Channel Sales Incentives: Important Behaviors to Consider
Marketing 101 teaches us value is defined by how customers perceive it. When trying to assess value of channel sales incentives it is important to observe behavior. If you simply ask: “what would you pay for this,” in most cases you’ll get an answer skewed a desire to get something for next to nothing.
The same principles apply to channel sales incentives. When you ask a sales-person: “What would you rather have: cash or a non-monetary award,” the answer is almost always cash. However, if you observe the behavior of the sales channel a case can be made for non-cash awards.
When a channel sales-person is deciding if an award is “worth their effort,” the award participant is considering the perceived value of earning the award. When it comes to non-cash awards you’ll likely to observe four key behaviors: Evaluability Separability, Justifiability, and Social Reinforcements. These four behaviors paint a more complex decision-making process.
When presented with a non-cash incentive, such as travel, a sales-person’s mind envisions sun and fun. More mundane thoughts such as finding a sitter or booking a flight are secondary. It is also hard to place a monetary value on having some fun in the sun.
The value of the channel sales incentive is emotional not monetary, and sales-people prescribe this emotional value to the award. This is what’s known as value ambiguity, and the sales channel often prescribes more value to the award because of it. It’s hard to put a monetary value on things like good weather, white sandy beaches, and great dining. In fact, research has shown that the greater the value ambiguity the higher cash value a sales person will assign to channel sales incentives.
Sales people do mental accounting that often separates where funds come from versus where they are used. For example, they’ll separate investment income and the value of their home appreciating from salary. On the other hand, salary and a cash bonuses are both from their job, so they’ll likely combine these mentally.
Cash channel sales incentive lack separability, because they both come from the same place in a similar manner. During annual reviews brands discuss commissions and bonuses as “total compensation” with the channel. Thus, the value of the cash as an award for performance “above and beyond” does not stand out. Companies make attempts to counter this through award presentations and ceremonies; however, the sales channel continues to view bonuses as simply part of their total compensation.
Non-cash incentives are usually consumed less frequently; they are separated into smaller, more specific mental accounts (e.g., travel, entertainment, etc.). In these cases, the channel sales incentive has separability — it is not aggregated with other compensation.
Effective non-cash channel sales incentives are viewed as an extravagance sales people would not normally purchase. If an award program participant values the reward highly, but would not ordinarily purchase it, then the award goes from ordinary to extra-ordinary. Extraordinary rewards are those that participants can’t justify purchasing in their daily lives, but awards they still desire.
For example, a channel salesperson might never go on an expensive and “frivolous” trip to Tahiti; however, if the trip is earned for extraordinary achievement and the award participant must “use it or lose it,” they’ll consider it justified. Extraordinary achievement thus becomes an attractive way to acquire something that was not justifiable otherwise. The result: earning non-cash channel sales incentives carries more value than earning the market value of the incentive in cash.
In addition, research suggests if a channel salesperson is working hard to achieve an award, the award program participant will try to mentally justify the award is worth the effort. This brings the participant’s beliefs in line with their actions, and can increase the perceived value of a tangible non-monetary award. Put another way, the harder a participant works to achieve an award, the more valuable they’ll prescribe to the award. This in turn leads to more effort.
One of the most important rewards for a job well done is acknowledgement from one’s co-workers, supervisors, family, and friends. This social reinforcement comes from others knowing about the good performance.
Non-cash channel sales incentives may be more effective than cash awards in this regard, because the participant doesn’t need to advertise them. For example, a co-worker might ask, “Is that the Masters Club watch on your wrist?” On the other hand, asking how much bonus money that person won generally isn’t socially acceptable.
Most people are uncomfortable talking about their earnings, but are completely comfortable talking about watches, golf clubs, trips or other non-cash sales incentives. When tangible incentives are visible there is no need to go out of the way to call attention to them. This provides an easier means to call attention to the award and the attention increases its value to the participant.
Non-cash incentives like golf clubs, big screen TVs, and watches remind us of the achievement every time we use them. Incentive trips provide memories, which are often captured in pictures. For example: the Facebook profile picture the participant took while on an incentive trip to Hawaii is a constant reminder of the achievement. Cash awards can do this some-what, but only when a certificate, plaque, etc., is provided as a physical marker. In the case of a non-cash incentive, the award itself is the physical marker.
Cash typically gets combined in bank accounts, and rapidly loses it connection with the achievement. Discussing cash earnings is not normally socially acceptable. Family, friends, and co-workers will view purchases as something bought rather than awarded for performance. This makes the link between the achievement, company and the award weaker, reducing the likelihood the achievement will be discussed.
A wise person once said: “judge what you see not what you hear.” Ask any sales person what they want as a sales incentive and the answer is almost always cash. Observe their behavior with both non-cash channel sales incentive and cash incentives and a different story emerges.
Four key behaviors, evaluability, separability, justifiability and social reinforcement make a strong case for non-cash sales incentives. You should consider these behaviors carefully when planning you next channel sales incentive plan.
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