What Is an Incentive Program?
What is an incentive program? An incentive program is a reward-based method to motivate someone to complete an action. Whether it’s encouraging a sales team to hit new targets or building customer loyalty, these programs leverage the power of rewards to align behavior with business goals. In this complete guide to incentive programs, we’ll explore what an incentive program is, how it works, why it’s a vital business tool, and how to manage an effective one.
An incentive is anything that motivates a person to do something. It could be something offered you for the completion of a task, such as a $5 gift card for submitting a survey. A reward could also be something intangible, like the feeling you get after you volunteering at a local shelter.
When incentives are used in a work setting as part of a formalized system with business goals, it’s called an incentive program. Although they’re usually associated with sales motivation and customer loyalty initiatives, an incentive program can be used to motivate anyone who works with or buys from a business. This includes employees, sales reps, customers, channel partners, and other affiliates.
Why Do Incentives Work?
The study of how rewards and incentives influence behavior goes back many years. One of the most prominent psychologists who studied incentive motivation theory is B.F. Skinner, who developed the theory of operant conditioning in the 1930s. Skinner conducted various experiments on animals, rewarding or punishing them for simple tasks such as pulling levers.
Many scientists since Skinner have studied the phenomenon of motivation and rewards in humans. The brain chemical dopamine is largely responsible for the regulation of reactions people have to various stimuli and incentives. Various factors influence how effective a reward is, such as:
- a person’s natural supply and regulation of dopamine
- how novel or valuable a reward is perceived to be
- the quantity and frequency of the reward received
- whether or not the reward was expected
Midbrain dopamine neurons are well known for their strong responses to rewards and their critical role in positive motivation (Neuron journal).
The study of dopamine can get very complex and branches into many areas of health and science, including mental health, behavior economics, addiction, and learning (Behave: The Biology of Humans at Our Best and Worst by Robert Saplosky).
Types of Incentive Programs
Companies use incentives to align behavior with the goals of their business. Examples of incentive programs include:
Sales Incentives and SPIFFs
Companies use sales incentive programs to improve sales performance and motivating sales reps to surpass performance metrics, or meet a sales goal.
Employee Engagement
The goal of an employee engagement program is to improve workplace performance and culture while retaining employees with rewards and recognition.
Customer Loyalty
Customer loyalty programs are designed to increase customer lifetime value, average order quantity, and/or retention. All companies benefit from stronger, longer-lasting customer relationships, making loyalty programs one of the most common incentive programs.
Channel Incentives
Channel incentive programs reward distribution channel partners for their loyalty, collaboration, and sales success. It’s notoriously difficult for sales channel partners to align on goals and priorities; channel incentives help foster mutually beneficial relationships.
Dealer Incentives
The use of rewards to motivate dealers to sell more of your product, which manufacturers and distributors use to increase their market penetration.
Referral Incentives
Incentivizing partners to provide qualified referrals for additional business opportunities or partnerships.
VAR Incentives
Using incentives to build product familiarity, brand preference, and loyalty among resellers and other strategic partners to increase market share and product margin.
Rebate Programs
Using SPIFFs as part of a short-term sale promotion gives a quick boost to specific products, while rebate incentives can help generate buyer demand.
Types of Incentive Rewards
What is an incentive program without rewards? Not very effective. Common types of incentive rewards include:
- Points-based merchandise rewards
- Group travel
- Debit card rewards
- Gift card rewards
- Recognition
Points-Based or Merchandise Rewards
Points-based merchandise rewards, or online rewards, are one of the most common types of incentives. This is because online reward programs are scalable and offer wide appeal. Tangible reward options are more memorable since the reward itself serves as a physical reminder.
Additionally, giving participants the option to choose their own rewards makes the reward experience more personalized and meaningful. The use of points allows this option to be cost-effective since participants are less likely to associate the reward with its cash value.
Group Travel Rewards
Group travel is an experiential reward, where participants are rewarded for surpassing their goals by being invited to a group travel event. Incentive travel is the most memorable and emotionally impactful type of incentive.
By providing opportunities for positive shared experiences, incentive travel events create a “positive frame of recall for not just one year to the next, but for multiple years.” However, since it is often more costly, incentive travel is usually a reward reserved for top performers.
Debit Card and Gift Card Rewards
Debit card rewards and gift card rewards are less personal and memorable than online or travel rewards. But they are fast and, with the rise of e-delivery, extremely convenient incentive options. Both types of card rewards are more effective motivators of behavioral change than cash, since they build brand association and are seen as a bonus instead of compensation.
While both gift and debit card rewards are effective for short-term promotions, gift cards typically have more long-term value, since participants are more likely to spend that value on things they want rather than on utilitarian needs.
Recognition
Recognition is another powerful motivator that has emotional and social value. Over 76% of employees found recognition from their peers very or extremely motivating, and 88% found recognition from their managers very or extremely motivating. This same principle holds true for sales reps, channel partners, and customers, who all want to feel like their contributions are valued.
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How Do You Manage an Incentive Program?
The next question people ask after “What is an incentive program?” is usually “How do I manage an incentive program effectively?”
One of the biggest benefits of incentive programs is their flexibility. By getting creative and utilizing incentive software, you can create a unique program that gives you an advantage your competition can’t imitate. Follow these 10 steps to learn how to create an effective incentive program:
Step 1. Determine your program goal.
Incentives are all about goals. Your goals should determine everything from how your incentive program is set up to what rewards you offer. You wouldn’t give a toddler a $500 reward for eating his peas, for example. But you might offer that reward of to a teenager for working hard to make the honor roll at the end of the year. The rewards you offer should reflect the actions you’re asking program participants to take.
But even if you have a big, ambitious goal, you can prevent overspending by being very specific about those goals. Know exactly what you want to accomplish in advance, so you know exactly where to invest your money. Set a specific, measurable, achievable, results-driven, and timely incentive program goal. Doing the following can help you determine what your incentive program goals should be:
- Identify priorities and key objectives that multiple departments have in common.
- Determine if you should aim for a long term vs short term incentive plan.
- Get top-down support from an executive sponsor.
Step 2. Establish program budget.
Most organizations have some sort of budget restriction for their incentive program, so allocate your budget where it will have the biggest impact. Some incentive program budgeting tips to keep in mind:
- You can suggest sharing the incentive program budget between multiple departments (ie. sales and marketing).
- Share incentive program costs and benefits A co-op of non-competing companies.
- Using marketing development funds (MDFs) is another example of incentive program budgeting structure.
- Consider the different levels of investment between different reward types. (More on rewards in step 4.)
Step 3. Analyze your audience.
The better you understand your target audience, the more successful your incentive program will be. If you have a large and diverse audience, segment them and identify which members have the biggest influence over whether your program meets its goals. A few things that can help you select the optimal incentive program audience:
- Determine who will derive the most value and meaning from your incentive program.
- Target those who have the biggest impact on your organizational and incentive program goals. If you’re running a sales incentive program, for example, you should avoid targeting only high-performers, as your majority middle performers usually have the biggest impact on revenue growth.
- Keep the average age, career path, family situation, and lifestyle of your audience in mind. People in different stages of life are motivated in different ways.
4. Select the right rewards.
Your incentive program should offer rewards to participants that are based on your goals, budget, and the interests of your audience. Factoring all these things in, choose the incentive reward that makes the most sense.
Rewards can be just about anything, from time off work to public recognition. The most common rewards for formal incentive programs are debit cards, gift cards, merchandise rewards, and travel incentives. Consider the pros and cons of each reward type:
Cash or Debit Card Rewards
Pros
- Versatile and easy to distribute
- Instant impact
- Treat for short-term sales promotions such as SPIFFs
- Can be used internationally
Cons
- Less tangible and memorable than non-cash rewards
- Often spent on necessities, making them less memorable
- Not the best for long-term motivation
Gift Card Rewards
Pros
- Participants are less likely to spend them on necessities, creating more memorable rewards
- Highly versatile
- Participants associate you with tangible rewards their favorite stores and brands
Cons
- Less versatile than cash or reward points
- Items purchased with gift cards aren’t always tangible or long-lasting
Reward Points
Pros
- Excellent for long-term motivation
- Participants can save points for big-ticket items
- Diverse reward catalogs can cater to varied tastes
Cons
- Potential liability issues if points aren’t distributed or redeemed
- Onboarding time required as participants learn how to use the online catalog
Group Travel
Pros
- Fantastic for top performers
- Builds relationships and provides lasting memories
Cons
- Requires significant upfront investment
- Full ROI is hard to quantify because the trip benefits are so long-lasting
- The ROI of incentive travel can be up to $2.90 for every $1.00 invested.
- Online reward points programs are great for large audiences since they provide rewards with a wide range of value.
5. Identify key performance indicators (KPIs).
Before you launch your program, you should identify key performance indicators (KPIs) to track in order to determine whether your program reaches its goals. Which metrics can you track, before, during, and after your incentive promotion, to make sure you are on track to achieving your goals? Identify both leading indicators (metrics that indicate goal progress) and lagging indicators (actual results). Some examples include:
- Email open, click, click-through, and unsubscribe rates.
- Percentage of audience enrolled and average time to enrollment.
- Amount of rewards earned and amount of rewards redeemed.
- Participant retention and satisfaction rate.
6. Choose an incentive program provider.
Whether you decide to run your program in-house or outsource it, you’ll need some kind of incentive program platform. Pick a platform and provider that aligns with your goals, engages your participants, and fits your industry.
Some features your incentive provider should include:
- Incentive services such as participant support and reward fulfillment.
- Flexible technology that can change and scale with your objectives and needs.
- SOC 2 security compliance for data and privacy security.
- Access to in-depth analytics and reports to assess program performance.
- A variety of reward options.
7. Market your program.
Spread the word! Communication and engagement will make or break your program, so make sure it’s effective. The value of the program should be clear and your participants should be aware, informed, and on board. Some best practices for program communication:
- Throw a notable kick-off celebration to launch the program. This could include a raffle, contest, or launch party.
- Ensure participant audience data is accurate and up-to-date.
- Solicit feedback from participants on their program experience.
- Make sure your platform is useable on multiple devices and screen sizes.
- Utilize omni-channel program marketing, including web pages, email, direct mail, etc.
8. Train and engage participants.
Incentive programs are designed to change and influence behaviors. Behavioral change often takes time. Make sure you engage participants and train them to be successful in your program. Some methods of increasing program participation and awareness include:
- Throw a notable kick-off celebration to launch the program. This could include a raffle, contest, or launch party.
- Offer exciting periodic changes to the program, such as opportunities to earn 2X and 3X reward points to boost engagement.
- Reward participants for program knowledge with training incentives.
9. Establish incentive program management and monitoring processes.
As nice as it would be, incentive programs don’t run by themselves. They’re essentially marketing campaigns, and stagnations spells death for any marketing campaign. Incentive programs are living, breathing tools requiring regular monitoring and management. A few things will make this easier for you:
- Regularly audit audience participant data to ensure you’re connecting to participants according to updated contact info and preferences.
- Consult real-time analytics and reports.
- Assemble a team to assess and take accountability for the program’s success.
10. Analyze and improve incentive performance.
Establish a method of regularly and accurately measuring your incentive program’s performance. Your reports, analytics, and processes should tell you what worked and what didn’t, what can be improved to generate exponentially larger ROI for your next promotion or campaign.
To get increasingly better results from your incentive program, consider the following:
- Run promotions for specific participant segments with high revenue-generating or growth opportunity.
- Structure your reward payouts to reward different behaviors proportionately.
- Consult with incentive program experts to develop new strategies, features, and tactics based on program reports and data.
Learning More About Incentives
Incentive programs are a strategic tool that are customizable to the unique needs of a business and the unique makeup of the audience they are trying to motivate. If answering the question “What is an incentive program?” only has you asking more questions, you’re in the right place. For a complementary planning and whiteboarding session, please visit our contact page.
