After one of the most difficult economic periods in recent history, companies that cut merchandise are once again including it in their incentive mix, according to joint research between Corporate Meetings & Incentives and the Incentive Research Foundation.

The study—which defines merchandise as “material awards that are not travel-related, including gift cards and logoed apparel options”—was conducted in spring 2011 to identify the latest trends in the corporate incentive market. A total of 160 respondents who plan merchandise incentive programs or purchase incentive gifts for their companies responded to the survey. Their input provides new data on the state of merchandise incentive budgets, the types of behaviors rewarded, and the range of merchandise selections included in program offerings.

Budgets Stabilize

At the end of 2009, many organizations remained uncertain about sales growth for 2010, and forecasts were clouded by lingering pessimism. However, according to our respondents, it turned out to be a good year: Almost 75 percent reported their 2010 sales revenues either increased or remained unchanged. The outlook for 2011 sales is even better, with 38 percent of respondents expecting them to be about the same and almost half (48 percent) predicting them to improve from 2010.

This trend back to financial stability coincides with the growth in merchandise incentives. Only 11 percent of respondents indicated that they were forced to cancel their merchandise incentive programs in 2011. That number shrinks even further—to only 6 percent—for those who predict their 2012 programs will be canceled.

As for budgets, fewer than 10 percent of respondents reported a moderate or significant decline in their 2011 budgets. Sixteen percent indicted only a slight decline in funding. The vast majority saw budgets this year that were about the same or higher than in 2010, and 15 percent are spending “moderately” to “significantly more” on merchandise this year.

The declines that did occur were the result of internal cost-cutting pressures from top executives (38 percent) or outside market forces (30 percent), rather than concerns about media scrutiny (11 percent), federal legislation (8 percent), or internal employee perception (8 percent). Once again, predictions for 2012 are even better, with only 2 percent expecting a moderate or significant decline in their budgets, about half (46 percent) predicting their budgets to remain the same, and 41 percent expecting their budgets to increase.

Changes in Behavior

One might expect budget reductions brought on by a soft economy to result in leaner programs characterized by reduced participation or lower quality. Many respondents, however, said they accommodated budget declines by changing the types of behaviors rewarded and reevaluating the blend of merchandise they offered. They also leveraged the motivating power of interpersonal recognition. As businesses aspired to do more with less across the entire enterprise, program planners followed suit by focusing on quality versus quantity. And as organizations stressed sales force skills and preparedness in this challenging economy, respondents renewed their focus on sales training.

The response to all these changes by the qualifiers themselves reflects a new attitude among program winners. When asked about the feedback they got regarding 2011 cutbacks, 30 percent of respondents said recipients were “as positive as before despite the changes” and 53 percent indicated that “people are getting used to receiving less.” Not a single respondent out of the 160 said their incentive winners were dissatisfied!

The Who, What, and Why

As merchandise incentive programs begin to regain corporate mind share and supplier bandwidth, it will be important to understand who the primary beneficiaries of these programs are, what types of behaviors are being rewarded, with what items, and for what amounts.

As anticipated, sales populations stand to gain the most from the turn of the tide, with 72 percent of respondents reporting they purchase merchandise for sales incentive programs. A little less than half of respondents said their merchandise purchases go to customer gifts, and a third reported their merchandise acquisitions are used as incentives for nonsales employees and/or outside channel personnel. This heightened focus on sales, customers, and supporting staff mirrors the trend of companies actively reinforcing those value-building selling behaviors that lead to sales growth and customer retention.

In addition, about a quarter of respondents purchase pillow gifts, anniversary gifts, or consumer incentives. Merchandise purchases are less common for safety incentives (19 percent) and wellness incentives (15 percent), although recent federal legislation and an overall focus on healthcare may cause wellness-related funding and purchases to increase in subsequent years.

The most common awards items are apparel (69 percent) and gift cards (67 percent). Also popular are awards/plaques/trophies (58 percent), office accessories (54 percent), golf products (53 percent), and electronics (53 percent). Jewelry and watches were the least commonly used (32 percent). A fading focus on traditionally extravagant items (jewelry), coupled with renewed interest in more practical items (apparel and gift cards), reflects the recessionary mind-set away from excess and toward everyday usefulness.

The choice of items is also driven by the per-award budgets currently funding merchandise incentive programs. More than 40 percent of respondents said that their per-award amount was less than $50. Twenty-four percent budgeted between $50 and $99, and 23 percent between $100 and $250. The lower thresholds on award amounts naturally limit the availability of high-end electronics, luggage, and jewelry offerings.

Eighty-seven percent of respondents reported they purchase logoed or branded items, suggesting a strong push toward corporate branding/identity within merchandise incentive offerings.

Trend Toward Sustainability

As both corporations and individuals struggled through the recession, there was no shortage of press coverage about the nationwide movement toward items and activities that provide deeper meaning and connection to wider society. While there have been a number of studies quantifying how this has been (and will continue to be) reflected in consumer purchases, to date there have been few studies on how this trend has affected corporate merchandise incentive purchases.

Interestingly, when we asked if they purchased “green” gifts, 52 percent of respondents said yes. Likewise, over 60 percent stated they make a concerted effort to purchase locally sourced items, showing a strong push toward corporate sustainability.

Positive Future

The data indicates the merchandise incentive industry has finally reached an inflection point—the definitive moment when the numbers move from negative to positive—with 2011 emerging as the transitional year.

Eighty-seven percent of respondents maintained their merchandise programs moving into 2011, and that number will increase to 92 percent heading into 2012. Respondents experiencing or anticipating budgets to remain at the same level increase from 38 percent in 2011 to 46 percent in 2012. This means that heading into 2012, two in five respondents expect their budgets will rise, with almost 15 percent expecting the increase to be moderate or significant. These numbers reflect attitudes that are far from the skepticism that dominated 2010.

Companies are easing up on their caution regarding merchandise programs, and they are renewing their focus on sales activity and customer retention. Apparel items and gift cards have emerged as highly utilized rewards in the new economy. Merchandise incentive programs also reflect nationwide trends toward quality and sustainability. The challenging environment of the past few years appears to be behind us.

METHODOLOGY
This survey is based on the responses of 160 Corporate Meetings & Incentives readers and Incentive Research Foundation members who indicated that they plan merchandise incentive programs and/or purchase incentive gifts. Data was collected May 25, 2011, through June 4, 2011.