Incenting your customer

All businesses are effectively trying to incent behavior.  If you are considering a rewards or incentive plan here are four factors to consider.  I don’t have the metrics to back up these points on hand but if people are interested I will dig them up.

Cash isn’t King

Hedonistic rewards work best.   If you offer as a reward something that the consumer would not otherwise purchase for themselves they will do considerably more than they would for an equivalent non-hedonistic reward, even cash.  Consider three potential rewards each worth $50; a massage, a gift card to Walgreens or cash. Consumers will be willing to do more to receive the massage offer than either of the other two.  Cash would be second in this example. Theoretically someone should be at least as willing to work for the cash as they are for the massage, as they could buy themselves the massage.  As the explanation goes (not scientific) there is guilt associated with spending the cash on the hedonistic massage.  Effectively the consumer will ‘work’ their guilt away.

Randomized rewards work

If you give someone direct compensation for their actions it is one quick step to figure out how much you are valuing their time and effort.  If the rewards are randomized people generally won’t draw this comparison (my non scientific explanation).  You just have to look as far as the existence of casinos and the lottery to see randomized rewards work.  No one would gamble if they thought about it in terms of expected value (without assigning some value to excitement but that is a topic for another time).

Give people a sense of accomplishment along the way

This is what airline points are all about.  If you give someone mini senses of accomplishment along the way they will remain more engaged.  I find this affects my own actions with games on my iPhone.  Games that give me points to open new levels keep my attention much longer.  Shh don’t tell anyone but I have even bought additional levels for a couple games.

It’s about the perceived value, not what you pay

If there is no clear price to the reward people will tend to assign a much higher value to it than it costs you.  There is an argument that it is to avoid cognitive dissonance about the value of their time but regardless of why, the less clear the value of the reward it the more consumers will do for it. This is why rewards like back stage passes to a sold out concert are particularly effective.

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