Creating a successful incentive program is a high-stakes proposition. At their best, incentive programs can be amazingly effective at motivating employees and customers to engage with your business. At their worst, they can waste money and attract unwanted criticism that hurts your brand. Here are some best practices for creating great sales and channel sales programs, from three industry veterans.
KNOW THE SIGNS That You Need an Incentive Program
According to Nicole Gunn (pictured above), director of marketing and communications for Atlanta-based Incentive Solutions and Loyaltyworks, companies should always be on the lookout for "erosion of your business to competition, customers cherry-picking from your products, or having a commodity product in need of a differentiator."
In the case of Incentive Solutions' client Ferguson (a wholesale plumbing supplies distributor based in Newport News, VA), the company wanted a long-term loyalty program for its professional trade contractors, and lower operating costs to boot. "If you're a premium supplier and having a hard time selling a value proposition," says Gunn, "or you're fighting for mindshare of your channel partners' salesforce, an incentive program can be a huge benefit to your business."
Bill Hennessy (pictured above), director, channel and commercial solution strategist at Maritz Motivation Solutions, suggests that companies look at their competitors. "If you're the only player in your space without an incentive program, you better have truly unique value proposition that no one else can imitate." For Maritz, which has been administering the Hyatt Gold Passport Rewards program at Hyatt's 650-plus properties since 2010, sitting on one's laurels is never the answer. According to Hennessy, the writing is on the wall when the changes on the outside of a business do not elicit changes in its products, programs, or policies within the business. "When new lines are not being pushed and there's less than 10 percent turnover in top performer programs, you need to change entrenched behaviors and get people to form new habits."
"The company needs to start an incentive as soon as the company starts," argues Jordan Clark, vice president of sales at Las Vegas-based Caesars Entertainment Corporation. "When you search for an incentive to put into place, you're forced to evaluate your business very methodically in order to figure out what things you want to change or improve."
Strictly speaking, Clark believes people generally misuse the word "incentive." Instead, he says, "the two areas on which I focus are performance improvement and culture development. The latter is a result of the former."
DON'T GO IT ALONE When Developing an Incentive Program
"What I value most in my incentive partner," says Clark, "is a strategic thought process, which challenges us to find new areas of our business." At first, Clark found it tiresome that his incentive partner, Creative Group, "asked me a lot of questions about things that were normal to me. I learned to appreciate and value those conversations, because they caused me to reexamine my business."
Gunn agrees: "A good incentive partner will assist you in walking through these steps and sharing best practices. The right incentive program vendor will have experience with the type of program you're considering." And, she adds, "You want a flexible partner, because circumstances inevitably change. Your partner and their systems should be able to adapt accordingly."
For these reasons and more, Maritz Motivation formed the Maritz Institute, which studies the latest human sciences research by working with a network of scientists and academics in conjunction with its incentive and business partners. The Institute has developed a method it calls "Maritz Design Principles," which works to create an effective program for the client's business goals, as well as the program participants' wants and needs.
KNOW THE AUDIENCE You're Trying to Reach
Hennessy starts with a checklist in order to define "the people you want to incentivize," he says. "What is their day like? What are they afraid of? What do they do that doesn't need to be done at all? What are their dreams? Who are their enemies?" After that, he asks, "what is the gap between your current results and the results you want? Who can help you close those gaps? Sales representatives? Customer service representatives? Channel sales representatives? Commercial customers? Consumers or end-users? If you've answered the questions about the people and your gaps, you should now know who to target and what they're likely to respond to."
From there, "you need great segmentation beyond just top, middle, and bottom," adds Hennessy. "You need to know how those people segment themselves and respond to each unique group. That takes the kind of analysis marketers do." In the case of the Hyatt Gold Passport, one segment included participants at the associate positions of front desk, reservations, and food and beverage who enroll new Gold Passport members. Notes Hennessy, "We like to use incentives a little more strategically than just by audience. Top performers will benefit most from these programs, but they are already near their maximum performance. Growth incentives, however, inspire people who have capacity to grow. The more ways to win, the more audiences you'll inspire to help you close those gaps."
At Incentive Solutions, Gunn says, "We first establish program objectives, set specific and measurable goals, and identify the program's audience. Based on those factors, we outline the program's structure and decide the type of reward they should use. Debit cards or gift cards are better for short-term or spiff promotions. We usually suggest a points-based program for long-term engagement goals, and group incentive trips for relationship-building and face time. Some programs might have a combination of reward types and multiple audience groups."
In the case of Ferguson, Incentive Solutions devised a fully integrated strategy: A nationally recognized spokesperson and famous former quarterback, Terry Bradshaw, headed a marketing campaign that offered participants the opportunity to earn more points by providing valuable feedback via a customer survey, celebrating loyalty through an anniversary campaign and keeping Ferguson top-of-mind through a daily gamification activity based around football trivia.
For Siemens, the objective was to drive behaviors that will encourage channel partner employees to use Siemens technology over the competition. Siemens was transitioning to a new quotation system and wanted to leverage the rewards program to limit any customer uneasiness until the transition was complete. It also wanted to increase its market share and drive profitability.
In both cases, targeted incentives were more effective in changing behavior because "they are directed toward the individual with the most influence on your objective," says Gunn. "You not only reward people based on their individual performance, but you also communicate directly them."
Clark states that learning about your audience can also uncover "training problems, skill-set challenges, and 'managerial courage' issues. I have directors come to me all the time and say, 'We have to fix this particular problem and I'd like to put an incentive in place.'" Well, Clark notes, "you can't award someone for coming to work on time; that's a minimum expectation."
BUDGET WISELY and Be Ready to Defend Your Numbers
"Once you've identified your objectives, goals, audience, and program structure," says Gunn, "you should run some ROI projections to calculate your program's break-even point. That's how you strike a balance between your budget and your participant value proposition. For short-term spiffs, you can set dollar amount to your reward points, but for longer-term loyalty programs, the budget guideline should be based on a percentage of sales income."
"You have to know the value of specific behaviors in your target audience," says Hennessy. "In the classical model, 100 cold calls equals 20 appointments which equals five follow-ups, and that equals one sale. If a sale is worth $10,000, every cold call is worth $100. But you're probably not willing to pay $100 for each additional cold call. The point is, you need to put a price tag on desired additional behaviors and share a portion of that lift with the people who do the work." On the other hand, he recommends that you "avoid putting a cap on positive behaviors unless your system really can't handle additional sales. Incentives work, and so do caps. If you cap your cold-call incentive at 200 calls a month, don't expect anyone to make 201 calls."
Getting a budget for your first incentive program can be tricky. "Sometimes, your CFO will tell you that you can only run your incentive program if it's self-funding," notes Gunn, who offers this solution: "By determining the break-even point with an appropriate value proposition, you can set minimum requirements so no one is awarded until they've reached the break-even point."
Another strategy to consider is your expected redemption. According to Gunn, "Most providers offer pricing options that let you defer most of your cost to when the participant redeems reward points. Typically, there are unredeemed points you may not have to pay for, which is called the program 'breakage' amount. The breakage amount can be reallocated back into your incentive budget to help fund bonus point opportunities and further drive engagement."
Like any investment, it's about the ROI. "Anyone who vilifies an appropriate incentive trip is just ill informed and short-sighted," says Clark. However: "If you are giving away a $10,000 trip for a $5000 increase in revenue, that doesn't make much sense."
GET THE ANSWERS and Make Sure They're the Right Ones
Metrics is a key part of the incentive program. Maritz Motivation was able to measure triple-digit growth since the inception of the program; Incentive Solutions was able to say that Siemens Rewards and its ancillary program, SIperks, saw a 9 percent increase in sales from program participants and a $410,000 in incremental business, respectively.
"If your ROI is greater than 18 percent, which is typical ROI for a capital expenditure," says Gunn, "then, of course, you should keep the program, because the money is being better spent on the program than something else." But if it looks like the program will not reach the ROI you expected, Gunn suggests that you make sure you've compared participants' against non-participants' performances. "Those numbers could reveal that the program made you money when you compare participants' sales to non-participants," she says. "You may see that participants' sales went up 5 percent and non-participants' sales dropped by 1 percent."
Whatever happens, Hennessy cautions against focusing on just the largest segment. For instance, of the four primary values types -- Drivers, Pioneers, Altruists, and Stabilizers -- identified in the Maritz Institute's 'Values Type Model,' he says, "Sales teams tend to be disproportionately Drivers. And the people who design these programs also tend to be Drivers. If you design a program that appeals only to Drivers, 40 percent of your sales force will respond well, but that means 60 percent will be disengaged."
Here, Hennessy points out, "If you think about that model of Driver-designed programs for Driver sales teams, quick analysis will probably show that your incentive program is a hit. We call that "shallow analytics." But smart organizations demand more of their analysts. Smart companies ask why the other 60 percent, the majority, is not responding. If you just congratulate yourself for hitting a homerun with the people who are just like you, you'll have a hard time closing those gaps with the people who are not part of that favored group."
There are the intangibles, which incentive programs frequently uncover. "Even if your KPIs aren't reporting a positive result," says Gunn, "you should factor in the fringe benefits that may make short-term promotions more effective. You can build a database of end users with information gathered from sales claims."
In addition to the incremental revenue ("which is number one"), Clark cites the positive culture of incentives: "Where people are rooting for each other and trying to help each other, people are having a positive attitude and caring about what other people in their organization are doing, and then facilitating conversations, and acknowledging them."
Hennessy claims, "The biggest side benefit of an incentive program is true loyalty, which we define as resistance to competitive offers." In other words, a true loyalist will pay a little more, drive a little farther, or accept fewer features with your brand. For example, he says, "One of our clients has the highest prices in its industry. When we surveyed its customers - blinded -- about our client's performance compared to its competitors, they said our client had the worst prices. But they also said price is the least important factor when considering our client's brand. Since our client is the dominant player in the space, with up to 80 percent market share in some products, this is a perfect example of true loyalty. Our client doesn't have to cut prices because its customers are willing to pay a little more."
BUSINESS EVOLVES - So Review Your Model
According to Clark, "All of our sales reports are so different, and not all the competitions work for all of the different areas. We're constantly searching for different types of behaviors to reward." A notable success has been Caesar's regional programs, where one region offered a team challenge that partnered their strong, more seasoned salespeople with newer sales colleagues, to encourage collaboration and information-sharing as a way to meet each team's shared goal. In this program, five of nine teams exceeded their joint sales goal by more than 20 percent, and one team exceeded by 40 percent.
In addition to solving the common hotel problem of empty meeting space around holidays, Clarks says that the program the Creative Group put together around Caesars Choice also fostered communication, competitions, leaderboards, camaraderie, and appreciation. "The salespeople started saying, 'Hey, good job' on this platform."
Nudging the good vibes back to ROI, Gunn notes that incentive technology with communication tools allows you to send e-mail, text messages, and mobile app push notifications all from the same place. If the technology comes with reports, you can pull those and get insight into what drives customer, employee, or channel partner behaviors."
PEOPLE EVOLVE - So Never Stop Learning
"It's super-important to have an open mind about your own business," concludes Clark, "and to have an outside perspective that allows you and provides ways for you to do it."
If he had to do it all over again, says Hennessy, "I'd have studied psychology and neuroscience a lot sooner. If you don't know how the human brain works, you'll spend a fortune trying to incent people. As we've learned more and more about behavioral science through The Maritz Institute, we've gotten much better at helping our clients close their performance gaps while keeping their margins great."
For her part, Gunn says, "I think we'd invest even more in our technology, knowing how much things would shift toward the digital - even more so than we predicted it would in the beginning. There's still so much room for incentive programs to expand their capabilities as sales and marketing tools, especially with mobile apps and technology making everything so instant. We would've loved to have an even bigger headstart on that in the beginning."