Has The Incentive/Reward Industry Achieved Commodity Status?

This post started as a screed on SaaS but morphed into a tome on the incentive industry.  But it’s the end of the year and no one is reading these things so I thought it was as good a time as any to post it.

Hang in there – I think I have a point to make.  Or maybe it’s just a pine scent hangover from Christmas.

Set Up…

A few years back (5 or 6 me thinks) Amazon.com decided they wanted to fulfill merchandise in the $46 billion incentive/reward/recognition industry.  It was a grand move IMHO.  Amazon.com set its sights on an innovation-adverse industry protecting dwindling margins on merchandise awards.  Their goal (again IMO) – was to become the defacto standard for merchandise fulfillment in the incentive industry.  The industry was ripe for disruption.

To me it seemed liked it would be successful.  Amazon.com had a fulfillment system second to none that contained everything you could get in an incentive award catalog – plus about 3 million more things.  They had a technology infrastructure that could connect with, and bridge to, a large number of incentive suppliers without working up a sweat.  They could make a tough and expensive part of the incentive business easier and less costly.  They could enable smaller incentive companies to compete more effectively in the award delivery space than ever before.

It looked to be a win-win-win-lose.  Award earners win – they get more choice and potentially a better exchange rate.  Clients win because the participants are happier with better choice award choice and potentially better customer service.  Amazon.com wins because they get to carve out a piece of a very big pie.  Who loses?  Large established incentive companies.

Almost overnight incentive companies saw the potential to lose 50%+ of their profit from merchandise awards.  And that margin paid for a lot of things.  Things like – Executive VP salaries and club memberships (whether needed or not.)  Consulting they claimed they weren’t charging for (or I’d claim they weren’t really delivering NOR charging for.)

But, about 5 years after they started, they abruptly pulled out.  30 days notice I heard. 

Buh bye.  Sure, we’ll call you tomorrow.  (wink, wink, nudge, nudge.)

Industry Reset and Dodging Bullets

The industry let out a collective sigh of relief.  The big, bad internet retailer couldn’t hack it they said.  We were victorious they said.  We’re invincible they said.

They all missed the point I said.

Commoditization

To me it was the first credible shot across the industry’s bow – commoditization was on a march – and it would ultimately win.  Amazon.com opened some eyes and created opportunities for businesses to fill the service void Amazon.com created.  Bridge2Solutions and Universal Rewards Exchange are two I know of.  And that is only the beginning.  That shot was a warning shot.

And another shot is being fired – and it is gonna be the money shot. 

That shot is SaaS.  The second leg of the incentive industry stool.

Value Chain

Let’s start with the facts – incentive companies provide four basic things to the end-user client…

1. Program Design Expertise and Program Analysis
2. Technology to track and report behaviors/objectives/outcomes
3. Communication with participants
4. Reward fulfillment

That’s pretty much the complete value chain.  Four legs of the stool.  Stable. 

At least it was.

I submit – and have been talking about this for about 10 years – that starting with #4 and working up – the industry is being commoditized.  The industry is losing any value they initially provided.  One by one the legs are being kicked out from under it.

First – as we already discussed, after Amazon.com award fulfillment is somewhat commoditized – every player can pretty much replicate the services of any other player either through in-house (an expensive investment I might add) capabilities or by buying it through one of the fulfillment providers I mentioned.  It’s all on line – everyone’s catalog has a million items (or so they say.)  The pricing on the awards is pretty much now a function of how much margin a provider is willing to forego.  Leg one, gone. 

Second – Communications is now almost exclusively electronic which doesn’t carry nearly the margin associated with designing, printing and mailing – doing it old school.  Most incentive companies have lost all the margin on that element of their value prop… or it has been totally usurped by whoever is doing the company’s employee communications – either in-house or through an Ad Agency.  Leg two, gone.

And finally – what prompted this post…

Technology is now the latest “commoditized” offering.

SaaS has become the new black for incentive companies.  Large and small – incentive companies are heralding their new offering – cheap, fast , good – technology to run your program.  Gone are the days of programming a custom interface, custom data structure, custom tracking and reporting.  Gone is the 6 figure set up and 5 figure monthly “administrative fee.”

SaaS is what is for breakfast, lunch and dinner.  And it’s not just the incentive companies.  Increasingly, I’m seeing inroads from outside the space.  Rypple, a recent high-profile purchase by Salesforce.com provides a rudimentary tracking mechanism and has highlighted it’s recognition component.  Compensation software providers already track compensation-based incentive programs.  What’s the difference between points and dollars to the computer?  Not much.  I’ve often wondered why these non-incentive companies haven’t been hooked up with merch provider – seems a logical way to grow.

Everyone has a SaaS solution.  Or say they do.  Everyone can launch a program in 5 days with a “customized” interface.  Everyone has a flexible reporting tool.  Everyone can do the tracking and reporting without building a custom interface and backend.

So what happens when the offerings are similar?  Commodity baby.

Bring on the price wars.  When everyone can do the same thing – the only variable is price.

Leg three, gone.

What’s Left?

Tracking, Fulfilling, Communicating – three legs – all automated and all similar from provider to provider.  All commodities.

IMHO – the industry is now a stool with one leg.  Not the most stable platform is it?  Especially if that leg is made of paper.  Most incentive companies don’t have a very deep bench when it comes to intellectual capital or design and analysis expertise.  A few do… but clients aren’t seeing the value.  That’s not speculation – that’s just fact.  They don’t want to pay for it and since they can get the same “program” down the street – why bother?

But is it Better?

The real question for those of you who buy these programs – are the programs today better than the ones a few years back when almost everything was bespoke? 

I’d say yes and no.

Yes… having a program that isn’t too poorly designed is better than not having one at all.  Programs are more accessible to more companies than ever before.  If in fact they are built on “best practices” they should be better than the home-grown variety.

No… having a program that looks exactly like everyone else’s doesn’t really give you a competitive advantage either from an employee or channel perspective.

The price to implement has dropped precipitously.  Good for the client.

The quality of design has also dropped.  Bad for client.

It’s a balance.  Less quality, less cost. 

I think the market has decided they don’t mind buying mass produced programs at a mass produced price.

What do you all think?  Is there really a difference in suppliers anymore or due to commoditization of the infrastructure and a lack of investment in the knowledge capital – or have these changes brought better programs to the market? 

Related articles

• The First Of Many? Incentive Companies Due for Rebranding (i2i-align.com)
• Where To Apply Gamification In Your Incentive (i2i-align.com)
• Following Up on Award Choices – The Award Stalker (i2i-align.com)
• Upending the Incentive Industry Business Model (i2i-align.com)