Cash vs. Tangible Incentive Program Rewards - What Works Best?
82Business Incentive Programs from Loyaltyworks
Cash vs. Non-cash Incentive Program Rewards
Incentive programs (if properly designed) are proven ways to
change behavior and produce business results, be it to increase sales, reduce
workplace injuries, improve employee retention, boost morale, increase wellness
program participation and more. Recent academic research further supports that programs
using non-cash items as rewards will generate more motivation than those using
cash.
One of the most baffling contradictions in incentive marketing is found in the debate over the effectiveness of cash as a reward. For years, business mangers and incentive industry experts have seen, in real-world practice, that tangible rewards (non-cash – merchandise, travel, exclusive privileges) prove far more effective at capturing and holding the interest of people, generating excitement and motivation, and driving program results towards business objectives. But if you were to survey a random group of people, asking if they would prefer cash or a non-cash reward, the resulting answer would unequivocally be – cash.
It’s an important issue - the selection of rewards offered in an incentive program can be a critical driver of its eventual success. So, what rewards are going to generate the excitement needed to launch a program successfully and then keep participants motivated and actively participating months or years from now?
Recent Research Sheds New Light on the Cash v. Non-Cash Reward Controversy
Recent academic research on the psychology of decision making may be bringing clarity to this often murky issue. A study conducted by at Wichita State University (and set for publication in the Journal of Economic Psychology, under the auspices of the International Association for Research in Economic Psychology ) revealed that when given a choice between cash or a cruise or HDTV worth the same amount people pick will pick cash 63% of the time.
When the same research team asked people to rate how happy or satisfied they would be to get either the cash, the TV or the cruise as a bonus (with no choice or comparison being made) the HDTV and cruise consistently outscored cash. The hypothesis of the scientists was that people were more excited by and would actually enjoy the non-cash rewards more because of the affective (fun, emotional) properties they possess. But when given a choice between a tangible reward and cash, the utility of the cash would lead many to make a more practical, less satisfying decision.
Primary research: Hubpages vs. Wichita State University
Which reward do you feel will inspire and motivate you more?
See results without votingEvidence from Business Practices
That said, do non-cash rewards generate more excitement, motivation and higher performance than cash? Non-cash reward programs have historically generated greater motivation and higher performance than cash programs. Goodyear tire confirmed this fact during a during a 6 month sales incentive program they ran in over 900 stores – in half of the stores, employees were offered a cash incentive for every 12 tires of a specific type sold. Employees in the other stores were offered merchandise rewards worth the equivalent amount. At the end of 6 months the non-cash stores outpaced the cash stores by 46%. The ROI for the non-cash program was 31%…the cash program ROI was –20%. Goodyear is a big believer in non-cash incentive programs.
These results are consistent with the experiences of incentive marketing professionals – that in most cases non-cash rewards will make an incentive program more compelling (and motivating) to participants, cost effective and successful.
Below is a summary of widely-held observations on the advantages of non-cash rewards over cash:
• Cash has little emotional value and
no upside. A dollar is a dollar. Fungibility is its most exciting attribute.
• The affective, emotional elements of
non-cash rewards afford them higher perceived value, aspirational qualities and
a greater capacity to motivate
• Cash has no lasting effect. It gets
psychologically mixed in with income, spent on bills (or other forgotten
necessities), and almost immediately loses its association with the sponsor of
the award and/or the achievement that earned the award.
• Luxury, non-cash rewards bypass
justification or practicality, which can turn them into high value, guilt-free
indulgences…thus coveted and very memorable.
• It is more interesting and
acceptable to show off, discuss and acknowledge non-cash rewards, providing positive
social reinforcement and the pride of trophy value to the recipient.
• Merchandise rewards are visible and
create a lasting association with the sponsor of the award and reinforcement of
the achievement that earned the award
• Travel awards are persist in the
form of positive memorable experiences, which form a lasting link to the
sponsor of the award and/or the accomplishment that earned the award
• Cash tends to become considered an
entitlement; non-cash rewards will always be seen as something extra and
specifically earned for a particular achievement
• Non-cash rewards are often enjoyed
by family members as well, which elevates interest and motivation in the
program
If you’d like to read a more detailed study of the psychology underlying cash
and non-cash rewards, here is a link to a paper sponsored by the Incentive
Research Foundation:
http://www.loyaltyworks.com/incentive-program-research-articles/benetangnonmon%281%29.pdf
Visit http://www.Loyaltyworks.com to learn more about Web-based incentive programs.
Check out our hub on "Channel Sales Incentive Program Best Practices"
CommentsLoading...
Thanks habee, incentives certainly can be powerful motivators - especially for someone with a competitive streak like you! The key is offering rewards that have value to the people participating and to include a social factor - like public recognition.
Thanks for the article post. Good stuff. Now I'd like to see statistics on how commission structures affect customer retention and satisfaction.
Thanks for the comment Joe. An old business saying goes "what gets measured, gets done" - that can be adapted to "what gets rewarded gets repeated". What this means is that any reward structure needs to be thought though to avoid creating unwanted behaviors that might be counter productive to the end goal.
Let's say you put a sales commission structure in place that only rewards getting a signed contract. With this goal in mind, a salesperson might use less than honest methods to persuade a prospect to sign (misinformation about the product/service, pressure tactics, etc.) which could easily lead to dissatisfied customers and high defection rates. But can the salesman be blamed? He is doing exactly what he's been asked to do and is rewarded for doing - closing deals.
Now, if the reward structure for the salesperson also includes a kicker for high scores from his customers on a satisfaction survey and another when they renew a contract, the way he handles his prospects may change dramatically as he has a stake in their satisfaction and retention. His goals are now better aligned with those of the organization and both benefit when they are reached.
habee Level 7 Commenter 2 years ago
I've always found incentive programs to be very effective. They were often used at my school when I was a teacher. Since I was pretty competitive, I won all kinds of goodies: time off from work, free meals, and free trips to the beach!