For years incentive companies have pitched the "trophy value" of merchandise incentive awards. The essence of the argument is that people remember tangible prizes and trips far longer than cash rewards.
There is some merit to this line of thinking. Many years ago I was in a program run by Apple Computer that gave out merchandise prizes from a beautiful catalog. I picked a Hartman Briefcase and used it for several years.
I was really proud of that briefcase. But keep in mind that many incentive companies have an ulterior motive for recommending merchandise: They make much more money that way. Margins for incentive merchandise are 25% and often more. Most incentive houses merchandise their catalogs for 30% to 35% margins.
Costs for running debit card programs are dramatically less, and companies that offer this method of delivery do so at far lower profit margins. Expect to see overhead to manage card programs in the neighborhood of 2/3 less than merchandise programs.
So which is more effective? At MTC Performance we have talked to thousands of program participants, and they have a simple, oft-repeated answer: Cash is king!
Why would that be? Several simple and important reasons:
1. Rapid reward cycle.
Get Paid FAST! Typical merchandise programs last several months, even a year. Points have to accumulate. It is likely that many months will pass before participants receive their prize -- if they get enough points, which they may not know until the program ends. Then they have to wait for delivery. Sometimes the product they desired is discontinued and they have to make another choice. Other times it's back-ordered and they have to wait.
Delays create dissatisfaction. The prize could be defective or aged in shipment. There could be a limited selection. And did we mention that participants will get a 1099 for a price that is likely 30-50% higher than the price they would pay for that product at the local big box retailer or warehouse club? If all this sounds a bit counterproductive and non-motivational, that's because it is.
2. They've got bills to pay.
As much as you might like the idea that your participant wins a memorable prize, memorable prizes don't pay the bills. A prestige prize to show off while you can't make ends meet may not have the desired effect. Here's today's reality: Most people spend more than they earn. Most people carry credit card balances, often on multiple cards. Often, they pay only the minimum payment. That's been true for 20 years now at least. To make it a bit more current, they can't make their mortgage payment. The use of discretionary funds on a debit card puts the purchasing power just where it's needed or wanted.
To drive the point home, here's one perversely amusing merchandise incentive horror story we know to be factual. Somewhere a well-intended marketing manager created a program where the grand prize was a Hummer - eight of them to be exact. Yes, the eight top performers would win a trendy 4x4 that cost the sponsoring company about $80k each.
I have it on good authority that five of the eight Hummers were sold by the winners in less than one week. While the program may have been high profile (I call that a hype promotion), we might imagine that the Hummers were sold for $50k each or maybe a bit more. That means that about $240k worth of promotional dollars were completely wasted. And yes, the winners had to pay tax on an $80k prize. At a 25% nominal tax rate, that's $20k in income tax. That takes the value received down to $30k per person for everyone who sold the car. Spending $80k to give $30k of value. Sounds like a home run, doesn't it?
3. Participant nirvana.
Buy what you want when you want it and where you want to shop. Simple isn't it? Check your balance online, and then get the exact item you want, on sale. You control the playing field. It's a winner, every time.
4. The Pavlov's dog effect.
We admit it - a conditioned response is what we're shooting for. Sell something, get paid. Get the money on the reloadable card in two weeks. Spend the money. Sell more of the same product line. Get paid again. Refill the card. Repeat at will. IT WORKS, and has become the standard and most effective motivational method in the incentive industry.
At MTC Performance we've been doing this for over 10 years now. Years ago, program sponsors liked to change up their incentive program every year to keep them fresh. Know what's interesting? Our clients have stuck with these reloadable debit card programs year after year. And as you've learned above, the reasons are simple and powerful.
George Kriza (gkriza@mtcperformance.com) is the chairman & founder of MTC Performance, an incentive marketing firm based in Schaumburg, Illinois.