Money Versus Merchandise: Which is the Best Motivator?

Call centers today routinely use monetary rewards as well as various types of merchandise.  Each has advantages and disadvantages. This article provides some thoughts on how to select the one that’s right for your organization.

The motivational benefits of merchandise awards are psychologically complex and highly symbolic.  Money, on the other hand, has direct and understandable appeal as a motivator and reward. Merchandise is the more effective, but the contrast between the two leads to a curious paradox in planning and implementing incentive programs.

Simply, put, the paradox results because what people most often say they want is not usually the most energizing award.  Studies were done where there were marked discrepancies between how employees rated the desirability of incentive awards and the type of rewards they recalled having “especially enjoyed.” They clearly preferred cash over merchandise or travel. However, when asked to recall what awards they particularly enjoyed, had been the most meaningful to them, or had provided the greatest motivation, they rarely mentioned cash.  They happily recalled the items they won and the trips they took, citing them as enjoyable, meaningful, and motivating.

Of course, both merchandise and money are useful, depending on the needs and objectives of the organization running the program. Moreover, awards, whether money or merchandise, do not motivate people. Instead, they activate or arouse pre-existing motives or motivational dispositions.  The extent of activation depends upon a number of factors of which the appeal of the particular award is only one. Among the other significant factors are a person’s past experiences in other incentive programs, his or her financial needs and wants at a particular time, current levels of satisfaction with the job and the work organization, and how the awards are promoted.

In looking at the relative benefits of money and merchandise as incentives, it seems fair to assign certain advantages to money and others to merchandise.

Cash offers the following advantages:

  1. Universal appeal.  Cash appeals to everyone. They know what it is and what to do with it. And most people need more of it. People expect that they will be paid more for additional effort or for learning new tasks.  A cash incentive program simply confirms this expectation.
  2. Easy to administer.  Programs based on cash are often easier to administer than programs based on merchandise.  There are no shopping charges or problems and there are no sales taxes to pay. Items never arrive defective or broken and orders are never filled inaccurately.  Money is never out of fashion nor, one hopes, out of stock.
  3. Complete freedom.  Cash offers the program participants complete freedom about how the award will be used.  Therefore, people may satisfy many of their own needs and reasons by participating in a cash program.  However, freedom of usage is not necessarily a motivational benefit because the cash is not always used in an especially satisfying way.

Merchandise awards are more difficult to administer, and their appeal is not as immediately obvious as cash.  Yet, for some complex psychological reasons, they are a compelling motivational element in an incentive program.

  1. Emotional connection. Merchandise or travel awards are more apt to tap emotional needs. While money has universal value, its appeal is rather “cold” and non-emotional. As economists point out, money has no intrinsic value other than the symbolic meanings that are socially attached to it. On the other hand, merchandise catalogs afford people the opportunity for instant emotional identification based on existing wants, needs, and interests. A picture of the latest technology or camping equipment can instantly evoke a rush of pleasurable memories or arouse happy feelings of anticipation. This is not the case with an illustration of a $100 bill.
  2. Program promotion.  Since merchandise has broader and stronger emotional appeal, greater opportunities exist for program promotion. Money is much more difficult to promote in a comparable way.  A risk inherent in using money is that it so closely parallels compensation, which may become psychologically lumped together even if it is intended only as part of a special program.  It is often difficult to remove money awards without creating negative reactions once the campaign is over.
  3. Memory value.  Merchandise rewards are more memorable. Long after the program is over, they remain a symbol of a person’s successful participation in it.  Cash awards often become part of the household budget and go toward paying bills. Used this way, money is not memorable.
  4. Recognition opportunities. Merchandise offers many more opportunities for recognition.  There’s a small but important difference between what you bought for yourself and what you have been awarded.  It is psychologically more appropriate and socially more acceptable to talk about the new patio furniture you have been awarded for special achievement than it is to discuss the furniture that you purchased – even if you did so with award money.
  5. Family involvement. When someone with a family participates, there is the opportunity for family members to select awards, too. The additional motivation to do something for one’s spouse or children is a powerful energizing force for most people.  
  6. Higher motivation level. Merchandise awards move people beyond their comfort level, the point at which they will not expend additional effort for incremental earnings.  As evidence, companies using a commission system of compensation find that merchandise and travel awards produce additional sales. This clearly suggests that the qualitative impact of merchandise awards is different than money, partly because of the nature of the awards and partly because of the nature of the organization using the awards.  A program that is constant, like a company’s compensation system, loses arousal power. A merchandise incentive program that is temporary and novel has greater arousal power because of its newness and uniqueness.

Perhaps, then, the question, “Which is more effective – cash or merchandise?” can’t really be answered.  It truly depends on the needs of the organization and the personalities and desires of the staff. Both can be effective rewards and motivators, with a combination of the two increasingly used to reward performance.