In the business world, when companies want to sell products or services, they often use incentives as motivators. These incentives can take the form of merchandise, cash or travel opportunities. It's the "carrot and stick" theory refined by legions of smart marketers and savvy merchandisers to improve the way they do business. It works because people can often be persuaded to change loyalties and behavior when given a good enough reason to do so.

The four main business drivers for incentive programs are:

• Gaining customers

• Increasing customer loyalty

• Changing customer behavior

• Getting information about customers

Currently the most popular types of incentives can be divided into two categories: direct and indirect.

1) Direct

The customer receives an incentive directly from the merchant. This can be in the form of a discount or rebate on the current purchase, or a token (coupon, frequent shopper point, credit) towards future value. The key here is that the current or future value is from the merchant and is generally related to the goods or the service being purchased (e.g., free oil changes for a year when you buy a car).

2) Indirect

Here, the customer receives a specific value that is not directly related to the purchase. The value may not - in fact, probably won't - come from the merchant in the transaction. The best-known examples of indirect incentives are hotel stays, car rentals, credit cards and long-distance phone plans that accumulate airline mileage. This model is rapidly being extended to electronic commerce.

The indirect category can be divided into two types: fixed and transferable. In the fixed model, the incentive is provided by a specific company or organization - e.g., a single airline, or an airline-sponsored credit card. This transferable type of incentive allows the rewardee to accumulate award credit and then choose from among a set of values to which the award will be applied. A good example of a transferable incentive is the American Express Member Miles program, which allows the member to transfer the miles to one of a set of airline programs on demand.

Understanding the differences in these types of incentives is critical to designing the proper program to meet a business objective. For example, consumers paying for items out of their own pockets might find direct incentives that reduce the cost of the product the most appealing. On the other hand, if an individual is employed by a company or government agency that does not allow personal collection of rewards or lives in a jurisdiction that taxes such awards, the indirect incentive may not have any value. Any company looking at such a program should undertake a detailed analysis, based on actual behavior of customers.

Consumer loyalty has become an important issue as the number of channels available to buyers increases. With all of these choices, companies have to separate themselves from their competition by giving added value to their customers. Incentives can play an integral role in motivating consumers to buy certain products over others. Here are some ideas for targeting existing-and potential-customers.

1. Increase Trial. When getting consumers to try a product for the first time, premium promotions get your product noticed. For example, at the end of several summer concerts, concertgoers were given sample-size bags of coffee in assorted flavors to take home with them. This puts the coffee in the hands of people who might never have tried it otherwise and also builds brand recognition.

2. Introduce a New Product. Giving customers something to remember during your product launch supports brand awareness. When the online company Inoutdoors.com wanted to grab the attention of nature lovers, it sponsored a high-profile sporting event to drive traffic to its Web site where visitors could enter an online drawing. The alluring incentive for the grand-prize winner was an all-expenses-paid vacation with well-known sports celebrities.

3. Generate Attention and Traffic. No matter what business you're in, attracting new customers' attention is a top priority. Offering an incentive widens your audience reach, and giveaways always attract people. For example, name-brand cosmetic lines such as Clinique, Lancome and Shisheido offer shoppers free premiums with purchases on a regular basis, usually cosmetic bags filled with samples of products. T-shirts and umbrellas emblazoned with the company logo have also been used in various cosmetic campaigns.

4. Level Seasonal Variations in Sales. The dips and plateaus of the business cycle affect most industries. A well-planned incentive campaign can lure customers to buy during the off-season. Having an outdoor barbecue is great in the summer. But how many families enjoy cooking out in the cold winter months? To entice patrons to buy grills during the winter months, a major retail chain offered gas grill buyers a steak package valued at $150. To generate additional excitement for the promotion, the chain also sponsored on-site cookouts and gave away sirloins and burgers to lucky customers. The promotion yielded a 35 percent increase in sales.

5. Boost Slow Products. Being associated with well-known brands or activities gives less popular items appeal to a broader audience. Offering a free trial, discount coupon or prize of a slow product/service to purchasers of a recognized line can encourage the movement of unrecognized product lines.

6. Build Continuity of Purchase. An incentive campaign can encourage repeat sales of a product. The beverage industry is known for motivating customers to make their beverage purchases in bulk by including sequential contests within large cases. In order to win, you must collect all the game pieces-meaning you have to continue purchasing the product.

7. Increase Volume Sales. "Free with purchase" premiums aim to increase volume sales while also increasing consumers' appreciation for the featured product. Consumers are required to buy a featured product in order to receive the premium. Beauty salons often offer free styling or nail service with the purchase of a premium hair cut or permanent.

8. Obtain a Prospect List. Premiums have proven to be highly effective in both direct mail campaigns and direct selling programs. By offering customers an incentive, companies can have access to names of their friends and family members who may be prospective customers. This usually takes the form of an entry ballot that must be filled out with demographic information. The most successful of these programs, however, give away something to each entrant just for participating. Participants are encouraged to submit entry forms for friends and family members too.

9. Reach Adults through Their Children. Kids possess immense purchasing power and can directly influence their parents to buy products. When Kool-Aid wanted to introduce its brand to a new generation, it sponsored a "More Smiles Per Gallon" tour. In every targeted market, the Kool-Aid Man stopped in popular children's play areas such as zoos, museums and amusement parks in his highly visible Kool-Aid Cruiser. Free photos with the Kool-Aid Man, an opportunity to play a soccer game, and, of course, free samples with coupons attached attracted potential consumers and helped raise awareness of Kool-Aid.

10. Offset Higher Prices. One way for a company to take consumers' attention off of price is to offer a valued premium. Cellular phone companies are famous for creating promotions for new subscribers that include a valuable item when they sign up for an expensive activation package.

Incentive programs are effective tools, but they're only as good as the planning that's gone into them. To get your program started with a strong foundation, follow this handy checklist. It will help you get a feel for the issues involved in program planning and implementing your organization's incentive program.

Commerce-oriented Web sites are struggling with the twin challenges of attracting shoppers and getting them to make purchases once they visit. Certainly product availability, selection, price and ease of ordering are the key factors in determining whether customers make purchases. However, with the intense competition for customers' attention and Web dollars (after all, your competitor is only a click away), companies are seeking additional ways to influence buying patterns. One such method that is now emerging is the incentive program, where the customer actually receives value in addition to the product purchased. We are now seeing many sites offering some sort of incentive to purchasing on the Web, and also the emergence of companies such as Emaginet and Netcentives, which are essentially outsourcing merchants' coupon services and frequent flyer programs.

A 2001 survey by online researchers NFO Interactive reveals that more than half of all online consumers are willing to make more purchases on the Web if e-commerce sites offered reward points or incentives.

Survey results indicate that almost 53 percent of e-consumers were willing to buy more online with some kind of rewards program, and 47 percent would return to a specific e-commerce site if they knew rewards or loyalty incentives were offered. A mere 15 percent of those surveyed said such programs would not influence their buying decisions.

Be sure to read each article with the mindset "How could this apply to our business." Thinking of it that way will guarantee that you get value. Better yet, take notes as you read and commit to having the ideas implemented by the time the next edition arrives. Also, make copies for each team member. To really make sure something positive happens, work with your business development specialist to talk your team through the ideas and how to set a schedule for getting them implemented. We're here to help you get started. [Accounting Firm Name]

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