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The science behind successful incentives? Change.

Sep 15, 2015

Written by: Tim Houlihan
(View Author Bio)

Behavioral Economics hedonic treadmill BI WORLDWIDE Latin America.

Overview

At BI WORLDWIDE, we understand that customer loyalty is way more complex than it seems. It's more than just giving points to a client. We view it as a four stage cycle and we know that every client has customers in different stages that should be treated differently. We have years of experience helping clients drive behaviors and build customer loyalty, all based on the principles of Behavioral Economics.

Incentives work. There is no dispute about this. Dogs ring bells to get food. Mice race to get to the cheese quicker. Humans run 26.2 miles for a t-shirt and a medal. Sales people consistently maximize their compensation plans when being paid a commission.

Wait a minute. Not every commissioned sales person maxes out his or her comp plan. But if all commissioned sales people have the same opportunity to make more money, why don’t they?

The answer is deceptively simple and it’s found in what behavioral economists call the hedonic treadmill. The short story is this: whatever level of income you have and the effort you exert to earn it becomes the norm. To earn more would require working harder and most people are, well, pretty complacent. All people say they want to earn more money but very few say they’ll work harder to earn more.

The hedonic treadmill is similar to being on a real treadmill. At first you feel fine. After a while, you begin to feel fatigued. After several hours, the steps become normal and you almost forget about the constant motion of one foot in front of the other. The same is true with contests. If you run the same contest with the same rules on the same products with the same rewards month after month, your sales people will stop paying attention.

Changing things up helps re-energize and refocus our efforts. Here are three things you can do to improve the effectiveness of your sales incentives.

1. Change the rules.

Stack ranking is great occasionally but after awhile, the folks on the south side of the winner’s circle will stop paying attention to your “Top Ten Go To Hawaii” contest. By using a stack ranking one quarter and individual objectives the next quarter, your sales people will think about their business in light of the new rules. That consideration is a tiny act of engagement that could lead them to working harder and delivering greater results for you.

2. Change the rewards.

Many sales managers believe that sales reps are coin operated so they begin incentive conversations with cash, cash and more cash. But if more cash were the answer, why wouldn’t your commissioned sales people already be working harder to earn more? Mix it up by using different rewards: dinner with the SVP of Sales, a weeklong getaway at the company’s condo on the Big Island or points that can be redeemed for a 70” OLED curved-screen television, a Calloway XR Pro or a smart watch. Sure, they could afford to buy those things with their own money but they won’t. You’ll give them bragging rights when they pull the new driver out of their bag and their golf partners wonder where they got it. “My company gave it to me for being a top performer.” The sales rep gets the glory and you get the incremental performance required to earn it.

3. Change the focus.

The problem with focus is that it’s difficult to maintain it for long periods of time. Asking your reps to sell more of the new, high-margin widget month after month is fatiguing. Rather than a monthly contest that rewards reps for selling Product A, consider changing the emphasis every so often. You could switch the contest to reward them for selling other important products or for increasing margin or for selling partner products to keep things fresh. The reps will give you more effort in part because you’re changing things up. This allows them to naturally adjust their focus and you will benefit from re-energized reps with each new contest.

 

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Tim Houlihan at BI WORLDWIDE

Tim Houlihan

Vice President
Reward Systems Group

For more than 25 years, Tim Houlihan has indulged his curiosities of human behavior in the workplace. He passionately pursues answers to questions such as “why do some people work harder than others?” and “why do some people set and achieve goals?” and acknowledges that behavioral economics holds excellent explanations for some of these mysteries. As the Vice President of Reward Systems at BIW, Tim is responsible for leading the development of innovative reward systems. He partners with academic colleagues from leading universities around the world and he is actively engaged with leaders in Fortune 1000 companies to develop solutions for the human side of business problems.

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