a white paper: Deploying Corporate Incentive Cards for Effective and Quantifiable Results

Transcription

1 a white paper: Deploying Corporate Incentive Cards for Effective and Quantifiable Results April 2010 American Express Company Global Prepaid Client Management Group

2 Executive Summary 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. 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 prepaid 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 deployment strategy. As the popularity of prepaid 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 Table of Contents A Long History in Prepaid Markets 2 Product Applications 3 Why Are They So Popular? 4 Business Results 6 Corporate Incentives Rooted in Human Behavior 7 Deployment Framework 8 Summary 16 Sources 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, 119 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 incentive 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 players as the issuer of the product, owner of the merchant network and administrator of the program with their partners using specialized resources. The ability to leverage these long-established relationships, in tandem with its world-recognized brand, positions American Express as a market leader in the prepaid industry. 2

4 Product Applications There are dozens of different products when one refers to corporate incentive applications, with each offering different capabilities, marketing and technical options. These applications can be used for business-to-business (B2B), business-to-consumer (B2C) and business-tobusiness-to-consumer (B2B2C) applications. Some examples of marketplace applications of corporate incentives are shown here: 3

5 Why Are They So Popular? There has been a virtual explosion in the relatively recent popularity of plastic prepaid corporate incentive products. As prepaid product offerings continue to expand and evolve, the demand for plastic products is evident in the dramatic upswing in prepaid s growth. This increased demand is part of a larger evolution away from paper products, such as gift certificates, which years ago were often not replaceable when lost or stolen and had administrative and economic challenges for users. Benefits vs. Paper The switch from paper to plastic offers three main benefits. First, plastic is easier to administer, especially in the case of managing fraud and program customization. Second, plastic offers technical sophistication for greater capabilities in back-end reporting, tracking and other uses. And third, organizations have been intrigued by improved ability to place brand impressions in millions of wallets. 4

6 Proliferation of Plastic Although cash and check payments still represent a large percentage of spend, the proliferation of plastic continues to rise. According to a recent study by the Mercator Advisory Group 1, there was a total of $218.3B across 33 prepaid segments in 07, which represented a 10.3% increase over 06. There were over $10B alone in the Employee & Partner Incentives sector of the prepaid market. Closed loop cards redeemable only at certain merchants or retailers - were still the largest component but experienced a slowing growth rate. Open Loop cards offer versatility and choice that are as diverse as the numerous incentive participants. This is one segment of the market to watch for continued expansion and investment. 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 Consulting LLP study 2 surveying 151 companies: 58% expected to pay out below target on their incentive plans in % believed that their current annual incentive plan would not yield a bonus at all last year 53% were planning to adjust their plans this year, including modifying performance targets while keeping the same performance measures Versatility is Key Appeal is high for the product s versatility. According to The Incentive 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 versatility and choice that are as diverse as the numerous incentive participants. While a new MP3 player may appeal to one, dinner in a restaurant may appeal to another. Open Loop prepaid incentive cards provide choice of options that other incentive products have traditionally not provided. 5

7 Business Results Popularity aside, the ultimate litmus test to any incentive strategy is measured by its impact on the bottom line: How do prepaid corporate incentives enable companies to achieve their business objectives? With plastic as the preferred medium, prepaid corporate incentive cards continue to be effective because incentives themselves work. In a recent survey of 500 executives, the Incentive Management Association (IMA) and Andersen Consulting 4 actually tied a bottom line financial benefit to retention and reward programs. There was as much as a $40M lift to a $1B business, much of which is rooted in prepaid incentive cards. The biggest payback, $13M, came from efforts to motivate and reward employees. Programs to draw and retain talent added $10M. Incentives Magazine 5 reported in recent research that 69 percent of the companies they surveyed reported gift cards and certificates to be equally or more effective than cash in motivating and rewarding employees. With results such as these, corporate incentives need to be integral to any business planning process. Clearly, as companies continuously seek ways to increase bottom line results, prepaid corporate incentive cards are a key driver in achieving financial objectives and must be considered in the overall corporate strategy. 6

8 Corporate Incentives Rooted in Human Behavior The basis of establishing program objectives effectively is founded in basic human 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 employees or customers perform today and then identifying consequences which influence how they will act on what you want to have happen. And ultimately once you launch a program, then determining the feedback that gauges how they re doing. A deployment framework that applies a repeatable process and allows for measurable results is crucial to any prepaid incentive program s success. This four-phase deployment process begins by setting program objectives. Next, is identifying program mechanics, such as budget and target audience. Third, is determining appropriate communication 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 medications and devices for your pets. Properly structured incentive programs can increase performance of individuals by 22%, and of teams by 44% or more. 6 7

9 Deployment Framework With compelling reasons as to the What? and Why? of effective applications of corporate incentive cards answered, next follows the more challenging question of How? In American Express experience, the best programs are deployed keeping four tenets in mind: Phase 1: Program Objectives o Fit with Corporate Goals o Pre-Program Fact Finding o Choosing Drivers o Program Measures Phase 2: Program Mechanics o Audience Target o Time frame/budget o Award Selection Phase 4: Program Evaluation o Tracking Progress o Analysis/Outcomes Phase 3: Program Communications o Types o Tactics 8

10 Phase 1: Program Objectives Fit with Corporate Goals In the example of the veterinary pharmaceutical firm, corporate goals were identified, an approach strategy was implemented, and success measures were defined. The initial question to be addressed is What do you need? Corporate goals stated a target of $8M in sales of the new drug and a 98% or greater satisfaction of client veterinary offices using the new product. The strategy to achieve those goals was aimed at motivating client vet offices 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 Objectives 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 identify top-ofmind business drivers that you are hoping to achieve. Here, the question of What Happens Today? is considered. For this particular firm, the areas for improvement were: (1) take-up rates of the new drug, (2) response rates to existing tear-off cards in drug packaging, and (3) performance feedback through official channels. 9

11 Sources of information for this current situation were identified and included the regional sales teams, the Customer Relationship Management (CRM) tool, in-house tabulation of response return logs, and a toll-free support line which identified call types. Simply driving to improving these basic items is a major step in justifying the initial investment you plan to make. Phase 1: Program Objectives Choosing the Drivers A third element to establishing program objectives asks the question, What drives them? These drivers can take many forms. In the case of the veterinary pharmaceutical firms, they formulated their strategy based on three key drivers: (1) emotion, (2) excitement, and (3) economics. This company felt that they did not have a strong direct relationship with their veterinary practices. They decided to drive an emotional response by establishing a philanthropic element to their campaign with a donation to an animal shelter for each reply card returned. They also personalized a large portion of their correspondence, as well as the physical incentive product itself. They pushed excitement in a big way by providing a postage-paid reply card direct mail piece which communicated the shelter donation, while giving vets an opportunity to benefit from a sweepstakes enrollment. The third driver pushed was economic in nature. Their plan was to distribute a financial incentive to veterinary offices using a $100 open loop prepaid incentive card. This threepronged approach to identifying and pushing key drivers provided a resounding answer to the question of, What drives them? 10

12 Phase 1: Program Objectives Program Measurements The last tenet of Phase 1 is all about baseline measures to be improved how do you know the program is working? Essentially, this is the How They Are Doing component. The three program success measures that the firm had identified were (1) sales goals reached by yearend, (2) trial feedback from minimum 10% of participating distributors and (3) a minimum of 98% satisfaction for new drug. This particular application started out with a mission, with the prepaid card at the core of it, and it was highly successful. They exceeded two of the three goals with sales at 110% and trial responses at 18%, but fell just slightly short on the third with 96% satisfaction. Phase 2: Program Mechanics Audience Target Phase 2 of the deployment model suggests that establishing the basic program mechanics, and particularly the target audience, plays an important role in the success of the program. In the simplest form, many people might think that the only targets of an incentive program are the individuals or teams administering the incentive program, and the recipients of the incentives. But with proper planning, you realize that the most successful programs broaden their audience targets to maximize the program s exposure. In the case of the veterinary pharmaceutical company, the target audiences were classified into three buckets: (1) respondents, (2) messengers and (3) influencers. The primary targets were Call Centers, Regional Sales, Receptionists, Vets, Vet Associations and Shelters. The respondents were easily identified as those who benefitted from the program s incentive itself the vet offices and staff who received the prepaid awards. 11

13 The messengers, however, became communicators of the program. These are the pharmaceutical company s call center staff and regional sales people. Without them in the loop talking up the program, the program would be flat and one-dimensional. Momentum was built by engaging these teams in the messaging of the program. And finally, adjunct influencer groups became a viral source of the program s promotion. Vet associations and shelters that were aware of the pharmaceutical company s efforts to promote the new drug and contribute to the shelters budgets, drove them to become involved in supporting the new product. Phase 2: Program Mechanics Time frame/budget The second element to the Program Mechanics has to do with setting the time frame of the program and the budget. These are a few considerations for you to think about before deciding on a product to use. Time frame 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 determining 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 will that be tied to achieving program objectives. Both fixed vs. variable costs need to be identified. It is vital that these considerations be determined up front in order to ensure the campaign is both effective, as well as efficient. 12

14 Phase 2: Program Mechanics Awards The third element associated with program mechanics has to do with choosing the award itself. There are many factors to consider when choosing the card options and selecting a partner with whom to work with for the awards. Project Scoring Models When actually choosing a product construct, it is recommended to use what American Express refers to as project scoring models. Project scoring models are typically applied to technology or investment projects, but they can be helpful in selecting an incentive product as well. These models help determine the type of product needed by establishing principles of what you want to achieve in designated categories. These categories may include things such as degree of customer impact the card product will have, the degree of compliance and audit control the card offers, strategic alignment of the card with the company s priorities, and level of return on investment or strategic potential the vehicle has for the future. All of these factors can be weighted to what is most important for your company at the time of application. 13

15 Phase 3: Program Communications 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 veterinary pharmaceutical company, a multi-faceted approach was used to create a broad campaign that covered all the angles, from community news releases to call center messaging. Phase 3: Program Communications Tactics Phase three also calls out the tactical elements to think about in the communications process. Some of the best practices, as reported by the veterinary pharmaceutical company, are outlined here. Branded, for example, had every communication branded as a campaign. For Reusable, they reused the same campaign message for at least two other similar campaigns, and much of the creative was also reusable. 14

16 Phase 4: Program Evaluation Tracking Progress Finally, Phase Four of the deployment model is ultimately the most important phase of all. It is the phase that justifies the investment 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 offers 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 reporting and data analysis to prove the business case. Phase 4: Program Evaluation Analysis/Outcomes Tracking results either annually, or throughout the life of the program, enables you to refine the program based on your key measures. By reassessing what you are trying to achieve, who are you trying to incent, and how are you 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 short on customer satisfaction. Based on these findings, they may decide to bolster efforts in this one area of the campaign as the program moves forward. 15

17 Summary Prepaid cards are a motivating incentive for virtually any audience and are most effective when using a structured deployment model to maximize your outcomes. While the choices of cards and options are diverse, they can be simplified by setting overall objectives, defining program mechanics, determining program communications and evaluating your outcomes. A focused approach, employing a continuous improvement process with key metrics across all levels of the model, provides insights to assess which drivers had the greatest impact on the outcomes. This allows you to determine which investments had a positive impact on the resulting business objectives, and which ones fell short. Then the business results will speak for themselves. Sources 1 MercatorAdvisory Group, 5th Annual Closed Loop Prepaid Market Assessment (10/08) 2 Retention Strategies During Difficult Economic Conditions, Deloitte Consulting LLP study 3 IMA, The Incentive Federation 4 IMA, The Incentive Federation, Andersen Consulting survey of 500 executives Incentive Magazine research study 6 International Society for Performance Improvement for the Incentive Research Foundation 16