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Why do cash incentives work? Here’s what science has to say about it.
Everyone loves a little extra cash in their pocket — or their mobile app. Here’s why cash incentives work so well.
Danny Bradbury
4-minute read
If there’s such a thing as a universal truth, it’s this: everybody loves a deal. When it comes to customer incentive programs, that makes cash a powerful motivator. Simplii wanted me to take a look at just why our brains respond this way.
Historically, companies used pricing psychology as a form of cash incentive. It’s why that product at your local store costs $9.99 instead of $10 — the perception of a lower price makes you feel good.
Over time, that evolved into more sophisticated concepts like cash-back deals. Now, thanks to mobile and online technology, companies can get more creative with their cash incentives. Apps can function like digital pockets, collecting cash rewards from multiple vendors based on repeat visits and purchases. It all makes your local roaster’s free coffee punch card seem a little obsolete.
The benefits of cash rewards
In some cases, cash-back programs are potentially more powerful than points programs because they include practical benefits. Here are just a few:
- Ease of use: A cash deposit straight into a mobile app or bank account is instantly usable, whereas points systems require users to take one or more extra steps to get to their reward. Immediacy is effective: 70% of people from the Center for Generational Kinetics report indicated that they’d spend more if they knew they would instantly get 5% cash back.
- More relevance: Rewards programs often give you incentives that might not meet your specific needs. Perhaps you don’t want to choose between a toaster oven or flight credits. Cash rewards give you the freedom to spend your incentives as you wish, rather than following someone else’s rules.
- Greater transparency: Another great benefit of cash rewards is that there are no strings attached. Rewards points systems often come with hidden conditions. Those travel points that you wanted to use for a post-pandemic trip to Hawaii might well come with blackout dates. Also, because points are often separate from cash, it’s hard to determine their redemption value — and it might even change over time.
- No expiration date: Some rewards points expire, while some are forever. Understanding which is which places an extra burden on the customer, who might see their hard-earned rewards points trickle away if they don’t read the small print.
Cash is king
The benefits of cash rewards are clear enough that some companies have built entire businesses based on this system. For example, Rakuten offers cash-back rewards on purchases from a range of brands, while Ritual offers a similar reward system, issuing points that translate directly into money when it’s time to cash out. Amazon’s instant coupons take a more traditional approach, akin to coupon-clipping, which lets sellers offer instant cash savings that apply directly to their product purchases.
Non-financial rewards certainly have their place, offering aspirational incentives that people tend to see as separate from their personal income. But cash offers an immediate, quantifiable benefit with clearly recognizable value. That’s a psychological advantage that you can take to the bank.
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Written by
Danny Bradbury
Danny Bradbury is a technology journalist with 30 years’ experience writing about security, software development and networking. He has written for newspapers including the Guardian, the Financial Times and the Globe and Mail.
