The "Double Squeeze" Threatening Manufacturing Margins
In today’s manufacturing environment, the “double squeeze” is compressing profitability at unprecedented levels. On one side, rising tariffs are inflating production and materials costs, while traditional cash-based incentive programs are simultaneously eroding already-tight margins on the other.
With profitability narrowing day by day and becoming increasingly unpredictable, how companies approach motivating their channel partners has become a make-or-break strategic decision with a direct impact on the bottom line.
Non-cash rewards offer a financial lifeline. They preserve channel partner engagement without the direct margin impact of cash or cash-like payouts.
Manufacturers who incorporate non-cash options with high perceived value into their rewards mix, like experiential rewards, recognition opportunities and status-driven incentives, are discovering that they can continue to motivate their partners to perform without hurting their financial stability. As manufacturing production costs rise and flexibility in pricing diminishes, the emphasis on non-cash rewards can alleviate some of the financial pressures during economic uncertainty.
Learn more: Behavior Science & Incentives: 4 Foundations of Channel Growth
Why Cash or Cash-Like Rewards Fall Short in Volatile Markets
The Double Squeeze in Action
Tariffs and other major economic factors impact manufacturing costs – that’s the first squeeze. Raw material expenses and component costs are higher, while supply chains face major disruption.
But there’s a second squeeze that many manufacturers with channel programs may not realize. Traditional cash incentive programs are great motivators for channel partners, but they create fixed costs tied directly to sales volume, reducing financial flexibility when it’s needed most.
Channel Programs that rely heavily on cash rewards or certain monetary incentives can become less adaptable in volatile markets.
As economic conditions push you to reevaluate expenses, programs without balanced incentives offerings (including both cash and non-cash rewards) directly compete with necessary investments. These investments in supply chain security and continued operational efficiency are the very ones you need to counteract tariffs and other unpredictable economic factors.
The Inherent Inflexibility of Cash
While cash rewards are straightforward and desirable, they’re also rigid. When costs go up, there are few levers you can pull without reducing payout values or cutting parts of your programs entirely.
This leads to the impossible choice: maintain your channel partner incentive programs as they are at the expense of needed operational investments or disengage your partners by reducing financial rewards.
Fully cash-based programs can’t adapt quickly to rapid market swings without directly impacting your partner relationships or your financial stability. The result? Manufacturing leaders feel trapped between competing priorities.
Limitations of Cash Incentives
Fixed reward structures can’t flex with market conditions
Dollar-for-dollar impact on profit margins
Difficult to adjust programs without impacting channel partners
Payouts often viewed as “entitlements” rather than incentives
Cutting incentive programs altogether presents an even greater risk. Eliminating channel incentives during economic downturns can lead to extreme partner disengagement, dramatic sales decreases and loss of market share that can take years to recover. Short-term budget decisions often lead to long-term revenue damage that exceeds temporary savings.
Remember that your channel partners significantly influence how end users respond to price increases. Partners who feel valued through thoughtful incentive programs become more effective advocates for your necessary pricing adjustments during volatile market conditions, helping preserve both customer relationships and your competitive position.
But don’t worry! There are strategic solutions that work for both you and your partners.
Non-Cash Rewards Are Your Strategic Advantage
Protect Your Margins While Maintaining Motivation
Non-cash incentives like symbolic rewards, access-based opportunities and privileges, merchandise and experiences help manufacturers keep partners motivated without directly impacting product margins.
Many non-cash rewards can cost less to implement than their perceived value. An exclusive training opportunity with industry experts or recognition at a prestigious industry event can strongly motivate partners without directly hitting your bottom line.
The psychological impact of well-designed non-cash programs often exceeds their actual cost. Picture this: a top-performing partner receiving VIP treatment at your annual conference. The goodwill, loyalty and motivation generated far outweigh incremental costs. The value-to-cost ratio becomes critical when economic conditions are already hurting profit margins.
Unlike cash that’s quickly spent and forgotten, non-cash rewards create a “memory halo” that extends their impact through anticipation before, enjoyment during and positive memories long after the experience. This psychological durability significantly enhances the impact of your investment compared to one-time cash disbursements.
Learn more: Beyond the Carrot: An Approach to Impactful Incentives
Benefits of Non-Cash Rewards in a Volatile Economy
- Perceived value is typically higher than the actual cost
- Symbolic and access-based rewards create ongoing motivation vs one-time cash payouts
- Experience-based rewards are lasting and can bring higher engagement
- Memorable incentives lead to sustained behavior change and partner loyalty
Flex Your Program Design During Unpredictable Times
Non-Cash Options Provide Flexibility That Cash Can't
Adjustable Cost Structure
You can tweak the cost per point in response to market changes without impacting how partners view program value. Even small modifications to point valuation can create much needed budget relief while partners experience no visible program changes.
This is where non-cash rewards really shine. Small adjustments to the cost per point can have a big impact on overall program budgets and they are less noticeable to program participants if the rewards aren’t cash.
Controlled Redemption Catalog
Strategically manage redeemable items to balance partner desires with current company margins. Adding items with a high-perceived value that are cost-effective (like exclusive brand merchandise) boosts engagement while managing costs.
This can be a good option if your program is currently a cash- or rebate-only program. When you add other options, even a conservative shift in redemption can have a meaningful impact on your overall budget.
Scalable Implementation
Non-cash programs can scale without creating substantial financial impact as prices fluctuate.
This gives you greater flexibility to maintain strong channel partner relationships even when market dynamics force pricing adjustments. Unlike cash incentives, non-cash programs don’t automatically increase in cost as your products increase to accommodate tariffs or other market pressures.
Switch to Unit-Based Programs
Unit-based programs create more predictable budget impacts regardless of price fluctuations. Rewarding partners for selling 100 units remains consistent even when factors like tariffs force a price increase. The predictability is nearly impossible with programs tied directly to sales dollar volume.
Building Stronger Partner Relationships Through Uncertainty
Beyond Transactions to Emotional Connections
When your program is primarily focused on cash, rebates or cash-like rewards, your partners likely view it as an extension of their business transaction with you. It’s a highly rational lens on your relationship, closely connected to the economics of their business.
Non-cash rewards, however, activate something more emotional and add deeper dimension to their relationship. They are more likely to leave your partners feeling value d and appreciated – and like you are their partner in supporting their business. This emotional connection creates loyalty that is less susceptible to things like pricing change or competitive offers.
Learn more: Beyond the Carrot: An Approach to Impactful Incentives
Creating Value Beyond Pricing
Non-cash programs create a separate value conversation from product and pricing discussions. This separation helps manufacturers make necessary price adjustments without immediately triggering partner push-back. Partners who feel personally valued through recognition and experiences show a greater understanding during challenging market conditions.
When hard conversations about tariff-driven price increases become necessary, partners who have received meaningful recognition and experiences are more likely to stay loyal advocates rather than seeking out other competitors based solely on price.
Budget-Conscious Strategies to Consider
When evaluating your rewards mix in times of market volatility, consider these approaches:
Extend Points Expiration
Give partners more flexibility while reducing your immediate redemption costs.
TIP: Announce expiration extensions as special accommodations during specific periods. This builds brand sentiment can lead to long-term loyalty while managing your financial exposure.
Introduce Symbolic Rewards
Status tiers, certifications and recognition programs motivate your partners without heavy investment. A “President’s Circle” designation and special privileges creates powerful motivation with minimal direct cost.
TIP: Status tiers can be implemented at a low cost but create ongoing motivation through exclusivity.
Control Redemption Options
Strategic catalog management can benefit both you and your partners. Incentives like product certificates are particularly effective during economic uncertainty because they allow your partners to reinvest their rewards in your brand.
TIP: Featuring your own products in your redemption catalog creates high perceived value while costing only your wholesale expense.
Mix Up Your Incentive Types
Add options like surprise recognition, digital badges or learning opportunities with high perceived value at a lower cost than cash incentives.
TIP: Recognition and status programs deliver significant motivational impact at a fraction of the cost of cash incentives, making them ideal additions during volatile market conditions.
Create Targeted Contests or Sweepstakes
Create competitions with fixed rewards that drive significant engagement on a predictable budget. “Top 10” achievers, “first 5 to reach a goal” or “every sale earns an entry” structures generate widespread participations without variable reward costs.
TIP: Limited-time contests create urgency and excitement during volatile periods while still allowing you to control your total program expenditure.
ASK YOURSELF:
- Do you need to add new incentive types to your program?
Go beyond traditional cash incentives with experiences, recognition, merchandise and access-based incentives that can complement your existing strategies.
- Do you need to reprioritize the incentive types in your mix?
Assess your balance between cash and non-cash elements in your program. consider shifting emphasis toward options with less of an impact on margins during volatile periods in the market.
- Have you audited your current incentive mix recently?
Understanding the most impactful placement of your incentive dollars is your first step in optimizing your program.
- Have you explored symbolic and access-based rewards?
These high-impact, low-cost options might be underutilized in your current program.
Moving Forward: Smarter Incentives for Smarter Manufacturing
Cash will always have a place in the incentive toolkit. But in a volatile market, heavy reliance on it limits your options. By introducing or expanding non-cash rewards, you create flexibility to respond to external pressures while still driving business-critical behaviors.
Strategic Planning Checklist for Volatile Markets:
- Assess current programs for flexibility during cost increases
- Create tiered plans for gradually shifting incentives mixes
- Identify high-impact, low-cost options to supplement your existing programs
- Develop communication strategies that emphasize enhanced value
Want to learn more about implementing effective non-cash rewards in volatile markets? Explore these additional Maritz resources:
- Beyond the Carrot: An Approach to Impactful Incentives
Discover how to move beyond the traditional “Do This, Get That” incentive model to a more holistic approach that builds lasting partnerships and drives long-term results. - Behavior Science & Incentives: 4 Foundations of Channel Growth
Learn how behavioral science principles can be applied to create more effective incentive programs, including the psychological benefits of non-cash rewards. - Channel Program Management: Navigating Loyalty vs Incentive Programs
Understand the key differences between transactional incentive programs and relationship-focused loyalty strategies and how to integrate both approaches. - Manufacturing Loyalty & Incentives
Industry-specific guidance on building effective incentive and loyalty programs designed for manufacturing channel partners. - Channel Incentive Programs
Comprehensive overview of Maritz’s full portfolio of reward types, including financial incentives, experiential rewards, symbolic recognition and access-based incentives.
