Lessons Learned from Amazon

A few of years ago Amazon announced with great fanfare that it was going to go into the incentive and rewards fulfillment business. Companies would be able to take advantage of Amazon’s volume purchasing and free shipping. Recipients would have access to millions of reward items! Companies could become incentive suppliers without having to invest in the requisite supplier and distribution network.

WOW… too good to be true!

I admit Rideau explored the Amazon option. We even went to the considerable expense of integrating directly with Amazon (most companies went through third party integrators).
But we never flipped the switch on for any of our clients. We just weren’t comfortable with Amazon’s extremely short cancellation clause. It just didn’t make any sense. Logic said Amazon should try to lock us in for a longterm contract but they didn’t want that. We questioned their longterm commitment to our marketplace and the possible implications for our clients' employees.

We laid all this out to our clients in an open and transparent fashion. Fortunately, our clients agreed!

Last week Incentive Magazine reported that Amazon is exiting the Incentive fulfillment market and leaving many incentive companies hanging. Amazon’s departure has huge ramifications for our industry. Amazon made it easy for a lot of companies to jump into our business and become quasi competitors. These companies will either be forced out of business or have to invest a significant amount of time and money building their channel partner and distribution networks. More importantly, it will have a very negative effect on the companies and the employees they serviced.

I find it very amusing to see all the companies who so readily embraced this solution as the be all and end all, trying to distance themselves from Amazon.

As John F. Kennedy said, “success has a thousand fathers and failure is an orphan”!

BTW... I love Amazon. I was one of their very first customers when they opened their website. I bought their Kindle when it first came out and to this day believe that they are an amazing company that has forever changed the nature of the way we do business.

Kudos to the Tax Department!

Like most people I’m not a big fan of the tax department, however, kudos should go to the Canada Revenue Agency (CRA) that recently revised its rules on gifts and awards.

A number of years ago the CRA changed its taxation policies on the taxation of gifts and awards. On the whole, our industry viewed these changes very positively, however there were some areas that we felt could be improved upon.

The most contentious was to limit the number of gifts and or awards to two items having a total value of no more than $500. The CRA has amended this policy and as of January 1st, 2010, there no longer are limits to the number of tax-free non-cash gifts and awards you may give to an employee in a given year.

Another issue CRA clarified and simplified was to create a single $500 exemption that employers can now apply against the total value of all the qualifying non-cash gifts and awards you give to an employee. So, if you give an employee gifts and awards with a total value of $650, there is a taxable benefit of $150 ($650-$500).

Follow the link for CRA’s revised policy.

Many companies and groups asked CRA to make these changes and it is good to know that the department does listen!

Now if CRA would only reduce the service award threshold down from every five years to something that reflects the fact that people change jobs every three years, I’d be really happy! And while they’re at it, perhaps they could consider allowing points based performance awards up to $500 to qualify for exemption as well!

But I guess these are battles for another day!

The Horse Should Come Before The Cart

A lot of companies have it all wrong when it comes to recognition and rewards.

They put the reward before the recognition.

Why?

I think it has a lot to do with the history of our industry.

The recognition industry was created by old line manufacturing companies. Many of these companies date back to the early 1900’s. While some no longer exist, others, including Rideau (1912) continue to thrive. These companies all had one thing in common. They were looking for an outlet for their manufactured products… pins, logos and emblematic jewelry etc…

Some of the very first recognition award programs were used in the automotive industry. These programs celebrated years of service and safety and emblematic jewelry became the award/reward of choice. As years went by, different products were added to the product selection.

The key takeaway was that the product drove recognition… not the other way around.

Today, more and more companies are realizing that recognition needs to be in the proverbial driver’s seat.

If real recognition is not there, it doesn’t matter what award or reward product is given to the recipient.

So here’s a simple question… how much of your time is spent worrying about your awards as opposed to why and how you deliver real recognition? If the answer is the former you may have the cart before the horse!

Avoid Recognition Breakage!

Breakage is a term used to indicate gift cards that have been sold but never redeemed. Revenue from breakage is very profitable because companies do not provide any goods or services for the unredeemed gift cards. Breakage is also a factor in many point based programs where a company pays for points up front, however this post deals with gift cards.

Gift card breakage is huge…

TowerGroup, a financial-services research firm estimated that 10% or $8 billion of the $80 billion spent on gift cards in 2006 will never be redeemed! Consumer Reports estimates the amount is even higher! They say in 2005, 19% of people who received gift cards never used them.

Some gift card retailers have also imposed conditions on gift cards, such as expiration dates or monthly service fees that periodically reduce the value of the gift card. However, many States have passed (or plan to pass) legislation which outlaws expiry dates and fees or charges of any sort on gift cards.

How does this affect your recognition and reward program?

Well, if you hand out gift cards as a reward, realize that a significant portion of your recipients will never use them! I call this “reward breakage.” And while it’s not a good thing at least the recipient has the “value” of the gift card in his or her hands and it’s up to them whether to use it or not.

In my opinion, “recognition breakage” is much worse.

These are schemes whereby providers send out “recognition award certificates” that can be exchanged for a variety of gift cards. These “recognition award certificates” often have an expiry date attached to them… usually one year. While the law and legislation is much murkier when it comes to “recognition award certificates” one thing is clear… these providers are hoping recipients never, ever, exchange them for actual gift cards!

I find it ironic these “providers” call themselves “recognition experts” because the bottom line is they really do not want recipients to pick up their “rewards”!

We have come across several cases of companies who complain they don’t get reports from these providers. No wonder! Why would these providers want to reveal the fact that a significant portion of the “recognition award certificates” are not exchanged.

It’s called recognition breakage! Avoid it!