Debit Card Incentives vs. Merchandise Incentives

The Light Group’s position on the use of Debit Card Incentives
(Mostly unfavorable for a number of reasons. However, There are other scenarios where a debit card would work better than merchandise).

1. A debit card program (DCP) is a cash program. Actually a DCP is an addition to compensation. What DCP is NOT is an award program. The reason is that people spend their debit card cash much like they do regular compensation. As such, the extra benefits get lost in the participants disposable income, and they are less likely able to clearly identify the awards earned from the incentive program from those purchased from their normal income.
   
2. The “filtering” issue - Some filtered debit cards tout that cash transactions at ATM’s can be blocked. However most debit participants soon learn that they can go to a bank’s teller window and directly withdraw cash, or purchase/return merchandise and receive cash instead of a debit card balance credit. Thus the promised trophy value is easily defeated.
   
3. Other filtered cards offer either a short list of retailers or a very long list in the form of a booklet. The limited approach is just that too limited. The 200+ retailer approach is too confusing, many times leading to embarrassing declines when the debit card databases are not up dated with new retail locations. The additional complications over which retailers limit purchases to
   in store only vs. those that honor the card only through a direct mail catalog leads to participant frustration and ultimately unhappy sales people.
   
4. Does not involve family members and you lose the rooting and hero effect. DCP’s are less likely to be shared with family members because usually only one card per participant is distributed, and statements go just to the user.
   
5. No trophy value. Award dollars deposited to DC’s present the participant with the opportunity to spend their earnings on purchases with little or no trophy value such as gas or groceries or to pay bills. There is no comparison to the motivational and shared value award dollars used for these expenditures versus award points used to buy big screen TV’s, stereo systems or new furniture. The fact is winners don’t brag about and share debit card earnings like they do a new CD player or a set of golf clubs.
   
6. Debit cards by nature have a limited amount to spend. Imagine a participant using the card for a nice evening out and when they go to pay the bill they are $1.00 over the limit! Their card is rejected and they need to offer another form of payment—not very memorable or rewarding is it? Not to mention the embarrassment.
   
7. Like a cash program it is difficult to cut off a DCP once you have introduced it. When you discontinue a debit card, it is perceived as a compensation benefit reduction rather than an end to an incentive program. Conversely, ending a merchandise incentive program provides continued participant good will and improved behaviors long after the program earnings period deadline. Award redemptions continue for months after the program ends, and the rewards for the home and family act as lasting reminders of a job well done for years to come.
   
8. Taxes for recipients of a DCP are more costly because they must pay 100% on dollars awarded via the card vs. only 70-80%(could be as low as 60%) of the merchandise award value. Here’s why: With merchandise the recipient is only responsible for paying tax on the NET TANGIBLE value of the item. At the end of each year when you have to issue 1099’s we will give you a breakdown of net tangible value of each item redeemed by each person, which is the cost of the item less shipping, handling, administration, state sales taxes.
   
9. DCP’s have substantial set up and maintenance costs As a rule of thumb average earnings should exceed $250 per participant per year in order to justify the startup and maintenance costs.
   
10. DCP presents a greater opportunity for fraud and misuse. Debit cardholders can often charge more than the amount deposited at vendors that can’t or fail to get on line authorization. These off line transactions many times turn the program sponsor (YOU!) into a credit collector which rarely results in positive outcome and continued goodwill. Then of course there is always the thief who prays on CC users by picking off their pins.
    
11. The biggest negative is the fact that with a DCP you have no breakage. Because every dollar you pay to the bank weather or not it is used by recipient remains either with the bank or the third party that set up the program. For example if you have 2000 people in the program and you award $250,000 and the breakage is 10%, It has cost you an unnecessary $25,000. With merchandise if people do not use points issued you do not pay for them. We only bill clients when an item is shipped. The average breakage in a merchandise program is 30%! Most debit card providers rely on the breakage to make big money. It really belongs to you.
    
12. Debit cards like cash do not qualify for tax exemption. (See our article on Tax issues.)

The only negative about merchandise is as follows.

Items from merchandise catalogs tend to be priced at retail. This is true. But bear in mind shipping costs and administration are included and there is a very high-level of customer service. However you can’t beat the convenience of an online merchandise catalog that is available 24/7/365 where one could shop for hundreds of awards with proven motivational appeal from the comfort of home. Merchandise satisfies wants not needs like cash or a DCP.

Finally here are two important points recently uncovered in a study conducted by the research firm Ralph Head & Associates.

• According to studies of three major incentive programs, where homogeneous groups were offered either cash vs. trophy valued awards results were analyzed: Merchandise groups outperformed their cash/debit card group counterparts by 70-80%.
  
• Independent surveys of over 4,000 us business in 1997-2000; 45% of respondents who had operated a DCP previously, said they would discontinue their use for many of the reasons cited in the above pages.

Just one other point to keep in mind: A debit card won’t keep people on your corporate website but a link to your merchandise incentive award catalog will. And it will motivate participants to put your products in their shopping carts more often then your competition. Isn’t that what it’s all about!