Incentives in a declining economy

If you weren’t already contemplating strategies for dealing with a national and global economy in decline, the events of September 11 and their immediate impact on our economy should have you running to the strategic sales planning table. Since late summer, we have been hearing less than glowing reports from our 200+ marketing partners about the incentive marketplace. Cancelled programs and decision-making delays have been a common theme among partners when asked "how’s business?" More recently, tumbling stock prices, massive layoffs and business failures have clearly left decision-makers questioning every expenditure. The road signs for a recession are clearly in the rearview mirror.

So, how does the industry fare during an economic downturn, or dare we use the phrase, recession? The consensus is--there is no consensus. Well, not exactly. There is a general belief that in the initial phase of an economic downturn, companies are still willing to do what it takes to revitalize sales, increase profits and achieve earnings objectives, including the use of incentive programs. In fact, many industry expects believe that this kind of economic climate is ripe for sales opportunities. As advertising budgets are slashed, incentive marketing strategies become a more cost-effective use of budgeted promotional dollars. If a recession extends beyond several quarters, however, incentive sales will experience the declines other industries have already faced.

Selling incentive programs in tough economic times calls for a results-based, financially driven selling effort. This, of course, should always be an element in the selling process. However, now more than ever, incentives should be presented as an investment with a clearly defined return based on incentive dollars spent. Success will depend on how effectively you convince the buyer that an incentive program will generate the desired results and the financial return. The return must justify the original investment. If an incentive program is perceived by your client as a cost, you have more than likely lost the sale.

Traditional Sales Incentives

A recession may present a unique opportunity to sell incentives; however, recession-era sales incentives carry a greater risk of falling short of their desired objectives. This is because external market factors outweigh the motivational forces that normally drive sales incentive program participants to succeed. The external factors include inventory shortages, decreasing support from distribution channel partners and perhaps most importantly, falling consumer demand. What you could end up with is an energized and motivated sales force with limited product availability and far fewer customers.

What this means is that you need to work harder to assist or convince your client to define and "realistically" quantify their program goals. (Remember, you must be able to show a return for the investment.) Unrealistic sales goals in the best of times will insure failure of the most expertly designed and implemented sales incentive program. In tough economic times it can be disastrous. Here are a few tips:

• If a typical sales goal calls for a 10% increase in sales, a realistic goal may be a 3% increase.
• Many sales incentives pay out only for incremental sales. In a recessionary economy, it becomes more important to motivate sales people to sustain their current level of sales. A sales contest that combines a per unit incentive with an over-goal achievement incentive may yield greater results or the very least, prevent a further decline in revenue.

• In extreme cases, you may be able to use a sales incentive to help a client minimize a loss, rather than maximize a gain. If a client realistically expects sales to decline by 10%, a sales incentive program that holds the decline to a 5% decline may actually be a success.