- Incentives can be used to get people to engage in certain behaviours, but they can also be used to get people to stop performing certain actions.
- Incentives only become powerful if the individual places importance on the reward.
- Rewards have to be obtainable in order to be motivating.
Can you see where we’re going with this? Given this motivational drive that incentives promote, businesses can leverage the incentive theory as a way of swaying a consumer’s decision to buy.
How does incentive theory work?
There are commonly two types of incentives, positive and negative:
- Positive Incentives: Refer to rewards or reinforcement given for an action a person takes to achieve them. For instance, a customer refers your business to a friend and receives a reward for doing so.
- Negative incentives: Negative incentives are exactly opposite and only offered when positive incentives do not work.
For the purpose of this article we will focus on the benefits of leveraging positive incentives (i.e. eGift cards) to win buyers and influence sales.
Thanking customers: The power of incentives
In his groundbreaking work, Psychologist B.F. Skinner demonstrated just how powerful reinforcements can be when seeking to influence behaviour. He conditioned pigeons to perform atypical and difficult tasks, such as playing ping-pong and dancing, by systematically rewarding them for desired behaviours and negatively reinforcing undesired behaviours.
Skinner identified a number of contingencies that should be considered when using incentives to elicit behaviours. Research by Deloitte suggests businesses should pay close attention to the following three considerations, which they refer to as the three pillars of thanking customers:
- Type and amount (the “how”): The type of reward (e.g. eGift card vs. verbal acknowledgment) that the customer responds best to and its amount (e.g. size of gift vs improvement of service)
- The timing and frequency (the “when”): The optimal timing or frequency of incentives needed to keep customers loyal, while not exhausting resources; also, whether timing should be tied to behaviour (purchases) or tied to certain times in the calendar year (drip e-mails), such as holidays, or every quarter in a calendar year
- Sustainability (the “how long”): The likelihood that the chosen acknowledgment method (type, amount, and frequency) will be sustainable over time.
How to win buyers and influence sales more effectively
Many rewards and incentive programs lack the timing and frequency that consumers are looking for. Customers continue to earn points with no end or reward in sight. This causes slippage in the rewards program and customer churn. That’s the beauty of eGift cards and automating your incentive system. You can continue to re-engages customers even after a transaction is complete.
It’s important to note that businesses must be cautious about when you introduce any incentive-based acknowledgement program. You must be strategic with the type, amount, and frequency you deliver rewards to keep customers satisfied.
For certain industries such as real estate or service-based companies where the sale is a one-off large purchase, it’s possible to inflate the reward to incentivize a sale. However, if you want to establish a more long-term relationship, you may want to ease into how much you offer as an reward. It may
Saying thank you at the right time
According to Deloitte, the timing of an acknowledgment can sometimes be more important than the actual form of that acknowledgement. For it to be effective, research suggests that it needs to be a response—or reaction—to a specific action.
Researchers say that any reaction (response) is better than no reaction, as long as it is contingent upon (or a reaction to) the individual’s behaviour. People like to repeat behaviours that generate reactions, even if the reactions are negative or not useful; the mere presence of a reaction makes the corresponding behaviour more engaging. This phenomenon is known as the mere-reaction effect, and beneath it lies an important cognitive bias, the illusion of control. Humans routinely demonstrate a desire to have control over their environment, and to exercise control where opportunities to do so exist. In essence, to seek a reaction is to seek information about one’s power in controlling something. The information value is in the presence of the response itself vs. the content of the response.
The Importance of Incentives
Today, customers have more power after the purchase than ever before, not only in the form of repeat business (behavioural loyalty), but also word of mouth, reviews on social media, and returns. How you acknowledge and treat customers after receiving their business is important for driving loyalty. Cultivating a superior post-purchase experience is a key strategy to engage customers to make recommendations and use your business again.
Obviously, not all incentives are created equal and the rewards that you find motivating might not be enough to inspire another person to take action. Physiological, social, and cognitive factors can all play a role in what incentives you find motivating. However, if you’re looking for a proven method of motivating consumers, eGift cards are a great place to start. Try incentivizing sales with eGift cards by signing up for a free Perkalead account now.