Amazon exiting the incentive game

The end of the game

So Amazon is leaving the incentive market which they just entered three years ago.  From all reports it isn’t because the venture isn’t profitable, but instead it is about ensuring that their brand and their customer service reputation are not sullied.  Paul Hebert in his blog wrote,the decision was made to drop fulfillment through incentive programs due to customer service issues.  Specifically, the recipient, if they had problems with their order, would call Amazon for resolution but Amazon would have to refer them back to the incentive company – who in turn would do the due diligence to fix the problem.  From Amazon’s point of view this created a negative impression of their customer service.” In a nutshell, they are taking a hit on millions of $ to make sure there is no negative impact on the billions of $ that they do in their non-incentive business.  In my mind, that is a pretty smart move (one that you wouldn’t see a lot of businesses making).  Now I’m sure there are other factors (i.e., tax issues, not controlling the customer relationship, etc…).  Nothing is ever quite as black and white as it seems.

In the short time that Amazon was in the market, they shook it up.  They offered a new way of fulfilling incentive program offerings.  With their great number of items, their back end processing and handling, drop ship expertise, and their low price points, Amazon was able to provide even the smallest incentive companies with a very sophisticated e-catalog of incentive goods.  No longer did an incentive house need to have the large capital expense of a warehouse and stocking products.  Amazon was able to provide the back-end seamlessly for a price that couldn’t be beat.

Playing against Amazon

I was part of a large pitch (as a partner with a traditional incentive house)  last fall to a company that loved what we did, trusted our customer service, thought that our creative approach was the best and liked the way we brought behavioral science into the process (i.e., The Lantern Group) – but, ended up going with a different company because they could offer more merchandise at a lower cost point.  How did that other company do it – they used Amazon as their fulfillment partner.  At that point, I thought I saw the writing on the wall – that the days of making large margins on merchandise were all but over.  How could the traditional companies compete, when smaller, more nimble and aggressive firms could come in and under-price while having a larger item selection and great fulfillment services.  In the debrief with the company about why we lost the business, the purchasing agent said, “…this is the wave of the future, all [incentive] companies should be doing this.”   It was going to be a new world – and I was excited!

Changing the game

For years the pricing model used by incentive companies has been margin based.  While there is nothing wrong with this conceptually, it does create an interesting dynamic.  Merchandise is the cash cow for these companies.  Without this, many of the companies will fail.  There is an underlying need to get people “into the warehouse.”  When I started my career (many eons ago) I was naive enough to think that when I was hired on at one of these incentive companies that I was going to work for a consulting firm that was trying to find the best way to motivate and engage employees.  What I found out was they were all for that – as long as the way to do motivate and engage led through the warehouse (I’m exaggerating a little here for emphasis, but there was an underlying culture of this).

While that culture has shifted slightly over the years, it is still present in the industry.   If Amazon was going to be able to undercut prices because of their buying power – then incentive companies were going to be forced to change their model.  This would mean finding other ways to make money – which would lead them to finding other ways to increase motivation.  The benefit would have been that these companies would have created a larger toolbox with more tools and thus not fall to the old idiom “when you only have a hammer, every problem looks like a nail.”   This would mean better solutions to motivation problems.

The next competitor

While Amazon might be leaving, they showed that there was a desire in the marketplace for something like this.  I don’t think there is another company right now that could fill that role, but that doesn’t mean in the future there couldn’t be.  So, with that in mind, it is important to think about the next game.  What will this mean for the traditional incentive houses, for the mid or small sized performance improvement firms?  Will someone take that bold step to change the game and bring in a different set of plays and players or will they exhale a deep breathe, thankful the other team forfeited, and go back to their old ways of playing?  Right now, we’ll just have to wait and see…

Please share your thoughts and rants on this…would love to get a nice dialogue going.

Kurt

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17 thoughts on “Amazon exiting the incentive game

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  3. Why not a solution that links participants directly to retailer web-sites? Participants choose from the full retailer inventory. At market prices including sales prices. Shipping at delivery service direct from retailer to recipient. So no mark-up at all to the participant. Isnt that who we want to engage?

    No catalogs here. Employers pay a percentage of merchandise cost. So cost transperancy to the employer. And the ultimate personal experience for the participant.

    Does this solution cover it?

    Like

    1. thelanterngroup

      John,

      That is an interesting idea…with lots of merit. I’m not sure if it would be the “solution” however as there are some key motivational aspects that are lost. Knowing the actual price relates items to left brain thinking versus more emotional right brain, thus making this more of a cash based incentive. It is basically the same as giving a person a visa gift card that they could use anywhere. Research by Dr. Scott Jeffrey highlights four key aspects of non-cash incentives:

      Perceived Value of the Award

      * Evaluability
      * Separability

      Value of Earning the Award

      * Justifiability
      * Social Reinforcement

      You lose a lot of this when you provide prices for individuals.

      That is not to say you lose all of the motivational power – and this solution could very well be a good one in certain instances. Would love to hear other peoples thoughts on this….

      Like

    2. John…..In some ways that is here. Look at Amazons Gift Code on Demand. In Paramax’s Awards Marketplace, particpants from any point system can exchange their points for an Amazon gift code in any denomination. Then they’re off to Amazon. Also, look for other major players to enter market.

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  4. I agree Kurt – Amazon made the industry rethink their value proposition. I still believe there is a lot of room for innovation. Derek – you all have done a great job of advancing the industry – props to you.

    Here’s the question I still have on the fulfillment side… I earn the “points”, I redeem the points, I get the “thing” – crickets.

    There needs to be something after that experience in my mind. Just sayin’

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    1. thelanterngroup

      Paul,

      I agree, need more than the cricket sound after I “get” my reward. I would go even one further…how else do we get people engaged? There is more to motivation (as we’ve discussed) than just rewards – albeit they have their place. But it is rethinking the value proposition that “performance improvement” companies provide that excites me. What about improving transparency and communication throughout the organization? How do we improve job functions and roles to make them more Autonomous and build in Mastery (I’m pulling from Mr. Pink here)? How do we work with companies to increase the other motivational drives to Bond, Challenge and Defend?

      I would be very, very happy if the conversation shifts from focusing on just the rewards to the whole range of motivational techniques – and that was the game changer that Amazon’s entry in this market was driving (IMHO).

      Like

    2. Don’t even get me started on points, Paul. That’s just another way to hide mark-up and true reward value. We will do points programs at client request, but once we explain the many reasons why not, very few actually opt for this approach.

      It’s not about earning points or getting the thing — about being acknowledged and appreciated for what you bring to the table.

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  5. Who has the cojones? We do…without the middleman, without the insane mark-up, without the warehouse.

    Our global delivery model based on deep relationships with more than 2,000 of the world’s most respected brands for shopping, dining, entertainment, adventure, travel, and charity experiences ensures every recipient of recognition can choose a deeply personal and meaningful reward of choice.

    Oh, and Amazon is part of our Ex*change network — but we don’t limit the options. If you want to shop at Amazon, choose from their full line of hundreds of thousands of offerings.

    Were you asking who has the cojones to replace Amazon as the back-end fulfillment supplier? I don’t know that anyone can — or should. The fulfillment of a merchandise “prize” shipped from a warehouse is a thing of the past. The markups, hidden fees and massive S&H, customs and duties required for global programs have relegated these old-school providers to the dust heap, where they belong.

    Happy to discuss this more with you or see much more of my thoughts on the topic on my own blog (linked above).

    Like

    1. thelanterngroup

      Derek,

      I’m glad somebody is stepping up to the plate. Would love to find out more about your solution set – how you do it and how it works (I went out to your site and blog to get some background (very cool by the way) but still don’t quite understand what your Ex*change network is).

      I’m not sure if I would agree with you however that the “back-end fulfillment” is something that shouldn’t be done – in my opinion, it was one of the driving forces of change for the traditional incentive houses. By forcing those companies to rethink their business model (cost competition), Amazon had forced them to think outside the box (i.e., not just merchandise/travel) to come up with other profitable solutions that drove motivation and engagement. I am still hoping for the day when “performance improvement” companies can actually live up to that moniker and truly look at motivation issues from a holistic, extrinsic and intrinsic perspective.

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      1. Apologies for the confusion, Kurt. Our Ex*change Network is our network of more than 2,000 merchant providers around the world. We don’t stockpile a limited selection of merchandise. Instead, we form deep relationships with the true experts in their own countries — the locally trusted and respected merchants for shopping, dining, travel, entertainment, charity, etc.

        Our solution set is based first and foremost around the recognition of employee actions and behaviors that reflect the company values in achievement of strategic objectives.

        That recognition is far more important, for many reasons, than the stuff.

        Like

      2. thelanterngroup

        Derek,

        That sounds very cool – I really appreciate the global reach and local focus you provide. I agree, it is the recognition that is important and the stuff is ancillary (however, it is important).

        Like

  6. Nicely done Kurt.

    You know where I stand on this. And I do believe there are folks who can – and will – do what Amazon did. It is a matter of courage and a belief.

    I know there are “old school” incentive companies dancing in their respective hallways saying “told ya so” and assuming this is over now. But I’m in your camp.

    The need is there, the desire on the part of the client is there. A 75% solution WAS there – someone will find a way to make the 25% work. It’s just a matter of time and vision.

    The market always wins – and the market said – “we want low cost fulfillment across a ton of items.”

    Who has the cojones?

    If some one wants to do it – call me – I’ll help.

    Like

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