Creating A Successful Business Reward Program

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As companies continuously seek opportunities to increase bottom line results, prepaid corporate incentive cards should be considered as part of an overall corporate strategy to retain and attract customers and employees. Prepaid products can be deployed as an effective motivation tool for virtually any audience and their potential impact on the bottom line should be an integral consideration to your business planning process.

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Creating A Successful Business Reward Program

  1. 1. A W hi te Paper : Creating a Successful Business Reward Program www.americanexpress.com/gift American Express Company Global Prepaid November 2009 Client Management Group
  2. 2. Creating a Successful Business Reward Program www.americanexpress.com/gift Executive Summary As companies continuously seek opportunities to increase bottom line results, prepaid corporate incentive cards should be considered as part of an overa ll corporate strategy to retain and attract customers and employees. Prepaid products can be deplo yed as an effective motivation tool for virtually any audience and their potential impact on the bottom line should be an integral consideration to your business planning process. Whether you are a business which already uses prepaid cards for an incentive program within your company or if you are an issuer or marketer in the incentive products industry, you have likely asked: “How do prepaid cards enable companies to achieve their business objectives?” This white paper answers that question and cites examples of how prepa id cards can be applied to drive specific behaviors in support of achieving desired business results. It shares reasons for the trend towards plastic as a preferred medium, and outlines best practices for a successful deployme nt strategy. As the popularity of prepa id incentive cards continues to rise, it is important to understand the many card types and applications and what results can be reasonably expected. Equally paramount to choosing the appropriate business application for prepaid incentives is knowing how to effectively deploy your strategy using a structured model to ensure maximum results. Like any successful business strategy, you must assign resources to it, plan out the project and plot your metrics, or your outcomes will fall short of your objectives. 1
  3. 3. Creating a Successful Business Reward Program www.americanexpress.com/gift Table of Contents A Long History in Prepaid Markets 2 Product Applications 3 Why Are They So Popular? 4 Business Results 5 Corporate Incent ives Rooted in Human Behavior 6 Deployment Framework 7 Summary 1 Sources 6 16 A Long History in Prepaid Markets American Express is steeped in experience in the prepaid product space. The company itself is 159 years old. 118 of those years have been in some line of prepaid financial instruments, beginning with the Travelers Cheque product and later followed by Gift Cheques. Today, prepaid corporate incentive products including branded, personalized and theme- based Cards in both pre-denominated and variable loads, are purchased in bulk by thousands of clients for incen- tive and promotional use. American Express is set apart from other providers due to its holistic approach to the three key partners in the supply chain: the bank, the Card holder, and the merchant. They own the direct relationships with each of these pla yers as the issuer of the product, owner of the merchant network and administrator of the program with the ir partners using specialized resources. The ability to leverage these long-established relat ionships, in tandem with its world-recognized brand, positions American Express as a market leader in the prepaid industry. 2
  4. 4. Creating a Successful Business Reward Program www.americanexpress.com/gift Product Applications There are dozens of different products when one refers to corporate incentive applications, with each offering different capabilit ies, marketing and technical options. These applications can be used for business-to-business (B2B), business-to-consumer (B2C) and business-to- business-to-consumer (B2B2C) applications. So me exa mples of marketplace applicat ions of corporate incentives are shown here: 3
  5. 5. Creating a Successful Business Reward Program www.americanexpress.com/gift W hy A re T hey So Popular ? T her e has b een a v ir t ual ex plosion in t he r elatively r e c ent p opularit y of “plas tic” pr ep aid cor p or at e inc entive pr o duc t s. A s pr ep aid pr o duc t of ferings c ontinue to ex p and and evolve, t he demand for plas tic pr o duc t s is ev ident in t he dr amatic up s w ing in pr ep aid ’s gr ow t h. T his incr e ase d demand is p ar t of a lar ger evolu tio n aw ay f r om p ap er pr o duc t s, such as gif t c er tif ic at es, w hich ye ar s ago w er e of t en not r eplac e able w hen los t or s tolen and had adminis t r ative and e c ono mic challenges for user s. Benefits vs. Paper T he sw itch from paper to plastic of fers three main benefits. First, plastic is easier to adminis- ter, especially in the case of managing fraud and program customization. Second, plastic o f fers technical sophistication for greater capabilit ies in back- end repor ting, tracking and other uses. A nd third, organizations have been intrigued by improved abilit y to place brand impressions in millions of wallets. Proliferation of Plastic Although cash and check pay- ments still represent a large per- cent age of spend, the prolifera- tion of plastic continues to rise. According to a recent study by the Mercator Advisor y Group1, there was a tot al of $ 218.3B across 3 3 prepaid segments in ’07, w hich represented a 10.3% increase over ’0 6. There were over $10B alone in the Employee & Partner Incentives sector of the prepaid market. Closed loop cards – redeemable only at certain mercha nts or reta ilers - were st ill the largest compone nt but experienced a slowing growth rate. Open loop cards - usable on a wide network - represent a smaller segment but with an impressive growth rate of 83.4%.This is one segment of the market to watch for continued expansion and investment. 4
  6. 6. Creating a Successful Business Reward Program www.americanexpress.com/gift The products continue to be popular, in part, due to the desire of many firms to supplement or vary their compensation formats. Consider these statistics from a September ’08 Deloitte Consult ing LLP study 2 surveying 151 companies: • 58% expected to pay out below target on their incentive plans in 2008 • 11% believed that their current annual incentive plan would not yield a bonus at all last year • 53% were planning to adjust the ir plans this year, including modifying performance targets while keeping the same performance measures Versatility is Key Appeal is high for the product’s versat ility. According to The Incent ive Federation 3 , these types of cards, vis-à-vis other forms of incentives, are reported to be the fastest growing segment of the non-cash incentive industry. Open Loop cards offer versatilit y and cho ice that is as diverse as the numerous incentive participants. While a new iPod may appeal to one, dinner in a restaurant may appeal to another. Open Loop prepaid incentive cards provide cho ice of options that other incentive products have traditionally not provided. Business Results Popularity aside, the ultimate litmus test to any incentive strategy is measured by its impact on the bottom line: How do prepa id corporate incentives enable co mpa nies to achieve their business objectives? With plastic as the pre ferred medium, prepa id corporate incentive cards continue to be effective because incentives themselves work. In a recent survey of 500 executives, the Incentive Manage ment Associat ion (IMA) and Andersen Consulting 4 actually tied a bottom line fina nc ial benefit to retention and reward programs. There was as much as a $40M lift to a $1B business, much of which is rooted in prepa id incentive cards. The biggest pa yback, $13M, came from efforts to motivate and reward emplo yees. Programs to draw and retain talent added $10M. Incent ives Magazine 5 reported in recent research that 69% of the companies they surveyed reported gift cards and certificates to be equally or more effective than cash in motivating and rewarding employees. 5
  7. 7. Creating a Successful Business Reward Program www.americanexpress.com/gift With results such as these, corporate incentives need to be integral to any business plan- ning process. Clearly, as co mpanies continuously seek ways to increase bottom line results, prepaid corporate incentive cards are a key driver in achieving fina nc ial object ives and must be considered in the overall corporate strategy. Corporate Incentives Rooted in Human Behavior The basis of establishing program object ives effectively is founded in basic huma n behavior. In the most primal form, prepaid cards are essentially a mechanism to drive behavior. The incentive program you craft is driven by what you want to have happen. It begins by examining how your emplo yees or customers perform today and then identifying consequences which influe nce how they will act on what you want to have happen. And ultimately, once you launch a program, determining the feedback that gauges how they’re doing. A deplo yment framework that applies a repeatable process and allows for measurable results is crucial to any prepaid incentive program’s success. This four-phase deplo yment process begins by setting program objectives. Next, is identifying program mechanics, such as budget and target audience. Third, is determining appropriate co mmunication vehicles and their corresponding tactical elements. And most importantly, tracking the program’s progress and evaluating outcomes is the fourth and final phase. To bring this model to life and easily demonstrate how to effectively deploy a prepaid incentive card strategy, an actual application that many readers can relate to in real life experiences will be used – a veterinary pharmaceutical firm who provides lifesaving medicat ions and devices for your pets. “Properly structured incentive programs can increase performance of individuals by 22%, and of teams by 44% or more.” 6 6
  8. 8. Creating a Successful Business Reward Program www.americanexpress.com/gift Deploy men t F ramework W ith compelling reasons as to the “ W hat?” and “ W hy?” of ef fective applications of cor- porate incentive cards answered, nex t fo llows the more challenging question of “How?” In A merican E xpress’ experience, the best programs are deployed keeping four tenets in mind: P hase 1: P ro gr am Ob jec t i ves P hase 2 : P r o gr am Mechanics o F it wit h C or p or ate Go als o Audience Tar get o P r e - P r ogr am F ac t F inding o T imef r ame/ B udget o C hoosing Driver s o Aw ar d S ele c tion o P r ogr am Me asur es P hase 3 : P r o gr am C ommunica t ions P hase 4 : P r o gr am E valua t ion o Ty p es o Tr acking P r ogr ess o Tac tic s o A nal y sis/Ou t comes 7
  9. 9. Creating a Successful Business Reward Program www.americanexpress.com/gift Phase 1: Program Objec t i ves Fit with Corporate Goals In the example of the veterinar y pharmaceu- tical firm, corporate goals were identified, an approach strategy was implemented and success measures were defined. The ini- tial question to be addressed is, “What You Need”. Corporate goals st ated a t arget of $ 8M in sales of the new drug and a 9 8% or greater satisfaction of client veterinar y of fices using the new product. T he strateg y to achieve those goals was aimed at motivating client vet of fices to generate sales and trial feedback through year-end. Three specific success measures were set for sales, feedback and client satisfaction with the new drug, as noted above. Phase 1: Program Objec t i ves Pre-Program Fact Finding The second element of establishing the right program objectives has to do with the right fact finding. Even in today’s resource crunch, you or your clients should be able to identif y top-of- mind business drivers that you are hoping to achieve. Here, the question of, “What Happens Today,” is considered. For this par ticular firm, the areas for improvement were: (1) take-up rates of the new drug, (2) response rates to existing tear-of f cards in drug packaging and (3) per formance feedback through of ficial channels. 8
  10. 10. Creating a Successful Business Reward Program www.americanexpress.com/gift Sources of information for this current situa- tion were identified and included the regional sales teams, the Customer Relationship Man- agement (CRM) tool, in-house tabulation of response return logs and a toll-free suppor t line which identified call t ypes. Simply driv- ing to improving these basic items is a major step in justif ying the initial investment you plan to make. Phase 1: Program Objec t i ves Choosing the Drivers A third element to est ablishing program objectives ask s the question, “ W hat drives them?” T hese drivers can t ake many for ms. In the case of the veterinar y pharmaceutical firms, they formulated their strateg y based on three key drivers: (1) emotion, (2) excitement and (3) economics. T his company felt that they did not have a strong direct relationship w ith their veterinar y practices. T hey decided to drive an emot ional response by est ablishing a philanthropic element to their campaign with a donation to an animal shelter for each reply card returned. T hey also personalized a large por tion of their correspondence, as well as the physical incentive product itself. T hey pushed excitement in a big way by providing a post age-paid reply card direct mail piece w hich communicated the shelt er donation, w hile giving vets an oppor tunit y to benefit from a sweepst akes enrollment. T he t hird driver pushed was econo mic in nature. T heir plan was to distribute a financial incentive to veterinar y of fices using a $10 0 open loop prepaid incentive card. T his three- pronged approach to identif ying and pushing key drivers provided a resounding answer to the question of, “ W hat drives them?” 9
  11. 11. Creating a Successful Business Reward Program www.americanexpress.com/gift Phase 1: Program Objec t i ves Program Measurements T he last tenet of Phase 1 is all about baseline measures to be improved – how do you k now the program is working? Essentially, this is the, “How T hey A re Do ing,” component. T he three program success measures that the firm had identified were (1) sales go als reached by year- end, (2) trial feedback from minimum 10% of par ticipating distributors and (3) a minimum of 9 8% satisfaction for new drug. T his par ticular application st ar ted out with a mission — w ith the prepaid card at the core of it— and it was highly successful. T hey exceeded t wo of the three goals with sales at 110% and trial responses at 18%, but fell just slightly shor t on the third with 9 6% satisfaction. Phase 2 : Program Mechanics Target Audience Phase 2 of the deploy ment mo del suggests that est ablishing the basic program mechanics, and par ticularly the t arget audience, plays an impor t ant role in the success of the program. In the simplest form, many people might think that the only t argets of an incentive program are the individuals or teams administering the incentive program, and the recipients of the incentives. But w ith proper planning, you realize that the most successful programs broaden their t arget audiences to ma ximize the program’s exposure. In the case of the veterinar y phar maceutical company, the t arget audiences were classified into three buckets: (1) respondents, (2) messengers and (3) influencers. T he primar y t arget s were C all Centers, Regional Sales, Receptionists, Vets, Vet Associations and Shelters. T he respondent s were easily identified as those w ho benefit ted from the program’s incentive itself – the vet of fices and st af f w ho received the prepaid awards. 10
  12. 12. Creating a Successful Business Reward Program www.americanexpress.com/gift T he mes senger s, how ever, b e c ame c om - munic ator s o f t he pr o gr am. T hese ar e t he p har mac eu tic al c omp any ’s c all c ent er s t af f and r e gional s ales p eople. W it hou t t hem in t he loop t alk ing up t he pr o gr am, t he program would be flat and one- dimensional. Moment um w as built b y engaging t hese t e ams in t he mes s aging of t he pr o gr am. A nd f inally, adjunc t “influenc er ” gr oup s b e c ame a vir al sour c e of t he pr o gr am’s pr omot io n. Vet as so ciations and shelt er s t hat w er e aw ar e of t he p har mac eu tic al comp any ’s ef for t s to pr omot e t he new dr ug and cont ribu t e to t he shelt er s’ budget s, dr ove ot her s to b e c ome involve d in supp or ting t he ne w pr o duc t . Phase 2 : Program Mechanics Timeframe/ Budget The second element to the Program Mechanics has to do with set ting the time frame of the program and the budget. These are a few consider- ations for you to think about before deciding on a product to use. Timeframe considerations include deciding on whether the program will have a pre- determined completion date, or if it will go on indefinitely (closed or open ended). The payout period also needs to be agreed upon in advance. Budget considerations include deter mining the best way to determine the campaign’s Return On Investment (ROI). A payout structure also needs to be laid out and align with the desired behaviors – team or individual. One must decide if the payout should go to the team or the individual and how that will be tied to achieving program objectives. Both fixed vs. variable costs need to be ident ified. It is vit al that these considerations be deter mined up front in order to ensure the campaign is both ef fective, as well as ef ficient. 11
  13. 13. Creating a Successful Business Reward Program www.americanexpress.com/gift Phase 2 : Program Mechanics Awards T he third element associated w ith program mechanics has to do with choosing the award itself. T here are many factors to consider w hen choosing the card options and selecting a par tner with w hom to work with for the awards. Project Scoring Models W hen actually choosing a product construct, it is recommended to use w hat A merican E xpress refers to as, “project scoring mo dels.” Project scoring mo dels are t ypically applied to technolog y or investment projects, but they can be helpful in selecting an incentive product as well. T hese mo dels help determine the t ype of product needed by est ablishing principles of w hat you want to achieve in designated categories. T hese categories may include things such as degree of customer impact the card product w ill have, the degree of compliance and audit control the card of fers, strategic alignment o f the card w ith the company’s priorities and level of return on invest ment or strategic potent ial the vehicle has for the future. All of these factors can be weighted to w hat is most impor t ant for your company at the time of application. 12
  14. 14. Creating a Successful Business Reward Program www.americanexpress.com/gift Phase 3 : Program C ommunicat ions Types In phase three of the deployment model, the incentive program’s architect is reminded to make use of a wide array of communication vehicles, including print and electronic, that can be used to promote the program. In the case of the veterinar y pharmaceutical company, a multi-faceted approach was used to create a broad campaign that covered all the angles, from communit y news releases to call center messaging. Phase 3 : Program C ommunicat ions Tactics Phase three also calls out the t actical elements to t hink about in the communications process. Some of the best practices, as repor ted by the veterinar y pharmaceutical company, are outlined here. Branded, for example, had ever y communication branded as a campaign. F or Reusable, they reused the same campaign message for at least t wo other similar campaigns, and much of the creative was also reusable. 13
  15. 15. Creating a Successful Business Reward Program www.americanexpress.com/gift Phase 4: Program E valuat ion Tracking Progress Finally, Phase Four of the deployment model is ultimately the most impor tant phase of all. It is the phase that justifies the invest- ment of people and dollars that were made in the program. These are a few things to consider if you are an individual who is deploying a card incentive, or if you are a company who of fers them yourself. The point is that by applying a few guiding principles, you don’t have to reinvent the wheel or earmark significant budget dollars to repor ting and data analysis to prove the business case. Phase 4: Program E valuat ion A nalysis/Outcomes Tracking results either annually, or throughout the life of the program, enables you to refine the program based on your key measures. B y reassessing w hat you are tr ying to achieve, w ho you are tr ying to incent, and how you are measuring results, you have the basis for a continuous improvement process. In the case of the vet example, they met their sales and trial responses objectives, but fell shor t on customer satisfaction. Based on these findings, they may decide to bolster ef for ts in this one area of the campaign as the program moves for ward. 14
  16. 16. Creating a Successful Business Reward Program www.americanexpress.com/gift Summar y Prepaid cards are a motivating incentive for vir tually any audience and are most ef fective w hen using a structured deplo y ment mo del to ma ximize your outcomes. W hile the choices of cards and options are diverse, they can be simplified by set ting overall objectives, defining program mechanics, determining program co mmunications and evaluating your outcomes. A focused approach, employing a continuous improvement process w ith key metrics across all levels of the mo del, provides insights to assess w hich drivers had the greatest impact on the outcomes. T his allows you to determine w hich invest ments had a posit ive impact on the resulting business objectives, and w hich ones fell shor t. T hen the business result s will speak for themselves. Sources 1MercatorAdvisor y Group, 5th A nnual Closed Loop Prepaid Market Assessment (10/0 8) 2“Retention Strategies During Dif ficult Economic Conditions”, Deloit te Consulting L L P study 3IM A , T he Incentive F ederation 4 IM A , T he Incentive F ederation, A ndersen Consult ing sur vey of 5 0 0 executives 520 0 6 Incentive Magazine research study 6International Societ y for Per for mance Improvement for the Incentive Research F oundation 15

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