Read the warnings of the man who said no to Walmart as a salutary warning against aggressive price-cutting.

It tells the tale of how a gardening equipment manufacturer Simplicity, the maker of the Snapper brand of lawn-mowers, took the brave decision not to continue supplying retail behemoth Walmart.

“If you know nothing about maintaining a mower, Wal-Mart has helped make that ignorance irrelevant: At even $138, the lawn mowers at Wal-Mart are cheap enough to be disposable. Use one for a season, and if you can’t start it the next spring (Wal-Mart won’t help you out with that), put it at the curb and buy another one. That kind of pricing changes not just the economics at the low end of the lawn-mower market, it changes expectations of customers throughout the market. Why would you buy a walk-behind mower from Snapper that costs $519? What could it possibly have to justify spending $300 or $400 more?

That’s the question that motivated Jim Wier to stop doing business with Wal-Mart. Wier is too judicious to describe it this way, but he looked into a future of supplying lawn mowers and snow blowers to Wal-Mart and saw a whirlpool of lower prices, collapsing profitability, offshore manufacturing, and the gradual but irresistible corrosion of the very qualities for which Snapper was known. Jim Wier looked into the future and saw a death spiral.”

Beware of the high cost of low prices – discounting is a race to the bottom. At IncentiveDirect, we believe that customer loyalty incentives, and staff sales incentives that encourage sales staff to be knowledgeable, articulate and passionate about the products they sell are the alternative to discounting. As Snapper believed, the value is not just about the price. At the end of the day, Walmart, (and as mentioned before, Amazon), don’t care what you buy, as long as you buy something.

“Selling Snapper lawn mowers at Wal-Mart wasn’t just incompatible with Snapper’s future – Wier thought it was hazardous to Snapper’s health. Snapper is known in the outdoor-equipment business not for huge volume but for quality, reliability, durability. A well-maintained Snapper lawn mower will last decades; many customers buy the mowers as adults because their fathers used them when they were kids. But Snapper lawn mowers are not cheap, any more than a Viking range is cheap. The value isn’t in the price, it’s in the performance and the longevity.”

To “do more than just reward” also means doing more than just selling.

It is the icing that sells the rest of the cake.

Icing is the decoration, the attractive adornments that catch the eye and lure the customer. But the real quality of the cake is in what lies beneath.

In incentives, rewards are the icing, communication is the cake. The real value of an incentive is the chance to drive knowledge, understanding, and a two-way communication channel. Rewards are the lure to get people’s attention, to create that opportunity.

Think rewards. Think communication. Think cakes.

Are staff reward schemes the first thing to be chopped in a downturn?

In a white paper, The “Evidence-Based” Case for Incentives, The incentive research foundation makes the case that reports of the death of staff incentives are greatly exaggerated. The report puts the case strongly that incentives, when applied properly, do drive performance improvement:

“Incentives, properly designed, implemented and continually evaluated, can and do provide measureable benefits. The study, Incentives, Motivation and Workplace Performance: Research and Best Practices (2002) found that individual incentives resulted in a 27% improvement in performance and that team incentives improved by 45%.”

However, I’m sure HR departments up and down the country will be looking at their 2009-2010 budgets and wondering if they are really getting an adequate Return on Investment from their staff reward and recognition schemes. In many cases, they will then face the problem that they have no defined objectives or quantifiable measures of success in place in order to begin answering that question.

Unlike sales incentives or direct productivity incentives, staff reward schemes are a somewhat more nebulous affair, much harder to measure and judge the success. To some extent they are offer an intangible feel-good factor that may be an emotional factor in determining an employee’s likelihood of staying, or inspiring their performance at work.

In a recession, while there may be more people seeking work, and replacing staff who leave may be easier, the cost of recruiting and training new staff is still great. Thus there is still great value in any measure that can reduce staff churn. But are staff rewards effective at this?

Quantifiable measures of success can only really be evaluated over a long period, and are statistically only relevant in a large organisation. Which leaves qualitative studies: surveying staff to understand their satisfaction levels, and whether the rewards and other flexible benefits in place make a difference to whether they would stay or not. If the overriding answer is no, then perhaps the reward schemes currently running are not cost-effective.

Our belief is that incentive schemes that reward staff for doing what they should be doing anyway are ineffective and a poor use of budget. Effective motivation activity needs to have a defined objective, and a means of measuring success. Our experience is that incentives work best to address a particular behaviour, and are ideally suited for actions that lie outside of an employees job remit, such as recycling or energy consumption. These are behaviours that can have a dramatic impact on the company’s bottom line, and can help organisation and departments pull together to achieve a common goal.

If reward and recognition schemes such as employee of the month, long-service, star performer are judged to be effective motivators and aid staff retention, they by all means keep them, but if the schemes are in place as a legacy of bygone days, organisations should be brave enough to replace them with more focused incentive activity.

In a study by the Department of Economics at Purdue University, a experimental study called “Entry into Winner-Take-All and Proportional-Prize Contests” revealed that:

” In a winner-take-all tournament, the highest performing contestant wins a prize. In the proportional-payment design, that same prize is divided among the contestants according to their share of total achievement. We find that proportional prizes elicit higher entry rates and thus more total achievement than the winner-take-all tournament. The proportional-prize contest performs better because it encourages significantly more entry among low ability contestants, without discouraging the entry of high ability contestants or limiting entrants’ performance.”

If we consider a competitive sales incentive as a kind of contest, then the same findings apply.

By rewarding only the winners, the overall performance improvement is not as great as a proportional reward system that recognises growth by all participants.

The reasons are obvious. Even if they recognise that they wont be the star performer, in a proportional contest every participant knows that it they can up their game, they can reap the benefits.

A winner-takes-all situation can breed resentment and disengagement. By definition, everyone else is a loser. Once a participant realises they are not going to win, they will generally lose motivation and give up trying. The resentment can come if they feel the odds are stacked against them, that due to external factors – such as not having the high-yield accounts, or the best store location – that it’s not a level playing field.

Proportional rewards can help improve team spirit, especially if the size of the overall pot is variable too. Now everyone is pulling together to improve the overall value of the prize fund, as well as competing to increase their own share of it.

Basing a sales incentive based on percentage sales improvement rather than sales volume actually reverses the problem. It’s much easier for a smaller dealer or low level salesperson to grow their sales by 10%, for instance, than the star salesperson or premier retailer.

Our mantra as always is to keep mixing it up. If you keep rewarding the same behaviours and on the same basis, you’ll only engage, motivate and drive the performance of the same band of participants in your incentive. The key is to keep experimenting with new ways to get different groups of users in tune with your activity.

Either as individuals or in teams, introducing healthy competition into the sales environment can drive performance and boost sales. Here are a few guidelines to ensure your programs achieve the results you desire.

1. Give everyone a chance to win.It’s critical that everyone who participates in the campaign has a chance to win something.A “Winner takes all” approach for a grand prize, can actually be very demotivating. Once a team or person realises that they have no chance of winning the big prize, they are likely to stop trying.

   Offering a base level of reward for sales activity keeps everyone engaged. Back this up with weekly or monthly winners, and other spot prizes, as teams race towards a final prize. Spread the budget across the incentive rather than putting into one big prize that only one participant can win.

2. Reward sales growth, not volume.Simply rewarding sales volume can often backfire, ensuring that the sales force or the dealership with the biggest key accounts will always win, regardless of their efforts, or those of the other competitors.We find it is more effective to reward the increase in sales as a percentage, helping to level the playing field, and motivating those who are most able to effect change.
3. Create a theme.It’s important to create a theme for your incentive that can be the basis for your supporting marketing and communications activity. Tying into events such as sports tournaments is always a good hook to hang a campaign on. The metaphor of a race, a score, or a league table is always a good way to think about how you will represent the performance of participants in your campaign.
4. Focus on team spirit.Think about what can be done to ensure a team is all pulling together. Identify and set targets based on individuals and the team as a whole, ensuring teams will need to cooperate, share resources and support each other to get results.
5. Keep rivalry friendly.Competition can develop into enmity if things aren’t kept in check. This is another reason why any ‘grand prize’ should only be a fraction of the total budget for the campaign.It’s important to provide team building and bonding both within teams and inter-teams. Add social events to help everyone wind down and share experiences.
6. Involve support staff.Successful sales growth will create additional work for support staff, so find ways that they can share in the success.
7. Communicate the success.There’s no point in running a sales team competition if no-one knows how it finished, who won, or what the bigger picture is.A successful sales campaign creates a feel-good factor that you should communicate within the organisation. Let everyone know how it finished up, and report the findings. These activities also make great PR, so consider creating a case study or press release for your trade publications and newswires.
8. Follow up to maintain momentum.Don’t lose the head of steam that a great sales competition can generate. While you may not want to launch into another campaign straight away, keep the buzz going by announcing when the next one might start, and give participants a chance to start planning their strategy, forming alliances, and gathering resources.
9. Measure the successIt’s important to define measurable criteria for the success of your sales competition. Was your overall budget for rewards and prizes enough to drive the performance gains you desired? What was the Return on Investment?
10. RebootOnce you’ve completed your measurements, analyse what worked and what didn’t and start planning your next campaign.Make sure you mix up the formulas and change the parameters, to give new participants a chance to shine. Tweak the mechanics to subtly skew the rewards criteria, for instance.

IncentiveDirect’s online sales incentive system, iD-points, provides an ideal platform onto which to add a sales team incentive. Participants earn points for the performance criteria you define, and if there is a grand prize, this can be taken in points. IncentiveDirect work with our clients to create themed campaigns and bespoke creative material, including league tables and interactive games.

Crucially, iD-points provides all the tools you need to create and run multiple campaigns, communicate your activity, monitor it’s effectiveness, and report your findings.