Freakonomics and Incentives: A look at what really motivates us

by | Jun 30, 2016 | Blog

Freakonomics.jpgIf you haven’t taken the time to read Freakonomics by now, do yourself a favor and pick up a copy this weekend. Yes, it’s well worth the read. In it’s 350-some pages, the book examines life for what it is – simple, yet extremely complex.

One of our favorite passages from Freakonomics is about incentives. The authors breaks it down like this:

We all learn to respond to incentives, negative and positive, from the outset of life. If you toddle over to the hot stove and touch it, you burn a finger. But if you bring home straight A’s from school, you get a new bike… An incentive is simply a means of urging people to do more of a good thing and less of a bad thing. But most incentives don’t come about organically. Someone—an economist or a politician or a parent—has to invent them. Your three-year-old eats all her vegetables for a week? She wins a trip to the toy store.

When it comes to incentives in business, we strongly believe that non-cash rewards work better. Studies have shown that cash, even in the form of gift cards, are often used to buy mundane everyday items such as groceries. Rewarding employees or customers with things they really want, such as top-of-the-line merchandise or incentive travel trips will create a much more lasting impression. An incentive strategy must offer the promise of quality awards or recognition to succeed.

What motivates us to reach or exceed a goal?

In a sales organization, goals are clearly defined by targets, quotas or revenue expectations. In a study performed by Jeffrey Scott at the University of Chicago Graduate School of Business as part of his thesis entitled, The Benefits of Tangible Non-Monetary Incentives, the psychological component to motivation was explored. Many organizations, challenged with the need to stimulate sales performance or strengthen customer loyalty, consider performance incentive strategies as an initiative. A key element of the initiative is identifying which reward system(s) to use. Determining which incentive is most motivating to the target audience is inherently important so that the program can receive the most impact per dollar spent.

To find out more about how non-cash incentives drive sales, download our free whitepaper here:

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