Behavioural Economics in B2B Incentive and Rewards

Behavioural economics (BE) draws on psychology, economics, and neuroscience to identify and understand the reasons and motivations behind people’s actions and behaviour.

It’s believed that when a brand offers incentives and rewards in their distribution channel, they can influence behaviours in the people buying and reselling their products to gain better financial outcomes.

Interestingly, it also explores why people sometimes make irrational decisions, and why and how their behaviour does not follow the predictions of economic models, or in this context, the expectations of an incentive program.

As a result, behavioural economics seeks to explain why a business may buy and recommend vendor’s A or vendor’s B products. It also helps companies devise incentive programs and sales reward promotions with insights into how people may engage with them.

Here is one example on how a business could use BE to define the reward offer in an incentive and rewards program. It explores the concepts of Temporal (Time) Bias, which reflects a quirk of long-term memory and the impact it has on how incentive and rewards are remembered.

Applying the Temporal (Time) Bias in Incentives and Rewards and Recognition Programs

Which of the hypothetical vacations listed below do you think a customer would recall as being most rewarding one year after the event?

• A ten-day vacation that scores a daily “fun rating” of 8 out of 10 points each day.
• A three-day vacation that scores a daily “fun rating” of 5 out of 10 points on the first two days but a 9 out of 10 on the final day.

If you’re like most people, you would simply add up the points for each day and compare the totals. The first vacation would rate 80 total reward points (10 days times 8 fun points per day), while the second would rate 19 reward points (2 days times 5 fun points, plus 9 points for the final day). Logically, we would choose the first option because it offers the greatest overall reward. Right?

Wrong. Memory is biased regarding rewards. The duration of the vacation does not matter; it’s the peak reward that is memorable. So, it makes sense to offer shorter, intense vacations as opposed to longer, more predictable ones.

Here is another pair of vacations to compare:

• A three-day vacation that scores 9 on the first day, but 5s on the next two days.
• A three-day vacation that scores 5s on the first two days, but a 9 on the last day.

Logically, these two vacations are identical, except for the fact that peak fun occurs on the first day in example 1 and on the last day in example 2. If you agree that these two vacations are equivalent, you are wrong again.

Option 2 is the winner because the last day of the vacation is the most memorable one and will colour our recollection of the event. This finding suggests that the last day of a trip should be the grand finale and the focus of the planning process. If your incentive and rewards trip includes wreck diving, for example, schedule it for the final day.

Incentive and Rewards

Whether it is merchandise, Visa gift cards, or experiences, think of how you could apply the Temporal (Time) Bias (TTB) example into your reward choice and entice people to engage with your incentive program. You can learn more about using BE in reward programs with the Incentive Research Foundation’s paper, “Using Behavioural Economics Insights in Incentives, Rewards, and Recognition: The Neuroscience”. This paper is just one of many studies the IRF conducts in the incentive space, and if you’d like to dive deeper into this fascinating topic, these studies are a great place to start.