Sometimes Money isn’t Enough

Over the course of the past several months, I keep running into internet companies which are arbitraging what their customers will pay for a constituent to take a given action, and what they need to pay the constituents to take this action (more on that in a second).  I want to dive a bit into what I consider a flawed business model, and how these companies could be improved.

There are a few examples of this type of business.  Wellness companies are paid by self insured employers to promote incentive plans where employees are given reward cards and other token items in exchange for going to the gym, eating better, and generally taking care of their health.  If the employees do this, it cuts down on their overall medical bills, and the days when they are out sick, thus saving the company the cost of paying for care and lost productivity.  The company pays the wellness company which takes a cut and then pays the rest to the employee in the form of gift cards.

Another example are the product check-in companies which essentially pay consumers to interact with brands at a physical store.  A consumer walks into BestBuy, takes a picture of a product with their phone, and then gets a gift card as a reward.  The check-in company would take the $10 they got from BestBuy (their customer), and pass $5 along to the consumer.  The hope was that engagement with the product would result in increased sales.

These strategies are simple enough, and seem to make sense.  Pay someone for doing something you want.  And, pay them less than the value you accrue from their action.  However, I’ve yet to hear of a company strictly sticking to this model which has taken off, and I think it’s because they aren’t changing the actual behavior of a person.  For example, I might walk into BestBuy and snap a photo of the latest RIM phone if I can get a $5 gift card for doing so.  But, I’m not going to do that every day, week, or even every month.  I have better things to do, it’s not all that fun, and $5 is not a compelling reward.  Similarly, I might go to the gym 10 times per month for 2-3 months if it’ll get me reward points which I can turn in and buy real products.  But, I’m eventually going to revert to my old habits once the novelty of the prize wears off.

In order to change behavior, you need to appeal to something more powerful than trinkets, like social pressure.  For example, if there was a chart shared by my friends that showed how often I went to the gym, I’d probably go more often.  I’d show I was taking care of myself, and I’m sure if I slacked off at all they’d let me hear about it.  Layering in positive feedback mechanisms would make this even more powerful.  To me, this is a much more effective model.  And, I’d be curious to hear about any businesses that have used a hybrid rewards/social model, or perhaps a purely social model to great success.  Feel free to drop me a line.