This week I had a wonderful opportunity to participate in a presentation by Victoria Shaffer, Ph.D., who shared a bit of her considerable research on the efficacy of dollar-denominated rewards (including cash, debit cards and retailer gift cards) against tangible (non-cash) rewards as a basis for incenting positive behavior change. The results were fascinating, and I thought you might agree.
One aspect that I am going to focus on here comes from a series of six research studies performed in the recent 2-3 years that underscores the fact that cash or cash-like rewards are less effective than tangible, hedonic luxury rewards in delivering measurable results. It is worth noting that if you ask someone, “which
would you prefer to receive: $XXX or your choice of rewards that are worth
$XXX?”, the vast majority (generally over 70%) will say they prefer the
money. This is universal, and makes perfect rational sense.
That said, numerous well-documented studies show that those same individuals will exert significantly less effort to qualify for a reward that is stated in dollar value than will those who are seeking to qualify for a tangible reward. Research conducted in the late-1990’s as well as a current study of call-center employees, show conclusively that the stated preference (i.e., cash over tangible rewards) is not stable. Specifically, when a cash award is evaluated separately from the non-cash reward (in other words, the opportunity is not presented as a choice, where the respondent is asked to state their preference for one or the other), and where the tangible reward represents a luxury item (i.e., something that they don’t specifically “need” but would like to have), the resulting performance skews heavily toward the non-cash reward in terms of positive effort and measurable outcomes.
A fascinating study published in the Journal of Economic Psychology (Issue #30, 2009, pp 859-872) by Victoria Shaffer (Wichita State University) and Hal Arkes (The Ohio State University) demonstrates that the most effective means of
driving behavior change using extrinsic rewards occurs when cash or cash equivalents (e.g., gift cards) are excluded from the offer, and instead a broad
selection of highly valued, hedonic luxury awards are presented in a visually
One such experiment used a cash reward of $1500 (after taxes) versus a choice from a selection of consumer electronics, tickets to sporting events, or a Caribbean cruise. When presented as a choice of either the cash or the tangible awards, 63% of participants chose the cash. However, when presented separately, where one group in the study was offered an after-tax cash bonus of $1500 and a different group was offered a recognition award that consisted of five luxury items (all of which carried a retail value of $1500), the preference was reversed. The favorable rating was biased toward the non-cash reward by over 20%.
One reason for the preference of luxury rewards versus cash rewards is found in a study referred to as “Zajonc’s affective primacy hypothesis” conducted in the 1980’s and replicated in the 1990’s. The essence of the research bore out that the emotional (or affective) response to hedonic luxuries far surpasses, and occurs more immediately in the brain than, the rational assessment which takes place when a monetary value is offered. What’s more, the emotional reaction overrules the rational evaluation, which results in greater desire and effort expended to receive the reward.
As I mentioned earlier on, six separate studies were conducted, including one under the auspices of the Incentive Marketing Association, which have consistently borne out that cash, whether it is presented in the form of currency, or a check, or a gift card or a debit card, will reliably underperform in producing measurable, positive behavior change.
If you would like, I would be happy to direct you the specific references utilized in the studies conducted on the subject. Please feel free to email me or respond with a comment. There is no shortage of interesting and data-driven analyses which underscore the drastic limitations of money or gift cards in effectively maximizing employee, channel or consumer satisfaction. It may be
counter-intuitive to many, which is why there are so many peddlers of gift
cards and debit cards perfectly willing to profit at the expense of their own clients.
Thankfully, the science of behavioral economics and the psychology of decision-making are available to sort out what is fact from what is not.
I hope to hear from you on this, and look forward to your replies. Thank you for bearing with me on this long, but important, post.