Incentive Industry Builds Commodities Marketplace - But is it a good idea?

It seems that the incentive industry is stepping up it's public relations work.  In the past two months I've seem more google alerts for the industry than I have in two years.  This is a good thing.  The PR that is - not the industry.

As loyal readers of Incentive Intelligence know, we here at i2i have not been happy with the incentive industry as a whole.  We've been vocal in our concern that the industry has focused on selling unreasonably marked-up deliverables instead of the best program design (whether awards are part of that solution or not.)  We've highlighted some of the issues that occur when you focus on awards above design and the problems that crop up when you don't really have a strategy for your reward, reinforcement and influence initiatives.

So, seeing more mentions about the industry is nice.  Seeing what is in the mentions is not.  Case in point.

From the Manage Smarter website (link here):

A wide-ranging group of incentive fulfillment companies, media partners and industry organizations have come together in an effort to simplify reward delivery and incentive program management. This month, Solata Technologies, The Motivation Show and the Motivation Strategies brand, as well as the Incentive, Successful Meetings and MeetingNews brands launched Corporate Rewards Exchange.com (CRE) (Website under construction as of January 15, 2009)

It was also heralded here at Motivation Strategies Online. Their intro paragraph about CRE...

The industry is about to embark upon a promising cooperative effort to tap a large potential market of new users. The Corporate Rewards Exchange (CRE), which will be going live at CorporateRewardsExchange.com in late January 2009, involves leading brands, incentive fulfillment companies, incentive professionals and media organizations working together to bring the power of engagement strategies to the huge mass of businesses with budgets too small to be served by the traditional incentive industry.

Full disclosure:  Motivation Strategies Online is the "official publication of the CRE."  Link to a PDF highlighting their involvement.  From the PDF...

Motivation Strategies is the official industry publication of the Corporate Rewards Exchange (CRE), a cooperative of the nation’s leading brands and incentive fulfillment companies to expand and better measure the sales of branded rewards to qualified end-users and resellers.

Sounds cool right?  Not cool.  And here's why.

Accelerating Commoditization

Cooperatives exist to lower costs for members - not for users of the services provided by the cooperative.  I submit that the reason the incentive industry formed the cooperative is to get better buying power to smaller players so they can continue to charge outrageous margins for the awards and maintain their standard of living.  I don't think they will "willingly" pass on any savings the CRE provides to their customers.  At least for now.

One of the major problems the industry has been dealing with is commoditization of the product.  More and more companies are creating ways to easily launch and deliver incentive programs -from simple API's that allow connections to large online catalogs (amazon.com) to integrated software platforms that can manage compensation and non-cash programs - to Destination Management Companies (DMCs) who can handle your group travel easily without the intervention of an incentive provider. 

What the CRE will do is accelerate this trend by putting all the players in one spot - allowing clients to drive prices even lower.  Don't get me wrong - I believe there is some fat in the margins a lot of incentive companies charge - and weeding out the free-riders would be a good thing.  But this is not what the CRE intends.  I think the CRE was formed to help incentive companies maintain historical margins by lowering costs - but very quickly, smaller players in order to get and keep business - will begin to lower their prices (cutting margin) and once again the reward industry will be back looking for answers.

Its not all bad...

I think it is a good thing to bring together companies that offer specific deliverables for an incentive program together as a cooperative.  I think the client will win in the long run. I don't think the industry will win as long as they define themselves as providers of awards.  I personally believe this effort will create an even wider divide between the people who provide quality program design (hey - that's us) and those that provide quality, low cost fulfillment.  So I'm happy about that.

The industry I'm afraid needs to redefine itself.  Should there be an "incentive rewards" group and an "incentive design" group - each with their individual members and approach? 

I think so - let those that sell toasters and trips fight for the shrinking margin on standard offerings within their group.  Clients win by getting better prices. 

Let those that live by the design of programs focus on that - and we'll fight for increasing margins based on better program results for our clients.

Too much coffee this morning?  Possibly.

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Comments

[Paul Hebert]

Comments from Bruce Bolger - President and founder - Selling Communications from an email sent to Incentive Intelligence. Posted by me with his permission.

Hi, we read with interest your blog referencing the Corporate Rewards Exchange. You should feel pleased that two people have forwarded this to us today.

While I agree with your view that the industry has commoditized itself by focusing on products rather than on solutions, you inaccurately report key aspects of the CRE.

1. There is no pricing transparency with the CRE. Users will still have to make contact with brands or fulfillment companies to get their very best pricing, and those prices will never be posted publicly on the Web site. It is simply a platform for brands and fulfillment companies to sell products in bulk to end-users and resellers for gifts and rewards, and to incentive and marketing companies for use in points-programs. All pricing for points programs is established as it always has been between the suppliers and incentive companies. What CRE automates is product updates, pricing, and the complete redemption, tracking, and billing process.

2. While Motivation Strategies is the official magazine of the CRE in the sense that the magazine provides a communication platform, the CRE will actually be a separate company open to participation by licensees who want to become involved. We are working with other media companies as well.

3. We believe one the biggest opportunities for the incentive business in this economy is to show clients how incentive programs are among the very few marketing tactics whose cost is based in part on results, and that today with Web and e-mail communication, incentive programs actually can become powerful target marketing tools for any size organization. The CRE offers tools that enable incentive companies to provide very powerful communications, learning, and reward platforms for clients with budgets under $100,000, a huge category almost completely overlooked by our industry.

Based on your background, I'm sure you'll agree that rewards are just part of the performance puzzle, and that it makes sense for incentive companies to find ways to use rewards as powerful, highly targeted relationship-building tools providing the most memorable experience with the best possible redemption experience. In the end, though, they are just part of what engages and motivates people, and any program that overlooks the other elements does so at the peril of the planners responsible for it.