Although most marketers of consumer products focus on the retail market, many with desirable products have discovered the almost $20-billion corporate market for incentives, gifts, and promotional products. While there are important distinctions between incentives and promotional products, both markets are of interest to any company whose products are used by consumers. This article is designed to help companies explore and profit from the corporate market for incentives and promotional products, and to teach managers and employees about this important, often overlooked marketplace.

T A B L E     O F     C O N T E N T S
Key Definitions Scope of the Market Today's Buyer Resources Required What it takes to Succeed Sales and Marketing Taxes and Legal Issues Potential Competitors	Types of Suppliers Directories of Suppliers Associations Conferences and Trade Shows Seminars Research Books Publications

KEY DEFINITIONS

• incentive: any special offer used to spur an action by consumers, middlemen, salespeople, or employees; can include cash, merchandise, travel, or services. Merchandise commonly used as incentives includes high- or low-ticket goods desired by consumers, ranging from home entertainment systems to windbreakers. Since the purpose of the incentive is to spur people to action, it must be something that people desire; it usually has no imprinting or engraving. Prices range from as little as $5 in consumer offers to thousands of dollars in programs for salespeople, middlemen, or employees.
  
  
• premium: any type of merchandise used as an incentive; in most cases, incentives and premiums are used as part of a broad sales, marketing, or compensation program that has specific objectives and a definite beginning and an end.
  
  
• promotional products (also known as ad specialties): in contrast to incentives and premiums, promotional products are given away with little expectation of immediate action on the part of the recipient; they almost always bear a visible corporate imprint used to convey the giver's identity. The most effective promotional products aren't designed to motivate but serve some sort of purpose that maximizes their long-term visibility and marketing impact by, for example, providing top-of-mind awareness and brand-building benefits. Examples of promotional products: apparel, mouse pads, calculators, clocks and watches, and low-cost electronic items. Many companies use promotional products on a year-round basis as part of consumer or employee programs.
  
  
• recognition awards: gifts or services given to employees or customers as a thank-you for performance not related to an incentive program; they can range from low-priced commemorative items like jewelry to heirloom wall clocks.

SCOPE OF THE MARKET

There hasn't been a comprehensive study of the incentive industry since the beginning of the decade, but estimates put travel and merchandise sales at around $29 billion in 2005. The promotional products industry, which has significant overlap with incentive merchandise, posted $18 billion in sales in 2005, finally regaining the ground the industry lost with the recession and the fall-out from 9/11, according to a study by Promotional Products Association International. U.S. businesses put those billions to work to motivate consumers, employees, dealers, and salespeople (see Research). Businesses use incentives to:

• motivate employees to work toward a common goal;
• recognize performance;
• get people to make a purchase they might not otherwise make;
• reinforce a marketing message.
  

Noncash awards, such as merchandise, are used to avoid the pricing or compensation issues raised by the use of cash. Merchandise is also used by companies and organizations in consumer promotions, such as gift-with-purchase offers, contests/sweepstakes, self-liquidators, and continuity programs.

The Incentive Federation Survey of Motivation and Incentive Applications (2005) showed that most American businesses deployed incentives in more than one way. These were the four basic ways corporations used merchandise and/or sales incentive travel:

• 83 percent use travel and/or merchandise as sales incentives; they are given to sales management, internal and external sales forces, dealer and distributor salespeople, independent sales reps and sales support workers.
• 72 percent use these incentives for non-sales recognition and motivation; these programs include safety, productivity, quality control, suggestion boxes, training/self improvement programs, ride share, team work and attendance.
• 68 percent use them for consumer/user promotions for both products and services.
• 49 percent use them in dealer incentive programs where incentives are given to dealer principals, distributors and wholesalers.
  

Cash is undoubtedly a motivator, but incentive professionals depend on the added-value their products and services bring to justify their existence. Consider the Incentive Federation study, which interviewed managers and executives from every size of American business including 18 percent who had more than 1,000 employees. The study seems to bear out the notion that cash is not king:

• Nearly 80 percent of respondents say that travel and merchandise awards are remembered longer than cash awards; in fact, 60 percent of employees see cash as part of their compensation package, the respondents say.
• Almost two-thirds of respondents say cash awards are remembered the shortest time.
• About three-fourth agreed “they can build a more exciting, memorable program around travel or merchandise than cash."

According to The Incentive Federation’s 2005 study, buyers evaluated incentive programs the following ways:

• 74 percent based success on total units or dollars sold
• 55 percent related success to profits on incremental sales
• 41 percent said it was increased market share
• 32 percent said it was the cost of the program as a percentage of incremental sales
• 7 percent said it was percent of partipants who reached their goal or quota.

TODAY'S BUYER

When it comes to incentives and promotional products, today's corporate buyer is not a purchasing manager but a midlevel manager in sales, marketing, operations, customer service, production, training, human resources, or product management who has the responsibility of motivating and recognizing key people. Because of downsizing, the typical buyer has many duties that have little to do with incentives and promotional products. In addition, many of these companies are only occasional buyers of incentives and promotional items, and it's impossible to predict whether their orders will be large or small.

To make things more confusing, the market is filled with several types of middlemen with different levels of involvement. These include incentive representatives, promotional products distributors, incentive companies, retailers, meetings services companies, and promotion and advertising agencies (see Types of Suppliers). Many of these companies have only sporadic involvement with various aspects of the corporate market. Nevertheless, corporate customers still require current product and pricing information, color spec sheets suitable for reproduction, access to samples, and other promotional support. (Enlightened buyers pay for samples, often with a special credit when the business comes in.) Most significantly, buyers demand the same high level of customer service that a major retail account requires without necessarily offering the opportunity for a long-term relationship.

RESOURCES REQUIRED

Because there are 20,000 to 25,000 decision-makers and decision-influencers involved with significant orders for incentives and promotional products, they can be sold and marketed to relatively inexpensively (see Sales and Marketing). However, while the benefits of advertising, trade shows,  e-mail, and direct mail can be enjoyed for a relatively small budget, it requires a qualified sales manager with adequate support to capitalize on the opportunity.

WHAT IT TAKES TO SUCCEED

Not just any company can make it in the incentive or promotional products business. Success starts with having a product or service that people want. After all, how many people can you motivate, recognize or communicate with using something like a pipe, a ball bearing, or a toilet bowl plunger? Suppliers that succeed usually sell something that is (a) desired by at least an identifiable demographic group and (b) has demonstrated that success at retail. Most companies, in fact, get into the corporate market simply because some organization calls and asks to buy a large order for a business purpose. Despite the potential, success doesn't come easily in incentives and promotional products. The highly fragmented distribution of corporate business has frustrated many major suppliers, some of which have abandoned the marketplace simply because they initially threw more resources than justified at an elusive target. Here are the issues that your company has to address before expanding its effort in the corporate market:

• Who wants your product? What demographic group or audience buys and enjoys the product or service your company sells? Is it a large market? Difficult to reach? Answers to these questions will help define your market potential.
  
  
• Product positioning. Where do your products fall in the corporate marketplace? Would they be used as gifts, recognition awards, promotional products, or items for sale in company stores? If useful as incentives, would they work as prizes in sweepstakes or as high-end awards for salespeople, dealers, or employees? Are they, perhaps, better suited for lower-priced awards, midlevel awards, or even lower-priced items used in consumer promotions? Many companies have products that fall into more than one of these categories.
  
  
• Adaptability to the marketplace. Can your company handle the special requirements of the incentive and promotional products market? Examples: having to offer multitiered pricing to middlemen and end-users; using multiple distribution channels; meeting erratic and difficult-to-project volume and timing demands; having to live with big swings in order sizes and little or no discernable seasonality. If a major corporate user depends on having a large quantity of your company's products or services available at a certain time, you can't simply delay the order because of demands made by a major retail customer. Management will also have to live with the fact that a program sold this year may not result in actual redeemed sales until a year later. Tip: Determine the average order size your company is prepared to handle. The corporate market offers some high-volume prizes but also lots of small orders flowing through numerous sources.
  
  
• Going to market. Major companies with the most desirable products use incentive representatives to reach customers in the corporate market (see Types of Suppliers). Others sell primarily through promotional products distributors. Some sell direct. Most do all of the above but won't necessarily admit it. However you decide to go to market, remember that success lies in identifying the key people most likely to buy and resell your product or service, and giving them meaningful benefits for doing business with you.
  
  
• Developing the appropriate strategy. This step should precede the process of selecting specific tactics. The tactics you use will depend on your overall plan, market positioning, and distribution channels. The strategy should spell out such things as reasonable goals, market opportunity, unique selling proposition, current and future market positions, projections, and methods of going to market. Most of all, it must define your market positioning as specifically as possible.
  
  
• Can you devote the necessary resources to the market? Many companies send a lone manager out into the corporate business (often called special markets) with little in the way of staff or marketing support. Others spend too much in wasteful marketing and end up abandoning the market for the wrong reasons. The incentive and promotional products market demands more in the way of management, sales and marketing savvy, and expertise than it does money, but savvy and expertise sometimes are the rarest commodities of all.
  
  
• Develop an account-based strategy. Since relatively few companies will make up a huge percentage of your organization's revenues in this marketplace, every sales and marketing effort should be entered in a continually updated database of your best prospects. Companies using account-based management get far more mileage from advertising, trade shows, and direct mail because they are able to translate the marketing into measurable sales.
  
  
• How is your follow-up? Most companies in the corporate marketplace spend considerable sums on advertising, direct mail, and trade shows, and almost nothing on making sure the leads are followed up, tracked, and acted upon. Lead follow-up is so tedious and seemingly unproductive that most salespeople would rather not do it at all, so you will have to consider outsourcing the process or hiring part-time salespeople to do the job. Lead follow-up not only helps you find golden opportunities amidst the considerable number of poor quality leads generated by any marketing effort but enables you to determine your cost-per-customer, the best index for use in determining how to apply your marketing dollars.

SALES AND MARKETING

Compared to most consumer markets, the incentive and promotional products businesses are relatively inexpensive to penetrate in terms of sales and marketing dollars. The Internet and sales automation software have reduced costs even more. The basic sales and marketing procedures differ little from those that prove successful in any business-to-business situation. The best approach is to integrate print advertising, permission-based e-mailing, direct mailing and other media you might chose into a coodinated, consistent campaign. This includes the following:

• Advertising. While not necessarily required, advertising offers a rapid way to get known in the incentive and promotional products business.  Advertisers that have a system for conscientiously following up leads will invariably see their advertising break even, and they may even come out several dollars ahead.
  
  
• Direct mail. Because most corporate customers buy on an occasional basis, any type of response-oriented advertising yields relatively little return. There are few offers that will get a company to do an incentive program when they don't want to do it. Direct mail in this business works best when targeted at a specifically defined prospect list and fortified with useful information and added-value offers that encourage people to sample the product.
  
  
• The Internet. An attractive, easy-to-use Web site and an effective, permission-based mass e-mail campaign might be the most cost-effective way to reach buyers.The Internet  can also improve the buying experience. Many Web sites are now selling logoed merchandise online, offering the incentive buyer the chance to upload a logo, order products and pay over the Internet.
  
  
• Trade shows. Because most of the industry's key middlemen and buyers go to The Motivation Show at McCormick Center in Chicago in the fall or to the New York Premium Incentive Show in the spring, suppliers who know how to exhibit can more than pay for their investment at these shows. They also get invaluable names of future prospects and get the critical face-to-face contact that has become increasingly difficult to get through sales calls. Critical steps for success include a pre-show marketing plan to make sure buyers know you're there; some sort of at-show visibility to direct them to your booth, and a post-show program to reach buyers looking for merchandise throughout the year. Most important of all, however, is a lead follow-up program.
  
  
• Lead follow-up. Most companies fail to follow up effectively on leads generated from advertising, direct mail, and trade shows. Why? Nobody wants to do it. Most leads generated from marketing efforts are not serious prospects, and many involve tedious phone-tag and calls that go nowhere. However, the benefits of effective lead follow-up warrant finding a solution: If only two leads in ten represent viable prospects (the average return of the best marketing program), you can more than pay for your marketing investment and build a long-term, continually updated database of serious prospects.
  
  
• Database management. If your company doesn't use a contact- management program, you are missing out on the lowest-cost way to identify and focus on the people most likely to buy. (The software can be as basic as ACT, Maximizer, or Gold Mine.) By having your salespeople using their contact-management programs and uploading their databases regularly into a central location, you can significantly reduce your costs by identifying the organizations most likely to buy your products and services, then communicating systematically with them.
  
  
• Relationship-building. Many companies that manage to come up with a good database of serious prospects do little more than send out brochures or trade show invitations. Savvy marketers go a step further and send out informative newsletters or other forms of communication on a regular basis. By providing potential customers with useful information in a concise, benefits-laden format, you stand a better chance of being chosen when people are in a buying mode.
  
  
• Long-term sales follow-up. Most suppliers leave it to salespeople to keep up with prospects; often, there's no consistent plan for long-term follow-up. Developing a means of consistently following up with prospects can pay off handsomely, since these are the people most likely to buy. This sort of follow-up often can be provided by the same organization charged with doing initial lead follow-up.
  
  
• Integrated solutions. A growing number of suppliers, recognizing the need for an integrated, multi-touch strategy to engage prospects and convert them into buyers, are turning to more sophisticated customer relationship management (CRM) programs or a permission-based integrated marketing and communications program like Solata (www.solatatech.com). Programs like Solata offer even greater advantages. By having salespeople use their contact-management programs to collect data and uploading their databases regularly into a central location, you can significantly reduce your costs by identifying the organizations most likely to buy your products and services, then communicating systematically with them via phone, e-mail and even RSS, using a centralized contact management system that links with a robust sales- and lead-management tool. And with permission-based, integrated e-mail marketing, you have a low-cost way to reach these potential buyers and update their contact information on a regular basis.

TAXES AND LEGAL ISSUES

From the supplier's standpoint, the most critical legal and tax issues involve sales taxes. Generally, suppliers are required to levy sales taxes in every state in which they have a "nexus," or place of doing business. However, the definition of nexus lies in a gray zone, and many states would like to take advantage of this. Suppliers can avoid sales tax in many cases if they are drop-shipping products to an out-of-state recipient.

For users of incentives and promotional products, the major issues involve games of chance and products packaged with food. Federal Trade Commission regulations bar companies from running a promotion that requires consumers or the trade to pay in order to participate. That is deemed to be a lottery. An alternative entry vehicle must be offered with any sweepstakes or contest. Likewise, dealer incentive programs using elements of chance are illegal if they require a purchase, but they are used frequently and that never seems to attract the interest of the authorities.

Many other elements go into making sure a sweepstakes is legal, of course. The Food and Drug Administration has regulations regarding shipment of premiums in packages of food. The use of premiums with products associated with children requires great care. There are also many state regulations involving use of premiums and incentives by gas stations and certain other industries, such as pharmaceuticals, insurance, financial services, liquor, and tobacco. Certain industries have their own practices. For example, the pharmaceutical industry agreed in 2002 not to give any incentive merchandise to doctors unless the product could be used in the doctors' practice.

Companies may deduct up to $25 per person per year for incentives or business gifts. Generally, imprinted products costing $4 or less are not counted toward that $25. Employers can deduct even greater amounts for most employee achievement awards used for safety or length-of-service programs. Companies can deduct $400 per employee per year as long as they meet certain rules, which mostly forbid the use of these awards to replace compensation. A written plan approved by the IRS can allow up to $1,600 deductions per employee per year. Deductions are generally not allowed for achievement awards in the form of cash, travel or gift certificates. The IRA outlines rules in Section 274(j). The Incentive Marketing Association has more information on taxes here.

Generally, if an employer keeps awards within the deduction limit, the awards are not taxable as income on the employee's return. But many awards are considered taxable income for the recipient. Employers are required to send an employee a Form 1099 form if the total of taxable awards is $600 or more.

POTENTIAL COMPETITORS

Other consumer products manufacturers may have "special markets" departments specifically designed to handle the needs of corporate customers seeking volume orders of products for use in incentive programs, meetings, training programs, as gifts, or for other company use. If they are doing the job right, they have people on staff who understand corporate incentive needs, such as drop-shipping of merchandise to recipients, wholesale prices, electronic art, and the critical need to have the merchandise available when the client's program requires it.

Retail direct mail catalogs often offer gift certificate programs for the incentive business. Volume discounts generally are available through corporate sales departments, along with dropshipping services.

Debit cards. The low cost of electronic point-tracking makes it possible for leading credit card companies, such as American Express, Visa and MasterCard, to work in partnership with incentive companies offering debit cards as employee and customer rewards. These programs offer a powerful target marketing opportunity that make them highly appealing for incentive users and promise to garner significant market share in the years to come. This will not reduce overall sales of merchandise for corporate use but will shift it into traditional retail outlets where debit cards are used.

TYPES OF SUPPLIERS

The type of supplier you sell through depends on the precise nature of your product or service, and its position in the marketplace. Obviously, companies whose products are most suitable as premiums and recognition awards will use a strategy somewhat different from one focused mostly on promotional products. Lists of incentive representatives, and other middlemen and agencies, are published in SupplierFinder.com, the online directory of The Motivation Show, and the annual directories of Incentive and Potentials magazines.

Incentive representatives are sales agents for the 1,000 or so top consumer products companies that sell directly to corporate end-users and agencies, usually at wholesale prices (they are compensated by commission from the manufacturers). Each representative usually handles between 30 and 50 product lines, and covers a designated region of the country. There are probably between 200 and 300 incentive representatives in the U.S. Most belong to the Incentive Manufacturers Representatives Association (IMRA), which offers a free directory of representatives (see Associations). The relatively small number of top incentive representatives and the large number of suppliers that want their attention make it impossible for all but a few suppliers to use this channel.

Promotional products distributors (also known as advertising specialty distributors) can obtain and sell just about any type of product from a key chain to a TV set. They act as middlemen and, depending on the added-value services they provide, mark up the wholesale prices they receive from manufacturers. Depending on the company, these services may include design, imprinting, communications, and fulfillment. The number of advertising specialty distributors in the U.S. numbers more than 20,000, and most are small companies; 95 percent have less than $2.5 million in sales. They handle the business of top companies with huge promotion budgets as well as the thousands of smaller corporate customers that will never spend more than $1,000 a year on merchandise. While there are thousands of advertising specialty distributors that also buy programs involving premiums, the average order size is around $1,000, making this a difficult market for many consumer products manufacturers to reach. Even more daunting, these distributors might sell as many as 20,000 different items, making it easier for them to be loyal to their relatively small number of customers than to the thousands of suppliers vying for their time. To find distributors, look in the Yellow Pages under "Advertising Specialties," or, for a free directory, contact Promotional Products Association International (see Associations).

Incentive companies range from small shops offering specialized services to large full-service agencies offering merchandise, training, communications, reporting, catalogs, gift certificates, and travel. These companies resell merchandise and travel to end-users as part of incentive programs and usually mark up the products they buy. A few offer their own complete merchandise programs. There are probably no more than 100 incentive companies in the U.S., and most don't do business with small users.

Promotion agencies range from boutique shops specializing in a few specific types of promotion to high-powered companies of 100 people or more offering a broad range of services. These companies often will mark up products, but sometimes they work on a cost-plus basis with their clients. There are more than 1,000 companies calling themselves promotion agencies; probably fewer than 100 have annual volume measured in the millions of dollars.

SUPPLIER DIRECTORY

• The Motivation Show Directory provides the most comprehensive directory of premium and incentive product suppliers. To find a supplier, go to #9520, Supplier Finder.
  

ASSOCIATIONS

For related associations go to the Industry Associations page.

CONFERENCES AND TRADE SHOWS

For a list of Industry Events, go to #9510, Calendar of Industry Events.

SEMINARS

• Incentive Marketing Assocation seminars. Two annual seminars produced by IMA address the basic issues of incentives in a program designed for both suppliers and users. Speakers include representatives of suppliers, incentive companies, promotion agencies, and companies that use incentives. Held in conjunction with the New York Premium Incentive Show and The Motivation Show. Call 630-369-7780.
  
  
• Motivation Show Seminars will be produced by the Incentive Marketing Association and the Society of Incentive & Travel Executives (SITE) in conjunction with The Motivation Show in Chicago. Courses will cover such topics as how to run an incentive program, trade incentive strategies, employee incentive strategies, consumer promotions, award-winning incentive programs, gift certificates, and achieving corporate objectives through incentives. Call 630-434-7779.

RESEARCH

Relatively little research exists in the field of premiums and incentives. Following are studies that provide useful information for those in the business:

• Federation Study 2005: Incentive Federation Survey of Motivation and Incentive Applications looks at how incentive buyers used incentives and what media they used. The study looks at the four basic incentive programs (consumer promotions, dealer incentives, sales incentives and non-sales recognition motivation) and examines what worked best for each program in terms of how the program was communicated to the target audience, who provided the merchandise and what products were used. The research also examines what incentive buyers thought of  as an incentive, how they judged a program’s success, and the extent they were using the Internet to run their programs. Available here.


• A Study of the Incentive Merchandise and Travel Marketplace (2001) looks at the size and scope of the incentive industry. Business executives were interviewed about why they did or did not use incentives, and where they got them if they used them. The Incentive Federation commissioned the Center for Concept Development, who used Ralph Head & Associates to design the survey. Available  here.
  
  
• Linking Performance Strategies to Financial Outcomes – The Interaction Between Marketing & Human Resources and Employee Measurement & Incentives surveyed 175 executives about how marketing and human resources efforts affected the behavior of customer-contact employees and thus on organizational performance. The study was performed by the Forum for People Performance Management & Measurement at Northwestern University. Available here.
  
  
• Incentive magazine’s “Facts Report 2006 Merchandise” looks at budgets of incentive buyers, per-recipient outlays and product choices. Available here.
  
  
• Online Incentive Council: Incentive Survey 2005 looks at the use of Internet resources to run an incentive program and the resistance of some incentive users to the concept. Available here.
  
  
• The 2005 End Buyer Study provides information on the decision-making habits, technological needs, purchasing trends and attitudes of promotional products buyers. Published by Promotional Products Association International, the guide is available for $60 for non-members and $35 for association members. Call 972-258-3087.
  

BOOKS

In addition to the books listed below, case studies of successful incentive programs can be obtained at no charge from the Incentive Manufacturers Representatives Association (703-610-9021), and the Association of Retail Marketing Services (732-842-5070).

Incentives in Marketing & Motivation, by George Meredith and Robert P. Fried Ph.D., is a comprehensive text on the incentive marketplace. The content is illustrated and includes numerous case studies that reveal the breadth and potential of the incentive marketplace. Available through the Incentive Marketing Association, $34.95. Call Karen Renk, 630-369-7780.

Sales Promotion Essentials, by Don E. Schultz, William A. Robinson, and Lisa A. Petrison, has several chapters that relate to planning premium programs. 197 pp. $17.95. NTC Business Books. Call 800-323-4900.

The Loyalty Effect, by Frederick Reichheld, does not address incentive programs specifically, but it's a landmark book on the power of employee and customer commitment. 320 pp. $24.90. Harvard Business School Press. Call 800-988-0886.

PUBLICATIONS

For a list of relevant publications, please go to the Industry Publications page.