Does cash work better or worse than a gift as an incentive?

Which of these freebies motivates you more??

A coffee or three ￡1 coins?

And does cash work better or worse than a gift as an incentive?

Let’s take the free coffee versus ￡3 first. I think I know what you’re thinking. That latte looks warm and inviting and it’s always nice when someone takes the time to make you a drink and offers it to you expecting nothing in return.?

It has sentiment as well as value. But then again, if you choose the ￡3, you could spend it on whatever you like, such as a magazine or sandwich. So the money has got to be the sensible choice, surely??

Decisions, decisions.

Luckily we don’t have to guess which one most people would choose, or even rely on our own intuition. As always, the solution is to employ the services of someone like Dan Ariely, a professor of behavioural economics at Duke University in North Carolina. He’s not only an expert in his field but doesn’t mind getting paid in pizza rather than dollars which adds to his appeal, if you don’t mind the tomato sauce down his shirt.

Dan and his cohorts looked at what actually motivates people, and his findings proved something of an eye opener. For starters, it didn’t involve any dough-based delicacies. Not even for mains. Putting this revelation to one side, Dan continued his study and asked hundreds of pizza-shunning members of the public to sign up for a website or fill out a questionnaire, offering a variety of inducements along the way.

He discovered that when people were offered something tangible, like a free pen or a paperweight, they considered its value to be much greater than it actually was.?

And people wanted it more.?

Think back to when you were a kid and those plastic toys that sometimes came free with a comic. All those years on I still can’t get my Dennis the Menace gyroscope to fly properly.

A concrete ‘thing’ can often be seen as more valuable and people then want it more. In another study (email me if you want the details) average spend on dry cleaning was found to be 27% higher when people were offered a gift versus a discount of equivalent value.

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So, cash or gift as an employee incentive??

Well, there’s no doubt people go to work to earn money and when bonuses are a substantial percentage of someone’s annual earnings cash can work very well. But cash often doesn’t work as well as gifts as an EXTRA incentive ~ at a lower level for employees ~ for three reasons:

1. Cash is considered ‘just’ income. ?￡50 will go in all directions, and none of it seems worth much. But a piece of merchandise, bought in bulk at ￡50 a piece, will have a much higher value in perception. To win a free half day’s holiday is a great motivator for some people.

2. Cash has no ‘trophy value’ or lasting effect. ?When was the last time somebody showed you their pay cheque? If somebody wins an award they’ll tell everyone they know and say how proud they are.?

Cash programmes usually lack goals.

“Do your best” is not a goal. Without a specific target there’s a risk people will just try a little harder but then tire of doing exactly that.?

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So, back to the latte and the ￡3. By now the answer should be clear. Dan Ariely has found that it is, of course, the latte. Unless, of course, you don’t like coffee. Then you can use the three quid to buy a tea.?