Question: For years we have rewarded our sales staff with generous compensation programs and other incentives. We are considering some kind of incentive program to reward customer loyalty. Are you familiar with any such programs and how they work?
Answer: There are many examples of customer-reward programs, ranging from discounts for early payments to frequent-buyer clubs. Some of those programs are more successful than others. Much depends on the perceived value by the customer and the ease of use. For instance, I receive a free dozen bagels after I buy six dozen. That’s great for me because I buy a lot of bagels for my classes. However, if you were not a frequent bagel consumer, you would probably lose track of the reward system and eventually lose interest.
In short, the value of the reward system has to be significant to the majority of your customers or to the customer group that you are most interested in retaining. Therefore, the exact rewards need to vary by industry.
Let me share an example of a customer incentive idea that some of our clients have implemented based on a reward system for their salespeople.
We can all remember observing studies on animals, where the researcher would reward the animal for completing a specific task. For example, do you recall watching mice as they learn to go through a maze in return for a piece of cheese?
Almost every day, we apply this same concept in many ways, from rewarding children for doing a task correctly, to tipping a waiter or waitress for doing a good job.
Simplistically, we are just rewarding the behavior we want to see.
Rewarding the "right" behavior is nothing new to business, and it is exhibited in numerous ways, many times very successfully. Pay for performance, for example, is a good technique built into many sales compensation systems.
One of the most successful reward systems for salespeople is sometimes called the "Golden Handcuffs". It works this way:
Each time a salesperson completes a profitable sale, the business makes a deposit in the salesperson’s account. This is over and above the normal compensation, and over time, a successful salesperson builds a significant account. At the end of a specific time period, say five years, the salesperson may draw out the first year’s deposits. Every year thereafter, the salesperson may take out another year’s deposits. The system rewards good performance. If salespeople improve their performance and sell more and more each succeeding year, their rewards get progressively better. If a salesperson does not meet his or her sales requirements, the reward is minimal. If the salesperson leaves the job, he or she gives up the account unless they have reached vested status.
When this system is well designed, it will not only reward good performance, it will help to retain good employees and get rid of poor performers.
But here’s a thought – if reward for behavior works for employees, why not apply it to your customers? Will it work? Absolutely.
Frequent-flyer miles are nothing more that a reward for customer loyalty. I use a certain credit card more frequently than others because I am awarded points.
It’s not hard to develop your own system. First, you need to define the customer behavior that you desire. Is it simply repeat purchases from you? Is it a minimum annual purchase volume? Is it a minimum dollar amount over a specific time? Is it some combination of those qualifiers? List the most important customer behaviors you want to see.
After you’ve defined the behavior you want from your customers, design the reward system accordingly. Remember, it must be significant and achievable to cause behavioral change. It must be "worthwhile" to your customers for them to change their behavior. You may want to enlist some of your best customers to help you design your reward system. What is it that they want in return for the behavior you want? Just ask them.
Be careful to design your program to avoid being taken advantage of. Many companies who reward terms for early payment find that some customers take the terms regardless of the promptness of payment.
Finally, your reward system should also be part of your marketing strategy. How often do you hear about frequent flyer programs? Your current customers as well as new potential customers must be aware of and appreciate your reward system if they are to change their behavior accordingly.
If you utilize a system like the "Golden Handcuffs", and it is well designed, over time you should see the behavioral change you want – an increase in purchases from desirable customers, and increased retention of those customers.
Marcia Gauger is the president of Impact Sales, a performance improvement and training company with offices in Wisconsin, Florida and Arkansas. You can contact her at 262-642-9610 or marciag@makinganimpact.com. Her column appears in every other issue of SBT.
May 24, 2002 Small Business Times, Milwaukee
