Buyers Rein In Group Incentive Programs

Group incentive travel likely will be one of the last industry segments to recover from the economic downturn that has plagued the meetings industry for nearly three years, illustrated by a new Meetings Monitor survey showing that fewer than 10 percent of corporations plan to increase the number of incentive travel programs this year compared with 2003.

The exclusive survey of 195 meeting buyers who work for corporations that offer travel as an employee performance incentive found that only 9 percent this year plans to increase the number of incentive travel programs from last year, while 22 percent plans to reduce the number of such programs. The remaining respondents plan to offer the same number of programs.

Yet, the actual number of programs offered only partially tells the incentive travel tale: Many respondents additionally reported their companies have tightened the qualifications necessary to be eligible for awards, selecting less expensive properties and destinations, and increasing the level of involvement of corporate travel and meetings departments—all with the goal of reducing the costs of existing programs.

Though some incentive executives insist a recovery, even a strong one, is underway at the moment, given the time necessary to plan a large incentive event—lead times frequently are measured in years—any full-scale upswing likely will not fully manifest until 2005.

"We're still running incentive travel programs, but we have tightened the rules," said Ken Pickle, manager of incentives and conferences for Seattle-based insurance and financial services firm Safeco Corp. "We're taking smaller groups. It's financially driven, and we're managing them as carefully as we can."

Though Safeco still selects luxury resorts and destinations as part of its incentive travel programs, including trips to Canada, Las Vegas and Puerto Rico, the company has toughened the criteria necessary for agents to qualify for the award, Pickle said, leaving what was once a 500-attendee program with about 300 qualifiers, for example.

"We've stabilized as far as our numbers, especially with things like audiovisual and production," Pickle said. "We have to be more careful with budgets and stretch them a bit more."

Downgrading properties and destinations as incentive sites is not an option for Safeco, Pickle said. "A lot of that depends on our competitors," he said. "If they go to five-star properties, we have to do the same."

Though Safeco must maintain high levels of site quality, other corporations have taken the opposite approach.

"We're seeing a little bit less exotic locales that are smaller in scale," said Peter Moen, vice president of business development for the Minneapolis-based performance and meetings management firm Carlson Marketing Group. "We see domestic instead of international, a smaller amount of qualifiers and less spending. There's still a fair amount of incentives, but the budgets are smaller than what they were."

One of the hallowed precepts of the incentive travel industry is that cutting programs during a poor economy is unwise, as the improved corporate economic performance potentially generated from a good sales incentive program will far outweigh its cost. Most corporations still embrace that theory, Moen said.

"It's not that corporations don't believe incentives don't drive sales results, it's just a reflection of the economy," Moen said. "We still see activity, just on a smaller scale due to the size of the programs."

Of those respondents whose companies offer incentive travel programs and also are implementing cost-cutting procedures, about 44 percent have allowed fewer people to qualify for incentive travel awards, typically through more stringent qualifications or simply reducing the maximum number of potential attendees. A similar amount, 39 percent—respondents were allowed to select more than one answer—indicated that their companies now select less expensive destinations.

Interestingly, nearly half of this set of respondents indicated their corporations' travel and meeting departments are playing a larger role in incentive travel management, many times shifting negotiating responsibility from the incentive sponsor. Only a handful of respondents said their corporations recently have outsourced formerly in-house programs.

Yet, other executives doubted the Monitor findings and pointed to a current upswing in the number and breadth of some corporations' incentive programs as a harbinger of a broad-based recovery. "What we see in 2004 looks extremely promising," said Scott Morris, vice president of sales for the Navigant Performance Group, based in Denver and Marlboro, Mass. "Several industries, including financial companies, that had cut back are looking at incentives again since the market has recovered significantly. Instead of 100 qualifiers, now there might be 300 or 500."

In fact, Morris said some of the increases NPG has seen have been due to more employees reaching the qualifiers necessary to earn incentive travel rewards, while companies lowering the standards of those qualifiers also have generated some increases.

He called the Monitor results a lagging indicator of actual trends in the industry. "What you're seeing there is a lag effect of Sept. 11," he said. "The standard response is that these things are down and doom and gloom and there's a continuation of that. It takes awhile for attitudes to change when new tends appear."

Carlson's Moen, too, said he expects the incentive travel market to improve as the economy grows and corporate activity increases commensurately. "There will be mergers and acquisitions, a need for new product launches and rebranding, and a lot of related activity in that area," Moen said. "When that happens, we will see incentives increase."

Not every industry has seen an increase in incentive travel, Morris added, specifically noting telecommunications and manufacturing companies.

Those companies that have motivated with incentives largely have not switched to another form of performance motivation, like merchandise or cash, Morris said, but many are wary of the potential lack of motivation an international travel award could generate. "There's far less travel outside the United States and far more domestic," he said. "Those who have deployed international travel in the past are now doing upscale Phoenix, Ariz., or upscale Boca Raton, Fla., for example, as opposed to switching to merchandise."

Safeco also has not considered replacing incentive travel with cash or merchandise. Though Safeco does have such programs, travel remains the most potent motivator, Pickle said, and allows the firm to hold meetings in conjunction with the incentive trip.