Incentive Travel Bounces Back, with New Rules Though

Fueled by a buoyant economy, the incentive travel market has roared back to approach the boom times prior to Sept. 11, 2001. Still, the incentive industry has changed in fundamental ways since then, and the trips themselves largely conform to the caution that defines the current business climate.

That's the assessment of several meeting and incentive planners and industry observers interviewed by MeetingNews.

Over the past two years, a healthy business sector has boosted the number of incentive qualifiers, as more salespeople have hit revenue quotas to win trips, according to the planners. Some companies are creating tiered rewards contests with multiple trips, i.e., an international trip for top producers and a domestic trip for those who place second.

"Yes, absolutely, incentives are back," said Bill Boyd, chief executive of Sunbelt Motivation & Travel, a regional incentive house in Dallas. "We see incentives like they were in 1999 and 2000.

"Most incentive owners were very 'doom and gloom' in 2002 and 2003," continued Boyd, the immediate past president of the Society of Incentive & Travel Executives (SITE). "We started coming out of it in 2004, and '06 looks great."

Widespread optimism aside, no industry-wide research tracking the growth in incentives is available, nor their growth in relationship to meetings.

While it seems clear that the incentive industry is enjoying a resurgence, a few factors have combined to hobble incentive spending. Those same factors are squeezing the profit margins of incentive operators.

Planners point mainly to the following: stricter corporate procurement policies and the preferred-supplier programs they've spawned; corporate financial scandals and the resulting Sarbanes-Oxley legislation requiring more transparency in financial and accounting disclosure; and ongoing security concerns stemming from terrorism and other forms of political violence that keep groups closer to home — although international travel in this niche has enjoyed an uptick in the past year or so.

A Noticeable Turn
One of the more significant changes since 2000 is that large third-party planning companies have shifted their events mix more toward meetings, including two firms traditionally linked with incentives.

Maritz Travel Company in Fenton, MO, has changed its mix of meetings and incentives since 2000, from about 70 percent meetings/30 percent incentives to 80/20, according to Rhonda Brewer, vice president of industry relations.

Carlson Marketing, in Minneapolis, has shifted its mix even more, from 60/40 incentives/meetings to the opposite — 60/40 meetings/incentives — over the same period, according to Kari Vrba, director of business development.

Brewer and Vrba attributed their shifts partly to companies that have added meeting elements to the point where incentive trips have been reclassified as meetings.

Even prior to 2001, many people repeated, as conventional wisdom, the saying "There's no such thing as a pure incentive anymore." Back then, companies already were injecting some business meetings into the typical incentive schedule of outdoor activities, sightseeing excursions, and parties.

But the cost-consciousness of Corporate America resulting from the weak post-9/11 economy and Sarbanes-Oxley, which tightened corporate accountability, intensified that trend. "As companies got more involved in procurement," Vrba said, "they looked at each marketing dollar more closely and thought about better ways to use their incentive programs; they looked at the programs in a different way."

Brewer added, "There's been more of a blending of meetings and incentives. What were once considered incentives are now in the meetings category, as they have so many meeting components to them."

Bruce Morgan, senior vice president of marketing and business development for Chicago-based BCD Meetings & Incentives, said the corporate drive for greater return on investment could nix incentive trips altogether, despite the fact that a properly structured incentive contest pays for the trip through increased sales or savings and still generates extra income for the incentive sponsor.

"It's often not a question of whether the company can afford [to deliver] the incentive trip based on the team's performance," said Morgan. "The issue is: Is it the best use of the company's money? If I do both an ad campaign and an incentive, which one drives results?"

Since 2000, the number of meetings managed by BCD Meetings & Incentives, a unit of corporate-travel management giant BCD Travel, has grown dramatically over incentives, according to Morgan. This year, BCD Meetings & Incentives expects to manage about 4,000 events, about 70 percent of which are meetings, he said. In 2000, the unit's mix of meetings and incentives was about 50/50.

Morgan attributed the increase in large part to the preferred-supplier programs of large companies. Big companies can drive scores more meetings to a single third-party now, he explained. "When you land a Fortune 500 company and you're its sole provider, think of what that does to your balance," he said.

Incentives, on the other hand, are far fewer in number than meetings, and outsourcing is still decentralized to the incentive sponsor within a company, he said.

A contrarian to those who see a full recovery for incentives, Morgan contended that they have not recovered to pre-9/11 levels. "Our clients are doing a lot more on the meetings side," he said.

Procurement Pressures High
Although companies may loosen their preferred-supplier policies when it comes to incentives, they still enforce policies that squeeze profits for outsource planning firms.

"Procurement has had a huge impact," said Madelyn Marusa, vice president of industry relations for PRA, one of the nation's largest destination management companies (DMCs), with 18 franchised offices around the country. As a DMC, PRA works not only with corporate incentive planners but as a subcontractor to meeting and incentive management companies.

Speaking of PRA's third-party clients, Marusa said, "They've had to unbundle their cost of working with us to show their client our value as well as their own value — to show the client what we bring to the table in terms of our staffing and destination expertise."

Greater transparency in supplier charges means that companies can negotiate better deals, cutting the profit margins of planning companies, DMCs, and other suppliers of goods and services. The balance of power tilts even further in favor of incentive buyers when those buyers are big companies — which can frequently dangle large pieces of lucrative business in front of suppliers.

That line-item scrutiny, along with Sarbanes-Oxley rules, also has meant a cutback in spending which could appear extravagant.

"Things are less flashy than before," said Marusa. "Where in the past we might have transferred each couple from the airport to the hotel by limousine, now we might use a sedan. For entertainment, we might draw on local stars instead of spending a lot of money on big-name celebrities from out of the area. We have to show the value of each item more carefully than before."

The recent caution also has left companies much more risk-averse in the activities they schedule for their incentive groups, according to Marusa.

"We pitch companies a lot less on 'wow-factor things,'" explained Marusa. "We're not pitching river rafting or hot-air ballooning anymore. Bungee jumping is long gone. Now we might do a mini-Olympics or maybe teamwork at a museum where they figure out something mechanical."

In that same vein, companies also demand more from incentive management companies in emergency planning, Marusa noted.

"We're being asked for emergency evacuation plans and plans in case someone gets sick," she said. "They also want to know about your liability insurance. All of that is definitely a post-9/11 trend."

Contact Marshall Krantz at [email protected]

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