For B2B incentive program designers working with changing behaviour, targets are a typical “weapon” in their arsenal. Targets are frequently used to achieve customer ROI or managed to a fixed budget and often pop up in incentive travel programs.
The big challenge working with targets typically comes from setting a fair target that either drives behaviour, or meets your business objectives.
There’s plenty of evidence in organisational psychology and neuroscience that document the importance of fairness in human beings. An IRF study (Dec 2017) states that “fair earning criterion” is a leading participant “satisfaction driver” in incentive programs.
When reviewing target models, there are generally several standard models we start with:
• GTD (Growth Target Dollars)
• OVT (Opportunity Value Targets)
• SDT (Self Determined Targets)
• SPT (Status Points Targets)
Of course, there are variants, especially when we add a leader-board component. But let’s take a closer look at each of these models.
Growth Target Dollars ($)
As simple as it sounds, this is often a percentage growth over a previous period, and in most cases, the last year. The advantage of this method is that it is relatively easy to establish a high-level ROI model. As an example, we have a customer who purchased $ 300,000 the previous year. If we assume that our gross margin is 33%, we know $ 15,000 growth = $5,000 margin. Assuming a $5,000 program cost and we also have a target ROI of 1:2 or 200% (or for every $1 spend we make $2), so our growth percentage target would = 10% or $30,000 growth to make a total target for this customer of $330,000 before they qualify for the reward.1 (See ROI footnote).
Opportunity Value (OV) Targets
OVT can be the most complex method and requires insight into what a customer’s spending power is. We typically find three main ways when establishing these targets. These models become more frequently used as the accuracy in analysing customer data improves.
1. Size standardisation and minimum target
2. Historical trends and estimates
3. Gap analysis (Business Intelligence)
(OV) Size Standardisation and minimum target
It is a standard methodology to estimate the potential purchasing power of a customer.
In this method, we classify customers into clusters or groups, such as small, medium or large. I.e. for trade distributor programs such as plumbing.
Here’s an example: a single plumber installs or buys $5,000 worth of materials each month. Therefore, a business employing three plumbers should spend around $15,000 per month or $180,000 every year. Once you know what they’re spending today and the OV, you can set an individual target that realistically aligns with ROI expectations. Many organisations use CRM systems to manage these types of method.
(OV) Historical Trend/Estimates
CRM and ERP systems are a great source of historical purchase data. They give you an insight into historical trends and a baseline to work with before percentage growth is applied. The downside is that this usually requires getting input from a salesperson, and these salespeople may influence the target to ensure their favourite customers have easy targets. So often, it fails the “fairness test”.
(OV) Gap Analysis (Business Intelligence)
A gap analysis looks at customer groupings to discover what the customer is NOT buying. It creates an opportunity value delta. Even today, many organisations underutilise BI (Business Intelligence) tools to mine data that delivers insights like this. Don’t be surprised to see AI (Artificial Intelligence) also moving into the picture to uncover actionable intelligence in this area.
Self-Determined Targets
Self-determined targets can be one of the most powerful target options you have.
This concept is also relatively simple: allow the customer to choose the rewards they want, then set that as their target. We often use this in merchandise programs to help the customer specified a redemption target they want, which nudges them towards something meaningful. Thus creating highly engaged participants and gives you a targeted communication strategy to motivate them.
Imagine your customer loves to play golf. For them, it’s a no-brainer to set their target as a $2,000 golf set on offer. Your communication keeps them posted on their progress, and sales related activities focus on ideas or suggestions on achieving the reward. When the customer closes on their target, you nudge them towards the next level, whether that’s a golfing experience, club membership, or an even better set of clubs.
Status Points Targets
Status points targets are very simple but very powerful for two reasons:
1. They give you the flexibility to award points for different behaviours
2. They don’t come with the burden of actual monetary point values
Points can be awarded for acts such as training or product-based actions such as selling more profitable lines. And since you can award status points for actions that don’t have a financial return, you can tailor them around fixed or tiered rewards from an assigned budget. For example, status points (SP) arranged into tiers like this:
• 1000 SP = Trip to Gold Coast
• 750 SP = Home Theatre System
• 500 SP = $500 Gift Card
Regardless of the reward or tier, it all comes from a fixed budget that you control.
When we look at the pros and cons of each model, one big challenge is balancing the wants of the rewards provider with the recipients. While models like growth targets are simple, they can miss the mark on maximising growth opportunity across your customer base. Growth percentage targets sometimes lead to buying cycles that cause you to lose individual customer volume every second year.
Like the three we mentioned, opportunity value models help us get closer to maximising your sales potential. But you can’t use them without having meaningful data and insights, and even when you do, gaining clarity from the muddle of data can be tricky. Plus, these often require guidance from sales teams, where dramatic variances of interpretation can emerge.
While self-determined targets require a lot of work helping and encouraging customers towards realistic goals, these are hugely engaging and most likely to pass the customer’s fairness test. Status points targets can reward everyone through virtual tiers, though establishing pre-program ROI confidence can be a challenge.
Whatever the model, targets are a powerful tool in driving programs, but there’ll always be concerns around fairness. We can’t lose sight that targets are just one of the variables when building a program. Our strategy has to use the entire “tool kit” to generate engagement in a program. The more you understand the audience you’re trying to reach and how they behave, the more smoothly your program design is likely to be.
Unfortunately, we see programs stumble all too often due to poor assumptions of the customer, and that’s something targets can never fix, no matter how you use them.
