If you have run sales contests, the following scenario will likely sound familiar:
Bob: “Now that we have the contest rules set, what should we award the winners?”
Carol: “How about an iPad? We could include it in the communication and hand out the iPads at the next sales meeting.”
Bob: “Good idea, but a lot of people already have iPads. Cash may be better. Plus, last time we asked sales reps if they preferred prizes or cash, nearly all of them preferred cash.” Carol: “Good point. Cash is also easier logistically. Let’s do that.”
This same scenario, or something similar, has played out across many salesforces and industries for years. There have always been strong qualitative benefits for rewarding prizes, such as:
However, these qualitative points are often trumped by the fungibility (exchangeability) of cash. Because winning reps can use cash for any item they want, they nearly always choose it as the preferred option.
Still, a review of research and an actual contest experiment run by Goodyear Tire & Rubber Co. in 1994 give evidence that a selection of prizes may offer the maximum motivational value. Although the Goodyear example is from almost 20 years ago, the results are impressive and pertinent to today’s salesforces. Both of these examples provide evidence that awarding prizes for contests can enhance the program outcome, especially when the base incentive plan is cash based.
As reported in the Journal of Economic Psychology December 2009 article “Preference reversals in evaluations of cash versus non-cash incentives,” in 2008, Wichita State and Ohio State University collaborated on a study in which they shared the following situation with participants: “As you near the end of your first year of employment, the company decides to reward its most productive employees with a bonus. Due to your good performance, you are one of the approximately 50% of the employees who will receive this bonus.” The participants were then divided into two groups.
Group 1 members were told they would receive $1,500 in cash. They were then asked how satisfying the reward was on a scale of 1 to 7. The median response was 5.
Group 2 members, who saw a list of prizes instead of the cash, were told they could choose one of the five packages below, each of which approximated $1,500 in value:
Group 2 members were asked the same question about reward satisfaction that Group 1 members were asked. The resulting median response was a full point higher than the cash group (6 out of 7).
The experiment was later repeated with additional questions regarding how enjoyable the rewards were and the recipients’ happiness to receive the reward. In those cases, the selection of prizes again outperformed the cash prize. Even when prizes were replaced with items such as a lawn mower, washer and dryer, oven and one-year supply of groceries, the results remained consistent.
This experiment starts to give some evidence that prizes, by being more satisfying and enjoyable than cash, could be more motivating.
As reported in a May 1997 Incentive Magazine article, “The Trouble with Money,” a manager at Goodyear Tire & Rubber Co. believed that prizes were more motivating than cash. In 1994, after years of trying to sell his belief to senior management with no success (all Goodyear contests were cash payouts), he decided to set up his own test/control experiment. He took all participating stores and ranked them on previous sales from 1 to 900. He then put all the odd ranks into one group and the even ranks in another. One of the groups would receive cash, and the other would receive points that could be redeemed for different prize levels in a catalog. The program ran for six months.
As expected, both groups performed well and boosted sales. What came as a surprise was not only that the group that received prizes outperformed the cash group, but outperformed it by 46%. This enhanced performance also resulted in the prize group contest having a +31% return on investment (ROI), whereas the cash group had a -20% ROI because the sales increase was less than the value of the cash paid out as a reward.
When given the choice, reps will most often choose cash over prizes. However, the above examples show that when a selection of prizes is offered instead of cash, the result can be increased satisfaction and, as a result, higher motivation.
About the Author
Mike Martin is an associate principal at ZS Associates in Princeton, N.J. He can be reached at firstname.lastname@example.org.
Read the March edition of Sales Compensation Focus.
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