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An incentive program is a formal scheme used to promote or encourage specific actions or behavior by a specific group of people during a defined period of time. Incentive programs are particularly used in business management to motivate employees and in sales to attract and retain customers. Scientific literature also refers to this concept as pay for performance. [1]
Consumer incentive programs are programs targeting the customers of an organization. According to research from 1990, increases in a company's customer retention rate as low as 5% tended to increase profits by 25%-125%. [2] [3] [4] Consumer programs were becoming more widely used as more companies realized that existing customers cost less to reach, cost less to sell to, were less vulnerable to attacks from the competition, and bought more over the long term.
Employee incentive programs are programs used to increase overall employee performance. While employees tend to approve of incentive programs, only 27% of companies have such programs in place. [5] [6] Employee programs are often used to reduce turnover, boost morale and loyalty, improve employee wellness and safety, increase retention, and drive daily employee performance. [7]
These programs are primarily used to drive sales, reduce sales costs, increase profitability, develop new territory, and enhance margins. Sales incentive programs have the most direct relationship to outcomes. [8] A sales incentive plan (SIP) is a business tool used to motivate and compensate a sales professional or sales agent to meet goals or metrics over a specific period of time, usually broken into a plan for a fiscal quarter or fiscal year. [9] An SIP is very similar to a commission plan; however, an SIP can incorporate sales metrics other than goods sold (or value of goods sold), which is traditionally how a commission plan is derived. Sales metrics used in an SIP are typically in the form of sales quotas (sometimes referred to as point of sale or POS shipments), new business opportunities and/or management by objectives (MBOs) independent action of the sales professional and are usually used in conjunction with a base salary.
SIPs are used to incent sales professionals where total sales are not a precise measure of sales productivity. This is usually due to the complexity or length of the sales process or where a sale is completed not by an individual but by a team of people, each contributing unique skills to the sales process. SIPs are used to encourage and compensate each member of the sales team as they contribute to the team's ability to sell. It is not uncommon for the members of such teams to be located in different physical locations and for the product introduction to happen in one location and the purchase of such a product to occur in another location.
Dealer incentive programs are used to improve performance for dealer, resellers, channel partners and other types of brokers using sales incentive programs. These programs help companies capture market share, launch new products, reduce cost of sales and provide momentum for new launches by incenting an external party to drive additional sales.
Selecting the appropriate rewards is vital to any program's success. The goal in choosing rewards is to select items that will spark the participant's interest or feelings, and support the program's objectives. Effective rewards will both motivate short-term behavior and provide motivation over time. There are several types of rewards.
While incentive program participants often state that they prefer cash to non-cash rewards, research has shown that cash is a poor motivator due to its lack of "trophy value." In a recent study conducted by the Center for Concept Development, three of five respondents agree that a cash payment is perceived to be part of an employee's total compensation package and not as part of an incentive program. [10] Additionally, cash is quickly forgotten as many participants tend to spend it on everyday items or use it to pay bills. Given that most people do not generally talk about cash awards, cash programs do little to generate the interest required to create an effective incentive program.
Research shows that pay for performance often gives only short term gains, frequently gives no gains at all, and may give reduced performance. [11]
These are usually the simplest reward websites from the user's perspective, since the reward website will usually display a task and the amount of cashback that will be rewarded for completing the task. Cashback websites are often rewarded for online shopping and there is usually a threshold on when a customer can withdraw their earnings, driving loyalty to the cashback website.[ citation needed ]
Points-based incentive programs are a type of program where participants collect and redeem points for rewards. Points programs may be used to incentivize both employees and consumers. [12] Depending on the program type and the organizational objectives, points can be awarded on a number of criteria including positive employee behavior, the demonstration of organizational values, repeat customer purchases, the sale of new products, increased overall sales, or even the use of proper safety precautions. In addition to point awarding, the levels at which points can be redeemed can be customized by the organization. Points programs are a way for organizations to motivate behavior over time while improving the organizations’ overall performance. Loyalty programs are a frequently used points-based incentive program in which customers who exhibit a certain behavior are rewarded with points, reinforcing that behavior.
The reward website will usually only display the reward for performing a task in terms of points.[ citation needed ] These points can then be converted, for example, into online gift vouchers. Alternatively, for each point collected, or after reaching a points' threshold, customers sometimes receive an entry into a sweepstake.[ citation needed ] This means that the website only ever gives away a pre-determined prize, regardless of how many points are given away.[ citation needed ]
Share rewards websites operate on a model where customers can become stakeholders in the platform or a related company by simply registering as members. Upon becoming shareholders, users have the opportunity to increase their ownership stake by completing various tasks. These tasks often involve actions such as participating in online shopping, completing surveys, or engaging with promotional content. As customers perform these tasks, they earn rewards in the form of points or shares, which contribute to an increasing equity stake in the website or its parent company.
This type of system blends traditional customer loyalty programs with elements of equity participation, providing users not only with immediate rewards but also with long-term potential benefits tied to the company's performance. By incentivizing active participation in the platform, these websites promote user engagement while aligning customer interests with the business's growth. Customers benefit from both the rewards earned for their actions and the potential appreciation of their shares, fostering a deeper connection to the platform and encouraging repeat interactions.
In this way, share rewards websites create a mutually beneficial ecosystem where customers are more than just users—they become part-owners with a vested interest in the success of the business.
Merchandise and other non-cash rewards are more often perceived as separate from compensation. Accordingly, non-cash rewards tend to stand out as rewards for performance, which enhances their long-term effect. Branded merchandise and other non-cash rewards have high trophy value, bringing greater recognition to the recipient at the time of the award and possessing a long-term lasting effect that can result in increased engagement in the organization's goals.
Gift cards/certificates are prepaid retail cards or certificates which are redeemed at a later time at checkout. In general, they are available in two types: (1) cards which carry a major credit card brand, commonly referred to as universal gift cards (UGC), and are redeemable at all merchants accepting the credit card brand; and (2) retailer-specific cards, issued by well-known merchants, redeemable only through the issuing retailer. In the 2005 Incentive Federation Study of Motivation and Incentive Applications, gift cards were ranked as the most frequently used type of corporate reward. [13] Gift cards are also more likely to be used for luxury purchases and can build an emotional bond with the organization. [14]
Merchandise rewards can range anywhere from small branded key chains to high-end electronics. In a 2005 study conducted by the Center for Concept Development, 73% of respondents agreed that more stimulating, memorable incentive programs can be built around merchandise as opposed to cash rewards. [10]
Travel rewards can best be defined as a face-to-face event designed to motivate, either directly or indirectly. In a 2005 study conducted by the Center for Concept Development, 51% of respondents perceived that travel is remembered longer than other incentive rewards. [10]
Experiential rewards provide program participants with an experience. This form of reward gives organizations the ability to offer their employees and customers interesting experiences as incentives. Examples might include a seaplane flight and lunch, a two-hour horse ride on the beach, a day of sailing for two, a chance to meet a star athlete, or the use of a party planner for an occasion of the recipient's choice. Experiential rewards allow participants to share their experiences with others and reinforce the reward and the behavior that led to the giving of the reward.
Non-monetary incentives are used to reward participants for highly productive behavior. Non-monetary incentives may include flexible work hours, payroll or premium contributions, access to day care centers, training, health savings or reimbursement accounts, or even paid sabbaticals. If it comes to environmental behavior, often labeling and recognition certificates are used. This may include stickers or T-shirts with banner logos and stationery with a company logo.
Incentive programs gained significant traction online in the early 2000s; by 2006, 43% of companies using incentive programs use the Internet as a channel. [15]
A website which pays people in gifts or cash for completing provided offers and referring other people and frequently use an affiliate model. These sites are typically sponsored by companies in order to advertise their products. The sites are in turn paid for advertising and attracting new clients. By collecting user data that the user submits, companies can target certain areas of clientele and offer products accordingly. [16]
In most cases, incentive sites grant rewards for completing requirements. This usually requires viewing advertisements, signing up for a site, entering a PIN code (through a mobile device), purchasing trial products or full products or completing surveys. This in turn rewards the specified user in cash, points, check, or its equivalent. Alternately, an offer may entail referring website visitors by inviting them to a target site under a referral link (unique to every user). Referrers in turn are either paid for every person they invited or as percentage of resulting revenue.
A type of incentive program that uses referral marketing strategies to motivate consumers, employees, partners or affiliates to recommend a company's products or services. Online referral programs were made proven highly successful by Dropbox, AirBnB [17] These programs are powered by referral marketing software which makes them more efficient and scalable than offline referral programs.
One study by the University of Wuppertal found that participation in these programs reduced cancellation rates at a telecom provide from 19% to 7%, thus increasing customer loyalty. [18]
A loyalty program or a rewards program is a marketing strategy designed to encourage customers to continue to shop at or use the services of one or more businesses associated with the program.
Performance improvement is measuring the output of a particular business process or procedure, then modifying the process or procedure to increase the output, increase efficiency, or increase the effectiveness of the process or procedure. Performance improvement can be applied to either individual performance, such as an athlete, or organisational performance, such as a racing team or a commercial business.
Sales promotion is one of the elements of the promotional mix. The primary elements in the promotional mix are advertising, personal selling, direct marketing and publicity/public relations. Sales promotion uses both media and non-media marketing communications for a predetermined, limited time to increase consumer demand, stimulate market demand or improve product availability. Examples include contests, coupons, freebies, loss leaders, point of purchase displays, premiums, prizes, product samples, and rebates.
In general, incentives are anything that persuade a person or organization to alter their behavior to produce the desired outcome. The laws of economists and of behavior state that higher incentives amount to greater levels of effort and therefore higher levels of performance. For comparison, a disincentive is something that discourages from certain actions.
Motivational salience is a cognitive process and a form of attention that motivates or propels an individual's behavior towards or away from a particular object, perceived event or outcome. Motivational salience regulates the intensity of behaviors that facilitate the attainment of a particular goal, the amount of time and energy that an individual is willing to expend to attain a particular goal, and the amount of risk that an individual is willing to accept while working to attain a particular goal.
The overjustification effect occurs when an expected external incentive such as money or prizes decreases a person's intrinsic motivation to perform a task. Overjustification is an explanation for the phenomenon known as motivational "crowding out". The overall effect of offering a reward for a previously unrewarded activity is a shift to extrinsic motivation and the undermining of pre-existing intrinsic motivation. Once rewards are no longer offered, interest in the activity is lost; prior intrinsic motivation does not return, and extrinsic rewards must be continuously offered as motivation to sustain the activity.
Reward may refer to:
Online shopping rewards are a type of loyalty program to e-commerce shoppers.
Performance-related pay or pay for performance, not to be confused with performance-related pay rise, is a salary or wages paid system based on positioning the individual, or team, on their pay band according to how well they perform. Car salesmen or production line workers, for example, may be paid in this way, or through commission.
Motivation crowding theory is the theory from psychology and microeconomics suggesting that providing extrinsic incentives for certain kinds of behavior—such as promising monetary rewards for accomplishing some task—can sometimes undermine intrinsic motivation for performing that behavior. The result of lowered motivation, in contrast with the predictions of neoclassical economics, can be an overall decrease in the total performance.
Referral marketing is a word-of-mouth initiative designed by a company to incentivize existing customers to introduce their family, friends, and contacts to become new customers. It differs from pure word-of-mouth strategies, which are primarily customer directed with the company unable to track, influence and measure message content, referral marketing encourages and rewards the referrer for allowing a company to do so.
A cashback website is a type of reward website that pays its members a percentage of the money that they spend when they purchase goods and services via its affiliate links.
Loyalty marketing is a marketing strategy in which a company focuses on growing and retaining existing customers through incentives. Branding, product marketing, and loyalty marketing all form part of the customer proposition – the subjective assessment by the customer of whether to purchase a brand or not based on the integrated combination of the value they receive from each of these marketing disciplines.
A credit card is a payment card, usually issued by a bank, allowing its users to purchase goods or services, or withdraw cash, on credit. Using the card thus accrues debt that has to be repaid later. Credit cards are one of the most widely used forms of payment across the world.
Affinity marketing is a concept that consists of a partnership between a company (supplier) and an organization that gathers persons sharing the same interests to bring a greater consumer base to their service, product or opinion. This partnership is known as an affinity group.
Compensation and benefits refer to remuneration to employees from employers. Which is the payments or rewards provided to an individual for the work that has been completed.
Pay-for-Performance is a method of employee motivation meant to improve performance in the United States federal government by offering incentives such as salary increases, bonuses, and benefits. It is a similar concept to Merit Pay for public teachers and it follows basic models from Performance-related Pay in the private sector. According to recent studies, however, there are key differences in how pay-for-performance models influence federal employees in public service roles. James Perry is one scholar who has conducted such studies. His research reveals that public servants tend to be more intrinsically motivated, and thus, are prone to have a negative reaction to monetary incentives. There is still debate, however, on what exactly makes the public sector different.
Work motivation is a person's internal disposition toward work. To further this, an incentive is the anticipated reward or aversive event available in the environment. While motivation can often be used as a tool to help predict behavior, it varies greatly among individuals and must often be combined with ability and environmental factors to actually influence behavior and performance. Results from a 2012 study, which examined age-related differences in work motivation, suggest a "shift in people's motives" rather than a general decline in motivation with age. That is, it seemed that older employees were less motivated by extrinsically related features of a job, but more by intrinsically rewarding job features. Work motivation is strongly influenced by certain cultural characteristics. Between countries with comparable levels of economic development, collectivist countries tend to have higher levels of work motivation than do countries that tend toward individualism. Similarly measured, higher levels of work motivation can be found in countries that exhibit a long versus a short-term orientation. Also, while national income is not itself a strong predictor of work motivation, indicators that describe a nation's economic strength and stability, such as life expectancy, are. Work motivation decreases as a nation's long-term economic strength increases. Currently work motivation research has explored motivation that may not be consciously driven. This method goal setting is referred to as goal priming.
Employee motivation is an intrinsic and internal drive to put forth the necessary effort and action towards work-related activities. It has been broadly defined as the "psychological forces that determine the direction of a person's behavior in an organisation, a person's level of effort and a person's level of persistence". Also, "Motivation can be thought of as the willingness to expend energy to achieve a goal or a reward. Motivation at work has been defined as 'the sum of the processes that influence the arousal, direction, and maintenance of behaviors relevant to work settings'." Motivated employees are essential to the success of an organization as motivated employees are generally more productive at the work place.
Reward management is concerned with the formulation and implementation of strategies and policies that aim to reward people fairly, equitably and consistently in accordance with their value to the organization.