The recession has changed the marketplace forever. The New Consumer will change the way that business and consumers think and behave. From now on, there is a permanent shift in the consumer mindset, and this will translate into the way that businesses operate in order to survive and prosper.

So what does the New Consumer look like

• The New Consumer is more careful about what they buy.
• The New Consumer want to feel connected to the things they own.
• The New Consumer is looking for long term value rather than short term cost saving.
• The New Consumer will only buy once they are convinced it is the right product for them.
• The New Consumer values their time more than ever.

The continued growth of companies like Apple is an object lesson that people are willing to spend, and often pay more, for items that they believe will last longer, serve them better, and save them time. Consumers are growing tired of cheap, poorly made stuff that doesn’t last, clutters up their houses, and makes them feel guilty when they have to throw it out. The new consumer wants to own fewer but better things that have a deeper resonance with them.

A report by Price Waterhouse Coopers states that this mindset is likely to remain even after the recession has ended.

“Companies need to recognize that there will not be a wholesale return to a pre-recession shopping mode and will need to adapt to the changed behaviors and patterns to win in today’s changed marketplace”

This should represent a seismic shift in how businesses sell to their customers. Customer service is becoming ever more important, in helping consumers find the product which is right for them, rather than trying for the quick sale.

This is not just about the High Street, but online retailing too. A recent report by Fast Company shows that bad customer experience when buying online leads to not only a negative impression which is unlikely to lead to repeat custom, but that ‘cart abandonment’, the termination of the sales transaction, could be costing US businesses up to $44 billion a year.

This also needs to filter through to incentive programs. Incentives should focus not just on rewarding the sales team for making the sale, but rewarding everyone involved in making the customer feel like a king. Smarter sales incentives look at the bigger picture and focus on building longer term relationships with customers. Most customer loyalty programs, rubber stamping a card for a chance of a free coffee or a discount, are lazy choices. They are no match for a structured internal incentive solution that empowers employees to offer killer customer service, by:

• rewarding them to improve their knowledge so they can offer better advice
• rewarding them to improve their skills so that they are better employees
• rewarding them for going the extra mile
• making the right sale to the customer
• recognising the lifetime value of a customer

For an inspirational video on how far customer service can take you, check out this video, Creating Lifetime Customers, from Chris Zane of Zanes Cycles. It’s over an hour long but it’s well worth it, and at the end of it you may feel like you want to open a bicycle shop.

What’s also fascinating about Zane’s presentation is that Zanes isn’t just about B2C retail, as they also fulfil bikes for a number of incentive programs for clients including American Express and Tropicana. The same lessons apply to the incentives market. As a provider of incentive services and product fulfilment, we are representing our clients to their customers, and sitting in the middle. To be successful, we need to provide great service both ways.

A fascinating article in BusinessWeek looks at the unique culture of online shoe retailer Zappos. The company, founded and run by Tony Hsieh, and now part of the Amazon retail empire, believes it has a unique corporate culture that in itself is a marketable commodity. Visitors pay to tour the companies offices and get an insight into the DNA of the company.

As on online business, all you have is your reputation. You have no physical presence. So Zappos goes out of its way to show a human side to the organisation.

Lots of companies like to make out they’re wacky places to work in order to disguise actually how drone like the work is, and where Zappos fits in this picture is uncertain. It’s definitely not something that would come naturally to a British or European company.

If there is anything to learn from Zappos, is that making a unique company culture can be not only good for staff loyalty but also PR and marketing. Motivation systems have a part to play in building a unique company culture, by rewarding the behaviours you want to encourage.

Progressive companies can target certain actions, for instance internal show-and-tell sessions that help staff communicate and build understanding, and reward good presentations. Prizes for internal company team competitions, logged on an online leaderboard, can act to focus everyone’s attention on key issues and create a healthy competitive atmosphere. Many organisations suffer loss of staff morale when employees do not get a sense of the bigger picture and their place in it, and what else is going on around them, Instead, cliques, petty politics and internal dogfighting – negative competitive aspects – undermine the organisation.

A big part of what Zappos do is to try and make work like play. At IncentiveDirect, we believe a more powerful concept is to try and make work like a game.

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.

A recent white paper from Incentive Performance Center, entitled Why Incentive Programs Endure Recessions, offers some interesting views on why motivation schemes are more recession proof than other forms of marketing.

The paper explores five areas why ‘savvy’ companies turn to incentives during a downswing:

1. Low fixed costs, variable costs driven
   by performance, high potential return
2. Ability to effectively target audiences
   (no pay and spray)
3. Relative ease of measurement
4. Flexibility
5. Potential for both

It’s inevitable that some companies will see an incentive program as a ‘cost’ that should be cut during a recession. Others will perhaps turn to cash, to make up for a lack of pay rises. But as we have hammered home before, cash is a poor incentive (see “Still thinking cash is king?” and Why cash kills motivation). A depressed economy won’t suddenly make cash an effective incentive tool.

Elsewhere, the latest Bellwether report from the IPA, shows marketing budgets slashed by over 40%, with the biggest loser the media (eg PR and advertising).

Sales promotion, which would include incentives and motivation activity, though down, is faring better than most other forms of marketing except online. Thus, the budgetary share for sales promotion has increased. Sales Promotion now accounts for 9.2% of overall spend, compared to Main Media (30.3%), Direct Marketing (24.9%) and ‘all other’ (25.7%).

It’s an ill wind that blows nobody any good, and those companies that can deliver cost-effective incentive solutions can gain market share and increase their customer base even more when everyone else is batttening down the hatches. There’s business to be won in a recession, no doubt.

When defining your incentive activty, it’s tempting to try and get instant performance results, such as increased sales. But this can result in a degree of short termism, and may only be applicable to certain staff or participants.

Direct behaviour such as increased sales, or reduced costs, are easy to measure, but unless other things change there is likely to be a limit to how far these performances can be improved.

Indirect behaviours are one or more steps removed from revenue generation or cost savings. Examples of one-step removed behaviours might be to increase the number of leads, or improved customer support, things that will lead to more or greater business in the future.

Long terms goals are used to drive the core values of the company, and enforce a positive company culture. Measures might include improving employee satisfaction, enhancing the public reputation of the organisation, or increasing market share. The benefits to the bottom line are long-term but profound. Ultimately the DNA and success of the company will be a result of the long-term behaviours. Rewarding long-term goals means identifying and communicating behaviours which contribute towards them.

Are you rewarding direct behaviours, indirect behaviours, or longer term goals?

Ideally you should reward across all three.

Over at the Compensation Force blog, Ann Bares groups the measures of an incentive plan into 3 categories, Lead Measures, Operating Measures, and Lag Measures. She defines a lag measure as reflecting success that has already happened, generally recognised through accounting practices, such as stock price. Bares continues: “Running an organization solely on the basis of lag measures is like steering a boat by watching its wake.”

Are you rewarding achieved success or future growth?

‘What gets measured, gets managed’, runs the old business guru homily, usually meant to justify a draconian and intrusive Taylorist workplace snooping.

But there’s no point in measuring if you are not going to then promote and reward quantifiable improvements. We call this Performance Engineering.

Setting measurable performance targets means identifying the behaviours you want to change, the costs you want to save, the sales you want to generate, or some other metric.

Setting a general goal such as “increase sales” may work for a focussed mobilised sales force which has the initiative to think of ways to do so, but sales teams that lack initiative will often only be able to achieve this goal by working harder, increasing their volume of sales calls, and hoping that this generates additional business. Raising the bar without giving staff the tools to reach higher can be demotivating.

A smarter approach is this scenario might be to supplement the main ‘sales volume’ incentive with a number of more focussed ‘side bets’, targeting particular behaviours, for instance, rewarding additional incentives for cross-selling, or up-selling, increasing the yield per sale than the volume of sales. This puts less strain on sales teams to make more calls, but gives them a focussed activity to convert bigger wins.

It’s important to communicate what you’re doing. This isn’t a scientific experiment where you don’t want the subjects of the experiment to modify their behaviour whilst they are being observed. It’s more like engineering where you can adjust the parameters and observe the results, tuning the performance for maximum result. Users like to know the rules of the game, that result X brings reward Y.

The beauty of an incentive system like iD-points is that you can run multiple incentives at the same time, and set them up quickly. As well as a baseline reward campaign, add short-sharp-shock campaigns that target particular behaviours, and rapidly build a picture of what drives performance within your organisation.

To summarise, the principles of Performance Engineering:

• Choose your metrics carefully.
• Target specific activities.
• Reward performance gains.
• Communicate what you’re doing.
• Run short campaigns.
• Tune parameters to maximise performance gains.

As this article in the New York Times explores, companies are looking for employees who are willing to keep developing over those who think their abilities are fixed.

People with a “fixed mind set” generally believe that they were born with all their talents and abilities preset.

In contrast people with a “growth mind set” believe that they can develop their talent and abilities. According to Stanford psychologist Carol Dweck, the people “who believe that talent can be developed are the ones who really push, stretch, confront their own mistakes and learn from them.” [See diagram here].

Dweck believes that these traits apply especially in the workplace. It’s not necessarily a good idea to hire the best and the brightest, who tend to be idealistic and egotistical. Instead, organisations should look for individuals with the growth mind-set, who are most willing to push themselves, and be part of a greater whole.

The article cites the experience of Scott Forstall, the senior VP at Apple who was responsible for putting together the development team for the iPhone.

Forstall identified a number of superstars within various departments at Apple and asked them in for a chat.

“At the beginning of each interview, he warned the recruit that he couldn’t reveal details of the project he was working on. But he promised the opportunity, Ms. Dweck says, ‘to make mistakes and struggle, but eventually we may do something that we’ll remember the rest of our lives.’

Only people who immediately jumped at the challenge ended up on the team. ‘It was his intuition that he wanted people who valued stretching themselves over being king of their particular hill,’ Dweck says”

Is it possible for people to ‘phase-shift’ from a fixed mind-set to a growth mind-set?

This is an area where we believe that rewards and the science of motivation can reinforce teamwork and instill growth mind-set behaviours, helping individuals push themselves further, rather than taking the safe route.

Promotions and salary raises will reflect abilities and talents over the long term, but rewards and incentives can drive performance and encourage the ‘growth mind-set’ with rapid results.

The example of an incentive program on The Incentive Markeing Association website, is a dog.

“Stan supervised a group of 50 people. He did a little research and came to the conclusion that each employee used an average of 10 sick days per year. He felt this seriously cut into productivity on the assembly line and he figured that cutting this figure in half, or 5 days per year, would greatly improve production figures for his department.”

The aims of the incentive might be laudable – to improve productivity – but the solution chosen – to improve attendance and reduce sick days – tackles only the symptoms, not the cause. Note that Stan spends no time trying to find out or understand why employees are taking so many sick days.

So Stan kicks off his little incentive “with a small party of donuts and coffee” – the best aspect of the incentive, incidentally – and, lo, in this fictitious scenario, gets the results he is after. But of course his incentive also punishes those who are genuinely sick, and may also encourage people to come to work who should really be at home, thus possibly spreading more illness. No mention is made of staff in other departments who are not part of the incentive – a divisive strategy that may affect the overall attendence levels and productivity of the business.

The biggest trap Stan’s incentive falls into is to award attendence, not performance. Those that turn up to work have no additional incentive to work harder or smarter, or otherwise perform better. Stan has replaced absenteeism with presenteeism.

The incentive also offers nothing beyond the reward, except the impromptu recognition ceremony. There is no attempt to engage the staff in a dialogue about performance, teamwork, and attendence.

Stan has also given himself a nasty admin overhead. Not only does he have to calculate which employees to reward, from the attendence records, which is not too much of an issue, but he has had to “put together a catalogue of gifts” in an appropriate price range. Not only that, he’ll have to deal with collecting the orders, arranging delivery, and dealing with any issues regarding faulty items, returns, stock availability, plus irate employees who will complain that there’s nothing they like.

Plus he probably has to put together a report, and maybe try and calculate the ROI from his incentive. Stan has got some long evenings with Excel ahead of him.

The article concludes that “Stan decided to run a similar incentive program the following year”, but here’s a crazy idea Stan. Why not try offering free coffee and donuts first thing every morning, and ditch the rest of the incentive?

If Stan’s company is serious about improving productivity, it needs to come up with a company-wide incentive solution that does more than just reward. It should find some one to run it for them, and free Stan’s time up to focus on what they are trying to achieve, and how to use rewards to drive staff engagement.

As reported in this recent BBC news piece, as many as four in ten employees are considering quitting their job in the next year, according to YouGov research for Investors in People.

“A lack of motivation at work is cited as a major problem, with unreasonable workloads, feeling underpaid and a lack of career path being blamed.”

Employees feeling detached, unsupported and with no clear direction are symptoms of poor communication, leading to de-motivation.

“De-motivation was highest within larger companies, the report said, with 39% of people in organisations of 5,000 or more saying that they were either not very or not at all motivated compared with 30% in organisations of between 50 and 250 people.”

Employee motivation is not just good for morale, it’s good for the bottom line, both in terms of productivity, but also because hiring staff is an expensive business. It costs many times more to recruit and train good staff than it does to retain them.

Any successful motivation and incentive activity has to have, at its heart, communication. Rewards are a means to generate attention, and open a channel of communication. Giving rewards without communication is meaningless and in the long run won’t improve employee motivation or performance.