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With marketers under increasing pressure to prove the accountability of their methods, it seems surprising that there is such a lack of interest in redemption analysis for voucher campaigns. Even more surprising is that, according to distributors, clients rarely, if ever, ask for detailed feedback.

The chairman of The Voucher Association (VA), Andrew Johnson, believes clients are sleeping on the job when it comes to vouchers and could be getting much more out of their campaigns by analysing redemption data.

'There are no calls to track redemption in the industry. Most clients are lazy. It is a reflection of how many companies undervalue the importance of incentive and motivational schemes,' he says.

As well as his role at the VA, Johnson is sales and marketing director for The Virgin Voucher incentives scheme. He struggles to name one client on his books that is using vouchers to their full potential.

In general, it seems clients are failing to see vouchers as a way to understand their target audience better, nor are they looking at spending patterns or using redemption analysis wisely to instigate changes in behaviour.

'Vouchers can be one size fits all, but that won't make the campaign work to its optimum potential,' adds Johnson.

Tracking take-up

But why are vouchers so out of kilter with other marketing tools, which are invariably accompanied by a rigorous focus on return on investment, good targeting, innovation, evaluation and customer behaviour?

One reason is the growth of the industry, which expanded by 5% between 2003 and 2004. This steady rise means that there is no pressure for voucher distributors to push the boundaries of the channel. Also, the ability to track redemption of vouchers varies wildly from distributor to distributor.

Some, for example, are unable to track when, where and how a voucher was spent. Tim Lofts, incentive specialist at Maritz, defends this lack of capability. 'A voucher is essentially cash, and just as you cannot track how a person spends a certain £10, neither can you track a voucher,' he says.

Other distributors, however, do have tracking technology in place, believing that it is in a marketer's interests to know exactly on what a voucher has been spent. 'Clients are putting big budgets into vouchers.

They should be interested in what they are spent on,' argues Rik Burrage, managing director of Grass Roots, which runs the gift-voucher scheme, bonusbond. 'They need to know for two main reasons: so that they can then target the reward more accurately and so they can examine and question whether the campaign is truly motivating people. You need to know whether you are getting enough bang for your buck.'

Another factor in the adoption of the 'if it ain't broke, don't fix it' approach is that voucher providers can make money from non-redemption.

Such profits are referred to as 'breakage', a certain amount of which is inevitable with any voucher campaign. However, if the rate is significant, it suggests the campaign is not working hard enough.

'Any voucher issuer makes money from breakage and it is an important part of being profitable,' says Graham Povey, managing director of Capital Incentives & Motivation. 'In our case it is a low percentage, as about 98.5% are redeemed. However, I would say that if you have 5% of vouchers which are not redeemed, it indicates your campaign is not proving successful.'

Measuring effectiveness

Viewing vouchers as a substitute for cash is unlikely to lead to choosing the most effective incentive for a campaign. If a voucher is spent on everyday items, rather than luxury purchases, consumers are not likely to feel motivated or rewarded by it, according to Grass Roots' research.

'The main reason Virgin vouchers can only be redeemed on lifestyle rewards is because they are about treating yourself,' says Johnson. 'It is not about luxury necessarily, but we are careful with the redemption options we include in our portfolio. We don't have any supermarkets, for example, as they would not fit with Virgin's values of fun, innovation and excitement.'

When gadget company Firebox.com was looking to offer vouchers for its product range, it talked to several established voucher suppliers. But, managing director Christian Robinson was not satisfied that the campaigns were accountable enough and decided to set up an in-house voucher operation.

'When you ask voucher companies about redemption, they go quiet. That is why we didn't go for the traditional voucher solution,' he says. 'Also, when consumers hear the word voucher they think of the high street and shops such as Marks & Spencer and Boots. We have been keen to shake up that image.'

Firebox invested in voucher-coding technology, which means each one issued can be tracked. Robinson speculates that the voucher industry might not be keen on this technology because, in general, it is expensive. However, he believes the additional costs are far outweighed by the benefits.

Robinson adds that the system of coding has enabled Firebox to learn a huge amount about its customers. To incentivise consumers Firebox includes a voucher in every one of its catalogues. Each voucher is worth between £3 and £1000, but customers are informed of its value only when they visit Firebox's website and type in a unique code. This enables the company to give more generous rewards to loyal customers who have signed up to the brochure.

Firebox is thus able to compare the effectiveness of different promotional activities and catalogue distribution channels. 'We can compare customers acquired from FHM newsstands against subscriptions with Cosmopolitan, for example, to find out which readership responded better,' says Robinson.

Also, by examining how much these customers spent and the cost of catalogue insertion in the magazines, Firebox can calculate the cost per acquisition and estimate the lifetime value of a customer.

Joint promotions

Firebox is now offering its tracking services to other brands. Carling has just kicked off an on-pack promotion that features a £5 voucher in every pack, which can be redeemed against any purchase at Firebox. As a further incentive for consumers to redeem their vouchers at the website, there are 1000 Sensible Soccer 2 plug-and-play consoles and 2000 limited-edition Sensible Soccer T-shirts up for grabs.

Under the tracking system, Carling can identify which packs yield the highest response rates and which customers use their voucher to make a purchase. 'They can also use it to learn about the retail channel,' adds Robinson. 'There is no reason why an FMCG business cannot analyse which supermarket's customers are most likely to respond best to its promotions.

You need to learn from each voucher campaign or else you are shooting in the dark.' Following this promotion with Carling, Firebox is now in talks with several other blue-chip brands.

Tracking customer behaviour is far easier and cheaper to do online and many industry commentators argue that online will soon become the preferred place for voucher redemption. 'Online providers redeem the vouchers, commission reports on who has ordered what and when and provide a full refund for any non-redemption,' says Jason Harney, managing director of online incentive company Improve. He also believes that in future savvy clients will not bulk-buy vouchers, but sell on-demand instead, which is easily set up via online systems.

Alan Kellock, founding chairman of the VA and retail development manager for gift vouchers and gift cards at Woolworths, agrees that the future of the industry lies in vouchers that can be tracked more easily. As well as online, electronic gift cards, which have seen phenomenal growth rates in the US, also lend themselves well to sophisticated redemption analysis. 'The fact that some providers can track the voucher redemption process and some cannot has definitely been an issue in the past,' says Kellock. 'You need a lot of data to drill down to find out what a single voucher has been spent on. However, technology is filling that gap and the industry should be looking to resolve the issue.' Similarly, clients should sit up and start to take note if they want to get the most out of their voucher campaigns in future.

ESSENTIALS

The Voucher Association's 10th anniversary

It is almost 10 years since The Voucher Association (VA) started out as a coffee-club-style network, called the Voucher Industry Forum, where industry players discussed common issues.

The name change in 1998 signalled a commitment to raising awareness of vouchers as a tool for incentive and loyalty programmes among clients.

At this point, members started submitting sales data to track the growth of the market.

The VA also began organising conferences, conducting research, and lobbying the government on issues such as National Insurance, VAT and tax.

The first market report, published in 1998, valued the market at £700m, based on sales data from 13 providers. It showed that 54% of the market was corporate and that it had grown by 10% between 1997 and 1998.

In 2004, the market was worth £1.43bn, with a split of 60% retail and 40% corporate.

Now, 26 providers submit data for this market report. The VA estimates this represents 75% of the total UK voucher market, which has grown at a steady pace over the past decade, even in times of economic uncertainty.

One of the main developments in the past 10 years is the growth of experience, leisure and agency voucher providers.

While the VA's membership started out as comprising predominantly retailers, it now represents a broad church. There are currently 28 full members and 28 associate members.

Another key development in the voucher's evolution has been the introduction of electronic plastic gift cards and online redemption. The paper-versus-plastic debate has been raging for years, but has become more heated as electronic gift cards have taken off in the US retail market, outselling paper vouchers by anywhere between 200% and 400%.

VOUCHER MARKET TOTAL VALUE 2002: £1.24bn 2003: £1.36bn 2004: £1.43bn