Social media, a term that didn’t exist 5 years ago, is now one of the key means for brands to connect with the customers, and for people to connect with friends and peers. Now social media is moving beyond the currency of ‘friends’ and ‘followers’ and adding new measures of engagement, new ways of motivating participation, and new ways of rewarding success.

The most obvious way that rewards and motivation are filtering into the social media landscape this is through the introduction of game-like elements, such as points rewards, unlocking achievements and abilities (levelling up), and then measures of success such as high score tables, leaderboards, badges.

A great example of this ‘gamification’ is Nike+ from Nike. This takes the usually solitary pastime of running and turns it into a social experience as well as a motivation tool, by recording data from your runs and then uploading them to the Nike+ site from a range of devices, including iPhone and iPod.

As well as allowing you to track your runs and review your running history, you can set goals for distance or time, and reach levels based on total distance covered. You can also tweet or update your Facebook status with details of your activity, set challenges to your friends and also join public challenges. The iPhone app and new Nike+ SportWatch GPS also allow mapping of your runs using GPS data.

Fans of Nike+ (of which I am one – here’s my profile) find that the positive feedback loop it creates encourages them to run more, set targets, and ultimately perform better. The game-like elements help to make users more proactive and provide a support network for ongoing encouragement as well as celebrating achievements

Another great example that has recently launched is the Heineken Star Player iPhone app This allows users to play live alongside Champions League football matches and try and predict when a goal will be scored, to earn points. There are also other opportunities to score points by guessing the outcome of free kicks and corners, plus quiz questions. It provides a new angle to watching a football match with friends and an added level of interest. There is the inevitable connection with Facebook and Twitter and the opportunity to build mini-leagues of friends, alongside the global league of all users. The Heineken branding is ever-present but fairly low-key. Whilst points don’t represent anything other than your score which can be compared against other users, perhaps future versions will translate points into a virtual currency which can be used to acquire Heineken merchandise.

Gamification

Star Player manages to avoid the biggest problem of adding game elements to social networking, which is that they add the reward mechanisms of games but with no real underlying gameplay, or compelling raison d’etre. In Gamification and It’s Discontents, Steven Poole highlights the problems in adding a thin game layer over real life, in that it can provide a virtual presenteeism rather than any real degree of engagement:

“isn’t the idea of being ‘mayor’ of your local Starbucks or indie equivalent, as is possible in Foursquare, rather strange? You don’t become mayor in real life just by turning up at the town hall more than anyone else.”

Poole also discusses a new social game, Chromaroma, based on users travelling habits around London. By using the journey data from your Oyster card (the contactless ticketing technology used on buses and the Underground in London), and now also your Barclays Cycle Hire (aka Boris-bike) travel data, it aims to add a game-like dimension to commuting around London. Users, once signed up, choose to be on the Blue, Green, Red or Yellow team, with the aim of taking ownership of certain stations or lines, based on where they start or complete their journeys. But does anyone really play Chromaroma?

I joined Chromaroma, and it seems rather pointless, if you’ll excuse the pun. In its current incarnation I can’t see it changing the way users travel across London, nor does it turn London into some kind of consensual game-space the way that, say, Streetwars or NikeGrid did, or PacManhattan does in New York. Earning points for completing a travel journey is unlikely to change anyone’s travel habits or which station they travel too, and so rewarding users for doing what they do anyway is rather meaningless. Perhaps Chromaroma will morph into a more narrative, ARG game route like Perplexcity rather than the check-in based Foursquare model.

Gamification, or ‘pointsification’, as Margaret Robertson of Hide and Seek insists it should be called, does not create a full game experience because there are no meaningful consequences from the choices the player makes on the game itself. In other words, if you don’t go for a run, Nike+ will still be waiting there for you when you do.

“Games give their players meaningful choices that meaningfully impact on the world of the game. Deciding to run two miles today rather than one, or drink two liters of Coke instead of four are just choices of quantity.”

The choices you make don’t affect the game at all; the process is all one way rather than being fully interactive. A game should a series of unfolding series of actions which have consequences, positive and negative.

“Games offer fail conditions as well as win conditions. They are able to deliver the high levels of emotional engagement they’re famed for because they’re also adept at delivering the lows of loss, humiliation and frustration. The world of user experience design from which the concept of gamification has arisen has spent the last twenty years erasing loss, humiliation and frustration from its flows. A world of badges and points only offers upwards escalation, and without the pain of loss and failure, these mean far less. And when this upward escalation is based only on accumulation of points, rather than on expressions of my choices and my skills, then this further strips out the sense of agency and competence, so crucial to the emotional and neurological buzz we get from gaming.”

1-Up or 2-Up

Robertson is rightly critical of such a restrictive view of gaming because it can obscure the deeper potential that games may offer not only social media but also customer loyalty and brand engagement. Games like Heineken Star Player show the way that social games can provide an a interactive side-channel, an approach that I can see becoming increasingly commonplace for brands and for business. There is also massive potential for games to become much more integral to the incentives and motivation market, to move beyond the simple game-like elements of rewards, points and achievements to a more dynamic in-game experience full of choices and consequences. These can be used support not just competitive play based on sales performance or other indicators, but also co-operative play such as team-building, training and knowledge sharing.

Facebook has recently launched a service called Deals, which allows users to get special offers at retail destinations when they ‘check-in’ to that location with their Facebook account.

“When you’re looking at the Nearby Places list on your mobile phone, certain places will display a yellow ticket next to their name. Clicking through will show you the details of the offer, and then checking in will display a voucher that you can show to the person on the till to validate it. Types of deal include charity giveaways, freebie giveaways, loyalty card-like counters and deals that require you to check in multiple people at the same time.”

Deals is like a combination of FourSquare, with its social currency of ‘check-ins’ and discount voucher sites like Groupon, and represent the new face of customer loyalty. Beyond simple loyalty cards and rubber stamps, the emphasis is on broadcasting your customer loyalty to your ‘friends’, and is most apt for restaurants and coffee shops.

But perhaps more than genuine customer loyalty, Deals could simply encourage a kind of consumer nomadism, a rootless shifting customer base that constantly moves to where the best offer is. It smacks of presenteeism rather than engagement, a flash mob of punters showing up expecting a discount rather than genuine loyalty between a retailer and its customers.

As some retailers who have used Groupon have discovered, suddenly having a herd of new, temporary customers is a Faustian bargain that doesn’t necessarily translate into long-term, full-paying customers, and whose main winner is Groupon itself. And there’s always the chance that genuinely loyal customers may get shoved to the side by the stampede of coupon waving bargain hunters.

Discounting is always a risky proposition – especially with emerging ecosystems such as Groupon, where a misjudgement can lead to big losses for a business – and can rapidly become a race to the bottom. At IncentiveDirect, we believe incentives that reward sales generation are a low risk way of driving sales and growing business in a manageable, sustainable way.

An interesting concept from Gwilym Davies – “World Barista Champion” – is the dis-loyalty card. Designed to encourage diversity, rather than conformity, it offers a refreshing twist on the tired loyalty cards of most coffee chains. Rather than slavishly visiting the same old coffee shop in order to earn a free coffee, the dis-loyalty card encourages the shopper to frequent a number of otherwise unaffiliated establishments.

Joined-up thinking like this by small businesses and local communities is the answer to the bland homogenisation of our high streets by large retail chains. The large retailers know that loyalty cards are the way to embed habits and repeated behaviours, but the same logic can also be extended to less commercially driven enterprises. See also The Crouch End Project for how local retailers can use the power of customer loyalty to support local businesses.

Discounts reward the people who pay for goods or services, not the people who buy or use them, and if they are not the same person, are an ineffective form of incentive. This is one area where a B2B incentive is very different to a B2C incentive, where the consumer is usually both buyer and user of the service or product being sold.

An incentive scheme aimed at increasing sales should always be aimed at those who make buying decisions.

Extending this further, it is clear that an incentive that is based on rewards rather than on discounts should be targetted at individuals, not organisations. If the people making the buying decisions are not the ones receiving the reward, then it is obvious that the reward has no influence to the person buying that service or product. There is no added incentive for them to buy that brand, or from that supplier, or to buy more, or a better model – the reward has no effect.

Only individuals can be influenced to change their behaviour through the emotional lure of a reward. Considered in the abstract, organisations make decisions based entirely on logic. But individuals within that company will still act emotionally. Buyer Decision Processing is still an emerging field of cognitive science.

There is no point in rewarding a company, you should be rewarding the person within the company who makes the choice to buy from you. Rewarding customer loyalty involves engaging individuals.

In an interesting presentation from the July TED conference, career analyst Dan Pink makes a convincing case that incentives are ineffective at enabling innovative thinking. This is something that social scientists know, argues Pink, but that business seems keen to ignore. Incentives are only effective at improving performance along already established paths, not in enabling the forging of new paths.

It’s an interesting presentation because it should force all operators of incentive solutions all to think about whether they are stifling the behaviours we are trying to promote.

There is a flip side to this, and this is the success of prize funds such as the X-Prize, or the Netflix recommendation engine prize.

Called the Netflix prize, a reward of $1 million dollars was offered by the movie rental company, to any team that could improve film recommendations that were 10% better than those produced by its current system. Earlier this year, a team managed to achieve this, after nearly 3 years and a massive collaborative effort. In fact, thousands of people entered the competition, many of whom would have had no chance of winning, but saw the opportunity to learn about machine intelligence with a state of the art set of test data.

So the question is whether the prize hindered the finding of a solution, or enabled it? Certainly Netflix has earned marketing and PR coverage and respect from the development community to more than justify the $1 million prize, but how many teams would have persevered if there had been no prize at the end of it.

Perhaps the answer lies in a blog post by one of the participants of the Netflix contest, Justaguyinagarage. In his post, Reflections on the Netflix competition, he gave kudos to Netflix for running the competition in such a well structured way:

“It was run in an exemplary fashion throughout and should, I believe, become the model for other competitions that people might choose to run. Some of the key features that made it such a success are:

a. A clear, unambiguous target and challenging target. How a 10% target was chosen, will I suspect, remain forever a mystery but it was almost perfect – seemingly unattainable at the beginning and difficult enough so that it took almost 3 years to crack – but not so difficult as to be impossible.

b. Continuous feedback provided so one could identify whether the approaches you were investigating were going in the right direction.

c. A forum so that the competitors could share ideas and help each other (more about that later).

d. Conference sessions so competitors could meet and discuss ideas.

e. Zero entry cost (apart, of course, from the contestant’s time).

f. A clear set of rules.”

As a set of guidelines for anyone looking to run an incentive, these could hardly be bettered. An objective, unambiguous target, a clear set of rules, feedback and discussion forums to promote knowledge sharing – these are surely the ingredients for successful incentives, whether the objectives are simply to sell more stuff, or something that requires creativity or innovative thinking.

For Dan Pink, the answer lies in what he calls “intrinsic motivators”, understanding peoples inner desires, which Pink subdivides into three categories: autonomy -”the urge to direct our own lives”; mastery – “the desire to get better and better at something that matters”; and purpose – “the yearning to do what we do in the service of something larger than ourselves”, which can be achieved giving employees more freedom to choose their own destiny. So is it possible to use incentives to drive people to achieve these goals? The Netflix prize would seem to show that it can.

The low risk of incentives make it easier to fail often, and fail better.

People are conditioned to try and avoid failure, but this often prevents them taking chances. In looking to create a marketing promotion, too many companies avoid creating memorable and effective campaigns because the costs of implementing the campaign are so high that they can’t afford to get it wrong. “Not getting it wrong” is more important than “getting it right”, so the results are often just “kind of okay”. Or worse still, having invested so much money into a marketing campaign, more money is poured in, trying to turn a donkey into a racehorse. Economists call this a sunk cost fallacy.

The low cost of implementing an incentive campaign, using a system like iD-points, allows a company to try different approaches to drive sales. If one approach is not working, it’s easy to change the parameters, to move the goalposts, to create a different set of drivers and incentives, until an effective one is found. It’s possible to take a risk, get the feedback and measure the success, without incurring high sunk costs where the temptation is to keep plowing in more money. If something isn’t working, try another approach. Crucially, if the effectiveness of incentive activity starts to fall away, the parameters can be shifted and the activity refocused.

Incentives are the low risk marketing option.

A prospect recently said that a customer loyalty program was not needed because they got 80% of their revenue from 20% of their customers.

This company wasn’t unique – most small companies’ business also fits the 80/20 rule – also called the Pareto principle or the law of the vital few

Like any other small company, they get the majority of their income from a small number of regular customers to whom they probably have to give exceptional service for fear of losing them. There’s no requirement to run a loyalty incentive for those customers.

But that is exactly the point – how does a company engage with and increase it’s business with the other 80%?

How about an incentive for those customers that may buy occasionally? A customer loyalty incentive is something that could turn an intermittent client into a regular, valued customer.

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.

The integrity of the pratice of paying bonuses has taken a hammering recently with the revelations that the bonus schemes in place at many financial institutions may have played a significant part in creating the credit crunch and the resulting crisis in the world economy. It’s giving incentives a bad name.

Mervyn King, Governor of the Bank of England, weighed in with:

“Banks have come to realise in the recent crisis that they are paying the price for having designed compensation packages which provide incentives that are not, in the long run, in the interests of the banks themselves, and I would like to think that would change,” he told lawmakers.”

The BBC’s Robert Peston, harbinger of doom to the UK banking industry, believes that banks should also introduce the malus, a kind of collective responsibility for losses.

It’s an idea that some banks, such as UBS, are already looking at:

“Swiss bank UBS adopted a similar system in November last year. Some banks are looking at what’s being called bonus banking, where parts of executives’ annual bonuses are withheld over three years, and adjusted based on long-term results, to discourage them from ramping up their bonuses by taking short-term risks. Swiss bank UBS, which adopted such a system in November, calls it a bonus-malus system,”

We have spoken before about whether users can ‘game’ the incentive solutions you are implementing.

But in designing the mechanics of any incentive solution, one must also take care that recipients aren’t able to accumulate rewards through unsustainable practices, ones that are not in the long-term interests of the company.

Are the behaviours you are rewarding sustainable?