Uses Of Premiums And Incentives

By Susan Draddy Susan Draddy has spent over 20 years in the promotion industry. She is currently President/COO of Carlson Draddy & Associates (CDA), a Westport, CT-based marketing communications agency.

We all want to feel that we're being rewarded, whether it's for a job well done or for buying the "right" brand of toothpaste. As one of the oldest forms of promotion, premiums and incentives have likely been used for centuries to induce a desired behavior. When was the last time you purchased a certain brand of jelly just to get that collectible? Before the phrase B-to-B was even coined, incentives were being used as a means to reach measurable business goals, improve business relationships and motivate employees and the sales force. The premium and incentive trend has so captured the American spirit that an entire industry has been built to help support premiums and incentives including promotion agencies, premium development and production companies (domestic and off-shore) and fulfillment companies. Regardless of the level of sophistication, premiums and incentive programs can yield incredible results. Industry Trends In 2000, the Premium and Incentive market was a $29 billion* industry. In 2000, industry spending by type was as follows: • • • •

Sales Incentives -- $8.7 billion (or 33%)* Dealer Incentives -- $8.3 billion (31%) * End User (B-to-C and B-to-B) -- $6.3 billion (23%)* Non-sales Employee Incentives -- $3.6 billion (13%)*

The industry is growing, with more companies offering incentives and others spending more on premiums and incentives in 2000 versus 1999: • • •

50 percent of businesses are spending about the same 35 percent spent more Only 5 percent spent less

Source: * Promo Magazine - Industry Report - May 2001

Uses of Premiums and Incentives Premiums and incentives can be used strategically to meet a wide range of marketing objectives, some of which include: Employee, Sales force, Distributor, Dealer Objectives: • • • • •

Maximizing sales Rewarding loyalty or performance Gaining share of focus from employees, sales force or distributors Adding value to defend against competitive promotions, programs or pricing Educating target audiences

Customer Objectives: • • • •

Gaining Product awareness or trial Increasing sales or market share Differentiating your product from the competition Reinforcing brand attributes

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Encouraging retail display Increasing consumer loyalty Adding value to defend against price reduction strategy

Premiums and incentives can also be used against a whole range of tactics including some of the following: •

In-Pack -- a free gift is packed inside the actual product

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On-Pack -- a premium is affixed to the package

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Banded Multi-Packs -- the premium is banded to a multi-pack

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Special Packaging -- the premium is the packaging with the brand being marketed in that special packaging, such as a collectible jelly jar

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Near Packs -- a premium is featured on the display (but not affixed to the brand) and the consumer takes one premium when they purchase the featured / displayed item

All of the above tactics are used to encourage impulse purchase, gain in-store display visibility and retail support. •

Mail-in / Bounce-back offers -- These offers take various forms with the consumer mailing a request, proof-of-purchase or money to receive the premium.

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Catalog/Point loyalty program -- A catalog program typically offers multiple items for escalating levels of purchase.

Mail-in/bounce back offers and catalog programs can help increase product awareness, trial, increase sales and market share, encourage retail display and maximize consumer loyalty. Premium and catalog programs can be offered a number of different ways: •

Free offer -- the consumer receives the item(s) free with or without proofs-of- purchase.

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Self-liquidating offer -- the consumer funds the entire cost of the premium.

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Partially self-liquidating offer -- the consumer and marketer share the cost of the premium.

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Speed plan -- Catalogs often include a speed plan where consumers can redeem points or proofs-ofpurchase plus cash to receive the item(s) more quickly.

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Sampling / Event Gifts -- a premium is given to attendees to reinforce the interactive experience / brand.

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Direct Mail Gifts -- a "free inside" premium message is flagged on the outer envelope to encourage the recipient to open the envelope

There are two kinds of incentives: performance incentives and prizes. Performance incentives are awarded when consumers perform certain actions. Prizes are awarded through games of chance or contests. Performance Incentives • • •

Travel -- incentive trips can range from very low cost local getaways to around-the-world incentives Merchandise Gift Certificates

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Trade Incentives such as dealer loader and in-store merchandising support (Win-It-Here Sweepstakes, Gift with Purchase, etc.) Prizes:

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Sweepstakes / Games of Chance Skill Contests

Prizes are typically offered in a tiered, pyramid structure with one or more major prizes and many supporting prizes. The top prizes will encourage the consumer to enter because they want to win that prize. A large number of supporting prizes also is important so the consumer feels that she has a chance to win. The number of prizes offered and the type of prizes will depend on the type of program, audience and objectives.

Premiums and incentives range in value from high-value incentives such as $10,000 cash, travel and cars to low level merchandise items such as a 50-cent key chain. The type of incentive / premium used will vary widely depending on your target audience and objectives. High-Cost Category In the high-cost category, cash is the most broadly appealing incentive. Cars and travel are the next popular highvalue incentives. The range of cars and travel is immense and again, brand image should align with the vehicle or trip that you offer. Mid-Tier Category In the mid tier, cash is still important but merchandise is used frequently and takes on more appeal. In this category, there is tremendous opportunity to reinforce a brand's image. Lower-Cost Category In the lower tier merchandise can also be a strong motivator, especially since the perceived value of an item is often much higher than a comparable cash incentive. The retail value or perceived value of merchandise is often 50 percent higher than the actual cost. Cash rebates and coupons are also prevalent in this tier. While they can certainly generate sales if used on a consistent basis, they can also detract from a brand's image (rather than adding value). It's important to determine at which point a cash incentive will be perceived as a product discount. If a discounting strategy is used on a regular basis, brands train consumers to purchase the item on deal as well as train retailers to expect future discounts or deal periods. This discounting strategy has been used extensively in many categories, including lingerie. Lingerie manufacturers have been so successful in generating sales via "Buy 1 Get 1 Free" offers, that 80 percent of consumers now purchase lingerie on deal. Retailers have come to actually market a category deal period and all manufactures go on deal at the same time. The brands need to discount just to stay at parity with the competition Regardless of the amount of money spent, to achieve success any incentive / premium reward must be appealing to your target audience and be consistent with your company imagery. Appealing to your target audience Many programs are structured based on assumptions rather than actual research. Wherever possible, conduct research to be sure you're offering the best item possible.

For programs targeted towards employees, research can be as simple as having one-on-one discussions with key members of your target. Don't be afraid to ask key members of your team about a potential program and rewards. For example, one of our clients had been using travel rewards over a period of a few years to incent sales performance. The programs achieved some success, but the results were diminishing each year. By speaking with some key sales people they learned that trips were great but the sales force wasn't able to get time off to take the trip. So, instead of being a reward, the incentive was actually creating bad will among top performers. When the company launched the next program, they combined the trip with a guaranteed week off for reaching quota. Sales and morale increased dramatically. If you're creating a consumer program, understand your consumer. A "sanity check" for premiums can be as simple as an on-line survey with a list of premium choices or as complex as a series of focus groups with brand users and competitive users complete with concept boards and live premiums. Research can also reveal new premium options. A client conducted focus groups and found out that instead of giving high-cost trips, low-cost VIP access to local events was the preferred incentive for top-tier customers. Research can also give a company a sense of the liability that a program could entail. When developing a program budget, it's important to gauge the costs of redemption. Consistency with Company / Product Imagery One of the most important, yet underrated considerations is for a premium / incentive is to reinforce brand imagery. Not only will a poorly selected premium or incentive not motivate the target, but also it can actually do harm to a company or brand image. Regardless of the cost of the incentive, it should always be consistent with your branding message. Before selecting any incentives, it's important to assess your brand assets and determine what you really want to communicate to your audience. Is your brand prestige-priced, fun and edgy, exotic? Be sure that your premium and incentive program reinforces that identity. Imagine a very expensive, upscale chocolatier offering a $1.00 neon pink plastic key chain. That company could spend the same $1 on a "Guide to Elegant Entertaining" and create a completely different result I. Determine Your Objectives • • • • • • •

What are you trying to achieve? How are going to measure your achievement? Who is your target -- current consumers, competitive users, light, medium, heavy users, retailers, sales force, or potential business partners? Do you have multiple targets and can you attract these targets with a single program or do you require separate efforts? When do you need sales support? Is there anything else planned for that time period? How is the competition likely to react to your offer and do you also have a plan for that situation? Do you have the support within your company to develop and execute a program?

II. Select the Tactic that Best Meets your Objectives III. Determine Your Budget • • •

Planning and program development Research Agency Fees -- If you're executing a complicated program, an agency can assist in developing the program structure and manage the program.

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Redemption analysis -- Have you developed calculations for redemption and liability models relying on experts and past history? Is over-redemption insurance warranted? Premiums Premium customization with graphics and logos Shipping -- Include the costs of shipping from the manufacturer to the fulfillment company. Also be sure to have the necessary insurance. Program support such as advertising and point of sale displays Packaging charges Fulfillment costs such as program set-up, packaging for shipment, servicing, postage, order returns, storage and management fees

IV. Create Measurement / Success Criteria • • • •

Develop specific criteria. Be sure that criteria is measurable. Determine points to adjust budget, program support and other elements. Update budgets throughout the program.

V. Time Line • • •

Be realistic. A simple program with domestically sourced premiums can be put together relatively quickly. However, complex programs with packaging changes, offshore sourcing or printed loyalty catalogs can take six to twelve months to prepare. Make sure that your time line is detailed and that all parties involved in your program understand and have approved their role in the time line Update time lines throughout the program.

VI. Source Premiums / Incentives • • • • • • • • • •

Conduct research to make sure the premium is an item that your customers want. Source the items for the best value, but don't sacrifice quality for price. Determine minimum efficient quantities. Check references on manufacturers for financial stability and track records. Determine order and reorder time lines. Arrange a backup product line. Do you have detailed specifications and contracts with each of your suppliers? Negotiate a payment schedule with the manufacturers up front, but don't pay too much up front. Get a letter of credit instead. Ensure that manufacturers have product warranty and product liability coverage. Test for product safety, especially with toys.

VII. Create Support Materials • • •

The offer and premium should be the focus of all materials. Check the legality of the promotion for trademarks, copyrights, state and federal laws. Consult a lawyer.

VIII. Set Up Program Fulfillment • • •

Check the fulfillment company's financial background and track record. Know who will be on the account team, and make sure they are experienced. Run the program by the account team to troubleshoot.

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Monitor progress. Small problems are easier to fix while they're still small.

IX. Program In-Market • • • • •

Monitor what's happening in the field. Don't rely on the fulfillment company to do the work. Solicit reactions from the entire team. Keep the team updated on progress. Make corrections ASAP. Revise forecasts continually

X. Evaluation • • • •

Follow-through on your commitment to measure the program If a program is a success, be sure that everyone on your team knows it and understands their contribution to that success. Evaluate your forecasting process. Revise your forecast and keep "Lessons Learned" to help form the basis of planning future programs.

By Gary Keller Gary Keller is president and CEO of Xomix, Ltd., a biotechnology accelerator and venture catalyst headquartered in Chicago, IL. Xomix is focused on biotechnology-led workforce, business and economic development.

Life is sales. You are either bringing them in or chasing them away. Unfortunately, it is often difficult to know the difference. But there are some key factors that can make a big difference. At the most basic level, sales is just a conversation. But to close on a sales opportunity, it has to be an effective conversation. The foundation for providing any service or product is to have a strong basis from which to build an effective conversation that can address the customer?s needs. What are the key factors that can make or break a successful sales presentation? The first key is knowledge. A strong knowledge base provides a means of accelerating the sales process. Having the ability to provide the appropriate information in the most efficient manner eliminates or reduces the time needed to complete the sales process

?I don?t know, but I?ll find out and get back to you? is always better than ?I don?t know.? But it's never as good as having the answer on the spot. Not knowing often stops the sales process like a pause button. Know Your Product You must be the expert on the product or service that you sell. At the least, know the sources of expertise and build a relationship with them so you can get information in a timely manner. Product knowledge is where features and

benefits come into play. The ability to address the strengths and weaknesses of your products enables you to move through a conversation to the sales opportunity. Know Your Company and Theirs Have a working understanding of your company. Where it has been? Where it is going? What is its focus and core competencies? Make an impression and know what your customer is doing. This knowledge highlights the best approach for a sales presentation and helps determine what to present first. If you can identify potential needs based on the customer?s business model and current circumstances, you can bring forward a more focused approach for sales. Know Your Customer Find out more about whom you will be addressing and as much about their current projects and circumstances as possible. By having a sense of what they are striving to accomplish, you can present your products and services in a way that will seem more relevant. Know Your Competition More often than not, customers are looking at multiple solutions. Ultimately they will have to choose what they perceive to be the best solution to address their needs. Help them with this chore by being the one to distinguish what you provide from the other products or services on the market. Go through the decision point-by-point. By helping a customer work through the decision, you also give them the ammunition they need to justify their decision to themselves, or their managers. Knowledge can be a Weakness Sales professionals must have knowledge to succeed, but an over-reliance on your own knowledge often proves to be a weakness. No matter how much of an industry expert you become, your customer always knows more about his own business and circumstances. Nobody likes a know-it-all anyway. Listen Don?t Speak In the sales conversation, the most powerful tool is being able to listen more than you speak. The ultimate best source of information is the customer. By asking probing questions and listening to the answers, you achieve two objectives. The first is to determine the customer's need, which leads to how you can help. The second is to enable the customer to discover for himself that you are presenting the appropriate solution. Questions Not Answers Questions bring people together, and answers take them apart. In the sales process, well-intended questions can be effective in forwarding conversations. For example, you might want to ask a customer to give you a more indepth view of his industry. Even better, ask a customer to tell you what their customers want. This enables you to support the customer's ultimate goals. Uncover the Problem, Don't Cover It Customers are often bombarded with a sales approach that says ?what you have is wrong,? followed by ?what you really need, I have.? Then the salesman launches into a long, generic presentation. Get potential customers to talk about their company problems in detail. Use questions and examples to enable the customer to discover how to accomplish their objectives with your products and services. They will fight for that solution if they can claim credit for it. Often, the salesmen with the best companies and products never get to first base because they never bothered to build a personal relationship with potential customers.

The ability to pick up on the identity of the customer and know what is important from her perspective is an invaluable skill. Some customers are detail people, others are more interested in finding a vendor they can relate to before making a purchase decision. Know the difference. The personable customer will be bored by the statistics, and the detail person will not appreciate an attempt to be 'buddies.' Stay in Communication Persistence can be a great strength in sales. Often potential customers don't have an immediate need for your services and reminders make a big difference in staying on the radar screen. There are numerous resources for staying in communication with your customers such as direct calls, e-mail, written communications, literature, and industry interactions. Just be wary of the line between persistence and pestering. Be on Time Punctuality is your first opportunity to show a potential customer that you are a person they can count on. That reputation for reliability then applies to your company and products as well. Often circumstances will come up to make you late, and when they do it is critical to call ahead and reschedule. Take responsibility for whatever caused the breakdown - company business, a manufacturer, traffic or the weather. No Effort Goes Unnoticed It is often easier to justify why we didn?t do something extra than to justify why we did. However, in establishing a reputation for yourself and your company, going the extra distance often is what separates the wheat from the chaff at the time the critical decision is made as to what to buy. Assume that an extra effort gets noticed and present it in a way that can be recognized as being beyond the call of duty. It always comes back to you: front, side, or center. The Customer Is Always Right Even When He?s Dead Wrong It is easy to say that the customer is off base, doesn?t have a clue, and you could fix them and their problems if they would just let you. This attitude leaves little room to establish a long-term relationship for business. Get the Referral One of the best resources that you have is your existing customer base -- the satisfied ones. They can provide an unbiased endorsement for your products and services. More importantly, customers often know people who have similar needs. The key is that you have to ask for the referral. Waiting for a referral will almost always take much longer than making the request up front. Follow up The sales conversation, like all conversations, fades over time. A critical step to successful sales is keeping the dialogue and actions moving forward. Even when the answer is not now, it is important to know when to follow up, or when to follow up on the actions taken to move the process forward. Add-ons The best source for new business is often expanding the current business with your existing customer base. Having an assessment of what they are currently buying from you, buying from someone else, sourcing internally, or leaving out is a resource.

If you have, or can create, alternative products, improvements, or integration, you have a pathway for additional sales. Sources for additional sales include products, services, and strategic alliances for other products and services. Build a Rapport with Your Peers - They Will Be on Your Side Tomorrow Inside any industry, there are almost always other products or people providing similar services. Any industry has a certain amount of churn. People often find new jobs with another company in the same industry, or at least in a related industry. Therefore the guy on the other side may be on your side tomorrow. It is also possible that they may be in a related field, which means they are a potential source of new business opportunities either as customer, referral, alliance, or recommendation. Join Your Customer?s Organizations Potential customers often belong to various professional organizations. Join them. Having access to these groups is an effective way to connect with potential customers and enhance your rapport with existing ones. Go either as a supplier or as someone committed to the field with the intention and goal of being an industry peer. This also will keep you current on industry trends. Use Every Chance to Acknowledge Your Customers Recognizing customers for their accomplishments is a powerful way to build a relationship. During the sales conversation, the customer told you what they wanted to accomplish, and how they hoped your product would help them reach that goal. Be sure to congratulate them when they hit those goals. When to Say, "Thank You. No." Win-win is a two-way street. There are times when a potential customer will continue to make requests such as asking for information, resources, and services without any intention of buying. This behavior is not easy to distinguish at first, but over time it becomes clear. In these circumstances, either say "no," or offer what is needed along with the associated costs Sales and marketing are often spoken of in the same breath, and for good reason. Effective marketing is key to successful sales. In sales there are some guidelines for assessing how to effectively sell and market you products and services. What Have You Got to Work with? Assess your company's current marketing plan to know if you are focused on the same markets as your company. Review the marketing materials, so you know what to choose for the sales conversations. Be able to make recommendations for future marketing materials based on a sales perspective and the requests of customers. What Can You Create or Gather? Often by knowing what marketing materials are available now and from the past, you can also know what to ask for or what materials to put together to meet your specific needs. Are They Accurate and Up-to-Date? If materials are out-of-date, push to get new materials printed. Brochures covered with stickers ? even if it is just for a change of address -- look unprofessional. How to Package and Present It? Know how your company's marketing materials are supposed to be presented. Your presentation will be more effective if the brochure or quotation you leave behind reinforces the same message.

What?s Enough? It is often difficult to gauge what is going to be the appropriate marketing materials for a particular customer. Often it is better to have a conversation first, then present the materials that are best suited to their needs. Otherwise you'll overwhelm the customer with information. It is important to have the right and reliable tools to get the job done. In sales this often includes a car, computer, pens, briefcase, paper and account files. Keep notes and build databases. Over the years, powerful businesses have been built through the collection of data and the subsequent integration of that data into information. Information on your customers and their companies, products, services, connections, needs and wants, as well as what is coming up in the immediate, near-term, and long-term futures are critical tools for successful sales. There are many systems to do this: database programs, Palm Pilots, note cards, Day-Timers, etc. Find one and use it. Set Up a System Put a method to the madness. While every sale is different, there are a number of processes that are similar or the same from one situation to the next. Being able to look at what is involved in each sale and see where the processes can be streamlined or made more efficient is an important means of increasing the throughput of the sales process. What are your resources? Take an inventory, then evaluate, sort, and choose. In sales there are always a lot of potential resources. •

Literature: Old literature, new literature, corporate media, annual reports, industry reviews, etc.

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Customers/Accounts: Existing customers, lost customers, potential customers, leads, referrals, cold calls, etc. Track your success.

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Customer Interactions: Conferences, interactions, presentations, displays.

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Human Resources: From inside ? executives, sales and marketing management, product management, technical support, research and development. From outside ? sales force, field support, maintenance.

The key is to be able to access what is potentially available and then establish a hierarchy of what is going to lead to sales on short- and long- term tracks, small- and large-volume sales and minimal to grueling effort.

Set Goals What is the real purpose of goals? They pull you forward like a bungee cord. Having a sales target is essential to establish a sales plan. I often recommend looking at what is beyond reasonable, as it will create unreasonable results. There are some key things to consider. One is who can work with me to achieve these goals and what incentive is there for them? The other is how can I communicate my goals to my customers so that they can support me in winning. Track Your Success If you have no compass, you can?t tell if you?re moving in the right direction. One of the pitfalls of sales is focusing on the sales and not on where you are in moving each conversation forward. Have a system to know where each existing and potential sale is in the sales process. That allows for prioritization. Other Issues

Appearance Looking good, smelling good, sounding good, and smiling ear to ear. First appearances, second appearances, and every appearance count for a lot. Presenting yourself is often as important as presenting your products. Being well groomed is extremely important. Continuing Education The only problem with a learning curve is that it stops when you think you are at the top. In any field there are always great resources to make yourself more useful to your company, your customers, and yourself. Sources include formal educational institutions, certification courses, self education, corporate training initiated by the company or yourself, industry organizations, industry publications, seminars, conferences, and, most important, your customers. It is difficult to be a resource for that which you do not understand Ask for the sale! Ask for the sale! Ask for the sale! This is the ultimate test. It is always important to ask for the sale. The point is not so much the answer as it is a chance to give the customer an opportunity to make the commitment to buy or not, and to find out what are the appropriate actions needed to complete the process or when to follow up. Unless you check on where you are in the process, it can be difficult to know where to go or what to do next. Finally, remember that the big sale you have been waiting for is only a conversation away. It is just a matter of having the right conversation. The question is always going to be which conversation are you in? One of the best ways to determine this is to ask yourself: ?What am I focused on?? Is it the customer or yourself? Whose issues and concerns are you addressing, the customer?s or yours? You can only be in one conversation at a time. If you are focused on yourself, your issues, your concerns, what you have to do in an hour, next week, etc., you will not be focused on the customer, his needs, issues, or concerns. Effective sales are directly proportional to the amount of time you spend focused on your customers.