Based on U.S. and Canadian cardholder data, Scotiabank and Berkeley Payment Solutions concluded corporate employees are using their incentive cards to purchase everyday necessities, such as food and clothing, instead of nonessential items like furniture. And the reason for this shift in consumer spending is the troubled economy.
The analysis looked at Visa Inc.-branded, reloadable incentive card use over a 15-month period (January 2008 through March 2009). Purchases at quick service restaurants soared 107 percent. Family clothing store purchases rose 79 percent. Discount store spending was up by 37 percent, with drug stores and pharmacies up 26 percent, and grocery stores up 20 percent. On the flip side, purchasing at home furnishing and equipment stores slumped by 44 percent and at department stores by 35 percent.
According to David Eason, President of Berkeley Payment, the state of the economy was largely to blame for this switch in consumer spending. Cardholders purchased more day-to-day essentials such as clothing, pharmaceuticals and groceries and less lifestyle items such as furniture.
Additionally, no single merchant category accounted for more than 8 percent of the total spent using incentive cards, Eason said. That statistic means cardholders spent their rewards for a wide spectrum of purchases, he added.
Another effect of the down economy is that corporations are increasingly forgoing expensive travel and merchandise for prepaid incentive cards to reward their employees, Berkeley Payment said.
"Right now companies are sensitive to the optics [visibility] of giving them the flashy, big-ticket type of merchandise such as the Blu-ray players or big screen TVs," Eason said. "As well as the luxury travel of sending people to exotic locations around the world, particularly when there have been a lot of cutbacks and a lot of belt tightening over the last months."
Eason cited an October 2008 study conducted by the New York City-based Incentive Research Foundation that found 75 percent of survey respondents did not want to be perceived as out touch with the current economic climate and would therefore change their employee incentive programs. As part of that trend, 24 percent of the respondents expected to use more incentive card programs in the future.
Eason has found that employees in the corporate sphere gravitate toward the reloadable incentive card as opposed to the single-use, nonreloadable variety. "Reloadable programs are very popular for employees, sales forces and channel resellers, where a corporation has a set number of employees or resellers," Eason said.
"Nonreloadable cards are much more popular amongst consumers." The main thing open-loop, network-branded cards offer employees is choice.
"If you provided an option for someone to buy a DVD player from our Web site or would you rather receive cash, I think most people will usually opt for having that discretion themselves to make the choice for their incentives," Eason said.
Another benefit of incentive cards is that they are a more democratic option for corporations. The amount spent on corporate incentive travel is massive, worth billions of dollars, Eason said. "It can be very good for recognizing your top performers and really treating them."
However, according to Eason, only 5 to 10 percent of a corporation's top performers could be rewarded with expensive trips, for example.
"If you're not in the top 10 percent, you can pretty much write yourself out of being involved in that campaign," he said. "So you're almost alienating 90 percent of your workforce and giving incentives that are unattainable. But by having a card, you can actually give the cards to your entire workforce. So I get $20 on the card and the top performer might get $200 on the card. This way it can be more inclusive."
Eason said the first incentive card programs were rolled out in the early 2000s. He expects the incentive card industry to continue to grow, even as the industry consolidates, crowding out smaller players in the marketplace.
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