Creating A Successful Business Reward Program

A W hi te Paper :
Creating a Successful
Business Reward Program
www.americanexpress.com/gift

American Express Company
Global Prepaid
November 2009 Client Management Group

Creating a Successful Business Reward Program


Executive Summary

As companies continuously seek opportunities to increase bottom line results, prepaid
corporate incentive cards should be considered as part of an overa ll corporate strategy
to retain and attract customers and employees. Prepaid products can be deplo yed as
an effective motivation tool for virtually any audience and their potential impact on the
bottom line should be an integral consideration to your business planning process.

Whether you are a business which already uses prepaid cards for an incentive program
within your company or if you are an issuer or marketer in the incentive products industry,
you have likely asked: “How do prepaid cards enable companies to achieve their business
objectives?” This white paper answers that question and cites examples of how prepa id
cards can be applied to drive specific behaviors in support of achieving desired business
results. It shares reasons for the trend towards plastic as a preferred medium,
and outlines best practices for a successful deployme nt strategy.

As the popularity of prepa id incentive cards continues to rise, it is important to
understand the many card types and applications and what results can be reasonably
expected. Equally paramount to choosing the appropriate business application for prepaid
incentives is knowing how to effectively deploy your strategy using a structured model to
ensure maximum results. Like any successful business strategy, you must assign resources
to it, plan out the project and plot your metrics, or your outcomes will fall short of your
objectives.

1



Table of Contents

A Long History in Prepaid Markets 2
Product Applications 3
Why Are They So Popular? 4
Business Results 5
Corporate Incent ives Rooted in Human Behavior 6
Deployment Framework 7
Summary 1
Sources 6
16

A Long History in Prepaid Markets

American Express is steeped in experience in the prepaid product space. The company itself
is 159 years old. 118 of those years have been in some line of prepaid financial
instruments, beginning with the Travelers Cheque product and later followed by Gift Cheques.
Today, prepaid corporate incentive products including branded, personalized and theme-
based Cards in both pre-denominated and variable loads, are purchased in bulk by
thousands of clients for incentive and promotional use.

American Express is set apart from other providers due to its holistic approach to the three
key partners in the supply chain: the bank, the Card holder, and the merchant. They own
the direct relationships with each of these pla yers as the issuer of the product, owner of
the merchant network and administrator of the program with the ir partners using specialized
resources. The ability to leverage these long-established relat ionships, in tandem with its
world-recognized brand, positions American Express as a market leader in the prepaid
industry.
2



Product Applications

There are dozens of different products when one refers to corporate incentive applications,
with each offering different capabilit ies, marketing and technical options. These
applications can be used for business-to-business (B2B), business-to-consumer (B2C) and
business-to- business-to-consumer (B2B2C) applications. So me exa mples of marketplace
applicat ions of corporate incentives are shown here:

3



W hy A re T hey So Popular ?

T her e has b een a v ir t ual ex plosion in t he r elatively r e c ent p opularit y of “plas tic” pr ep aid
cor p or at e inc entive pr o duc t s. A s pr ep aid pr o duc t of ferings c ontinue to ex p and and evolve,
t he demand for plas tic pr o duc t s is ev ident in t he
dr amatic up s w ing in pr ep aid ’s gr ow t h. T his incr e ase d
demand is p ar t of a lar ger evolu tio n aw ay f r om
p ap er pr o duc t s, such as gif t c er tif ic at es, w hich ye ar s
ago w er e of t en not r eplac e able w hen los t or s tolen
and had adminis t r ative and e c ono mic challenges
for user s.

Benefits vs. Paper
T he sw itch from paper to plastic of fers three main benefits. First, plastic is easier to adminis-
ter, especially in the case of managing fraud and program customization. Second, plastic o f
fers technical sophistication for greater capabilit ies in back- end repor ting, tracking and other
uses. A nd third, organizations have been intrigued by improved abilit y to place brand
impressions in millions of wallets.

Proliferation of Plastic
Although cash and check pay-
ments still represent a large per-
cent age of spend, the prolifera-
tion of plastic continues to rise.
According to a recent study by
the Mercator Advisor y Group1,
there was a tot al of $ 218.3B across 3 3 prepaid segments in ’07, w hich represented a 10.3%
increase over ’0 6.

There were over $10B alone in the Employee & Partner Incentives sector of the prepaid
market. Closed loop cards – redeemable only at certain mercha nts or reta ilers - were st ill
the largest compone nt but experienced a slowing growth rate. Open loop cards - usable
on a wide network - represent a smaller segment but with an impressive growth rate of
83.4%.This is one segment of the market to watch for continued expansion and
investment. 4



The products continue to be popular, in part, due to the desire of many firms to supplement
or vary their compensation formats. Consider these statistics from a September ’08 Deloitte
Consult ing LLP study 2 surveying 151 companies:
• 58% expected to pay out below target on their incentive plans in 2008
• 11% believed that their current annual incentive plan would not yield
a bonus at all last year
• 53% were planning to adjust the ir plans this year, including modifying
performance targets while keeping the same performance measures

Versatility is Key
Appeal is high for the product’s versat ility. According to The Incent ive Federation 3 , these
types of cards, vis-à-vis other forms of incentives, are reported to be the fastest growing
segment of the non-cash incentive industry. Open Loop cards offer versatilit y and cho ice
that is as diverse as the numerous incentive participants. While a new iPod may appeal to
one, dinner in a restaurant may appeal to another. Open Loop prepaid incentive cards
provide cho ice of options that other incentive products have traditionally not provided.

Business Results

Popularity aside, the ultimate litmus test to any incentive strategy is measured by its impact
on the bottom line: How do prepa id corporate incentives enable co mpa nies to achieve
their business objectives? With plastic as the pre ferred medium, prepa id corporate incentive
cards continue to be effective because incentives themselves work.

In a recent survey of 500 executives, the Incentive Manage ment Associat ion (IMA) and
Andersen Consulting 4 actually tied a bottom line fina nc ial benefit to retention and
reward programs. There was as much as a $40M lift to a $1B business, much of which is
rooted in prepa id incentive cards. The biggest pa yback, $13M, came from efforts to
motivate and reward emplo yees. Programs to draw and retain talent added $10M.

Incent ives Magazine 5 reported in recent research that 69% of the companies they
surveyed reported gift cards and certificates to be equally or more effective than cash in
motivating and rewarding employees.
5



With results such as these, corporate incentives need to be integral to any business
planning process. Clearly, as co mpanies continuously seek ways to increase bottom line
results, prepaid corporate incentive cards are a key driver in achieving fina nc ial object ives
and must be considered in the overall corporate strategy.

Corporate Incentives Rooted in Human Behavior

The basis of establishing program object ives effectively is founded in basic huma n
behavior. In the most primal form, prepaid cards are essentially a mechanism to drive
behavior. The incentive program you craft is driven by what you want to have happen. It begins
by examining how your emplo yees or customers perform today and then identifying
consequences which influe nce how they will act on what you want to have happen. And
ultimately, once you launch a program, determining the feedback that gauges how they’re
doing.

A deplo yment framework that applies a repeatable process and allows for measurable
results is crucial to any prepaid incentive program’s success. This four-phase deplo yment
process begins by setting program objectives. Next, is identifying program mechanics, such
as budget and target audience. Third, is determining appropriate co mmunication vehicles
and their corresponding tactical elements. And most importantly, tracking the
program’s progress and evaluating outcomes is the fourth and final phase.

To bring this model to life and easily
demonstrate how to effectively deploy
a prepaid incentive card strategy, an
actual application that many readers can
relate to in real life experiences will be
used – a veterinary pharmaceutical firm
who provides lifesaving medicat ions
and devices for your pets.

“Properly structured incentive programs can increase performance
of individuals by 22%, and of teams by 44% or more.” 6 6



Deploy men t F ramework

W ith compelling reasons as to the “ W hat?” and “ W hy?” of ef fective applications of cor-
porate incentive cards answered, nex t fo llows the more challenging question of “How?”
In A merican E xpress’ experience, the best programs are deployed keeping four tenets in
mind:

P hase 1: P ro gr am Ob jec t i ves P hase 2 : P r o gr am Mechanics
o F it wit h C or p or ate Go als o Audience Tar get
o P r e - P r ogr am F ac t F inding o T imef r ame/ B udget
o C hoosing Driver s o Aw ar d S ele c tion
o P r ogr am Me asur es

P hase 3 : P r o gr am C ommunica t ions P hase 4 : P r o gr am E valua t ion
o Ty p es o Tr acking P r ogr ess
o Tac tic s o A nal y sis/Ou t comes 7



Phase 1: Program Objec t i ves
Fit with Corporate Goals

In the example of the veterinar y pharmaceu-
tical firm, corporate goals were identified, an
approach strategy was implemented and
success measures were defined. The ini-
tial question to be addressed is, “What
You
Need”.

Corporate goals st ated a t arget of $ 8M in
sales of the new drug and a 9 8% or greater
satisfaction of client veterinar y of fices using the new product. T he strateg y to achieve
those goals was aimed at motivating client vet of fices to generate sales and trial feedback
through year-end. Three specific success measures were set for sales, feedback and client
satisfaction with the new drug, as noted above.

Pre-Program Fact Finding

The second element of establishing the right program objectives has to do with the right
fact finding. Even in today’s resource crunch, you or your clients should be able to identif y
top-of- mind business drivers that you are hoping to achieve. Here, the question of, “What
Happens Today,” is considered.

For this par ticular firm, the areas for improvement were: (1) take-up rates of the new drug,
(2) response rates to existing tear-of f cards in drug packaging and (3) per formance feedback
through of ficial channels.

8



Sources of information for this current situa-
tion were identified and included the regional
sales teams, the Customer Relationship Man-
agement (CRM) tool, in-house tabulation
of response return logs and a toll-free
suppor t line which identified call t ypes.
Simply driv- ing to improving these basic
items is a major step in justif ying the initial
investment you plan to make.

Choosing the Drivers

A third element to est ablishing program objectives ask s
the question, “ W hat drives them?” T hese drivers can t ake
many for ms. In the case of the veterinar y pharmaceutical
firms, they formulated their strateg y based on three key
drivers: (1) emotion, (2) excitement and (3) economics.

T his company felt that they did not have a strong direct
relationship w ith their veterinar y practices. T hey decided
to drive an emot ional response by est ablishing a philanthropic element to their campaign
with a donation to an animal shelter for each reply card returned. T hey also personalized a
large por tion of their correspondence, as well as the physical incentive product itself.
T hey pushed excitement in a big way by providing a post age-paid reply card direct mail piece
w hich communicated the shelt er donation, w hile giving vets an oppor tunit y to benefit
from a sweepst akes enrollment.

T he t hird driver pushed was econo mic in nature. T heir plan was to distribute a financial
incentive to veterinar y of fices using a $10 0 open loop prepaid incentive card. T his three-
pronged approach to identif ying and pushing key drivers provided a resounding answer to
the question of, “ W hat drives them?”
9



Program Measurements

T he last tenet of Phase 1 is all about baseline measures to be improved – how do you k
now the program is working? Essentially, this is the, “How T hey A re Do ing,” component. T he
three program success measures that the firm had identified were (1) sales go als reached
by year- end, (2) trial feedback from minimum 10% of par ticipating distributors and (3) a
minimum of 9 8% satisfaction for new drug.

T his par ticular application st ar ted out with a
mission — w ith the prepaid card at the core
of it— and it was highly successful. T hey
exceeded t wo of the three goals with sales
at 110% and trial responses at 18%, but
fell just slightly shor t on the third with
9 6% satisfaction.

Phase 2 : Program Mechanics
Target Audience

Phase 2 of the deploy ment mo del suggests that est ablishing the basic program
mechanics, and par ticularly the t arget audience, plays an impor t ant role in the success of
the program. In the simplest form, many people might think that the only t argets of an
incentive program are the individuals or teams administering the incentive program, and
the recipients of the incentives. But w ith proper planning, you realize that the most
successful programs broaden their t arget audiences to ma ximize the program’s exposure.

In the case of the veterinar y phar maceutical company, the t arget audiences were classified
into three buckets: (1) respondents, (2) messengers and (3) influencers. T he primar y t arget s
were C all Centers, Regional Sales, Receptionists, Vets, Vet Associations and Shelters. T
he respondent s were easily identified as those w ho benefit ted from the program’s
incentive itself – the vet of fices and st af f w ho received the prepaid awards. 10



T he mes senger s, how ever, b e c ame c om -
munic ator s o f t he pr o gr am. T hese ar e t he
p har mac eu tic al c omp any ’s c all c ent er s t af f
and r e gional s ales p eople. W it hou t t hem
in t he loop t alk ing up t he pr o gr am, t he
program would be flat and one- dimensional.
Moment um w as built b y engaging t hese
t e ams in t he mes s aging of t he pr o gr am.

A nd f inally, adjunc t “influenc er ” gr oup s b e c ame a vir al sour c e of t he pr o gr am’s pr omot io n.
Vet as so ciations and shelt er s t hat w er e aw ar e of t he p har mac eu tic al comp any ’s ef for t s
to pr omot e t he new dr ug and cont ribu t e to t he shelt er s’ budget s, dr ove ot her s to b e c
ome involve d in supp or ting t he ne w pr o duc t .

Timeframe/ Budget

The second element to the Program Mechanics has to do with set ting
the time frame of the program and the budget. These are a few
considerations for you to think about before deciding on a product to
use.

Timeframe considerations include deciding on whether the program will have a pre-
determined completion date, or if it will go on indefinitely (closed or open ended). The payout
period also needs to be agreed upon in advance.

Budget considerations include deter mining the best way to determine the campaign’s Return
On Investment (ROI). A payout structure also needs to be laid out and align with the
desired behaviors – team or individual. One must decide if the payout should go to the
team or the individual and how that will be tied to achieving program objectives. Both
fixed vs. variable costs need to be ident ified. It is vit al that these considerations be
deter mined up front in order to ensure the campaign is both ef fective, as well as ef ficient.
11



Awards

T he third element associated w ith program mechanics has to do with choosing the award
itself. T here are many factors to consider w hen choosing the card options and selecting
a par tner with w hom to work with for the awards.

Project Scoring Models
W hen actually choosing a product construct, it is recommended to use w hat A
merican E xpress refers to as, “project scoring mo dels.” Project scoring mo dels are t ypically
applied to technolog y or investment projects, but they can be helpful in selecting an
incentive product as well. T hese mo dels help determine the t ype of product needed by est
ablishing principles of w hat you want to achieve in designated categories.

T hese categories may include things such as degree of customer impact the card product w ill
have, the degree of compliance and audit control the card of fers, strategic alignment o f
the card w ith the company’s priorities and level of return on invest ment or strategic potent ial
the vehicle has for the future. All of these factors can be weighted to w hat is most impor t
ant for your company at the time of application.

12



Phase 3 : Program C ommunicat ions
Types

In phase three of the deployment model, the
incentive program’s architect is reminded to
make use of a wide array of communication
vehicles, including print and electronic,
that can be used to promote the
program. In the case of the veterinar y
pharmaceutical company, a multi-faceted
approach was used to create a broad
campaign that covered all the angles,
from communit y news releases to call
center messaging.

Phase 3 : Program C ommunicat ions
Tactics

Phase three also calls out the t actical elements to t hink about in the communications
process. Some of the best practices, as repor ted by the veterinar y pharmaceutical
company, are outlined here.

Branded, for example, had ever y communication branded as a campaign. F or Reusable,
they reused the same campaign message for at least t wo other similar campaigns, and
much of the creative was also reusable.

13



Phase 4: Program E valuat ion
Tracking Progress

Finally, Phase Four of the deployment model
is ultimately the most impor tant phase of
all. It is the phase that justifies the invest-
ment of people and dollars that were made
in the program.

These are a few things to consider if you
are an individual who is deploying a card
incentive, or if you are a company who of fers them yourself. The point is that by applying a
few guiding principles, you don’t have to reinvent the wheel or earmark significant budget
dollars to repor ting and data analysis to prove the business case.

Phase 4: Program E valuat ion
A nalysis/Outcomes

Tracking results either annually, or throughout the life of the program, enables you to refine
the program based on your key measures. B y reassessing w hat you are tr ying to achieve,
w ho you are tr ying to incent, and how you are measuring results, you have the basis for a
continuous improvement process.

In the case of the vet example, they met their sales and trial responses objectives, but fell
shor t on customer satisfaction. Based on these findings, they may decide to bolster ef for
ts in this one area of the campaign as the program moves for ward.

14



Summar y

Prepaid cards are a motivating incentive for vir tually any audience and are most ef fective
w hen using a structured deplo y ment mo del to ma ximize your outcomes. W hile the choices
of cards and options are diverse, they can be simplified by set ting overall objectives,
defining program mechanics, determining program co mmunications and evaluating your
outcomes.

A focused approach, employing a continuous improvement process w ith key metrics
across all levels of the mo del, provides insights to assess w hich drivers had the greatest
impact on the outcomes. T his allows you to determine w hich invest ments had a posit ive
impact on the resulting business objectives, and w hich ones fell shor t. T hen the business
result s will speak for themselves.

Sources

1MercatorAdvisor y Group, 5th A nnual Closed Loop Prepaid Market Assessment (10/0 8)
2“Retention Strategies During Dif ficult Economic Conditions”, Deloit te Consulting L L P study
3IM A , T he Incentive F ederation
4 IM A , T he Incentive F ederation, A ndersen Consult ing sur vey of 5 0 0 executives
520 0 6 Incentive Magazine research study
6International Societ y for Per for mance Improvement for the Incentive Research F oundation

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Creating A Successful Business Reward Program

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