Performance Program Planning

©1990-2011 The Performance Alliance, Inc.This document and the concepts contained are the property of The Performance Alliance, Inc.

No part may be employed or reproduced without express permission of TPA.

Performance Design Excellence: Incentive Program Design and Operation across all business applications,

whether the goal is to increase sales and profits, improve market share, or reduce costs ... or all of the above.

Cold Truth

It’s mid-year. Do you know where your financial

goals are?Locked InLooking GoodSo-SoSidewaysWho Came Up With These?Look For CulpritsRun Screaming Into the Night

Outline• Credentials• Applications• Will Do/Won’t Do• Immutables: OB, P/R and Permanent

Change• Non-Cash Awards Vs. Cash/Derivatives• Performance Primer: Lift, Shift, Payback• Case Histories• Rules Not For Fools• GP Rules• Recommendations

Steve Erickson Credentials• CEO, The Performance Alliance, Inc. • Director of Sales and Marketing, Winsert, Inc. (alloy

mfgr.)• Director of Marketing, Motivation Excellence, Inc.• Senior Vice President, S&H Motivation, Inc. • Director of Marketing, Carlson Marketing Group (PIC) • President, Avenue North Organization, Inc. (lead

generation)• Marketing Director, Dahlberg Electronics, Inc. (Miracle

Ear®)

2,500 incentive, performance and “loyalty” programs designed and operated

What I DidWhat I DidApplied: Creative non-cash awards Innovative, interactive communications Sophisticated performance measurement

methods

To one product: Programs that generated maximum performance Programs that generated maximum performance

in a clearly accountable, financially-justified in a clearly accountable, financially-justified and carefully orchestrated system.and carefully orchestrated system.

In Short, Moved In Short, Moved the Performance Needle. the Performance Needle.

2,500 Times.

Core PrincipleCore PrincipleIn the pursuit of Performance In the pursuit of Performance

Excellence:Excellence:

Participant knowledge is not enough Product and price parity are not

enough. All the marketing research, data and

intelligence you can create & deliver are not enough.

Action plans and “initiative platforms” are not enough.

Knowledge Without Motivation Knowledge Without Motivation = =

Competent Inertia.Competent Inertia.

Conversely: Conversely:

Motivation Without Knowledge Motivation Without Knowledge = = Energized Incompetence.Energized Incompetence.

The foundation of Performance The foundation of Performance Excellence:Excellence:

Knowledge Knowledge X X Motivation Motivation (incentive) = Performance.(incentive) = Performance.

All Performance Paths All Performance Paths Cross at the Same Point:Cross at the Same Point:

Causing your people to do what you want, but for their own reasons. Everyone applies conscious or

unconscious optional behavior to every choice, every opportunity.

Every business challenge faces that reality.

The people you depend on to make your future have other plans.

• Your customers and their customers. • Your employees, reps, vendors.• Every point of influence over your

future, all with different agendas. • They opt in or opt out. • You and your objectives are not their

primary concern. You have to change that. We will help.

Optional Behavior

Superior achievement Superior achievement can't be mandated.can't be mandated.

It has to beIt has to be soughtsought..

Major Difference Between Major Difference Between

““Incentives” and PerformanceIncentives” and Performance

What Are SomeWhat Are SomeDependable Performance Dependable Performance

Applications?Applications?

Conventional sales and/or market share improvement

Employee performance systems

Quality improvement

Customer relationship building

Product introductions and reinforcement

Training reinforcement

... and much, much more.

The Average Workforce is Out of Work 45.5% of the Time It’s

Employed.

• Over $900 billion is lost annually through non-productive use of time on the job.

• The average worker only uses 4.4 hours productively out of every eight

• BUT, they know how to save money, reduce cost and improve efficiencies, if it’s worth it to them to tell you.

Consider a few stats…

• An average organization loses 50% of its customers every 5 years

• But, a 5% increase in customer retention results in profit increases of 25-125%

• Costs 5-10 times more to acquire a new customer than it does to retain one

• Repeat customers spend 67% more than new customers

• Avg. firm has 60-70% probability of selling again to “active” customers

• 20-40% probability of selling to lost customers• 5-20% chance of a sale to prospect • After 10 purchases, a customer has referred up to 7

people

My Skinner Box

• Not a simple issue resolved by simple means• Incentive devices (the awards) are not the

“solution” and are not “the program”• 2-dimensional approaches like

"loyalty systems“, contests, sweeps & promotions don't work

• “Loyalty” programs are passive by definition

What do we mean by a program “Working?”

1. Measurably improved performance that stays that way

2. The real solution must pay for itself, predictably and acceptably, out of clearly defined performance improvement.

So, What Does Work?

• Do you really want to do what everyone else does (contests, gift cards, cash, passive “loyalty” programs) and expect your points of influence to react differently?  Those are simply defensive tactics.

• Or, do you want to create an environment that will seize true, sustainable performance advantage tailored to your circumstances?

• Take the offensive. Create and keep demand.

Here’s What You Can Do

• Capture all the optional behavior you can stand.

• You supply the challenge and the courage and we will build a 3-dimensional performance solution.

• Enjoy eye-popping ROIs you can trust. • Delight your people and baffle your

competition.

Preachy Part:NON-CASH AWARDS VS. CASH

(Including Gift Cards, Discounts)!

• Non-cash award programs stimulate the imagination and raise sights.

• Cash is not an award in itself – it’s effective only in terms of what it buys.

• Non-cash awards eliminate guilt• Cash is dissipated into everyday expenses. • Non-cash awards are demonstrable • A singular benefit of a non-cash award is its

visibility ... allowing the recipient to boast of an accomplishment.

• You won’t flash a bank deposit

NON-CASH AWARDS VS. CASH (Including Gift Cards, Discounts)!

• Non-cash awards are once-in-a-lifetime– A trip to Rome or Cancun creates “buzz” like

nothing else, and the experience keeps paying off for you

• Non-cash awards are “something extra"• Cash awards = increased income ... easily confused

with normal compensation • Cash (and equivalents) cost 100%, bill on

redemption maybe 80%• Simply put: non-cash costs less and does more.• Remember, “loyalty” programs are simply for

defensive purposes, because everyone else has them

Planning for PerformanceFirst, Go For The Lift.• Practically anyone can run a contest, call it an

“incentive program”.• So what? Contests create winner(s), but mostly

“losers”.• Contests reward top performers, who tend to always

be the top performers anyway, or the “lucky”.• Unintended consequences: Demotivate good people

who can’t “win”. • And, they don’t “work”.• Everyone qualified to participate should be qualified

to earn.

The Greatest Opportunity For “Lift”?

• Always in the middle. • Not with the top people, firebreathers

who will be leaders no matter what. • Not with bottom-feeders unless they’re

rookies and need time to develop.

• The “middle” is the breadbasket of your performance prospects.

• Tailor an appealing program to them and things start to cook, even in flat or declining markets.

• Play offense in the middle and defense at the top (take care of the 600-lb. gorilla, but know he’s not going to grow).

Second, Go For The Shift.• Another axiom: There is always “room to

move”. There is always discretion. • Employees and customers pick their own

spots and set their own dials in terms of time and effort.

• That’s “optional behavior”. We all use it. We “know” where “acceptable” is.

• Optional behavior is the “big idea”. You just need to know how to tap it.

Enrolled Category ACategory A Category BCategory B Category CCategory C Cat. PCat. P Total

Volume $100,000+ $25,000 -

$99,000$2,500 -

$24,999 New

Base period $66,107,068 $37,899,198 $19,823,635 ($1,029) $123,828,873

Program period 70,902,809 49,240,731 35,385,632 2,052,347 157,581,520

Change 4,795,740 11,341,532 15,561,996 2,053,377 33,752,647

% Change 7.20% 29.90% 78.50% 27.20%

Real Life: Actual Outcomes from Segmented

Performance

CategoryBase PeriodPurchases

Program PeriodPurchases

Variance (-) or +

Enrolled customers $123.8MM $157.6MM $33.8MM+

Non-enrolled customers $83.5MM $77.6MM ($5.9MM)($5.9MM)

Total $207.3MM 235.2MM $27.9MM

More Actual Outcomes:Compare Performance From Enrolled vs. Non-Enrolled Customers. No better proof that expertly designed performance plans deliver!

Third, Make It Pay For Itself.

• Performance Improvement is an art and a science. • The science used to create a program that pays for

itself out of incremental performance is an art.• It’s not the travel award, it’s not the toasters or

the virtually unlimited choice of merchandise awards.

• It’s not the award-winning creative communications and robust information technology.

• It’s all of these things, and it’s pure magic when it’s done right, of course.

Independent Distribution Independent Distribution Performance Programs? Here’s How:Performance Programs? Here’s How:

Set clear & realistic financial and human goals. Don’t stop with the principal. Ensure top-to-bottom

channel participation by all “points of influence”: Your field sales (assign enrollment and dollar

goals) Distributor or Dealer principal Distributor/Dealer sales managers & branch

managers Distributor/Dealer Outside Sales and Inside Sales

representatives Ultimate customers (consumers) Distributor call center/customer service staff

Include all qualified participants. Yes, we repeated that.

Formal, active (not passive) enrollment is mandatory.

“Automatic” enrollment = passive response and wasted dollars.

Make it a big deal for field reps/mgrs. to get enrollment done.

You will not believe the difference in performance between enrolled/unenrolled.

Offer the opportunity for everyone to earn. Offer an appropriate performance/reward

balance. Without it, nothing else counts.

Keys, continuedKeys, continued

Visible backing from the client sponsor THROUGHOUT is indispensable. Don’t let your CEO intro and then forget it.

It’s a full-term commitment from all your own people: Don’t “kick off, then forget.”

Give participants a chance to accumulate award points/credits.

Find A Fully-Integrated, Full-Service Find A Fully-Integrated, Full-Service Performance Marketing CompanyPerformance Marketing Company

Or, an expert who knows the difference between ho-hum “loyalty” drills and permanent, tub-

thumping performance

Your Performance Expert Must Have:

Incentive program design and operation skills Promotional communications and creative services

skills Group incentive travel program planning and

operation skills Merchandise awards - catalog, custom & online Program administration and superior information

management skills (this is overwhelmingly different from simple data management)

An extraordinary sense of customer service throughout

Your Expert Must Demonstrate Your Expert Must Demonstrate This Performance ProcessThis Performance Process

Start with extensive situation analysis. Present a cost-justified performance

program recommendation. Design, launch and manage the program. Measure performance and provide

activity intelligence/reporting.

3 ComponentsA legendary, blow-the-doors-off

performance solution?It must be motivationally, operationally

and financially sound (all 3). • Motivationally sound means it must create

a compelling proposition and subsequent, active demand.

• Operationally sound means it must be fast, simple and efficient.

• Financially sound means it pays for itself out of incremental performance.

The Seven Smoking Gun Questions - Lifeblood Of A Good Incentive Program

1. What is your objective?2. When do you want it achieved?3. What is it worth to you to achieve the

objective? 4. Who are the people who must achieve the

objective for you?5. What portion of that gain are you willing to

share with the people who get it for you?6. What do you realistically think they’ll produce

for you if you don’t run a program?7. What are the obstacles in the way of

achieving your objective, if any?

EVERY INCENTIVE PROGRAM IS UNIQUE• Unique Blend of Four Distinct Variables: • Objectives ... Budget ... Timing ... ParticipantsEVERY INCENTIVE PROGRAM IS SIMILAR• Basic Rules Development Elements are Simple

and FewBUILDING THE BASIC RULES STRUCTURE• Define Unit of Performance (UOP) - Smallest

Measure• Select Participants - Rank by Impact• Select Award Type - Straight-line, Escalated or

Plateau

Rules Not For Fools

AWARDABLE PERFORMANCE CATEGORIES• Sales• Distribution• Non-SalesQUOTA-BASED AWARDS• Benefits• Typical Quota-based StructuresCLOSED-END vs. OPEN-END INCENTIVESEFFECTIVE CLOSED-END RULES STRUCTURES• Straight Competition• Plus-Performance Contribution• Beat-the-Average, etc.BONUSES, SPECIAL EVENTS & SPURT

ACTIVITIES

How Much Does Performance Cost?

• Nothing, really.• The real question is, “How much is it

worth?”• Cough up some up-front for

communications/promotion and the right kind of performance measurement (IT, web).

• Plan on 20% of incremental GP (it’s not that simple, but it’s good for starters.)

What Do These ROI Snapshots Have In Common?

Prog. investment as % of:

 

       

Total sales 1.19% 0.62% 1.59% 0.56% 0.23%

Total GP$ 3.72% 1.35% 3.63% 3.25% 0.94%

Incremental sales 7.15% 6.30% 12.16%

4.38% 3.43%

Incremental GP$ 22.34%

13.69%

27.82%

25.63%

12.66%

They’re all “Correct.”

If Your Agency Sees No Difference Between the “Award” and the “Program”, Shoot Them Now.

When the boss asks, “What did you get for all that loot you spent on that incentive program?”, you need to know what I know and your agency must:

• A good motivation agency gets paid for performance, not proposals.

• They have a major stake in program success.

• They win if you win.• If they don’t get it, they don’t get

the business. • A great performance agency doesn’t

cost you a dime.

Do you want to talk about it?Contact us:

The Performance Alliance, Inc.630-240-4473

steve@performancealliance.com