality is they don't work for cash. They all work for the things cash can buy, and if you create a mix of other gift cards and merchandise that fits the demographic of the audience whose behavior you're looking to drive, in every instance, after the initial complaining of, "You cut my pay by $60 a month." And then they started converting, after a while participation is up, performance is up. You know, all this stuff you guys published was good year and the reality is you really aren't incenting them if they're buying a carton of Marlboro Reds, and a 12-pack of Bud Light, and some Pampers with the money you’re giving them. A day later they won't remember what they did with that. So, there's no trophy value, and like you said, you get in trouble with entitlement. But the reality is if you bite bullet and change you'll find that your program will be more successful without the cash.
MR. RIDDLE: Oh, I completely agree. It's a pretty good ship.
MR. BORST: You just have to bite the bullet.
MR. BORST: I'll tell you what, back in the day when there were the Baby Bells, PacBell and Southwest Bell, they were unionized, and we converted them from cash. Are you guys unionized?
MR RIDDLE: Two of our warehouses are.
MR. BORST: It'll become a bargaining chip because it’s an entitlement, and you need to get out of that situation so that you have the flexibility to change your program when you want.
MR. RIDDLE: Well, the payments that we're actually making aren't to our employees, they're to our dealer’s employees. For them selling our product, we're obviously paying them on the incentive side. So, because of I think the segment that Suzuki happens to fall into right now we're obviously trying to make our name again in the industry, and it's just unfortunate that we keep going back to cash as that motivator for people that are just walking into a new dealership; that are just learning how to sell their product. I won't say that the dealer is subsidized, but a large chunk of our money goes toward just paying the bills.
MR. HOULIHAN: [To Dennis Borst] You just mentioned the ROI concept. We've followed up, we've done surveys, we've measured, we're trying to be very conscious and very thoughtful about what happens, and I believe that all of us here at the table would benefit from looking at ROI from a perspective of what actually happens. What actually happens? What are the behaviors that actually get influenced? Brian [Martenis] was talking about this earlier, how do you show the [client their] business actually changed when a particular trip wasn't offered? I feel like the more we can bring clients to the perspective of, what are the consequences of moving from this method to that method—from my perspective, that's where ROI is. It's in the results, right? It's the return on the investment made. It's not about surveys. It's not about asking people what they think—although we're used to responding to surveys and we like taking surveys and it makes us feels good. I dream about an industry that is much more focused on getting our clients to measure what it is that’s actually happening with their people and what's actually going on. I think that could have a very positive impact on what we all do.
MR. MASELKO: You might take that a step further and say, I'd like to see about the effectiveness of incentive programs. For a situation where you are talking about the inside of the company, you can start to see those. And unless the rest of Corporate America understands the power of these tools, we're going to still be baying at the moon.
MS. KNOLLENBERG: Is that one of our biggest challenges?
MR. MASELKO: It is. I really think it is. It is to get that message out and to say, yes, there is positive ROI. There is need for investment. I see it over and over. Two types: [One type, you ask,] "What are your business objectives?" [And the answer is,] "Well, I just want them to feel good, I've got to take care of them." [The other type says,] "I've got a fixed budget of $1,000 or $10,000 and I can’t spend more to make more. I think we’ve got to get past [those] mindsets. This is a real business tool and we've got to keep pushing that out. I believe IMA works on that. I know that the [IMA's] Travel Council and Incentive Gift Card Council works on it, but that's got to be our mantra for what we do.
MR. JAKOBSON: Something I wanted to get to that we've been touching on is industry research. There's a lot of it coming out. The forum for People Performance Management and Measurement, the IRF, iSite, and many other groups are turning out research. Do any of you actually use it in your business?
MR. ARKES: Well, [we do] when we go through the discussions with our clients on cash versus non-cash. All the research indicates that non-cash is more effective. The rationale is it's trophy value, etc. that is used to explain why [non-cash incentive programs] are different. We're taking a look at that and we're passing it along to customers who are going through those types of decisions. They need to justify the program to their management.
MR. JAKOBSON: Is it effective when you pass that over?
MR. ARKES: I think that it's NOT going to change somebody who is truly committed to one direction, but if there's someone who is in the position of wanting to change, willing to ease into change, it helps. It helps them take their message to their management, and it's a very substantial argument.
MR. BORST: What I find to be the most effective piece of third-party proof is the tax law that allows $400 per year per employee of non-cash tangible rewards in recognition programs. That's the most effective piece of proof that we use.
MS. JUERGENS: That brings up a question. Should we be doing more or different kinds of surveys in Incentive Magazine? Would that be helpful?
MR. KING: If there could be more case studies to actually show what the things are that the companies are measuring, and once they get into a program of a specific type, how they change all the time.
MS. JUERGENS: Right, and I think that's the hardest thing to guess. When you say how much are we spending? How are sales? It’s very hard to get the numbers.
MR. JAKOBSON: Actually, Dennis, you referenced to Tim the Goodyear study that BI did and I have to say it’s about ten years old now and it's still one of most effective arguments I've ever seen. I think it would be a great thing to have more of that.
MR. ARKES: The problem is that you have to be willing to run two programs and measure them with a scientific method, and that's hard. The challenges are: Is the company going to actually track the data? And are they going to do it with a method where they could actually get provable results?
MR. HOULIHAN: Corporate America is not committed to measurement or, really, to effectiveness. Corporate America is still very much preoccupied with, "As long we’re making our numbers, let's not worry about everything. Everything else will be okay." Then we've soothed the savage beast and even if they’re not making their numbers, they're always looking away from incentives as a tool.
MR. ARKES: They could be running a program, a marketing program, and incentives could be a portion of that and they can believe that the incentive program is an integral part of that overall program's success.
MR. HOULIHAN: But how much?
MR. ARKES: They don't know. We don't know either. I mean we ran our own internal program, and I've never taken half the people and rewarded them and take the other half [and not rewarded them]. It's hard.
MR. KING: So it doesn't sound like it's avoidance. It's just that they may not necessarily know how or don't have the resources to do it.
MR. ARKES: I don't think they see the need.
MR. MASELKO: And to your point, Jennifer, if Incentive magazine and if Nielsen could help us, it's to help educate the people that there should be measurement within these programs. Because once you start measuring it, you can see effectiveness. If you're looking at a specific objective you're going after, it's got to be measurable, it's got to be tangible, sometimes it's softer, but typically a hard type of objective. You can measure that, but nobody talks about that.
MR. ARKES: I'll go back to what I was saying. We have a program [for our own employees at Hinda] that's starting. It's called "Undisputed Leader." It's a quality program and each employee gets a reward based on the company's performance towards measurable goals. Okay? So, the question is, "How much improvement would we have gotten if we did the same program without the incentive?" We don't know that, and we're never going to pull the program, or take out three goals…
MR. MASELKO: I don't disagree with you, Mike. When you started the program, did you go in saying, "We just want to improve quality,” and then things started to change, or did you go in saying, "I want measurable results?"
MR. ARKES: We wanted a program to say, "This is the baseline, this is how we are performing, these are the goals, and we went in measuring everything, and we launched with an incentive program. The truth of the matter is that it was change of culture, and the incentive program is a component of the overall program. That's what I was saying before: You're developing a program; the incentive program is part of that, and it's an important part. You're never going to segment it out or test it… .
MR. MASELKO: Sometimes you can't test it out. We did that with some of our order processing within our organization. We had a three-day turnaround on order processing and individual incentive orders that we used to get. We put an incentive program out there to change the months and to change the process to get the order processing down to under a day. If we did it, our team got the spot. They did. Are we going to take that program away? No. Did it change the way business is done? Yeah. Is it better for our business the way it's done? Yeah. So, it's still ongoing, and it's something that we are going to continue to recognize them on. Now, it's more of a recognition than, I would say, an incentive program.
Travel Section
MR. JAKOBSON: I did want to move on at this point and talk about travel. What are the destinations that are hot, what are the places that are losing their luster? We've talked about Europe already today. How about Dubai? People have been talking about Dubai for several years.
MS. LANDOW: Croatia is becoming very popular. Costa Rica and the Dominican Republic are also choice destinations.
MR. MASELKO: I think the Middle East is just blossoming. I mean, you look at all the investment that hotel companies are doing. Not just mine, but many other companies are now putting big dollars in the Middle East, in Southeast Asia. There are still some major opportunities there.
MS. JUERGENS: Do you think the Middle East might be hard to sell?
MR. MASELKO: If you look at some of the places like Dubai, which are just absolutely dreams. [In Dubai], the whole country is focused around tourism. What I see a lot are security issues; but once those get addressed, you get a lot more comfortable with it. Of course, it's like Dubai, I think people are getting a little bit more comfortable with the Middle East—not necessarily [Americans] but I would say certainly people from Europe. Major, major trips from Europe are going down to the Middle East. But that's like going from here [New York] to Miami. It's really that close.
MR. HATCH: We're starting to see a lot from Europe to Dubai, and Monaco and Barcelona are still very popular. Definitely Dubai, though. Dubai is by the far the hottest, and like you said, they're still building up the hotels. But Dubai doesn't even understand the incentive market because they don't have to yet, because they have so much business on the leisure side.
MS. VALDEZ: Most of my incentive programs are going to Cuba, the Dominican Republic and New York, and somehow we're all in the mix. So, Cuba is a big one.
MR. HATCH: We're starting to see Panama down in that are and somewhat earlier, Mexico and some - - is the Riviera.
MR. JAKOBSON: How about the travel part of travel. The airlines, getting through security, getting seat assignments. It's getting harder?
MR. MARTENIS: No, it just keeps getting worse and more challenging, really. In my view, it's because my big theme is incentive—actually you should read my article, which has premiered called, "Incentive Online." I talk about the presidential experience, and that's like one of my big things with the incentive Travel Program. You hold their hand, you make things happen. I used to be able to do group check-ins. I used to be able to do all kinds of magical stuff that just can't do any more.
We used to be able to really have the people arrive at the airport and then get on the plane, and then get off the plane and go to the hotel. Now, everything has to be walked through themselves, and they're just like everybody else with their three ounces of liquid. I don't know what we will do now with the extra baggage, $25.00 on U.S. Air for the second bag. I mean, it's been two check bags forever.
MS. JUERGENS: Just get a giant bag.
MR. MARTENIS: It's a monster, that extra bag. You know, that's kind of crummy.
MS. VALDEZ: It's kind of 50/50, because a lot of your travelers are a lot more seasoned than they were before. We used to have incentive groups that had never left their hometown and got on a plane. Where now, these attendees are pretty sophisticated. They have an interesting portfolio: where they've been, what they're comparing it to and what their level of expectation is because it's all perception as to what they've been exposed to. So, I don't know--yes, some of it from the DMC side of it—doing the whole handholding, group experience—absolutely, it's getting harder and harder. But in most cases, they're pretty self-sufficient.
MS. LANDOW: When you're in a foreign country, too, getting a good DMC that could pass you through all kinds of regulations when you’re entering another country is really, really very important.
MS. JUERGENS: What is the easiest? Are there places that are easier than others in getting through customs?
MS. LANDOW: There is some that are easier than others. I just had a group in Nassau, it was very nice, because U.S. Customs was right in Nassau. So, they went through with them and they didn't have to worry about coming here. Of course, immigration when you go through it as you’re going into Nassau, they seem to speed up the line. I've noticed that. They really try to accommodate the traffic that's coming through.
MR. JAKOBSON: Steve, do you track where people who get the individual incentive awards are going and, if so, what have you seen.
MR. MASELKO: Actually, we do track every certificate that we issue, and watch where it's redeemed. Interestingly enough, the patterns for 2007 indicated certain destinations. For example, New York, Miami, Las Vegas, the Caribbean, and Hawaii. Those are still the top ten—it's the same top 25, to be honest. Those locations are much the same.
Where we're seeing an interesting slide is more people … because they're trying to maximize the use of their [incentive gift] certificates, they're going to the higher experiential destinations, the places where they can do more. They're going to the places like New York. They're going to Aspen, they're going to Las Vegas. They're going down to Mexico. They're going to St. Thomas where they can be pampered. It's the high-end locations that they’re going to. We're still seeing Hawaii very, very popular. On individual incentive travel, sometimes they're paying their own airfare, but Hawaii hasn't let up, it’s still very, very popular.
The travel that's originating out of Europe, a lot more is coming Stateside. That is one thing that we're watching. It's much more affordable. They can go spend a week at Disney[World] versus two weeks in the German countryside because the dollar got so weak for them.
In the Asian Pacific region, it still stays primarily within the Asian Pacific Rim. Doesn't travel a whole lot further. Some if it comes to Hawaii. Some of them come to Vegas. Vegas goes up and down for us every now and then, and it depends on the type of program, I guess. But people are still focusing more on the experiential places to go, and the cities that were in the same top 25 are still there from last year to this year.
MR. JAKOBSON: What are you seeing in Las Vegas, Gail?
MS. FITZGERALD: Well, I think we're seeing a little bit of a softening because of the recession. Although a lot of people think Las Vegas is recession-proof, most of the companies have gone away from the gaming as being the primary source of revenue, and it's leaning more towards the [food and beverage and retail], and that suffers just like anything else. We took a beating for a number of years because our occupancy was so high and the rates kept increasing and increasing. You could feel a push back a little bit from the customers, but again, what everybody said, it's all about the experience. So, people are still willing to pay for that. Obviously, we're building more high-end resorts. We’re seeing that's where the customer's going. They want the fine dining, they want the shows, and they want to do all those types of things and business is still strong. [CityCenter] doesn't open until late 2009, but we're [already] seeing tremendous demand for 2010.
Right now, we're not in the same position some of our sister properties are in, who are still looking for business in 2009. Not so much from the group business, it's the major convention business where people aren't sending as many people, they're not staying as long. I think that's where most of the fallout has been. Business was on the books. It just didn't materialize as well. I think the group business is still very strong, but it's all about the experience. That’s what we’re trying to build to, give them more. We'll have a public art program at CityCenter. Things that they will be able to do that they've never been able to do before in Las Vegas, and that's certainly turned Las Vegas around. [In the past] it never really was a great incentive destination because there wasn't much else to do there except gamble. So, now it's really turned into a worldwide incentive destination, and we're seeing that.
MR. JAKOBSON: One other thing that I wanted to get to is, in the last year or so I've been hearing about all-inclusive resorts. Groups starting to use them, planners being more willing to consider them. What's happening?
MS. LANDOW: Many resorts are now offering the all-inclusive feature. They are most prevalent in Mexico and the Caribbean. Some of these all-inclusive properties offer fine dining and open bar throughout the day. If budgetary considerations are important, these resorts become more desirable.
MR. MARTENIS: I just did a program in Mexico with—the Barceló. They have five properties. There's good, better, better, better, better. Anyway, the Palace just opened in December. My group was there in January. We'll be the nail bite, but with the gamble, the payoff is like phenomenal, and I got this place so cheap you just would not believe. I've got to tell you, if you stayed at the Palace, you got your choice of 22 different restaurants, three gourmet restaurants right there at the property, all suites. Just absolutely gorgeous. It was iffy, but it was the first month of the opening and most people were so dazzled by the architecture and the ocean and the food. The quality of the food was phenomenal. That company is going to have a problem next year because then my next deal was with the El San Juan in Puerto Rico, which is one of my favorite properties, but it's not all-inclusive. It's going to be a problem because it's like eleven bucks for a martini or whatever, and those people were popping down the Pina Coladas in Mexico. There is a problem with all-inclusive. Once you go there, then maybe you’d better think of staying there.
MR. JAKOBSON: Does the same thing apply to cruising?
MR. MARTENIS: My problem with cruising with an incentive is that it's really difficult to make it personal. There's too much going on and you've got everybody--I mean, it's easy for the planner but—
MS. LANDOW: If you have your cocktail parties every night, we take them on private trips and with all the private catamaran tours and all that.
MR. MARTENIS: I like to use smaller properties and really have a presence. If I have 150 to 200 people somewhere, say in San Francisco, I would use the Mark Hopkins before I might use the Fairmont, just based on the fact I don't want people to be bumping into each other. I like the incentive. I don't want to feel like they're … not taking over the place per se, but that they're there. It's very difficult on a ship unless you get a really small ship like the Windstar. If you have a group on one of the Carnival mega cruises, you've lost what I feel is the essence of the incentive. Again, that's my philosophy.
MR. JAKOBSON: How about planning a trip that includes all the generations and the work force now. We've heard for a while that Millennials want more adventure, more eco-tourism, while maybe people who are in their 50s don't as much. Is that an issue, planning for a diverse work force?
MR. MASELKO: Just use individual incentives.
MR. JAKOBSON: A couple of things I wanted to get to quickly, spas and golf, are they still the big kahunas?
MR. MARTENIS: I did St. Andrews in Scotland and it was probably one of the best trips that we ever ran. Outrageous.
MALE VOICE: Did you do it with Edinburgh?
MR. MARTENIS: It's hard not to.
[St. Andrews is] well priced. Not cheap but well priced. If you go at the right time, like after November 1st, the weather isn't bad, and golfers will golf on anything. Very, very successful for golf.
MR. HATCH: I think it depends on the group, though. That was probably an all-guy golf kind of thing?
MR. MARTENIS: No, actually there's a lot of things that women can do.
MR. HATCH: But do they do the spa, though, instead of playing golf?
MR. MARTENIS: Well, the spa at the Fairmont, St. Andrews, was very nice. It does have a wonderful spa. St. Andrews itself has wonderful shopping and when you get back to Edinburgh there are really unique tours, Glamis Castle where Macbeth was set, some of the other castles, which is Mary and so forth.
MR. HATCH: If you have 150 people out [on an incentive trip], what I've seen is guys will go play golf and the others will go to the spa or shopping or something like that.
MS. LANDOW: I find that I have to select a hotel with a spa on the premises. If they don't have it on the premises, at least it's nearby. It's always available.
MR. JAKOBSON: Let's get back to environmental and the eco-tourism for a minute. Is choosing a destination that's an ecological destination, like Costa Rica with its rain forests … does that play into that same theme that we talked about earlier, of companies wanting to include ecological friendliness in their programs?
MS LANDOW: I'd have to find the strong demand for that.
MR. HATCH: I'd have to go back to: When you survey people, they say, "Yes." But in the truth of the matter, is [the demand from participants] really happening?
MR. HOULIHAN: Yes, is it really happening?
MS. VALDEZ: I think that Jamaica was a destination for a while because it was hot and upcoming - - and Panama also. You hear a lot of people say Abu Dhabi. I wouldn't think of Abu Dhabi as a place that I would vacation but it's hot and upcoming. So, it all depends on what's cheap, what's the hottest place to go.
MR. HATCH: I think we all have to feature it, though, and talk about it just because we have no choice. I'm looking into designing a biodegradable cleaning cloth to go with our glasses. Maybe it's just the meeting planner that wants that, and just wants to conform with what's going on, but at the end of the day, is that going to make or break it? I want to say no, but …
MR. MARTENIS: If it's not going to hurt the environment, we appreciate it.
MS. FITZGERALD: There are still corporations that have a huge mission statement for sustainability. I think that when they're selecting hotels, they're telling us it's important. Whether it's really important to the people, we don't know, but [those corporations] are asking us to write it into our contracts. I don't think anybody thinks about sustainability when they think of Las Vegas, so we kind of have to prove to people that we have been conserving energy for years. We live in the desert and we are very conscious of it—it's a story we have to get out because you want people to feel good about coming there. It had a reputation for being Sin City, but on the sustainability side, we're very much in the foreground. It seems to be very important. People will tell you that it is. Although we don't have recycling bins in some of our hotels, and although probably we never will, we recycle at the back end, at the docks. They've asked. They want to see the operation. The other thing is, [some] people are saying it, [giving sustainability] lip service, and not really doing it. So, it's important if you talk about it, people are going to hold you to it. They want to know exactly what you're doing and they want to see what it is and what impact it has on the program.
MR. JAKOBSON: I'm actually working on a story now about corporate social responsibility. Is that something that employees care about or is it for the external PR?
MS. FITZGERALD: I know because we’re going to be a LEED certified development. So, we talk to people. There are a lot of people who think what they do individually won't make a difference. There is a great little book, it's called The Green Book, and it is just little anecdotes about what people can do. I'm amazed when you tell people that if [everyone] can pack ten pounds lighter, you will save 350,000 gallons of jet fuel a year. And the women will say, "Well, I can't go without the shoes. I can't go without the shoes." It's the simple things, and they start to realize it's your everyday life that's going to make difference, I think it makes them feel that they can at least do something, whether it's a company movement or it's a bigger social movement—we just want to be able to tell people that we feel good about knowing that our company is going to do it for you. I can't really imagine us having these big recycling bins all over the property—certainly, somewhere like Bellagio we wouldn't do it. But it's important for us to tell people that we are doing it [at the back end], and then give them the choice because with some people, if it's going to impact their experience, they really don't want that. So, I think they just want to feel good about it.
MR. KING: I was thinking of comparing two equal programs. If one had more of a social responsibility aspect to it than the other, the one that has that is going to play better.
MR. HOULIHAN: Well, it would play better but I'd ask the people in the travel side of the business, do our clients come into you and say, "Oh, by the way, how much carbon offset should I buy for this trip?" When was the last time you got that request?
MALE VOICE: As a culture, we're taking all that seriously.
MR. MASELKO: It's basic. I think it really is basic and I think we’re just starting. Now, I just walked around, not too long ago, seeing these weird shaped water bottles and I started to read the labels and there’s 30% less plastic in the design. Nobody in the world asked for that, but somebody's making changes. So, things like that are happening.
MR. ARKES: I went to a meeting of the corporate responsibility office, which is an association of these people. There were probably 200 or 250 members of the organization plus a wide spectrum of corporate America, but theres major, "I don’t like you" and crap. There are very large corporations actively involved with this organization. They had a speaker at a meeting who was from Kraft. He got up there and said, "The reason I have this job is because Wal-Mart said to our company, 'If you want to do business with us, you need to become socially responsible." So Kraft said to this guy, "That’s your new job.” And that's the reality of what's going on in corporate America. I am not arguing the fact that it hasn't trickled down to our business yet, but in some point in the future, it will.
MR. HOULIHAN: I hope it does.
MS. LANDOW: Well, I think there’s hope because I think the schools are talking about it in their classrooms because my grandchildren are coming back and they are very much into the ecological safety here.
MR. ARKES: What surveys say is that—one of the studies that's quoted often is a study done three or four years ago by Stanford in which they surveyed graduates with MBAs—asking them if they would rather work for a [socially responsible] company that would pay them less. They asked them how much less money would they be willing take to work for that company. The answer was [they would accept] $13,700 less to take a job with a green company. There's clearly an importance to green corporate responsibility and it's going to take a while for that to trickle up.
MS. KNOLLENBERG: By the way, thank you for the nice Tumi business cards, which reminds me that the other day, I got as a consumer I got a [promotional] mailing from Tumi. The offer had to do with buying a particular product that was four or five hundred dollars—you would receive a certificate for a hundred dollars off of another Tumi purchase of that same amount. In the copy, it said that Tumi is planting trees across the country. Never did it say that X percent of the price that you paid for the product would go towards [planting] this many trees. It was just [to raise] awareness that Tumi is planting trees across the country. The average person would think, "Well, good for Tumi. I might just buy Tumi if I'm going to go out and buy a nice, upscale business accessory piece, because I want to be part of that movement."
MR. HATCH: Well, I told Leo —because I went to IMEX over in Germany—that even the badges were biodegradable. So they're trying to make that the theme of all these, whether it's trade shows or meetings, education, they're constant about that.
GIft Card Section
MR. JAKOBSON: I just want to move on to gift cards at this point. For a couple of years, people have been saying gift cards are going to reach a saturation point. Are they still a quickly growing segment of this market?
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MR. KING: I'm coming from ACI and Amazon.com gift cards. I would say no, because our programs are still running pretty significantly. I think what individuals or companies are looking for is to be able to provide as much choice in the selection [of awards] as possible because, again, when they look at the return on their money, they’re trying to figure out, "How can I provide the most value to my recipients?" We can poll our customers. Many times the top three programs—we have a multi-gift card program—are major retailers because they provide such selection to the gift card. That's going to be common across most of our customers, I would say a lot of our customers. Hinda may have some additional comments there but- we continue to see the gift card, at least in our business, growing pretty rapidly.
MR. MASELKO: We still see the growth. It's both from the Marriott site and more and more players are coming into the area now. When you start to deal in specific gift cards with those players, you're starting to get branded cash.
The New York [Incentive, Rewards and Recognition] show here this week [May 7-8] is about brands, that the power of what's behind that brand—whether it's Marriott or whether it's Sharper Image, or whether it's Lowe's or whoever, Best Buy, Home Depot. If it fits that [incentive] program, you can borrow that brand equity to bring power to that cash. So, that cash is worth more than just a dollar. It's more than just the Pampers you’ve bought it with because it's something that does have the trophy value.
MR. BORST: Besides being an incentive company, since 1992, we have managed the gift card business for Foot Locker, and we also manage ESPN gift cards. The Sharper Image thing [bankruptcy, followed by a refusal to honor gift cards] that occurred earlier this year did get our phones ringing quite fervently. The choices [Sharper Image] made regarding how they would treat cash that they were very thankful for taking in and committing to and then shutting it off for those that were going to redeem made it difficult for a lot of other specialty retailers like Foot Locker.
Then, the constant articles about Linens 'N Things [which also declared bankruptcy recently], and all these smaller retailers, when people read that they’re closing forty stores or a hundred stores, what they don’t realize is that they may only have 120 stores. Then if there's an article that Foot Locker says they're going to close 140 stores, that's an annual thing where they shut down deadbeat stores. What people don't realize is when they close down 140, we still have 3,060, and it's a different deal. We take the money to open a new chain of stores in urban markets called "Hoops."
Anyway, the Sharper Image thing did cause us a little problem. I know I've talked to other gift card suppliers, and they, too, were supplying stock symbols, and information on the financials before people renewed to put their gift cards into the program this year. However, I must say that three, four months into the year we’re way up over last year, and we were way up last year over the year before. So, if this there's a decline at Foot Locker and ESPN, we're not seeing it.
MR. ARKES: We actually had a client that has a small number of our gift cards in their program remove them, and after each program. So, that was their reaction. They did not, any of their participants that have a full award receive the award, and then not have it of any value. So, that was the decision they made. The other thought is that this year based on soft retail and the credit, it's going to be a very difficult year for retailers, and with the Chapter 11 filings, that retail is going to be - - and the one with Linens 'N Things, that filing, the first word out was they were going to honor the gift cards. So, stock earnings is leaving the bad taste, it's the anticipation of what's going to be happening at retail over the next twelve months and there's a lot of open questions right now in that line.
MR KING: That may be a reason why the stronger brands are still doing well is because they are a lot stronger. I think that's part of the importance of the gift card and understanding what the value of that brand can do to your program. If you're talking about ROI and driving behavior, those brands can drive behavior. When you start to talk about Millennials where they're even more brand conscious. I think that has an impact, as well.
Merchandise Section
MR. JAKOBSON: I'm going to jump to merchandise at this point. What's the next big thing? iPods, flat screen TVs? Is there something new coming up? Is it still the same things?
MS. KNOLLENBERG: I think it's going to continue to be electronics—the best and the greatest and the hottest thing in electronics. I read some place where they have a remote control washer/dryer that they introduced at CES this year. So, it's still going to be electronics in whatever form they are, and they are going to continue to improve and expand on what they've already improved and expanded on. I haven't seen statistics for a long time, but at one point the tally was about 65% of the product redeeming from incentive programs for electronics.
MR. KING: I would agree. It seems we actually started getting more requests for Kindles, or Amazon's got more requests for the Kindle Reader. That's part of the incentive programs, so that's been one of the hot topics that's come up aside from the traditional iPods and media players.
MR. HATCH: I was recently in [a large electronics chain store] and there was an electronics type person there. I asked, "What's happening?" He said, "A lot of this GPS-type stuff."
MR ARKES: Taking a look at the consumer electronics market during the past few years hot product categories like iPods and digital cameras were the "big thing," while these products are still strong redeemers they are not as strong as before. The current new consumer electronics products such as GPS or BluRay are not dominant enough to replace them as the new "big thing."
MR. JAKOBSON: For years, people have been buying digital cameras, and then in a year or two, they’ll want to upgrade—from one megapixel to three to five to seven to ten, to twelve megapixel digital cameras now. Do people still want a new camera?
MR. ARKES: It's basically cost of repairs and cost to replace. So, why would you repair your five-megapixel camera, when you can go out and for not much more get the eight [megapixel model].
MR. JAKOBSON: So, you don't think it's just, "Well, I want the newest, the best?"
MR. HOULIHAN: Well, the manufacturers are helping us with that, too, but I think Canon's on like a three-month- -they retire their models about every three months. So, yeah, it just doesn't take long where there's a new model coming out and if you're in the market for a camera, then I better get the newest because the market has trained me if I don't get the newest, I'm getting something that's old.
MR. JAKOBSON: Millennials. Is there anything particularly different in terms of what they want?
MR. KING: When I think about the important thing regardless of whether it's Millennials, or the Boomers or [other groups] it's giving them that choice and making sure that they can have the choices to select what they want whether it's the latest camera or the latest book or whatever it might be. There's such a diverse range of demographics that we're serving now in the employee market. It's understanding what they want and if we can't get down to that nitty-gritty, it's giving them enough choice so that they can self select what they want.
MR. ARKES: I'm being told that they are a more socially responsible, more interested groups. That's what the research is telling us.
MR. JAKOBSON: Something else that I wanted touch on was global fulfillment, which was really hot in the last couple of years as companies were forming essentially.
MR. ARKES: We got into global fulfillment through partnerships seven years ago now, and it's basically been an investment for a market that we felt was coming. We looked at our customer base. Our customer base was global and they were talking about servicing their employees or dealers or sales groups or whatever. We understood that it was going through a talk stage with no enactment during that period. I think today, in the last couple of years, we're starting to see revenue from this area—both from our partners utilizing us and us utilizing our partners. So, I think it's been an investment in the market that we felt was going to occur. It's starting to occur. It's not the dominant trend for businesses, but I think those of us that do it realize that this is something that is building and will continue to build.
MR. JAKOBSON: Is this something that can win you business if all other things are equal?
MR. ARKES: From our perspective, if you have a program that's 65 percent U.S. based that you would like to [expand globally], we're interested in getting that 65% U.S. base, and, therefore, we need to service the other piece in order to get that business. If all things are equal—that's the important component, if you're weak in your U.S. offer, [global fulfillment capabilities] are not going to win you the business, because somebody else is better than the U.S.
MR. JAKOBSON: There was a lot of buzz in the industry when Amazon entered the incentive market, on the merchandise side as well as gift cards. Is this still something people in the industry are talking about, are they a serious competitor?
MR. KING: Everybody's looking at me.
MR. ARKES: There has been a lot of talk—and there still is a lot of talk—in the industry. The talk has probably died down somewhat from the original interest: They have done some business, and we'll see. I mean, from our perspective, it pointed out some of the weaknesses that we had in the lower priced rewards and we’ve addressed that now. So, it will help us become better in what we do by having someone compete with us.
MR. KING: I am in a different division but from what I see, this helps the entire industry. I think any time someone enters a market and changes the game a little, it helps everybody elevate their game across the board. It's made things better for the entire industry. So, that's about all I can say as far as what the program is doing. That's just my own personal opinion.
MR. JAKOBSON: One last thing I wanted to get to is, one of the major electronics maker's reps recently told me that he has been seeing the overall redemption numbers stable but that people were redeeming smaller products with their points. Have you seen anything along those lines?
MS. KNOLLENBERG: Yes, we definitely are shipping more packages, and they're a smaller dollar value each.
MR. JAKOBSON: Do you have a sense of why?
MS. KNOLLENBERG: Particularly at the end of the year, we usually say it's because people have leftover points, and they want to get them spent before they run out. But it's happening more than just at the end of the year. I don’t know. One of the things I discovered when I was doing a little research on the Millennials is that they're not into buying so many of the big products. They don’t want to spend all their money on one thing or in one place. Whether what we're seeing is a lot of Millennials involved in these programs and using that philosophy to redeem products is, well, I don't know. But it's probably been that way for a couple of years.
MR. ARKES: What we're seeing is that by offering lower [priced] awards, we get somebody engaged in the program by having them redeem. You can get the participant to engage in the program: That's the goal, what you want to do for your customer. However your average order size is going down from the increase in low end redemption, but the total redemption dollars grow. I still think that people are still redeeming for iPods and digital cameras, etc. That's the only trend we see.
MR. HATCH: Isn't it because they're starting to do their incentive programs not just for the top performers, they're trying to get down to that customer service provider or the technician or whoever. Maybe the value in the program [is such that] they can only get some of those smaller items.
MS. KNOLLENBERG: Now you're dealing with the issue we talked about earlier, which is the perceived value. Because when you have a low priced item, UPS still charges X to ship it from one place to the other.
MR. ARKES: It downsizes [award sizes] because the employee program has become a more dominant part of the business, and employees aren't earning as much as the sales person. Therefore, it makes sense that you would have more redemption at the lower level.
MR. KING: I would agree. You're seeing a lot of smaller-denominated gift cards, as well, to get that market.
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