A Great FFP Model at Work August 04, 2008 In this month's issue of Incentive, Bruce discussed the advantages of frequent flier programs. Here he describes one example of these programs at work:
By Bruce Tepper
Don't get me wrong—I'm not criticizing the airlines for using a model that works so well. In fact, one of my former incentive clients used the same model before frequent flier programs existed.
The company manufactures auto parts and offered a purchase program to distributors with points worth one cent each. Points were redeemable for individual travel and/or merchandise awards.
Their distributors could purchase one 100-point certificate for 50 cents (50 percent of its actual value) for every unit the distributor purchased. Distributor management could retain the certificates, use them with their employees or offer them to their jobber (auto parts store) and/or dealer (mechanic) customers for free, or charge them whatever they liked.
Certificates contained the words, "valid until Dec. 31 [of the current year], unless the program is extended," which it always was. Much like frequent flier programs, redemption settled into a pattern of about 35 percent per year, with distributors paying 50 percent of the total cost at the time of purchase. On average, point certificates were retained for over five years. The float on the money alone made this a profit center as well as a very successful awards program.
Everyone was a winner. Distributors got certificates at 50 cents on the dollar to use any way they wanted. Manufacturers reduced their up-front costs and created a new profit center. Participants got awards that were of greater value as a result of the partnering.
This concept is the self-liquidator of the incentive world. It applies a similar financial approach and adds the new wrinkle of float on the money and multiple partner participation. It just might be right for your next incentive program.
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