Despite increasing concern over retail spending, UK sales of recognition and incentive vouchers continues to rise – according to trade association figures.
Data from the Voucher Association, the trade body representing many of the UK’s biggest voucher firms, puts the current value of members’ voucher revenue at a record £1.38bn, with corporate sales accounting for around 40% of this.
Chair Yvonne West says: “There had been increasing concern within the retail sector that the trend towards reduced consumer spending, as a result of increasing interest rates, would have negative implications for the market. Yet, according to our figures, there has been a 7.9% increase in voucher sales this year.
“It has been a year of uncertainty, politically and economically, and in times like these, a small gift that says ‘thank you’ or ‘well done’ is very much appreciated by employees. Vouchers fit the bill.”
While the market is growing, trends within it are more changeable. This is the result of an increased demand from employers and employees for more flexibility and greater choice. “It is because of that demand that the multi-store voucher has come into its own,” says Richard Lee, head of incentives and motivation at rewards management firm Cottrills. “They are the ideal solution for companies with a large workforce, and are competing very well with the single-store vouchers, even the high profile voucher companies, such as retailers John Lewis and Debenhams, because they have a limited product range.”
But the single-store providers haven’t exactly been sitting idle. John Lewis, for example, has completely redesigned its paper voucher enabling it to be spent online.
Development manager for corporate business, Vicky Lovell, says: “We believe this is the first voucher of its kind to offer online redemption and it gives employees much more choice. With the conventional paper vouchers, choice depended on their proximity to a John Lewis or Waitrose store. The new vouchers offer a nationwide solution.”
In spite of the popularity of paper vouchers, employers have been trying to develop alternatives for many years. Electronic access to rewards via company intranet-driven incentive programmes is nothing new, although it is generally the larger companies that can afford the technology systems and third party administrators required to make it work.
Another alternative is the plastic gift card, which is an American concept. The ultimate in flexibility, these can be offered as a one-off gift reward, or on an ongoing basis. John Lewis is one of a number of companies currently resisting the urge to switch to plastic. “We are sitting back and watching the marketplace very carefully. If customer demand for plastic is shown to be there, we’ll move accordingly,” says Lovell.
The idea of replacing paper vouchers with plastic has certainly sparked strong debate, and many providers have their reservations about how widely plastic can be used.
“There is a huge credit card problem in this country,” says Cottrills’ Lee. “For someone with a bad credit history, a plastic gift card that to all intents and purposes looks like a credit card might not be seen as appropriate. I don’t think we can ever get away from the fact that people like to feel monetary value in their hands.”
Andrea Born, head of business incentives at retailer House of Fraser, agrees.
“We acknowledge that gift cards are becoming more popular, but we don’t believe that they will ever replace paper vouchers. The technology is not as fully developed here as in the USA, where [plastic vouchers] originated and, as a result, it involves more work for the retailer and the voucher supplier.”
Others feel that the lack of a monetary value on the card itself could cause confusion, especially when organising a scheme involving a large number of gift cards, all for different amounts.
With over 200 different vouchers to choose from, most employers aren’t feeling particularly pressured to move to plastic, but they still face the problem of deciding which voucher to use for which type of employee?
John Sylvester, director of the motivational division at performance and motivation management company P&MM, says: “A call centre client will often reward staff with grocery vouchers, such as Sainsburys’ or Asda. In effect, those vouchers are incentivising staff by offering a cash substitute to boost their income.
“On the other hand, sales force employees on a higher salary are typically motivated by vouchers for electrical goods retailers, such as Dixons or Comet, or fashion retailers, such as Marks & Spencer.”
Offering more choice through multi-store or several single-store vouchers would seem to be the logical way of achieving results across the board. But does more choice for the employee reduce the return on investment, in terms of long-term motivation and commitment, for employers?
“Certainly, non-cash vouchers are more effective at delivering long-term loyalty rewards to the employer than cash vouchers, because they deliver memorable goods, but the key factor in any incentive programme should be the process rather than the rewards. Get the employee recognition right, and it doesn’t matter which voucher scheme you use,” adds Sylvester.
Here, greater flexibility and convenience can have an adverse effect on the ethos of reward. Richard Kirk, CEO of motivation firm Projectlink Motivation, says: “If employers are not careful, the convenience and flexibility of electronic vouchers and plastic gift cards will undermine the fundamental principle of reward schemes – making a presentation to an employee in front of their peer group. It is that process that fosters the sense of being valued and recognised by the company, and therefore reaps the long-term staff loyalty and motivation.”
One solution is to ensure that the organisation has a clear presence throughout the reward process. Projectlink’s Supercheque was launched to fulfil that purpose. The cheque is written out from the employer rather than from a particular store or travel company. The recipient can then use it to buy vouchers from several providers, which are presented in an employer-branded wallet.
While there is no doubt that high-tech incentive programmes will continue to evolve, and plastic will eventually establish a place in the reward market, most employers are in agreement that traditional vouchers will never be replaced.
Research carried out by Mintel Consultancy on behalf of the Voucher Association highlighted the fact that vouchers are still the most popular motivational tool, with 62% reporting vouchers are more valuable than cash rewards, 91% stating that the fact recipients like getting vouchers is an important factor when choosing rewards, and 94% agreeing that they are a flexible way of rewarding staff.
The Voucher Association’s West says: “Following three years of economic downturn, this research does hint at greater confidence from corporate buyers, who feel that a stronger economic outlook means they can invest more in the loyalty of staff”
What are motivation vouchers?
Motivation vouchers are gift vouchers that can be redeemed for a whole range of products and services, including gifts, holidays, health and beauty treatments and travel. Employers can offer single-store or multi-choice vouchers, the latter being redeemable at more than one outlet.
What are the origins of the product? Vouchers first appeared in the early 1970s as a natural successor to the traditional but limited catalogues from which employees made their gift selection.
Where can employers get more information and advice?
The Voucher Association represents many incentive providers and has around 50 members. Call 0870 2416445 or visit www.voucherassociation.co.uk for more information.
What are the costs involved?
Employers can get generous discounts when buying single-store vouchers in bulk.
However, multi-choice and electronic voucher schemes administered by a third party motivation house or incentive provider will incur extra fees.
What are the legal implications? There are no legal implications.
What are the tax issues?
As employee rewards, vouchers are subject to tax and National Insurance. The 2003 Budget saw the introduction of VAT payable on the voucher margins of third party providers.
What is the annual spend on the product?
The latest figures to August 2004 put the UK spend on vouchers at £1.3 billion, an increase of 7.9% on the previous year.
Which providers have the biggest market share?
In spite of a difficult year, Marks & Spencer is still seen as the market leader. Although brand perception clearly impacts on sales, it doesn’t seem to impact as greatly on current buyers.
Which providers have increased their share the most over the past year?
There are no statistics available, but voucher providers in the retail sector are generally believed to be capturing a slightly higher market share than those in the experience and travel sectors. However, this is more likely to be a reflection of higher spend across the board on low-value retail vouchers than individual spend on high-value experience vouchers.