Vendor Incentive Programs: Short- Term Gain, Long-Term Damage

The past decade has witnessed a rise in the use of vendor incentive programs targeted toward retail sales associates. This tactic is one of many used by branded companies to increase sales and gain market share in a competitive marketplace. Typically, incentives take the form of a monetary reward for sales of a particular brand within a designated period of time. They may also include free or deeply discounted merchandise as a reward for sales figures.

All brands invest time and money in the training and motivation of retail sales associates. These include frequent visits by sales reps and trainers to teach and motivate sales staff, printed materials that explain the history and strategy of the brand and product line, and point-of-sale materials.

These techniques communicate the quality, price/value relationship, styling, reputation, and prominence of the brand to sales associates. These are the qualities a salesperson ought to be informed about and influenced by when speaking to consumers. Brand marketing, customer service, and product styling also play a part in the total image of a given brand and inform the decision to buy. These methods create and maintain the brand’s integrity and push the brand in a principled way. A sales associate should recommend a brand because he or she has confidence in the quality and reliability of the product. Incentive programs create an entirely different sell.

Although monetary incentive programs have the potential to increase sales in the short term, they carry risks. Salespeople begin to sell based on external incentive. As the motivation to sell becomes external, the owner and managers lose control over the selling habits and behavior of their staff. This is particularly dangerous for the reputation of the vendor, as customers are now being influenced by salespeople who are no longer working in their best interests but are looking for personal monetary gain.

In the case of merchandise incentives, salespeople contradict the element of trust between a customer and a reputable store; associates not only are seeking personal gain but also may be wearing and endorsing a product they have little knowledge about. Also, an associate may feel obligated to wear a particular brand, making the endorsement coincidental rather than earnest. The use of merchandise-based incentives denies the objective, professional opinions sales-people are expected to have in order to impartially inform a customer.

Incentive programs also undermine investments made in other areas. Retailers, like the brands themselves, make sizable investments in the environment, product assortment, marketing, staffing, training, and customer service to create a more positive buying experience. Incentive pro-grams undermine and con-tradict all other investments used by both the brands and the retailer. Instead of sales correlating to improvements and consumer satisfaction in associate expertise, sale materials, and marketing, a sale is made on the basis of economic incentive alone.

Use of incentives creates an artificial increase in sales for a brand; there is a spike in sales during the incentive period, followed by a sharp decline once the program has ended. Companies and vendors alike become fearful of a dramatic sales drop and will opt to keep an incentive program running. As the promotion continues, the incentives be-come commonplace, no longer creating the desired effect but now considered necessary for sales to take place at all.

A great deal of administrative work is necessary to run an incentive program. Paperwork, printing, and manpower are required to facilitate an extra program. The money would be better directed to programs that increase awareness of the brand and the store and improve relations between the retailer and its customers.

If you do allow incentive programs, you can lessen the risks. Run concurrent product-knowledge sessions to pre-vent employee ignorance. This improves employee knowledge and creates a true promotional period, where both product expertise and the product itself are in the spotlight. Upgrades in employee expertise also foster a trusting relationship between the associate and the consumer. The more information one can relay about a particular product, the more likely a customer will return for another purchase.

Try to create a middle ground between business as usual and the incentive program. Have a sales minimum before any spiffs kick in. Attaining an in-house goal before the incentive becomes effective keeps the motivation from becoming entirely external. Some regularity is maintained, in-house management retains control over staff behavior, and the runaway nature of incentives can be managed.