Going for the Goal: The Human Psychology of Rewards
n a classic experiment in the 1930s, behaviorist Clark Hull observed that rats on a straight runway ran faster as they moved closer to the food box. Knowing the reward was almost at hand presumably motivated the rats to work harder, a phenomenon that Hull called the "goal-gradient" hypothesis.
While this behavior has been extensively studied in animals, its implications for humans are unclear. "Unlike most animals, people can think ahead," says University of Chicago Booth School of Business professor Oleg Urminsky.
Image: Carlos Barria / Reuters
"We pace ourselves, so we don't have that degree of impulsive behavior."
It's true that people don't quite break into a run as they approach a restaurant or a bar. But when pursuing certain goals, humans may exert more effort as they get closer to the finish line. Toward the end of a long commute, people may drive a little faster as they approach their homes. Or they may become more motivated as they near the completion of a project at work because they know that praise, a fat bonus, or other incentives await them in the end.
However, finding clear evidence that the distance to a goal can affect motivation in humans can be difficult. "A lot of times it's unclear how much progress we've made with each step," says Urminsky.
To be able to describe more precisely the relationship between efforts and rewards, Urminsky and coauthors Ran Kivetz of Columbia University and Yuhuang Zheng of Fordham University turned to customer rewards programs in their study "The Goal-Gradient Hypothesis Resurrected: Purchase Acceleration, Illusionary Goal Progress, and Customer Retention." Rewards programs, like coffee cards and frequent flyer benefits, typically give customers points for every product they purchase and the points are accumulated to redeem a prize. In this study, the authors analyzed whether customers in a rewards program tend to buy products more frequently or make larger purchases as they get closer to a reward.
Customer rewards programs are a popular way for companies to give perks to loyal customers or to lock them in. But if the distance to the goal really matters–as the study asserts– then a loyalty program can offer much more. Because participation in a program can be highly motivating, a well-designed loyalty program will not only help keep customers, but will also encourage them to spend more as they accelerate toward the reward.
Field experiments were conducted to test the goal-gradient effect and whether consumers accelerate their efforts to earn a reward as the distance to the reward decreases. The authors examined raw data collected from the experiments and used the data to estimate a model that captures the effect of goal distance on customers' efforts. Goal distance is measured by the proportion of the original program requirements remaining to meet the goal.
The first experiment looked at coffee purchases by customers who participated in a coffee rewards program at a café located within the campus of a large university. Customers were offered a card that would let them earn one free coffee after buying ten coffees. To keep track of the timing of purchases, a participant's card was stamped after each purchase.
As participants in the rewards program accumulated more stamps on their cards, the authors observed that the average length of time before the next coffee purchase decreased. Members bought that next coffee sooner the closer they were to getting a free one. In fact, the average time between purchases accelerated by about 20 percent from the first to the last stamp on the card. In other words, members purchased two more coffees in the time it took to complete the card than they would have if they hadn't accelerated their purchases.
Even after controlling for various time trends that might affect the results, such as the weekly number of issued stamps (some weeks experience brisker sales than others) and the end of spring classes (when some students graduate), the authors found that customers bought coffees more frequently as they progressed toward their reward. On the other hand, those who were issued "transparent" cards that tracked the purchases but were not eligible for a free coffee did not speed up their consumption as they approached their tenth coffee. The same is true for customers who did not complete their cards, presumably lacking motivation to do so.
Another interesting finding is that customers who completed two consecutive cards slowed their coffee purchases right after they received their first free coffee–when they found themselves once again far away from earning the next reward. They then accelerated as they got closer to getting another free coffee on the second card. Customers seem to "reset" the speed with which they buy the next coffee after they've claimed a reward, which is consistent with the goal-gradient effect. This also rules out other explanations for why customers seem to come back sooner for that next cup. If interpurchase times don't slow down after the first card is completed, then consumers learning about the program or even an addiction to coffee may be a better explanation for why customers keep rapidly coming back for more.