Points – Shmoints – Give me cash or die!

For millenium incentive companies have used points as a medium of exchange within incentive programs.  Participants earn them for achieving specific objectives – and redeem them for merchandise, gift cards, indivivdual travel and other representatives of achievement.  You could substitute the word "credit" for points.  I've even seen performance currency named after the egotistical program sponor.  That's way classy, eh?

Points were a way to "disguise" the value of the awards.  In the pre-cambrian era of incentives (say the 30's through the 70's) incentive companies could buy merchandise and other awards in bulk at a very attractive price and mark it up tremendously for a great profit.  The items were then priced in points so the participant never saw the real "cost" of the merchandise – and in most cases neither did the client – they were invoiced for points at 1/2 per point, not the "toaster" at $200.  This process is still pretty standard in most programs.

I've always felt that there was something duplicitous about that arrangement.  I used to think that a program would be better designed if there was more transparency about the value of the effort and the value of the awards.  Let the folks know what you think their effort is worth and don't desguise the cost of the award – show them the value (hopefully a great value!)  But I've changed my mind over the years.

Two things have changed my mind and I wholeheartedly recommend using points, credits or chits – whatever – as a performance currency within a program.  Those two things are:

• Social vs. Economic Norms
• Representations of Numeric Value vs. Numeric Magnitude

I've posted before on this issue to I'll just link you over to it here.

Suffice to say that putting a dollar value on a task will actually decrease the effort when compared to a reward that isn't put into monetary terms.  You get less bang for your buck when you include bucks.

This one is particularly interesting to me.  What it means is that humans, when making judgements about the importance or value of something look at the "magnitude" of the number.  In other words, we see 300 cents as more valuable than 3 dollars.  They have exactly the same value but we react differently to them.  A study done at The Ohio State University used the "Prisoner's Dilemma" as their test bed offering various awards for the different scenarios.  I refer you to this study on Scribd called "Cognitive Constraints on How Economic Rewards Affect Cooperation."  Whew – say that three times real fast.  I'll warn you – the document is heavily reliant on statistics (see image to right from the document.)

They varied the awards within the dilemma using $3, 300 cents, $5 and 500 cents as well presenting the value as $3 and 3 cents, $5 and 5 cents.  The net of their research is that people cooperated more (the desired outcome of the prisoners's dilemma) when the "magnitude" of the number was larger.  People were influence by the size of the number.

What it means is I was wrong (I know, mark it down in your calendars) – but admitting you have a a problem is step one in fixing it right?

People perform better when we don't "dollarize" their effort and people are influenced by big numbers.  

Points do that.  I can put large point values for effort and I can keep the awards from being looked at as money – double whammy!

While the industry may have started using points to disguise margin and profit – turns out they were on track with the psyschology of it.  I'm sure I'll hear from someone who'll say – "We knew it all along."

To that I'd answer – "yeah, right."