What is an incentive program?
An incentive program is a strategic use of goals and rewards designed to motivate desired behavior from 1 or more people, regardless of whether they are a customer, employee or channel partner. The main function is to align organizational objectives to people’s actions. Even though there are variations of incentive solutions available, the principles behind them are based on years of behavioral incentivization research.
How do incentives work?
An incentive works by establishing a goal or criteria that is required to be met in order for the action(s) to be rewarded. The underlying principle of an incentive will stay the same but the incentive itself may vary depending on who it is intended for (i.e., for customers, employees or channel partners).
To give you some context, let me describe a scenario to you. Imagine that you are the owner of a clothing store and you have created a customer incentive program to boost sales. You have created a sales incentive for each customer enrolled in your program that rewards them with a $10 gift card for every purchase made over $80. So in this scenario, you are incentivizing a sales behavior and creating a goal that the customer is required to meet in order to be rewarded. When the goal is met, the reward is given to them.
By providing a reward (in this case, the $10 gift card) for each purchase over $80, you are conditioning your customers to make larger purchases. This is a psychological principle known as Operant Conditioning and is just one of the breakthroughs of behavioral incentivization research.
Alternatively, if you were looking to increase repeat sales, you could build an incentive that required a customer to make at least 3 purchases of more than $30 within 30 days to qualify for a $20 gift card.
There are a lot of different behaviors that can be incentivized. We have created a Periodic Table of Behavior Elements to help illustrate which behaviors can be incentivized to benefit every aspect of your company.
What types of incentive programs are there?
Ultimately, there are 4 different types of incentive programs which focus on key areas of a business. That being said. researching incentive programs makes your head spin with the amount of different names or terminology being used. For example, you may see some references to incentive programs while other websites say reward programs or loyalty programs. We categorize all the different programs out there into 4 main categories:
Incentive programs for channel partners – Enhance partner performance using rebates, MDF rewards and other incentives.Incentivizing channel partners for promoting and selling your product or service which will drive higher revenue at a lower cost.
Loyalty programs for customers – Reward customers with branded merchandise and custom rewards for their engagement with your brand as well as their continual purchases of your products or services.
Incentive programs for employees – Boost employee performance using incentives for sales teams and contact center staff. For example, build out incentives to reward your sales team to provide an accurate and timely sales forecast, or even rewarding contact center employees for closing support tickets faster.
Incentive programs for B2B eCommerce buyers – Experience increased sales from your ecommerce investments by rewarding customers for not just their orders, but activity on your site as well.
Do incentive programs work?
The question “Do incentive programs work?” is an extremely valid question considering it is a long-term investment with your time and money. There have been numerous studies that have shown how effective an incentive program is. We will cover a few of the major statistics that show the benefits.
Consumer loyalty program statistics
- Loyalty programs are considered a significant part of brand relationships, says 71% of consumers. (Bond)
- Companies with good loyalty programs make 73% of consumers more likely to recommend them. (Bond)
- 79% of consumers say loyalty programs make them more likely to continue doing business with brands. (Bond)
- One to three purchases are made because of incentives in the past year, says 45% of consumers. (Wirecard)
- 62% of Gen-Z are highly influenced by loyalty programs. (Bond)
- A 6.4x lift in member satisfaction when companies create better personalization through their loyalty program. (Bond)
- 75% of consumers say they are likely to make another purchase after receiving an incentive. (Wirecard)
Channel incentive program statistics
- If within the first 90 days of recruitment, your channel partner doesn’t start to market or sell your product or service, it is unlikely they ever will – (SiriusDecisions, 2016)
- A 23% investment increase in MDF rewards are made by higher performing organization than low-growth organizations (SiriusDecisions, 2019)
- On a quarterly basis, 60% of market development funds (MDF) are not used. (Zinfi, Worldwide channel survey)
Employee program statistics
- Individual incentives increase performance by an average of 22% whereas team incentives give a performance boost by as much as 44%. (irf)
- Companies that offer employees an incentive program will increase productivity by 14% compared to those that do not offer any. (A study by the Bersin group, )
- 85% of the workers surveyed felt more motivated to do their best when an incentive was used (irf)
- Asked to persist toward a goal, people increase their performance by 27% when motivated by incentive programs (irf)
How do you develop an incentive program?
Once you have established who your incentive program will be for (customers, employees, channel partners or a mixture of all), the planning process involves 6 areas of focus to fully flesh out your program to ensure success.
Not every customer, employee and channel partner will be the same. You may find a specific area needs improvement as opposed to an entire user base. Target specific members based on criteria like levels/tiers, region, certifications, or past performance to ensure you are truly targeting the right group.
Select behaviors that not only encourage the completion of your objective, but the behaviors that drive them — for example, if you want your channel partners to sell more of your product, you would incentivize the behaviors that lead up to the sale. That means rewarding them for watching training videos, bringing in additional leads as even sales funnel objectives like giving a product demo.
An incentive needs clear guidelines to establish when an objective has been reached or not. Using criteria to create simple or complex incentive rules that define how your members can accomplish their goal as well as how they are rewarded.
Automate and customize your communications with your program participants — for program strategy, eligibility requirements, goal progress and attainment, help & support, feedback requests, and more. For example, if you have a customer that has just been enrolled within your program, you can send out an automatic welcome message that will direct them to the most popular incentives within your program. Furthermore, as they progress through various incentives, notification can be sent to give updates on their progress as well as special promotions like double points on their birthday.
For each incentive that is completed, a reward is provided, which could come in many forms including points, rebates, MDF, virtual currencies – to create a truly rewarding incentive plan.
Lastly, it is critical to any incentive program that you identify the who, what, how, and why of program performance. This will enable insights such as your program return of investment (ROI), how much money you have spent on rewards and which incentives are producing the best results. Furthermore, the analytics will help with critical decision making to change up your incentive strategy or double down on what is working.
An incentive program is a strategic use of goals and rewards designed to motivate desired behavior and the research shows it is a critical component in reaching the highest level of performance and revenue. If you are looking into an incentive program and would like to get started, follow the link below to set up a 15 minute meeting with our team so we can answer any of your questions or even give you a demo of our incentive solution.