Part 4: Catalog Providers Hate Gift Cards because Your Employees Love Them!

Continuing my look at why employees love gift cards in a reward program, we saw how, with the introduction of gift cards into an old catalog selection – within weeks 90-99% of employees will select the gift cards! That’s exactly why catalog providers hate them, because your employees love them!

Let’s look at one more of the reasons employees play back to us as to why they love gift cards. Employees tell us…

“I love BEST VALUE for my money, not being price cheated.”

Let’s face it. We’ve all had this experience of selecting an item from an “Incentive Boulevard” catalog. I spotted a portable BBQ last summer in my bank card’s loyalty program catalog. Great! At least it was something I liked and needed, a portable gas grill, for 30,000 points or, as I calculated, $300 in real value. I took it! Only later that night, a simple price search online revealed at least 10 major stores that retail the exact same BBQ from $199 to a maximum of $260. What’s up? Am I a sucker? I felt cheated –exactly the opposite feeling to what the designers of the bank’s loyalty program were trying to encourage.

Is this how you want your employees to feel when they get your company recognition award? Of course it’s not! Yet this is exactly what continues to perpetuate today through the old school practice of using points interlinked with hyper marked up items that is rampant among catalog providers.

Why is this the case?

Here’s how it goes. You want an employee recognition program with a rewards budget of about $100 per head. The catalog companies say great, we’ll do that for exactly your $100 budget. Perfect … but then the games begin! You need to know how to play the shell game now. Before you know it, between operating fees, fulfillment fees, shipping costs, communications, customer service costs, technology support fees and “a little margin” are built in, your employee is only going to end up with $69 of that $100 you had in mind.

Not a problem the catalog companies will tell you, because it’s all about “perceived value pricing” to the employee – so long as the employee thinks the item is worth $100, everyone is happy and your employee essentially pays for your program costs. We’re both winners! Right?

Wrong! This approach worked pretty well for decades, from about 1901 to 2001. But now “perceived value pricing” has a real, substantial problem that is not going away soon – the internet – and the possibility for the “perfect information” it brings to your employees. Your employees are savvy shoppers, and they will check the price of every item they select from any catalog. If, like me, they feel cheated and over-charged, you will create exactly the opposite motivational effect to what you were hoping for.

But you might say, our catalog company offers a price guarantee! We are assured we get all the items at MRSP or less. This is the shell game again my friends! Ask the wrong question, and you shall get the wrong answer. Perhaps you asked the cost to your company of certain items – yes, it’s $69 cost, same as Amazon sells the item for. This sounds good. But hold on. You should have asked: what’s the cost to my employee, after all of the fees and charges have been factored in? Ah, well that’s 10,000 points or $100 of cost to your employee, for an item that they soon know is only worth $69. That’s why employees tell us using catalogs leaves them feeling price cheated. More especially, they feel your company is being cheated too. That’s also exactly why they love gift cards – a $100 value is clear and transparent, I go shopping myself, and I get exactly my $100 in value.

Beware my friends, the old tried and tested techniques from 1901 to 2001 need a rethink, unless you plan on training your HR support team in taking employee price complaints.

For those just joining the GloboBlog community today, these are the links for the past related posts in this series:

Part 1: Catalog Providers Hate Gift Cards because Your Employees Love Them

Part 2: “I love REAL CHOICE, not pretend choice.”

Part 3: “I love that they are LOCAL to where I live, not one size fits all."

2 comment(s):

At June 02, 2010 1:19 PM, lkath198 said...

You shed quite a bright light on the subject of ‘perceived value pricing’. Granted, the catalog providers offer services for which they should be compensated for: designing & administering the program, providing the platform technology, sourcing and stocking the item, picking and packing, customer service, etc. The model worked very well, as you said, until the advent of the Internet which created very smart shoppers who price compare. I agree, they need to adjust how they structure pricing to be reasonable for the market will ultimately decide. If costs are too high, programs and products will not sell. There is room for all types of products, including gift cards, in incentive programs, but markups need to be sensible or they will be rejected by the program buyers.

At June 02, 2010 1:23 PM, Derek Irvine said...

Precisely, lkath198. That's why we do not subscribe to a "mark up" approach to pricing. Rather, we believe in full transparency whereby the employee receives and enjoys the full value of their reward and the employer pays for that full value. We do, of course, charge a fee for program implementation and support, but that is a clear, separate and transparent line item, not a murky "mark up" on merchandise item.