Profiting from the Incentive Travel Market

Your company is interested in the incentive travel business and related areas of motivational meetings for good reason: They could represent a significant market for your travel service or product. However, success depends upon the right mix of product, service, and marketing savvy. This article provides background on the business of incentive travel and motivational meetings as well as insight into how to succeed.

SCOPE OF THE MARKET

According to A Study of the Incentive Merchandise and Travel Marketplace (2001), the Incentive Federation's most recent comprehensive research study of the incentive field, $26.9 billion is spent by U.S. business annually on incentive travel and merchandise to motivate consumers, employees, dealers, and salespeople as a means of improving performance. More specifically, U.S. businesses spend more than $4.7 billion per year on incentive travel for use in incentive programs for salespeople, $4.0 billion for dealers/distributors/agents, and $1.1 billion for non-sales employees.  In addition, 35  percent of companies participating in the Incentive Federation study projected significant increases in total budgets for motivational items, including incentive travel.

Incentive travel primarily is used in programs to increase sales, purchases, or, in the case of employees, productivity or quality, and "official" studies generally report on incentive travel rewards targeting specific results in formal incentive programs. But many companies that offer travel also use it in loosely structured programs in which employees or customers are singled out to attend a motivational meeting. What distinguishes incentive or motivational travel from traditional travel is the focus on creating an extraordinary experience for the winner, or an experience that builds morale, communicates the corporate message, or fosters improved communications between the company and its employees or its customers. Businesses use incentives to:

• motivate employees to work toward a common goal;
• recognize performance;
• get people to make a purchase they might not otherwise make;
• reinforce a marketing message.

Noncash awards such as travel are used to avoid the pricing or compensation issues raised by the use of cash. Individual incentive travel has also grown increasingly popular at companies that realize they can inspire a higher level of performance by letting their winners travel independently. In addition, there is also a growing interest in travel, dining, and entertainment gift cards that can be used as individual incentive awards.

These trends represents a profitable, easy-to-handle business for travel and travel-related companies with the right approach. Major players in today's incentive travel and motivational meetings business include airlines, cruise lines, hotels, destination management companies, adventure travel suppliers, corporate-events consultants, restaurants, and attractions (see Industry Players).

TODAY'S BUYER

When it comes to incentives and motivational meetings, today's corporate buyer is not a purchasing manager but a midlevel manager in sales, marketing, operations, customer service, production, training, human resources, or product management who has the responsibility of motivating and recognizing key people. The typical buyer will also have many other duties that have little to do with incentives or meetings. In addition, many of these companies are only occasional buyers of incentives and promotional items, and it's impossible to predict whether their orders will be large or small.

To make things more confusing, the market is filled with several types of middlemen with different levels of involvement. These include incentive companies, meetings services companies, corporate travel agencies, and, sometimes, promotion and advertising agencies. Some of these companies have only sporadic involvement with various aspects of the corporate market. Entering the incentive travel and motivational meetings businesses is a challenge because they require high levels of service that many suppliers can't, or don't want to, offer. Examples: coming up with an exciting product that will motivate and inspire participants; special services that make people feel like winners; and a creative approach to make the program stand out. But putting forth the extra effort has its rewards, because there are experienced corporate buyers who know they'll have to pay more to get more.

Unlike the meetings business, corporate buyers of incentive travel and motivational meetings often change venues. They'll make a lot of demands, and they're unlikely to show much loyalty to one particular property or destination. That's because they have to mix their offerings in order to keep participants engaged.

WHAT IT TAKES TO SUCCEED

Not just any company can make it in the incentive travel business. Success starts with having a product or service that people want. Who can you motivate, recognize, or communicate with by using a low-cost motel in an undesirable destination? Suppliers who succeed usually have something desired by an identifiable demographic group, and they have demonstrated that appeal in the consumer market. Most companies, in fact, get into the corporate market simply because some company or organization calls and requests to book a group for an incentive travel program or motivational meeting.

Despite the potential, success is not as easy as it looks. The highly fragmented usage and distribution of corporate business has frustrated many a major supplier, some of which have abandoned the marketplace simply because they initially threw more resources than justified at a significant but fickle business. Fortunately, the number of decision makers and influencers involved with large incentive travel and motivational meetings is relatively small, probably around 20,000, a number that can be sold and marketed to relatively inexpensively using the right approach (see Sales and Marketing.) Here are the issues that your company has to address before expanding its effort in the corporate market:

• Who wants your product or service (or gift card)?
• What demographic group or audience buys and enjoys the product or service your company sells or the destination where you are located?
• Is it a large market?
• Difficult to reach?
• Who wants your category of product or service, and how strong is the demand?

Answering these questions will help define your market potential.

Product positioning. Where does your product or range of products fall in the corporate marketplace? Are you upscale or mass market? Do you have a product or service that most companies will need as part of a meeting or incentive program (examples: hotels, air travel, restaurants, or something unusual, such as adventure travel)? Can your product or service be used to motivate and engage people? Do you have the ability to handle large groups? Are your employees capable of providing personal service?

Adaptability to the marketplace. Can your company handle the special requirements of the incentive travel and motivational meetings markets? Examples: having to offer multitiered pricing to middlemen and end users; using multiple distribution channels; meeting erratic and difficult-to-project volume and timing demands; having to live with big swings in group sizes. If a major corporate user is counting on having a large group at your property, he or she doesn't want to learn at the last minute about a new construction project that could negatively affect the experience. Management will also have to live with the fact that a program sold this year may not result in actual guests until as much as a year later. Tip: Determine the average group size your company is prepared to handle.

How will you go to market? The major companies with adequate resources can sell both to resellers, such as incentive companies, meetings services companies, and corporate travel agencies, and to the end user. Others sell primarily through resellers. Others have created gift cards to serve the individual travel reward market. However you go to market, remember that success lies in identifying the key people most likely to buy and resell your product or service and in giving them meaningful rewards for doing business with you.

Develop the overall strategy. This step should precede the process of selecting specific tactics. The tactics you use will depend on your overall plan, market positioning, and distribution channels. The strategy should spell out such things as reasonable goals, market opportunity, unique selling proposition, current and future market positions, projections, and methods of going to market. Most of all, it must define your market positioning as specifically as possible.

Devote the appropriate resources. Many companies send a lone manager out into the incentive business with little in the way of staff or marketing support. Fortunately, this market's size makes it relatively affordable to penetrate, but that doesn't stop some companies from wasting significant resources in programs that bear little fruit.

Develop an account-based strategy. Since relatively few companies will make up a huge percentage of your organization's revenues in this marketplace, every sales and marketing effort should be entered in a continually updated database of your best prospects. Through the use of sales automation, this information can be applied to all of your organization's sales and marketing efforts. Companies using account-based management get far more mileage from advertising, trade shows, and direct mail because they are able to translate the marketing into measurable sales.

Don't market unless someone follows up. Most companies in the corporate marketplace spend considerable sums on advertising, direct mail, and trade shows and almost nothing on making sure the leads are followed up, tracked, and acted upon. Lead follow-up is so tedious and seemingly unproductive that most salespeople would rather not do it at all, so you will have to consider outsourcing the process or hiring part-time salespeople to do the job. Lead follow-up not only helps you find golden opportunities amidst the considerable number of poor-quality leads generated by any marketing effort but enables you to determine your cost-per-customer, the best index for use in determining how to apply your marketing dollars.

TYPES OF EVENTS AND SPECIAL REQUIREMENTS

Group incentive travel rewards groups of winners, usually salespeople and resellers but, in some cases, nonsales employees as well. To distinguish these programs from ordinary meetings, companies usually make sure they involve special events, banquets, outdoor activities, and lots of free time. These groups often demand unusual creative twists, room comparability at hotels, and special recognition for participants. Most programs include spouses, and some even include children. About three quarters of the programs conducted by U.S. companies take place in this country. Many include little in the way of meetings other than the big awards banquet.

Individual incentive travel and travel-related gift cards are used in all categories of incentive programs for salespeople, resellers, consumers, operations employees, and others. Many travel suppliers get this kind of business without ever knowing it, because these travelers book and travel like other consumers traveling on their own. However, a growing number of hotel properties, airlines, cruise lines, and even destination management companies have developed special products offering enhanced personalized services for winners--at a price, of course. Many of these products are resold through incentive companies and corporate travel agencies on a commission basis in the form of individual certificates.

Motivational meetings are a hybrid of a traditional meeting and a group incentive travel program. The idea is to motivate, communicate, and train, all at the same time. These groups make the same demands as an incentive group but require considerable meeting and audiovisual services as well.

HOW BUYERS CHOOSE SUPPLIERS

To help you better understand your customer, take a moment to put yourself in his or her shoes. Here are some of the factors that a typical buyer must consider when developing an incentive travel program or a motivational meeting:

• Determine goals. What, in specific terms, should the program accomplish? (example: increase sales 10 percent in a given period). Specify what the increased sales would mean in profits.
  
  
• Determine how much to invest in the incentive program.
  
  
• Determine whom the program should target: consumers, salespeople, dealers, distributors, customer service employees. Understand their demographics, tastes, and lifestyles through surveys, if possible.
  
  
• Determine what type of incentive award will get the attention of the target audience and still be clearly distinguishable from compensation or pricing strategies.
  
  
• Decide how to track performance.
  
  
• Make sure that what the audience is asked to do is reasonable in light of past performance or behavior.
  
  
• Determine what obstacles to achieving the program's goals may exist because of such things as market conditions or employee morale.
  
  
• Determine what incentive travel award will reinforce the message, fit the budget, suit the tastes and demographics of the audience, and be commensurate with the action that management is requesting.
  
  
• Determine whether the program will be managed internally or outsourced to an agency.
  
  
• Determine the tax implications. Travel can be taxable to recipients under certain conditions, and special tax forms may be required. Public companies will also want to consider implications of the Sarbanes-Oxley Act, which requires these companies to provide more precise and accurate tracking of business expenditures, including incentives used in marketing and compensation.
  
  
• Develop a clear way to measure results.
  
  
• In selecting travel suppliers, make sure they can deliver precisely what was promised at the cost budgeted. Make sure to understand their cancellation policies in case the program doesn't generate as many winners as planned.
  
  
• When the program is completed, carefully measure the results to determine if it has achieved the objectives. Survey both winners and nonwinners.

SALES AND MARKETING

Compared to most consumer markets, the incentive travel and motivational meetings businesses are relatively inexpensive to penetrate in terms of sales and marketing dollars. And by taking advantage of the Internet, database technologies such as customer relationship management (CRM), and/or integrated marketing technologies such as Solata (www.solatatech.com), the ease and cost of entry to the market can be further reduced.

Basic sales and marketing approaches and procedures differ little from those that prove successful in any business-to-business situation. They include the following:

Advertising. Advertising offers a rapid way to get known in the incentive business. There are only two primary magazines in the marketplace, but there are also a number of Internet advertising options. Advertisers that have a system for conscientiously following up leads will invariably see their advertising break even, and they may even come out several dollars ahead.

Direct mail. Because most corporate customers buy on an occasional basis, any type of response-oriented advertising yields relatively little return. There are few offers that will get a company to do an incentive program when they don't want to do it. Direct mail in this business works best when targeted at a specifically defined prospect list and fortified with useful information and added-value offers that encourage people to sample the product. A better option might be email marketing (see #9561, Targeted Promotions over the Internet), by which marketers can keep their product or service in front of customers at relatively low cost. Direct mail and email marketing become even more productive when used as part of an integrated direct marketing effort and when used to build databases of qualified buyers.

Trade shows. Because most of the industry's key middlemen and buyers go to The Motivation Show at McCormick Center in Chicago, suppliers who know how to exhibit can more than pay for their investment here and at other shows. They also get invaluable names of future prospects and get the critical face-to-face contact that has become increasingly difficult to get through sales calls. Critical steps for success include a pre-show marketing plan to make sure buyers know you're there; some sort of at-show visibility to direct them to your booth, and a post-show program to reach buyers looking for merchandise throughout the year. Most important of all, however, is a lead follow-up program.

Lead follow-up. Most companies fail to follow up effectively on leads generated from advertising, direct mail, and trade shows. Why? Nobody wants to do it. Most leads generated from marketing efforts are not serious prospects, and many involve tedious phone-tag and calls that go nowhere. However, the benefits of effective lead follow-up warrant finding a solution: If only two leads in ten represent viable prospects (the average return of the best marketing program), you can more than pay for your marketing investment and build a long-term, continually updated database of serious prospects.

Database management. If your company doesn't use a contact-management program, you are missing out on the lowest-cost way to identify and focus on the people most likely to buy. Account-management software can be as basic as ACT, Maximizer, or Gold Mine. More sophisticated customer relationship management (CRM) programs or a permission-based integrated marketing and communications program like Solata (www.solatatech.com) offer even greater advantages. By having salespeople use their contact-management programs to collect data and uploading their databases regularly into a central location, you can significantly reduce your costs by identifying the organizations most likely to buy your products and services, then communicating systematically with them. And with permission-based, integrated email marketing, you have a low-cost way to reach these potential buyers and update their contact information on a regular basis.

Relationship-building. Many companies that manage to come up with a good database of serious prospects do little more than send out promotional emails, brochures, or trade show invitations. Savvy marketers go a step further and send out informative emails, newsletters, or other forms of communication on a regular basis. By providing potential customers with useful information in a concise, benefits-laden format, you stand a better chance of being chosen when people are in a buying mode.

Long-term sales follow-up. Most suppliers leave it to salespeople to keep up with prospects; often, there's no consistent plan for long-term follow-up. Developing a means of consistently following up with prospects can pay off handsomely, since these are the people most likely to buy. This sort of follow-up often can be provided by the same organization charged with doing initial lead follow-up.

TAXES AND LEGAL ISSUES

The most critical regulatory issues affecting incentive travel involve taxation of awards. Generally, a trip offered to employees in a qualifying program is treated as income to the employee and should be reported at its fair market value on the employee's income statement. A Form 1099 must be issued to employees and nonincorporated customers for travel awards with a fair market value greater than $600. The program can be deducted by the company. If the primary purpose of the travel event is a meeting, it may be deducted as a business expense by the company and is nontaxable to the employee. However, tax regulations contain strict definitions as to what constitutes a meeting. Also, tax advantages do not apply to meetings on foreign-flag cruise lines or to meetings held outside North America, except in certain destinations in the Caribbean. Tax laws have become more strict about the deductibility of guests' travel to such meetings (for more information on this subject, see article #4030, Incentive Travel Tax Laws). Federal Trade Commission regulations forbid offering travel awards in contests or sweepstakes requiring people to make a purchase. Many states have strict regulations on the way travel awards are used in consumer sweepstakes, including requirements for full disclosure of the precise travel award.

INDUSTRY PLAYERS

Depending on your product or service, you may sell through more than one channel and will encounter numerous other suppliers. Here's an overview.

Incentive companies range from small shops offering specialized services to large full-service agencies offering merchandise, training, communications, reporting, catalogs, gift certificates, and travel. There are probably no more than 100 incentive companies in the U.S. and only a few dozen that have sales of over $10 million. Most incentive companies won't get involved with small groups unless other business is involved.

Travel fulfillment companies provide only the travel portion of an incentive or meeting program. They don't provide much promotional support, can't help much with developing program structure or performance measures, and won't be able to help if merchandise is involved. Often these companies are small or are associated with corporate travel agencies.

Corporate travel agencies often have group divisions that handle incentive travel. These companies are lumped with incentive companies in most industry directories. Most corporate travel agencies seriously involved with incentive travel belong to the Society of Incentive & Travel Executives (SITE), which maintains a directory of names and addresses (see below).

Destination management companies are an often overlooked but critical resource for companies with incentive groups too small for incentive travel companies to service. These companies, based in popular travel destinations, can arrange everything from rooms and ground transportation to elaborate events, special meals, and unusual experiences most travelers can't obtain on their own. These are not large companies, so expect to deal directly with the owner or other senior management. Membership in SITE often is a sign that the company has targeted incentive travel as a market segment. These companies are listed in industry directories, generally under the location where they operate.

Hotels active in the business-travel arena often have a meetings/incentive travel department that can assist with the special requirements of incentive users: room comparability for winners, group check-in, volume pricing, and special events, such as theme parties. Talk directly with an incentive salesperson if possible. The most comprehensive directories for this category are available through SupplierFinder and in directories published by Successful Meetings and Meetings & Conventions magazines (see Publications).

Cruise lines active in incentive travel also have special departments to handle the needs of incentive users: such things as cabin comparability, special events, entertainment, promotional material, and meetings with the captain. If a cruise line doesn't have a meetings or incentive department, it's probably not in the business.

Airlines often have meetings/incentive departments that can provide group pricing, promotional material, and special in-flight amenities, although the last have become hard to obtain.

Tourist boards are one of the most valuable, but often overlooked, resources for incentive travel planning. Most overseas destinations and many of their U.S. offices have someone familiar with incentive travel who can provide you with promotional material, off-the-record recommendations of hotels and destination management companies, and other information about the destination.

DIRECTORIES OF SUPPLIERS

Industry directories (usually annual) that include listings of most of the types of suppliers described above are listed here:

Incentive magazine (www.incentivemag.com)has one of the best directories of incentive companies and travel fulfillment companies. www.incentivemag.com

Potentials magazine (www.potentialsmag.com).

Successful Meetings magazine (www.mimegasite.com).

Meetings & Conventions magazine (www.meetiings-conventions.com)

Corporate Meetings & Incentives magazine (www.meetingsnet.com/corporatemeetingsincentives/).

The Motivation Show, which includes the Incentive Travel & Meeting Executives Show (www.motivationshow.com).

Society of Incentive & Travel Executives (SITE) can provide names of suppliers knowledgeable about incentive travel and names of suppliers in the destination of your choice (www.site-intl.org).

ASSOCIATIONS

For related associations, go to the Industry Association Listings page.

TRADE SHOWS

For a list of Industry Events, go to #9510, Calendar of Industry Events.

KEY RESEARCH

The quality and quantity of research in the field of incentive travel is growing. Several magazines conduct annual reader surveys that report on the attitudes and practices of incentive users as well as discuss the incremental sales achieved when incentive programs are used (one estimate puts it at 10 to 20 percent). Leading research includes:

A Study of the Incentive Merchandise and Travel Marketplace (2001) was conducted by the Center for Concept Development for the Incentive Federation to identify issues including level of usage of incentives by U.S. businesses, usage of various types of incentives, and indications regarding the effectiveness of incentives. A .pdf download of the study is available from the Incentive Performance Center website at www.incentivecentral.org.

Incentive Travel Fact Book (2004 Edition), preapred by the Society of Incentive & Travel Executives (SITE) is a comprehensive look at what it takes to find and sell more meetings, incentives, and corporate events. Available from the SITE Store for $25 (free to members) at the SITE website (www.site-intl.org). 

The Attractiveness and Effectiveness of Incentive Reward Options measures employee attitudes toward incentives at a leading insurance company and ranks employee preferences. Conducted by Clemson University for the SITE Foundation. Copies are available for $75 from the SITE Foundation website at www.sitefoundation.org.

Determining the Return on Investment of Incentive Travel Programs (2001) is an academic study based on a survey of business executives and incentive program winners focusing on approaches to measureing return on investment (ROI). Available from the SITE Foundation at www.sitefoundation.org.

Master Measurement Model of Employee Performance documents how to develop measurement criteria for employees in incentive programs. It shows how to use involvement techniques to obtain objective information that can be used to qualify winners and to improve the quality of sales and operations. Prepared by the American Productivity and Quality Center for the SITE Foundation. Available for $75 from the SITE Foundation website at www.sitefoundation.org.

BOOKS/ARTICLES/SELF-STUDY

Incentives in Marketing & Motivation, by George Meredith and Robert P. Fried Ph.D., is a comprehensive text on the incentive marketplace. The content is illustrated and includes numerous case studies that reveal the breadth and potential of the incentive marketplace. Available from Amazon.

The Incentive Travel Case Study Book contains 12 detailed incentive travel case studies documenting each step of the program from identification of the marketing goal and methods of qualifying winners to specifics on the trip offered and the results. Available for $20 from the Society of Incentive & Travel Executives (SITE) website at www.site.intl.org.

Kiss, Bow, or Shake Hands: How to Do Business in Sixty Countries, by Terri Morrison, is useful for companies planning a program overseas. Available from Amazon.

PUBLICATIONS

For a list of the relevant publications, go to the Industry Publications page.

SUPPLIERS

To find a supplier, go to #9520, Supplier Finder.