SPIFFs (Rewards) Don’t Build Loyalty
I first heard the term SPIFF at my first job out of university. It was an entry level sales position at an advertising firm based out of Texas. Anytime we were close to hitting a target or lagging behind, our manager would introduce a SPIFF. SPIFF most commonly stands for Sales Promotion Incentive Fund (not sure why the extra ‘F’ is there). Essentially, the idea is that by building incentives that reward certain actions, companies can drive sales and hit targets. It seems like a no-brainer — offer your sales reps a reward (cash, gifts, trips) on top of their existing salary and commission to motivate them to sell more.
SPIFFs are also common in the customer and employee loyalty space. Different audience, same aim — drive behavior in a desired direction. Most of us have been influenced by SPIFFs or exposed to them in one form or another. Whether it’s your Sears credit card, your Costo membership card, or your Starbucks re-loadable card, various companies have offered you perks or benefits to attract your business. But what exactly is the aim of all this? What is the core reason, the real goal that these various businesses are trying to achieve by building out all these programs? Loyalty. Businesses want customers to be loyal to their product or brand. Sales managers want reps to regularly hit target.
But there’s a caveat. SPIFFs alone don’t build loyalty. It’s an obvious truth that can be seen all around us, but we somehow conveniently chosen to ignore it.
Take sports for example. One of the most dominant teams in the NBA are the San Antonio Spurs. Behind the leadership of Gregg Popovich and the dominant play of Duncan, Parker and Ginobli, the Spurs have been a championship contender for the better part of two decade. In fact, they have not missed the playoffs since the 1996 -1997 season and of the 6 times they’ve made it to the finals, they’ve only lost once. All three of the players mentioned have spent their careers with the Spurs and are all considered Hall of Famers. You’d be hard pressed to find another team with the type of pedigree and consistency that the Spurs have had. Equally as rare is the loyalty that the players have to the team. Considering all that, you’d assume that the Spurs have one of the highest payrolls in the NBA. The year the Spurs won their first championship (1998–99), they ranked 16th with a $42-million payroll with the Portland Trailblazers in the top spot with $73-million. 4 years later, they clinched their second championship and ranked 17th with the Trailblazers still in the top spot with a $105-million payroll. They won again in 2002–2004 and ranked 24th. Their most recent championship was for the 2013–2014 season where they ranked 18th.
Just this week, Popovich literally forced one of his players take a $21-million deal with another team rather than stay in San Antonio for $3-million. How can a player be so loyal, that he is willing to give up $18-million to stay with a team? Now that is loyalty! What’s the secret? Well there have been numerous articles written about Popovich’s coaching philosophy but the fundamental point is that the perks and rewards isn’t what keeps players loyal to the Spurs.
While teams are spending millions to attract the best players, Popovich has been able to convince players to take less money to join the Spurs. That’s because money isn’t what’s motivating them. They are drawn to the system in San Antonio and Popovich’s method of coaching. Essentially, they are drawn to the product. Sure you could spend millions attracting the best of the best. But when your focus is on the rewards rather than the product, it’s a race to the bottom — and when the well runs dry, the talent disappears in search for the highest bidder.
The same is true when it comes to customer or employee loyalty. If your loyalty and incentive programs focus solely on the reward aspect, they are doomed to fail. In fact, 77% of rewards programs that focus on rewards alone will fail within two years. As my colleague likes to say, rewards are table stakes — everyone is doing rewards.
- The means is as important as the end: Whether it’s your employees or customers, the road to loyalty is paved with trust, exceeding expectations and creating true value.
- Know your audience: Your loyalty programs should be built around getting to know your audience deeper. The more you know about your audience, the more impact you can have. If you have a one-size fits all model, you are already going in the wrong direction.
- Have a clear goal: Having a clear aim from the beginning and implementing ways to track progress is an important aspect to an effective loyalty program.
A well executed loyalty program can produce consumer sentiment results that register well beyond the balance sheet. Besides the impact rewards programs can have on a company’s bottom line, they also play a pivotal role in shaping the consumer’s perspective of the brand.
In fact, loyalty programs, according to this survey of more than 11,000 consumers, actually have more influence on brand satisfaction than price or perception of value.
Don’t build a relationship with your employees and customers that’s solely transactional and focused on monetary value extraction. Rather, make it one that is rooted in genuine value creation and transparency.
Simply put — don’t buy loyalty, earn it.