I recently came across an online ad with a very intriguing headline, posted by a recent newcomer to the incentive and recognition industry – I’ll call them Company X. It virtually shouted that the average mark-up on rewards offered by reward and recognition companies (other than Company X) is high, if not borderline usurious. Since QIC is in the incentive and recognition space, and charges nothing like the mark-up rate quoted in the headline, I decided to research further.
It seems that Company X analyzed another incentive and recognition service provider’s rewards offering, based its headline on that analysis and then projected that analysis to all service providers in the industry. They then went on to talk about the ways that mark-ups on reward items lead to a poor value proposition for both the client and the program participant. They even implied that this pricing methodology is one of the ‘shenanigans’ (among others) designed to deny transparency and reduce program value to the client.
I will take at face value that Company X’s analysis was done correctly, but I think that it is important to discuss the conclusions that are drawn from it.
First, we here at QIC believe that pricing transparency is critical to the design of a successful incentive or recognition program. In the early stages of our discussions with prospective clients, we clearly outline the components of the reward item point value:
- reward item cost
- program design, including award rule development,
- reward item selection and sourcing,
- warehouse and drop-ship reward fulfillment,
- participant customer care,
- program communications,
- program account management
- contribution margin (i.e., QIC’s profit) .
As you can see from that last bullet, we do, in fact, include margin in reward item point values. Those margins are determined by mark-ups on the wholesale prices offered to QIC by its vendor partners. We take great care to apply mark-ups based on the price sensitivity and wholesale price characteristics of classes of reward items. Items that are highly price sensitive and have smaller wholesale discounts carry lower mark-ups (and corresponding margins) than items that do not share those characteristics. This results in an excellent overall value proposition for client and participant alike.
Secondly, there is a theoretical basis for including our profitability in the reward item point value. In a properly designed program, participants earn points for exhibiting those behaviors that the client desires to achieve the objectives articulated for the program – a feedback loop that looks like this.
Participants then redeem for reward items using the points that have been awarded to them. As you can see, we only earn a profit if points are awarded and redeemed, which can only happen if the client has enjoyed the benefit of desired participant behaviors. In short, our client’s and our interests are aligned.
We recognize that this pricing model may not be appropriate for every client program, but we have found that it works extremely well for sales and channel incentives and comprehensive recognition programs. All such programs are typically sponsored by clients who hope to ‘move the needle’ on one or more major initiatives and want programs that are largely self-funding (i.e., ’pay for themselves’). Achieving that through a fee-for-service pricing model, whether via participant subscription fees or software fees, is certainly possible but by no means as transparent and straightforward as the model we typically employ.
At QIC we take seriously our responsibility to design and operate programs that are beneficial to our clients and their participants. We commit to thoughtfully analyze your business case and develop award rules that are clear and that allow for our mutual economic success. Please be assured that there will be no ‘shenanigans’ from us.