Wednesday, November 21, 2012

Rewards vs Incentives

The semantics of using rewards or incentives in the work place has gotten out of control.  The truth is that in this context, these words mean the same thing and are used for the same purpose; to get a better work product from your employees, be it measured in time, quality, effort, etc.  This idea extends to customer retention with loyalty programs and customer gifts.

The debates regarding these two terms aren't about which term to use, but how to achieve your goal.  In general, there are two ways to go about rewards/incentives for your employees and customers.  
  • Up front expectations: if you do X, you will get Y.  
  • Surprise gifts: you don't know if you'll get anything, but I'm known for giving "rewards."

The first option, taps into our competitive nature.  (This is how most loyalty programs work.)  We work diligently to rack up points and miles and achieve the highest status.  The problem is when something goes wrong; points don't get added correctly, the rules change, or it is too difficult to redeem your reward/incentive.  This causes employees and customers to get angry and loose faith in the company that made the system.  It was suppose to be a reward for performance, but because it brought out our competitive nature, it has become the spoils of winning.  No spoils, no win.

The second one, surprise gifts, is more like gambling.  It relies on our imagination and over estimation of unlikely events.  Zappos uses this technique, because they know those people who receive the gift of free express shipping are more likely to become ecstatic at receiving a gift.  Ecstatic customers are more likely to come back and tell their friends.  It becomes a game of getting the next gift.  This sort of program can be hard to keep secret.  If the "rules" to the program get out, it can quickly turn into a competition with expectations.

The best rewards are spontaneous (at least to the receiver), they are not monetarily based, and a clear correlation is shown. 

Even though you may have been working on the algorithm for months, the appearance of spontaneity makes the customer feel special and valued.  

Monetary gifts, cash or gift cards, are worth their exact value.  A thoughtful gift comes with the added value of appreciation, enjoyment, and lasting memories.

Regardless of the gift, a clear correlation helps the receiver understand why the gift was given.  This naturally increases that behavior.

Examples:
  • You have worked so hard to make this a record year for the company.  I'm giving you and your family an all expenses paid vacation.
  • Thank you for ordering from us and being so patient on the phone.  I'm giving you a free upgrade to priority shipping.

Rewards and incentives seem like a great idea, but if not done correctly, they can do more harm than good.