The Goldilocks Incentive Program?

Incentives – especially sales program incentives – typically have a defined time frame, a defined award per “x” (“x” being a unit, dollar or something else over a goal) and a defined audience.  In other words… programs are “defined.”  

The traditional thinking is that you need to tell people what they need to do and then give them a reason to do it (assuming they are competent at doing it.)  Makes sense.  You can’t expect someone to hit a goal if they don’t know what it is.  And you can’t expect anyone to put out extra effort if there isn’t a little ‘sumptin, sumptin’ in it for the audience.  

The Expectancy Theory of Motivation is totally based on the fact that people will be motivated when they believe that putting in more effort will yield better job performance and better job performance will lead to organizational rewards, such as an increase in salary or benefits and these predicted organizational rewards are valued by the employee in question.

In other words – motivation (in this theory at least) is about knowing, and believing in, future outcomes.

That’s traditional.  And it usually works.

Parking In San Francisco

Last week I saw this article about how the city of San Francisco is experimenting with “Goldilocks” pricing to determine the appropriate price for a parking spot in the city.

The goal of experiment is to find the price point that allows the city keep the metered spaces and city parking lots almost full.  The price needs to be cheap to entice users, but not so cheap that spaces are entirely full, leaving drivers frustrated and adding to congestion as cars circle endlessly looking for a place to park.  Sophisticated electronics will monitor, in real-time, the parking spot utilization.  There will be electronic signs and web updates to help potential “parkers” determine if there are spaces and at what price.  Pricing will range from 25 cents an hour to $6 an hour.

Conceptually, when there are lots of empty spaces, it will be cheap to park. When spaces are hard to find, rates will be higher.  In other words – they are influencing the behavior of “parkers” through a variable, real-time, market-driven, pricing structure.

Just Right Incentives

My first thought was this could be a way to influence sales behavior and/or employee behaviors.  A company could, with sophisticated enough tracking, be able to  know what customers are buying, what the competition is selling and everything in between. Based on that information, they could create a variable incentive payout that adjusts at pre-determined times to drive behavior in one way or another.

Product “A” is selling like hotcakes but delivery times are extending because of production backlogs?  Bump up the incentive for product “B” and shift selling behavior.  Competition puts a push on our existing customers – ramp up incentives for connecting with customers and making sure your current customers don’t take the bait and switch.  

There is a part of me that likes the elegance of this idea.

A constantly adjusting program to drive behavior based on real-time, real-life data.  Sounds perfect.

Then reality sets in and I start to ask questions…

• Can people adjust behaviors that quickly?
   
• Is sales inherently a “longer term” proposition and less dependent on today’s conversations and more a function of all the conversations had with customers over time and therefore can’t be impacted in very short time-frames?  
   
• Do companies have the information necessary to accurately respond to changes in the market place?
   
• Does shifting behavior constantly create schizophrenia in the organization muddying the waters and making it hard for people to understand the real value they bring to customers?
   
• Do things change so quickly today that having real-time, self-adjusting program is a real benefit?  Or do markets and customers have a longer “change window” so that reacting in the traditional way (ie: new program in 2nd quarter focused on “product B”) is still effective?

I don’t know.

I do know this… I would love to do this as an experiment at least once.  I’m a big fan of markets, predictive logic, wisdom of crowds, etc – all the things that help make different (and many times) better decisions.  

I just don’t know if this is just a fun idea – or a really good one.

What say you?  Too variable?  

Comments

[Steve Boese]

Paul - the examples of this kind of pricing and influencing strategy that I know of are from airlines and hotels. Prices for seats on the plane are continuously adjusted for all kinds of factors like load rates, time of day, time to departure etc. The airline systems are more about maximizing revenue than just filling every seat (not always the same thing). To me they are a good idea when you are dealing with a fixed supply, there are only so many parking spaces to go around, hotel rooms etc. In the sales example, it may be hard to convince the sales person that only 'X' number of Widget A are available, and they better push Widget 'B', unless you can make sure that they feel like they are not getting shortchanged by selling more 'B'. Really interesting post.

[Paul Hebert]

It didn't dawn on me until after I posted that the airlines have been doing it for years with their pricing strategy. And as you noted - not so much about filling seats as maximizing revenue.

I think however, that every business has a "finite" set of resources that are attached to products and services, from factory capability to support personnel - so I think there is a possibility it could work.

My bet is that sales isn't so transactional that I can influence the end user buyer that quickly to really have effect. I could spend weeks working one angle for a product only to have the incentive switch at the last minute - I don't think so.

I just thought it was an interesting angle to consider.

Thanks for commenting and reminding me about the airlines - 'cuz we ALL love that model right?

[Scott Crandall]

Paul --- I agree with the fun aspect of "finding out". I think, however, that sales (in many industries at least) is more relationship-driven and long term for this to be anything more than -- at best -- a niche concept, but fun, nonetheless. I think we'll never have enough info to act with high assurance, and a great deal of "gut level guessing" will be part of it. However, when you do this, let me know and I'll watch.

[Paul Hebert]

That was my first impression - but for some businesses - those that are more "transactional" in nature I think some variation on an incentive that can react in more "real-time" would be interesting. As a sales person you could get an email each week with a list of "priority" products/services and an incentive value. That list would guide your sales efforts for the week.

To take a different tack - what about applying the Airline purchasing model to the B2B world - that is something I haven't seen much of either.