Ian Hutchinson, the author of People Glue, once said “Your number one customers are your people. Look after employees first and then customers last.” Forward-thinking and progressive employers will agree that no business can reach its full potential if its employees aren’t motivated to perform at their best. For many businesses, revenue is directly linked to employee performance, and yet most of us have worked for one or more companies with bad or even toxic workplace cultures. This article explores the psychology of motivation and provides insight into how businesses should incentivise their employees, and how this approach can be extended to customers, to increase retention and revenue.
A recent article in HBR describes how many businesses invest heavily in team building exercises to improve workplace collaboration and performance, from bowling nights to obstacle courses. While these exercises do bring people together and help them bond, it rarely lasts beyond the exercise and has little effect on organisational results.
Instead, the author, Carlos Valdes-Dapena, suggests that rather than team-building exercises, collaboration should be incentivised and part of each individual performance objectives. When an expectation of collaboration is communicated clearly throughout a business and people are made accountable to live up to that expectation, productivity will flourish. And when productivity goes up, so does revenue.
For performance objectives to be met, however, people need to be held accountable and also incentivised. So, should you choose the carrot, or the stick to ensure performance objectives are met? The answer is neither, and the answer can also be applied to customers to increase their satisfaction and retention.
Two psychologists from Stanford and the University of Michigan ran an experiment to test the effect of incentives on motivation and what is known as the ‘overjustification’ hypothesis. They recruited a group of pre-schoolers whom all enjoyed drawing and had them draw for six minutes at a time. Each child was randomly assigned one of three conditions – either they were told they would get a reward at the end for drawing (and did), they weren’t told anything but received a reward at the end, or they were told not to expect a reward at all (and didn’t).
Over a few days of observation, unsurprisingly, those who continued to expect and receive rewards decreased the amount of interest they took in drawing. Surprisingly, however, they had less interest than the children who expected and received, no reward at all. The clear winner in motivation, however, was the group of children who received unexpected rewards.
The experiment concluded that “tangible rewards tend to have a substantially negative effect on intrinsic motivation (…) Even when tangible rewards are offered as indicators of good performance, they typically decrease intrinsic motivation for interesting activities.” Additionally, rewarding people tend to make them less creative and worse at problem-solving.
By offering unexpected rewards to employees for performance objectives, businesses will see an improvement in the motivation and productivity of their staff and will benefit from business growth. Similarly, businesses who offer unexpected rewards to their customers can expect to motivate customers to spend more and be more loyal. This concept is further supported by the principle of reciprocity. According to Robert Cialdini, author of Influence: The Psychology of Persuasion, patrons at a restaurant will tip on average 3.3% more if they receive a mint and a whopping 20% more if they receive two mints. This is the principle of reciprocity at play – people are willing to give more if they receive something unexpected. More about that in our next article though so keep an eye out for it.
By practising the act of giving unexpected rewards to both employees and customers, your business will flourish. If you are looking for creative ways to reward your customers, book in for a complimentary strategy session with us and we can help you grow your business.