One-stop shopping has started to hit the incentives industry as clients demand an ever-increasing range of complementary services from their agencies. Convenience, better relationships and greater purchasing power are the reasons buyers prefer an all-inclusive service, while suppliers can make better margins from add-on services.
But is it a “win-win” situation, or are clients being short-changed on the quality of service they receive? Some observers have questioned whether incentives agencies are able to provide a consistently high level of expertise outside their area of core competence – the favourite jibe is “jack of all trades and master of none”.
Graham Povey, managing director of Capital Incentives, is quick to refute the criticism: “It’s absolutely true that there is a demand for a wider range of services now,” he says. “But far from being jacks of all trades, we have to be masters of all as well. It’s the only way to attract the larger clients with sizeable budgets. We don’t only want to be the provider of the end incentive, so to deliver our solution we have to offer the other services as well.”
The recent changes in National Insurance legislation, for example, created an additional demand from the client to have its tax issues handled. “Clients were confused and they wanted someone to take the burden off them, so by default we became tax consultants as well. We teamed up with Ernst & Young because we had to know enough to help clients deal with it.”
But Kevin Rogers, group marketing manager at Page & Moy Marketing, concedes that poor service delivery is an issue for suppliers trying to broaden their offering. “An agency with less experience may take on too much and run the risk of not being able to do it all. We have recognised that in the future, we will increasingly have to offer the full integrated package to clients, but it is vital that we are specialists in each individual area,” he says. “Knowing our clients’ business is part of that. We understand how their industries work and how their relationships are built.”
One option for agencies is to buy in additional skills as and when they need them, but Rogers is not keen on this option. “Where we need specialists, we have them in-house. We try not to use external consultants because we lose control,” he says. That way, clients get the benefit of a wider range of services under one roof.
However, some critics claim that clients are being misled by the convenience of a one-stop shop and may be missing out on independent advice that is not tied to a particular incentive product.
Motivforce Group business development director Tim Lofts believes that traditional incentive suppliers can be too focused on their product. “There is far more to managing performance than offering a reward. Sometimes we have talked to a clients’ staff and established that there are many other barriers to performance. Often we will go back to a client and say that this is not an incentive issue,” he claims. “Our role is to offer the best advice because we have no axe to grind. We price bought-in services in a transparent way, so it doesn’t matter to us whether we say that the best solution is a travel product or something else.”
An integrated approach
The Marketing Hut managing director David Lazarus agrees: “An incentive programme can be the answer but it is rarely the total solution. We ask what the problem is – for example, motivating staff or encouraging consumers to buy certain products. Then we look at other areas affected by the problem and decide how to solve it with a campaignable method. We build a campaign around a programme, not a product.”
The implication is that the new breed of integrated agencies are better equipped to handle a sophisticated motivation programme than traditional incentive agencies. This may be particularly true of third-party programmes, where the participants are probably being offered a range of incentives from competitor companies.
Hugh Taylor, chief executive of Promotional Campaigns Group, part of WPP Group, comments: “It’s very easy to be out-bought with simple incentives. There are always some companies who will have more money so the trick is to out-think rather than out-bid.”
Consulting the market
PCG is running a major dealer staff incentive programme for European Telecom, Europe’s largest mobile phone distributor. The campaign includes a wide range of activities from direct mail to press ads, a specially designed Website and staff training. Taylor claims that because many suppliers are tied to their own product, they do not spend sufficient time researching the audience and identifying what they find most motivating.
“The mobile phone market is awash with incentive programmes, so we looked hard at what competitors were doing. We then did a lot of research, talking to both managers and staff to identify what type of incentive they wanted,” he says.
Agencies that come from a broader marketing background have the benefit of a wider skills base, and may also be more used to a process of questioning the brief before recommending a solution. Lazarus says: “Incentive agencies’ level of expertise is definitely improving, but they don’t think outside the box.”
Lazarus believes that you have to treat an incentive programme with the same rigour you would apply to any other marketing campaign. “First, you must ask who the audience is and then what methods will enable you to reach them with a minimum of wastage. The incentive itself is the third element and the final element is loyalty, which most people misunderstand. They think it’s about repeat behaviour, whereas we are interested in people’s minds and hearts.”
Finding new incentives
But Page & Moy’s Rogers is quick to disagree with the suggestion that integrated agencies have more to offer. Because the cost of foreign travel has dropped so much in recent years, he says that Page & Moy has been forced to become much more innovative. He cites the example of a telesales incentive where the prize for the mostly young and female audience was a trip to Amsterdam and an uncut diamond. Ninety-five per cent achieved their targets.
Rogers also recommends mid-term evaluation and motivation when necessary to keep momentum going. To reinvigorate a flagging campaign for one of its clients, Page & Moy came up with the idea of a prize trip to the US and arranged for participants to visit the UK’s national baseball coaching centre on a disused RAF base.
Like many, Rogers claims that incentive providers are looking to develop longer-term relationships with their clients. Broadening their services, and ensuring they offer a high level of expertise in each area, is a vital part of achieving this. Others point out that offering the whole package improves suppliers’ profitability. Discounting is so extensive that it is hard for suppliers to make adequate margin on the reward alone.
“Clients are starting to question what added value there is in some services where they are paying a large mark-up,” says Rogers. “Increasingly we use a time-based approach so that we can cost jobs for our management time, rather than work on percentage mark-ups.”
Another solution is performance-related pay. Lofts at MotivForce says: “Our company maxim is ‘reward the behaviour you want to encourage’. Now we’re applying it to ourselves. We recognise that we work in a particularly measurable environment and if we want to form strong partnerships with our clients, we should stand behind our recommendations.
“We followed this approach recently with a new client and a $53,000 (&£33,125) fee is riding half on our ability to recruit a given number of third-party sales staff onto the programme, and half on straight sales results.”
Paying for performance
Lofts is at pains to point out, however, that performance-related pay is as much about reward as penalty. Clients accept that the other side of the coin is their commitment to pay Motivforce a bonus when the programme exceeds targets.
Unfortunately, performance-related pay is only an option for suppliers who control the entire programme – so what will happen to those who restrict their businesses to supplying only the reward element?
Lofts points out that the voucher owners are not under the same margin pressure as others in the industry because they make their money on the high-street sale. “They are in business to generate a certain amount through the till,” he claims.
The conclusion seems to be that, for the time being, they face no need to diversify. Tim Scarff, business development manager at Virgin Vouchers, agrees: “We’re most definitely not a one-stop shop yet,” he says. “Our role is to advise, not implement – and if we diversified we would cease to be a specialist.” However, even Scarff acknowledges that diversification is inevitable. “I think the market will go that way,” he says.