The Value of Points in Your Employee Recognition Award Program

 

The machinations of how the incentive industry has been hiding the price of awards in points-based systems have been around since the award stamp days (Blue Chip, S&H, Gold Bond etc.) where the redemption value of a book full of stamps depended on the grouping of merchandise items that could be redeemed.  With the inclusion of branded gift cards as part of the award mix over 20 years ago, they became the basis used to determine value of points in any type of points-based incentive or employee recognition system. 

The incentive/award industry fought the inclusion of gift cards with a variety of false information for years just to hide the value of merchandise awards that had become ridiculously higher than retail. By adjusting the number of points needed to redeem for an item of merchandise as well as the cost of the point the incentive supplier charged the client, you could easily hide the “price” of the award from the participant.  In past years it was not uncommon for incentive companies to change the cost of these points simply to camouflage the value.  We’ve seen them range from 1 cent to ½ cent to 1/32 cent to a dollar and every number in between.  Then all the incentive company had to do was provide “excellent service” to deliver these awards and everyone was seemingly happy.  

When gift cards arrived on the scene it was transparent what a $50 gift card should be worth in points.  By simply dividing the value of the card by the number of points needed to redeem for it, the cost or value of the point was apparent.   If you had merchandise included as an offering in a program the same calculation holds true.  It was then that folks started to see that the TV that looked so good in the incentive catalog had a point cost of twice or more what you could purchase the same TV at retail.

 It is no wonder that the growth of gift cards in the incentive industry has been exponential since their inception.  Today they represent by some research to be over 90% of all incentive expenditures.  And, when gift cards are available as an option along with merchandise in an incentive or loyalty program, the redemption of the points for gift cards vs the merchandise can easily exceed 95%.  If you don’t have gift cards in your recognition program and want to include them, expect a great deal of push back from your current supplier…. If included these suppliers will lose substantial profit.  

But isn’t the entire idea of recognizing an employee with an award to give them what they want with pricing that shows true value?  

 

 

Are Points-Based Rewards Programs Really Super Meaningful?

 

When a company budget only allows for nominal reward amounts like $25 up to per $100 person to incentivize or recognize employees, the typical award program options available to them are cash, points for awards and gift cards. Researchers have conducted many studies on the benefits of cash versus non-monetary rewards, but it is rare to find research to compare a points based reward system to other types of awards deliverable. In fact we’ve never seen one.  

The single biggest benefit of using a points based award system is being able to combine budgets from disparate departments, or over longer periods of time which allows the employee to grow their points account so they can redeem for larger more significant awards, and in many cases even travel.  When your total overall awards per employee is a less significant amount ex. $100 or $150 in awards, the excitement and motivation can wane especially considering the time between the issuance of the points and the redemption for a suitable award.

 Another benefit of a points based system is that it allows you to have a large array of award options in one place and promote them often.  Just make sure that if your assortment of awards includes very desirable and costly items that you have enough earning power in the program to be able to redeem for that item, and it doesn’t take an overly long time to earn those points. Check the average expected points issuance cost per employee during the program.  If that won’t allow the average employee to be able to redeem for 75-80% of the items in your catalog, your program is either underfunded or your award catalogs has too many high priced items.  Be realistic, it will save you a lot of complaints down the line.

 If you are going to implement a points based system, you need to be very diligent in your supplier search and be able to compare costs accurately.  Most award companies that sell their points system at low or no cost will make up that price difference making you use their awards in the system.  But those awards are usually priced unreasonably high compared to retail.  Everyone knows about the bank reward points you earn on your credit card.  But anyone you ask will also tell you that the prices of the award items in those programs are ridiculously high.  The best way to test the pricing is to look at the gift card section.  If a $25 gift card doesn’t cost you $25 in points issued, you are probably paying too much.

 Frankly points based systems can be the best type of incentive or recognition program you can implement, if you take the time to think through the steps above.  Here is a blog post we wrote a few years back that will delineate all the caveats you need to consider before you implement a program.  Don’t get caught up in thinking that a points based system will be the cure-all for your recognition needs. There are other ways.

The Caveats of a Digital Point Based Award Systems

Point based award systems have been in the incentive industry starting in the fifties.  In those days all the rage was issuing paper checks worth thousands of award credits or points that were redeemed for merchandise awards out of physical catalogs.  These ubiquitous points’ schemes now permeate the marketing world in all sorts b2b as well b2c programs. 

With advancing technology these software incentive management tools offer an ever increasing number of features and mechanisms for “limitless options in one simple solution,” designed to free you up and make all your incentive programs worry free!  Really?

The web is full of these systems, some very sophisticated, and it seems that every full service awards company has their own.  As new software companies spring up with the next “digital points system for the ages”, one seemingly better than the next, we think it is important to let you know that with these, the devil is indeed in the details.  And in the planning and design phase these details are critical to cost and how effective the program will be.  Before you decide on a points based system, remember the phrase Caveat Emptor, or let the buyer beware.  Here are just a couple of important details to be aware of.

Value you ascribe to a point.

To be frank, points based systems were originally invented to hide the price of the

merchandise awards.  At the time they were substantially higher than retail and by using thousands of points for an item, it was difficult to determine the actual value of that item.  With the advent of online merchandise portals it is relatively easy for your participants to determine the real value.  By simply dividing the value you determine the item to be from an online search by the number of points necessary to redeem for the item value per point is readily available.  Take the time to do a random check of items offered to see if they are competitive.  If experience is a guide….you will find that most will not be.

How and when you pay for the points

Whether you pay for the points when you issue them (most suppliers love this approach) or when they are redeemed, opens up a can of worms called “breakage” or “non-redemption.” Regardless of all the mumbo jumbo provided by the supplier, including the scare tactic of which way does or doesn’t have income tax liability, it is typically not in your interest to pay for these points on issuance….period!  We will be happy to consult with you on this particular subject if the facts are being distorted.

The complexity of your point earning rules structures

With any of these systems it’s relatively easy to download a list of participants and the

points earned for a program part.  But we have not seen one system that will take your various raw data that combines to determine how many points were earned based on the specific rules and do those calculations.  That tedious and time consuming chore is up to you.

Buying more features than you need

You don’t need a sledge hammer to crack a walnut.  All of these systems have many more features than you will ever use.  In a survey we did of customers a few years back, the average company that had multi-featured systems used less than 25% of them.

Who controls the award portfolio in your system

This is a critical point often overlooked in the buying process.  Most of these suppliers have come to realize that the profit in selling these systems is in the awards, not the software. 

They often give away the software at cost or for nothing to be able to sell the awards.  When they control the awards piece they control the ongoing profitability.  This is often at the expense of your participant where only a portion of your overall program budget gets to them in awards.  And wasn’t that the idea in the first place?

There are many more caveats that you should consider when you’re in the process of implementing a points based award system.  There’s not enough space to enumerate them here but we would be happy to discuss them with you.  Just let us know.

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