Award Employees

Now here’s a question that the incentive industry has bounced around since the beginning and client after client has weighed with on their opinion.  It is still the most volatile question you can ask in the incentive world, or for that matter the entire compensation and benefit industry.  I’v heard just about every answer for it, some less original than others, some with a great deal of research and thought behind it, but most with the same approach.

In short, the incentive industry will tell you that cash does not make a good incentive award, period!  They will go on and on about the reasons why, but only supply some philosophical or psysological evidence for their stance, never any empirical data to support the conculsion.   Yet, cash incentives as understood by sales and marketing professionals can be very effective, all proper design issues taken into consideration.  Cash bonuses and profit sharing for all employees to be rewarded for their part in the profitiability of a company are certainly appropriate, especially in times of recessions. 

So in many ways cash can be a very effective incentive.

On the other hand, non cash forms of awards such as gift cards or travel definitely have their place in the Incentive award mix and they too can be very effective.  Hate to cop a plea, but the answer is ….it depends.  Depends on what, well initially what you are trying to accomplish which is the first step you’ll have to take to get to the answer of whether cash is the award that you need to use.

We have put together a long list of  things that you should consider and some arguments on both sides of the issue and will be happy to send it to you.  If you think that this would be helpful, just click here.

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Today it seems that it’s almost de rigueur for us “experienced” incentive sales types to say to a client that we are completely “Award Neutral” when it comes to recommending the right award solution for their incentive program.  But what does that really mean?  And are we being totally honest with the client?  

In the “old days” 

Back in the early 1970’s I was pounding the pavement of the San Francisco bay area looking for unsuspecting prospects to listen to my well rehearsed presentation on the merits of sales incentives.  When the motto of the company back then was “Motivating Men to Sell Your Product,” do you think it was a different time?  How do you think that motto would fit into our world today?? 

At that early time in my career, I was taught never to approach a client initially about awards.  It was drilled into me never to take our beautiful hard bound deluxe book of merchandise awards to the first meeting, and often not the second or even the third.  My job was to learn as much about the client as I could.  The theory was that if I learned about their company, organization, products, distribution, pricing etc. I would be in the best position to recommend a program that would produce results.  And, my teachers were right.  Approaching the business from this perspective allowed me to concentrate our resources on building the best solution for the client before we discussed what they should use to award the participants for results.  We didn’t have to worry about being “award neutral” because in fact we were.  Of course it helped that at that time all the industry had to sell were two rewards, merchandise, and group travel.  Read the rest of this entry »

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Whether it’s old age setting in or just a little nostalgia, I often find myself thinking back to my early days in the industry and contemplating how things have or haven’t changed.  I see articles written on subjects that aren’t really different from what was said many years ago.  It’s almost as if we just dust off old philosophies and restate them in today’s terms and for today’s audience.  One thing’s for certain, the philosophy of why and how to motivate performance hasn’t changed much.  The tenets and rules we used in the 60’s and 70’s are just as valid today as they were then…and in some cases even more so.  Have generational changes brought us back to the future?  Read the rest of this entry »

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It is a well known fact that the merchandise awards offered by incentive award suppliers are priced higher than the average retail price for that same award.  Comparisons of these prices to retail are rarely offered by the merchandise award vendor, so it is left up to the client to determine if these high prices are worth the services offered.  We offer the following to assist you in your buying decision of merchandise awards.

What is Retail? 

Today’s consumers are the most price conscience of any consumers in history.  There is an unending array of communications available on the web and through social networking for an individual to almost instantly determine the fair price of anything. 

Incentive companies will use what they call MRP or Manufactured Recommended Price as their definition of retail and then add fees.  MRP always contain the highest margins possible for the retailers.  However, because of the law, the manufacturers cannot impede a retailer from selling their product below that price.  So what is retail?  It is what the item sells for in the marketplace.  And free market fluctuation is what our economy is all about.  Retail is whatever a consumer is willing to pay.  And no one really pays retail anymore!

An incentive company needs to establish their pricing usually on an annual basis, but retailers change pricing as often as they need to depending on market conditions.  Prices change monthly, weekly, daily, or even hourly.  Would your participants be better off receiving an award item of merchandise priced in January, or shopping for that same item (with most likely hundreds more to choose from) at  sales throughout the year and especially at the holiday season?  Or would your participant rather have the latest hi-tech in demand item priced as it first appeared on the market, or six months later when competition has had a chance to catch up and force lower pricing?  Retail pricing is fluid and is constantly changing; the incentive award pricing by comparison is hopelessly archaic.  Paying MRP retail is bad enough, paying 50% more than retail is ridiculous! 

In addition, the majority of merchandise sold by manufacturers to retailers is at a price that is consistently lower then the same price of the merchandise sold through independent distribution to the incentive industry.  Why?  Because the Wal-Mart’s, Best Buys, Home Depots etc buy more of any given brand on a daily basis than the incentive industry does in a year.   The combination of these simple facts, and the need of the incentive companies to compensate sales organizations the high commissions necessary to sell their product, all add up prices that are easily 50% or more higher than retail.  

Value of the Web – Do the Simple Math 

Virtually all incentive merchandise pricing schemes were developed prior to the web.  Without it, comparing pricing was at best done casually or not at all.  Without comparisons to retail to keep the incentive industry honest, they were free to establish any pricing they could get away with.  It was (and often is) not unusual to see merchandise award items priced at 35% to 150% more than retail.  See for yourself!  Take any ten items from your award program, determine exactly what you pay for it, then go on the net and plug them into Amazon and see what they sell for.  If not Amazon, use the other companies who have online services such as eBay, Wal-Mart, Best Buy, Home Depot, Overstock.com, Costco, Sam’s and scores of others. 

What’s a Competitive Price? 

To the merchandise suppliers, the definition of competitive pricing is comparing their pricing to other merchandise suppliers.  They will do all they can to not have to compete with retail pricing as the competition, because they can’t. Does that mean that you should pay exorbitant pricing for award merchandise?  No, you always have the option of alternative award systems such as gift cards.  

When you do the comparison you will find that you are probably paying on average 35% more for the item when you buy it from the merchandise award companies.  Don’t be surprised if you see items priced much higher than that.  If you don’t, just stop here, either your supplier is being honest with you about giving you competitive prices, or you have already negotiated some great discounts.   But be careful, you’ll need to make sure that you compare more than just a couple items as the merchandise companies are aware of this type of comparison shopping and often “seed” specially priced items to give the illusion of low pricing.  

If You Can’t Find the Item 

If can’t find an item you’re trying to compare, what should you do?  First, you should ask yourself the question, “If it can’t be found in the largest retailers in the world, is it something that participants even really want to begin with?  Second, if you do think they really want it, and still can’t find it, it is often because the incentive award industry uses promotional items manufactured specifically for the incentive industry instead of the same items sold at retail.  This ploy is used so you can’t make a comparison and is often used by manufacturers of items that have so many variables and ways to change a basic product that they can hide the price.  These are also the types of items that contain the highest margins of profit for the manufacturer and the incentive houses.  They include items such as jewelry, gift ware, clocks and watches, and leather goods bags and luggage.  It is not surprising that these items can make up 70-80% of all items in an award selection. Is that because that’s what people want, or because they carry the high margins that the supplier wants?  

When Shipping and Handling is Included

Merchandise award vendors often point to shipping handling as a reason why their pricing varies from retail.  But frankly shipping and handling are not pass through charges and often become a source of profit.  Example, an average for actual shipping and handling in the industry is 6%, while the normal S&H charge included in a merchandise price is 10%.  The vendor makes an additional 4%. 

When Sales Tax is Included 

Sales tax can also be a source of profit for the merchandise supplier.  Many incentive merchandise vendors only pay the sales tax of those states where they have a physical presence (office, paid employees, etc.)  They charge sales tax for everything sold on a flat rate (say 7.5%) but only pay that tax in some states.  The client is never reimbursed for this overcharge when taxes are not paid. 

When you use award options like gift cards, the sales tax is paid by the participant at actual, and doesn’t reduce the value of the award as it does when packed into the price of merchandise award. 

Income Tax Liability 

When you are grossing up for income taxes, or sending the participant a 1099 for the merchandise awards earned, the effect of the high merchandise pricing is particularly unfair.  If you find that your merchandise awards are appreciably higher than retail, you compound the tax consequence by that same amount.  

Bottom Line….”Caveat Emptor” or let the buyer beware. 

Award Merchandise prices, on the average, are and have always been

substantially higher than retail. 

If you’re getting that kind of service and value from your award vendor, wonderful. 

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