MAXIMISING THE ROI ON REWARDS IS A SCIENCE THAT FEW UNDERSTAND
Dan Ariely a behavioural economist from Duke University is one of many who have studied at length the impact of rewards on consumer behaviour. Like most of researchers he found that the relationship between reward and behaviour is complex.
He found among anything that if you offer a child on chocolate now or two in an hour, the vast majority will opt for one chocolate now. Other studies with adult samples have led to similar findings, as follows:
- Immediate rewards are preferred to longer term rewards, even where the latter is greater.
- To have appeal long term rewards have to be substantially greater than short term rewards.
Other research by Professor Ariely found that money was not the powerful reward it is often thought to be in the workplace. He found, as have others since that:
- Extrinsic rewards are most effective with quantitative tasks.
- Intrinsic rewards are most effective in motivating creative behaviour.
Research by Professor Ariely and many others has also found that we often do not understand exactly what it is that motivates people. Even more incredible, this research has found time and again that people often do not know what rewards actually motivate them. There are many examples of this.
Rewarding is one of 25 drivers of human behaviour I will address over the next five weeks. As outlined in the lead article to this week’s THE REPORT, rewarding is a critically important driver of human and therefore consumer behaviour, it directly impacts on the success of your business – and will almost always have a greater impact that reality.
The issue is that few people understand well how human beings respond to rewards and even fewer understand how best to structure rewards in order to maximise the return on investment.
- Most Australian now believe that climate change is both real and man made. That said, few are taking any kind of tangible action to reduce their personal foot print and few support taxes to reduce the impact of carbon. Research suggests that they are not prepared to pay a short term cost for a long term reward.
- Most employers still believe that the performance of all staff can be improved by way of increased financial reward, despite the fact that it is now well documented that there is an enormous difference between motivating quantitative and qualitative activities. Indeed, research suggests that financial rewards actually retard the performance of creative staff.
- People buying a Toyota Prius will tell you that they are purchasing the vehicle because it is environmentally friendly. If however they are presented with an option that has a lower profile vehicle that has an even lower footprint, they will still opt for the Prius. They are more rewarded by the public recognition than they are by the environmental impact.
So much of what marketers do is about offering rewards and motivating people, and yet the poor understanding of what really motivates people or what rewards are most cost effective in motivating a particular behaviour offers a real barrier to cost effective marketing. So much of human behaviour is not as intuitive as those who ‘know it all’ think.
To a very large extent our understanding of these issues at a scientific level goes back to BF Skinner who used positive reinforcement to train rats – in much the same way that marketers today are wanting to use rewards to train consumers. We can still learn a great deal from the work of Skinner, Pavlov and their contemporaries. Indeed, understanding their findings is a key to making the use of rewards more effective.
- Consumers like all humans are hardwired for immediate reinforcement.
- Financial rewards are often not as effective as intrinsic rewards.
Human beings often do not know what drives their behaviour or why they buy