When Retail Discounts Encourage Customers to Buy Less
Merchants should be careful with the quantity limits they set on sale items.
When Retail Discounts Encourage Customers to Buy LessJosh Stunkel
(light piano music)
Hal Weitzman: Motivating employees, coworkers, and ourselves is one of the toughest challenges facing managers and business leaders. Even when we have the strongest intentions to complete a task or achieve a goal, we often fail to follow through. So why do we so often set goals and then fail to achieve them, and how can we better motivate ourselves and each other?
Welcome to The Big Question, the monthly video series from Capital Ideas at Chicago Booth. I’m Hal Weitzman, and with me to discuss the issue is a highly motivated panel.
George Wu is a professor of behavioral science at Chicago Booth. A former analyst at Procter and Gamble, he’s an expert on the psychology of individual, managerial, and organizational decision-making, decision analysis, and cognitive biases in bargaining and negotiation.
Ayelet Fishbach is the Jeffrey Breakenridge Keller Professor of Behavioral Science and Marketing at Chicago Booth. She studies social psychology with specific emphasis on motivation and decision-making. Her research work has won her several international awards, while her teaching earned her the Provost’s Teaching Award from the University of Chicago in 2006.
And Daniel Bartels is an assistant professor of marketing at Chicago Booth. His research focuses on the mental processes underlying consumer financial decision-making, moral psychology, and intertemporal choice, and he teaches on consumer behavior.
Panel, welcome to The Big Question.
George Wu, let me start with you, because you’re currently undertaking research on what motivates marathon runners. Tell us about what you’re finding.
George Wu: One thing is that I want to step back and say a little bit about why we’re studying these kinds of settings, and I think . . . and we’ll turn to these questions later on, but a lot of the standard ways of trying to get people to be more motivated to achieve more or to use extrinsic incentives and bonuses and things like that, and I think what you . . .
Hal Weitzman: Explain, first, what do you mean by extrinsic?
George Wu: Well, sort of the obvious, if a salesperson sells 1,000 units, they’ll get a $20,000 bonus, right?
And I think a lot of, there’s sort of an obvious way in which that is gonna motivate people, and lots of people have studied those kinds of things, and so on.
Hal Weitzman: And an intrinsic incentive would be?
George Wu: Well, an intrinsic incentive would be something that is not tied to an extrinsic reward, like promotion or something of the sort of a monetary compensation. It’s really purely psychological in nature.
Hal Weitzman: Achieving a personal goal.
George Wu: Achieving a personal goal is a good example. So one of the reasons why I study marathons is because it’s obviously an ideal setting for trying to understand achievement, understanding goals. About 86 percent of marathoners in our samples have time goals, and you know, that’s largely one of the things that we try to understand: the relationship between performance and time goals. And one of the things that we actually find is a kind of surprising and pretty large effect, which is that, even though most runners have goals, just the mere process of asking a runner to provide a goal before the marathon actually leads them to run about seven-and-a-half minutes faster, relative to a control group, which have goals but actually aren’t asked to state them.
The mechanism actually is relatively simple, which is that, like a lot of things, goals, like lots of things, are things that, over time, we get a little bit more pessimistic about, and if you have, say, a goal or expectations about an exam or something of that sort, you’re likely to be extremely optimistic maybe two weeks before the exam, but become increasingly pessimistic as the date of the exam approaches, and that’s what appears to happen with goals as well.
So if we can tap into your goals in a relatively optimistic period, like two weeks before, you’ll give a much more optimistic goal or a much more aggressive goal. If we ask you the day or maybe the moment that you’re on the starting line, you’re likely to provide a much more moderate goal, and that leads people to actually perform much differently in those two contexts.
Hal Weitzman: So is the idea that if I set the goal when I’m feeling optimistic, I’m more likely, if I state it to a third party, I’m more likely to stick to it? Is that it?
George Wu: Yeah, that’s basically the idea. I mean, certainly it’s possible, and it’s probably true in some of our sample that people set overly optimistic goals, overly aggressive goals, and obviously, in a marathon setting, if you set an overly aggressive goal, you’re likely to do very badly. But on the whole, setting an aggressive goal tends to lead to better performance.
Hal Weitzman: Well, that’s interesting. You say setting an overly aggressive goal would lead you to do badly. If you’re running and you see you can’t achieve your goal, are you likely to slow down? Is that how it works?
George Wu: Well, I mean, one thing that I think is pretty clear is that, if you’re somebody like us, and you say well, what I’m gonna do is today I’m gonna try to set the world record for the marathon, it’s likely that that’s not going to lead to very good performance, because maybe you’ll be able to stay on that pace for a quarter mile or half a mile, or maybe 100 yards, but then you’ll be extremely tired and then you’re obviously not—
Hal Weitzman: For those who set moderately optimistic goals or achievably optimistic goals, they’re more likely to run faster if they’ve stated to you that two weeks before, this is the time I want to run.
George Wu: That’s right. As long as they provide optimistic but relatively achievable goals.
Hal Weitzman: OK. Now, Ayelet Fishbach, I want to come to you. Your research deals with a slightly different perspective, because it’s about maybe perhaps the danger of focusing on end goals, rather than on the process itself. Tell us a bit more about that?
Ayelet Fishbach: What we find when we study that both at the workplace and with other exercising goals, similar to George’s studies, and other goals as well, is that when people plan to pursue these goals, external incentives are important for them. While they are pursuing the goals, internal incentives is what they care about. So people do things and they stick to them because they are interesting, they are challenging, they are fun, because there is something about doing it that can get me to do that, and they are not so aware of that when planning.
Just to give you an example, still not at the workplace, staying with exercising, what makes people stick for a longer time on the treadmill is the experience of doing something fun, of clearing their mind, of having some internal benefits. If you get them to think about what they can get from running, what are the external incentives, they stay for less time on the treadmill. It is significantly less effective.
Hal Weitzman: So if my goal is to run a certain time, but I hate running, then am I less likely to achieve my target?
Ayelet Fishbach: Yes, well, if you hate running or if you hate your job, then you might be able to start it, but it will be extremely difficult to stick to it, to the extent that you have some things that you like about running, and you can also think of some external reasons why it’s important to run. While running, it’s not a good idea to think about external reasons. It will be much more effective to think about the fun.
Hal Weitzman: I see, even if those external reasons are really motivating, like say raising money for a special charity that’s really close to your heart?
Ayelet Fishbach: Yeah, that will be very good at getting you to the gym, but that’s it.
Hal Weitzman: But actually running, when you’re 13 miles in or whatever, that’s gonna be hard to motivate you if you don’t actually enjoy the experience.
Ayelet Fishbach: That doesn’t get you from the minute 20 to 30.
Hal Weitzman: It seems counterintuitive, because people often say, you know, it was grueling, it was terrible, but I did it. The achievement at the end was what was important.
Ayelet Fishbach: You know, people say all kinds of thing, and our job as researchers is to look at their intuitions, and check what is true and what is not. People cannot stick for a long time on something that doesn’t feel good.
Hal Weitzman: And you actually did research on people going to the gym, so just tell us quickly about that.
Ayelet Fishbach: Yes, so with the gym, we basically asked people to either . . . we asked one group of people to focus on what they can get from going to the gym, so these are the external goals, and we asked another group of people what they can get while exercising. What are the internal benefits from exercising? Now, these are people that are already at the gym, and we find that those that focus on what they get while exercising, the experience, are on average exercising for 10 minutes more on the treadmill than those that focus on what they can get in terms of external incentives.
Now, we also looked at people that were not at the gym, OK, to see what gets people to go to the gym, and if people think about what they can get from it—they can lose weight, they can be in better health—that’s effective, so thinking about the incentives is definitely a good way to start on something, but it doesn’t allow people to follow through.
Hal Weitzman: OK. George, what do you make of that? Because it seems to be slightly different from your research.
George Wu:I think there appears to be a little bit of contradiction, but I think that the ways that we think about goals are a little bit different, but complementary. I mean, first of all, there are lots of differences in motivation, and so one reason to study marathon runners is, obviously, they are extremely committed. Certainly, by the time they get to the line, they’ve probably put in lots and lots of miles.
The particular study that we do is that what we’re trying to do is just manipulate the day of the race performance. We’re largely doing this not to effect training and things like that, which are really interesting, but that’s something else. So it’s really about motivation when you’re there, when you’re there at 20 miles, when you hit the wall, and all kinds of things like that.
Now, I think one way to think about the way that I think about goals that’s a little bit different than Ayelet’s is that there are lots of reasons why you pursue activities and things like that, but if you construe the process in the following way: your goal for this week is to run 30 miles or 40 miles or 50 miles or 10 miles a day or seven miles a day, whatever, the idea is that that particular milestone, numerical milestone, will be motivating, and the simple idea is based on what’s known as prospect theory, which is a theory that two Israeli psychologists came up with, [Princeton’s] Danny Kahneman and [the late] Amos Tversky, which won Danny Kahneman a Nobel Prize in Economics, and the idea is very simple, which is that, relative to a reference point, like 50 miles a week, something like 48 miles is gonna seem bad, and it’s gonna seem very disappointing, and it’s highly aversive to finish the week at 48 miles when you wanna do 50. And so that’s the same psychology that it’s highly aversive to run 4:02 when your goal is to run four hours, and so you’ll do a lot in either training or the day of the race performance to actually narrow or even eliminate that gap.
Hal Weitzman: Ayelet?
Ayelet Fishbach: I want to add to it. I have no argument with George about setting standards. I believe that we know now, for several years, that setting standards, setting numerical standards is extremely effective and George’s research is definitely the kind of research that pushes that and that gets us to understand exactly how that works. We completely agree on that.
What we study is not the standard of performance, but how the type of incentives, whether you do something, you do your work because it’s interesting or you assign something to other people, telling them that this will be challenging or interesting, versus talking about external incentives. You will get a bonus. You will be able to earn a promotion. So it’s not really a contradiction. These are more complementary findings. They aren’t findings that pose any contradiction with each other.
Hal Weitzman: OK. Dan Bartels, let me bring you in, because your research highlights the difference between short-term goals—we’ve talked about relatively short-term goals—and much longer-term goals, say saving for retirement.
Tell us about what you’ve found.
Dan Bartels: So for the past handful of years, I’ve been really interested in the relationship between how people think about the continuity of their identity over time and how it relates to their sort of forward-looking behavior.
The major upshot of this research is that if you feel highly connected to your future self, so if you feel like a lot of the important psychological properties that make you who you are now are preserved in the person that you’ll be in the future, it can bolster your motivation to pursue goals that pay off to that person.
So you think about retirement savings. I’m thinking about my 70-year-old self. If I recognize or if I feel like my 70-year-old self is going to be substantially the same person that I am, that can bolster my motivation to do things like reduce spending and increase saving in the present.
Hal Weitzman: That sounds a bit confusing, when you say my 70-year-old self will be substantially the same. In what way . . . what are the significant ways that I might be different from my 70-year-old self?
Well, I think if you think about it, people change a little bit every day. People enter into different kinds of relationships that change their personality characteristics. People have life experiences that change their expectations, their values, their goals, their ideals, and these sorts of things. These tiny little changes that happen every day accumulate over time, such that you might think, and by the way, they’re also age-related trends in things like personality that suggest that, you know, the Hal that exists in 10 or 20 years is, in some ways, pretty different from the Hal now. And coming to that realization might undercut what Hal now does on behalf of that future Hal.
And so when we’re talking about these sort of very long-term goals, like saving for retirement or really any goal that doesn’t pay off in the short term that requires a sustained investment of resources and effort over time, this idea of connecting this to the future self can dial up or dial down the motivation to actually achieve those goals.
Hal Weitzman: So maybe give us one example from your research.
Dan Bartels: Oh, sure, yeah. It turns out that people vary a whole lot in how much continuity they perceive with the person that they’ll be in the future, and also that you can influence people’s beliefs about this.
So a handful of years ago, my colleague in the marketing area, Oleg Urminsky, and I ran a study here at the University of Chicago with graduating seniors, where we went up to them seven to 10 days before Commencement, before college graduation, and we had them read a passage that described the time of college graduation as motivating, very big changes in who you are as a person. We told them that several studies have shown that, for young adults, the person who you’ll be in a year is gonna be substantially different in terms of your beliefs, values, ideals, life goals, your major dislikes, those sorts of things.
We told another group of people that you’re gonna remain exactly the same over the next 12 months, and as it turns out, both of those are true, just depending on, we didn’t lie to the participants, depending on the papers that you cite. Both of those can be viewed to be true, and then we offered them, then we offered them choices between gift certificates, so we told them that they could either have $120-valued gift card now or wait a year for gift certificates of larger value, and that one respondent would actually have his or her choices actually realized.
And what we found is that those people who were told that college graduation is gonna change who they are as a person were a lot less willing to wait for gift certificates of larger value, which is consistent with the idea that, if you think that, you know, the person who you’re going to be in a year or at some future time point is substantially different from you now, then when you recognize that you’re making a trade-off between your welfare and your future self’s welfare, you place more weight on your current welfare.
Hal Weitzman: So identity seems to be a big part of what motivates people, particularly over time. I wanna put all this research in a business context, and move—a lot of what we talked about is individuals—move from individuals to teams, because much of the challenge—as we said at the beginning—facing managers is how do you motivate a team?
George Wu, what do you think are the sort of classic errors that managers make when they’re trying to motivate teams?
George Wu: Well, I think, you know, certainly when I talk to my MBA students, their first reaction about how you get people to do stuff is you pay them, and that’s true. That works. That’s oftentimes an incredibly effective way, but I think there’s a couple of drawbacks about that. One is that it’s expensive.
Two is there are other ways that maybe you can get commensurate effects and, presumably, commensurate effects that are cheaper, and that’s what psychology is. And so, you know, I think motivation is obviously extremely complicated. It depends on the setting. It depends on what people think about the task, whether, you know, it’s an exciting, intrinsically interesting kind of task that people are pursuing, or something that people think of as being much more about, you know, bonuses or whatever.
But I think that all the kinds of things that we’re talking about suggest that psychology has a role in terms of at least the kind of menu of choices that managers can use, either at the team level or the organizational level.
Hal Weitzman: A lot of managers will be pleased to hear there’s been an overreliance on pay. What other kind of tactic, I mean, you’re talking about praise or more responsibilities? What is it?
Ayelet Fishbach: One of the problems that faces managers is that you wanna try to improve performance in the short run, but you also wanna make it sustainable, and there are lots of things that I think are hard to imagine sustaining. So it’s hard to . . . you wanna increase performance by giving people a bonus, but now you’ve already set up a culture where people expect to get compensation explicitly for what they do, and that’s not so good, because maybe you don’t have the budget to do that, or maybe what you’d ideally like is for people to kind of do this thing and naturally, intrinsically wanna do these kinds of things.
This is something that I study and I teach, and I believe that often, when managers think about how to motivate employees, which is a difficult problem, they don’t stop to think: What are the barriers? Why is that person not motivated? Is it that they are underpaid? Maybe they are not interested. Maybe they are overwhelmed. Maybe they are tired. There could be a bunch of things that could result in underperformance, and you need to understand what the problem is. And then you need to understand what are the possible things that people could want at the workplace, and if you go with the very naive theory that people are here only for that money, then probably you’re very limited.
One thing that I do in terms of data collection with managers is ask them how important are different things for you? How much is motivating for you? How much is motivating for other managers? And people are very correct in saying, I care a lot about my salary, and you also care a lot about your salary. I care about my health benefits, and I bet that you, too, also care about your health benefits.
But then, when you ask them about intrinsic, these internal benefits, they get it completely wrong. I care about challenge. You, not so much. For me, it’s very important that I do something interesting, having good relationships at the workplace, very important for me. For you, I bet you mainly care about your salary. OK, and you see managers do that mistake, where I know I need to be in a fun environment with interesting people. I need to work with interesting problems, but I don’t know that you, too, care about these things.
Hal Weitzman: Why do they make that mistake? Do they just not ask?
Ayelet Fishbach: There are several reasons. It’s a good question. One thing is that people might be less likely to raise that. These are often things that are more subtle. So I can complain about my salary, but you hear less complaints about it might not be very interesting. Also, probably even more so, it just might be an old-style management that doesn’t take into account psychology, that doesn’t understand how to motivate people. They’ve made this mistake.
Hal Weitzman: OK, so let’s give our business leaders some tips. What should they be doing to motivate teams? Dan?
Dan Bartels: Well, so I mean, it seems like, you know, a decent default to fall back on and a reasonable assumption to make is that people prefer more money to less, and I suppose that’s where the bias comes forth, you know. Providing people extrinsic motivation for meeting company goals.
But you know, Ayelet mentioned earlier that, you know, intrinsic reward in goal pursuit helps to keep people going, and it seems like a major challenge, then, is to try to figure out . . . because there are also biases that suggest that people often assume things about others that are also true of themselves, sort of egocentrically project things. So I guess one thing that, Ayelet brought it up earlier, that would be really useful is for managers to better understand what the things are in the workplace, what the things are about the goals that the company is currently pursuing that really get people motivated to do their job, apart from just monetary incentive.
Hal Weitzman: It seems we’re talking about the importance of intrinsic goals. Does it make sense or does it make a difference if teams are asked to come up with their own goals? Are they more likely to achieve them?
George Wu: Two things. One is that, I think, one answer to the point that Ayelet was making about extrinsic and intrinsic is that there really is a fundamental difference between the feedback that managers get if they assume that people are extrinsically motivated and intrinsically motivated.
So if you imagine that, in fact, everybody’s intrinsically motivated, but you know, I’m a manager who just thinks that everything is driven by incentives, and if I don’t give you bonuses and stuff like that, you won’t work, well of course people will react to incentives, and it will lead people to conclude that, indeed, they were right that incentives matter and that people are basically motivated by money and things of that sort.
If you make the opposite mistake, which is that you think that people are intrinsically motivated, and they’re really just extrinsically, then you’ll create this kind of environment that’s playful, and you won’t get any results.
So I think that’s one of the things that . . . it’s about people’s theories, but it’s also about the kind of feedback that they get conditional on the theory, which oftentimes leads people to conclude something that’s not really true.
Now, on goals, I think, you know, my prescription would be to try to draw these things out from people. I think there’s a couple things that are limiting about that. For lots of reasons, I think that people may not provide as ambitious goals, or I might not provide as ambitious goals for myself as you would provide for me. Now, the fact that you provide more ambitious goals for me may not mean that I’m necessarily gonna perform for them. I may react against those kinds of things, or they may just be inappropriate because you don’t really know what the appropriate goal is and so forth.
So I think what you would like to do is you would like to figure out ways in which you can draw out ambitious goals from people themselves, and some of them would be based on the kinds of things or the kinds of insights from the marathon research, which is that you don’t wanna basically ask people right before they’re about to embark on a project. You wanna ask them four months before, six months before, something like that, when they’re relatively confident about what they can do.
Hal Weitzman: Alright, Ayelet Fishbach?
Ayelet Fishbach: So we have some research testing for: How can you make people set effective goals for themselves, challenging goals for themselves? And George already mentioned that challenging goals are effective. But you need to understand that that goal is there to get you to do more, to get you to do a lot, to get you to challenge yourself. It’s not very important on its own, and when getting people to set their own goals, you certainly cannot, then, evaluate them based on how much they met their goal. You need to evaluate them by how much they’ve done, and if you do that, you get people to set pretty challenging goals for themselves. However, if you tell them that their valuation is based on whether you’ve met your goal, the strategic thing to do, yes, they just set it low enough so that you are going to meet it for sure.
Hal Weitzman: OK, but I wanted to ask you about this idea of kind of the enjoyment that you get, the challenge that you get from doing the task as opposed to the end goal. There are some work environments that people just want to make them as fun as possible, the idea being that sort of creativity will flow out of it. That sounds great, but is it bad if there’s no kind of, if there aren’t clear goals about what we’re actually supposed to be doing?
Ayelet Fishbach: Absolutely. If the work is undirected, if you don’t know where you are going, if there is never goal setting on the management level, then you get people going in all kind of directions that go nowhere, and I bet we were all spending some time in meetings that were kind of fun but went nowhere, so that’s quite possible.
I want to step back and say that, when I say that their work needs to be internally rewarding, at least for the kind of employees that we are usually dealing with, it doesn’t mean that it’s just plain fun. Challenge is rewarding, and being able to meet my time on something is rewarding, and it’s the internal reward of working hard and doing something great. It’s not just playing around.
Hal Weitzman: Could purely achieving a goal be rewarding in itself?
Ayelet Fishbach: Absolutely.
Hal Weitzman: OK, George, I wanted to ask you one other point about goal setting.
There’s a current trend for managers to set big, audacious, visionary goals that maybe are not, you know, super achievable, or may even be quite vague. Is that a bad idea? Should we instead be breaking things down into smaller chunks, where we know how much progress we’re making?
George Wu: I think both of . . . I mean, lots of vision and missions and things like that are, in fact, vague, and then part of the problem is that it’s not exactly clear what people should be doing at an operational level in terms of actually executing those things.
On the other hand, obviously, having ambitious goals like getting to the moon and things of that sort get people to do things that are audacious in some kind of a way. So it’s not . . . at some level, things can be audacious, but there still has to be some specificity about that. I mean, even if it’s something audacious like what we wanna do is be the best company in the world or the best company in our industry or something like that, but you know, if we wanna just be a really good company or an excellent, you know, we don’t actually know what that means.
Now, I think what complements that is, at a more tangible level of execution, having a different set of, and not even using the same words—I would call these goals and these kind of visions or something of that sort, about, you know, quarterly or yearly or, you know, something that’s much more short-term-oriented performance.
Hal Weitzman: OK, Ayelet, so you’ve done some research on how sometimes people are given a big task. They sort of start off strongly, then their attention sort of dips a bit, and then they sometimes finish strong, and you’ve suggested it might be better to split those bigger tasks up into smaller ones?
Ayelet Fishbach: Yes, however, vision is important. You need to know where you are going. The idea about chunking is that we know that people do better, they follow the standards more carefully at the beginning and the end of a goal period, and therefore, if you talk about the very long frame, then you’ve got people who do very well at the beginning and the end, but you have a very long middle, versus if you chunk the task into various parts. Then, you get people toward the end of a chunk working harder.
Actually, a part of the marathon data that I don’t think George mentioned is that you get people to run faster as they approach their goal, and with my work on chunking, you get people to do better, to try harder, at the beginning and as they reach the end period.
Hal Weitzman: Dan Bartels?
Dan Bartels: So one of the nice things about breaking a big long-term goal into shorter goals is with the long-term goal, if its realization is way off in the distant future, you run into the problem of time discounting, right? So people discount the value of delayed rewards an awful lot, and so one of the things that can happen is if you break a big goal into bunch of little goals, you can sort of get around that problem to some extent. You get these upsurges in effort around the completion of the subgoals. Some studies suggest maybe a little bit of loafing once you’ve gotten over the hump of those small chunks.
But the nice thing about visions, right—so the downside of visions is that, you know, they’re really long-term things, and so people discount the future, and we wanna be great. How do we know when we’ve actually gotten there, right? They’re pretty ambiguous—is they offer an opportunity for firms to align the firm’s goals, or to align the employees’ goals with the firm’s goals, right? That’s one of the nice things about these very, sort of, broad, ambitious values kinds of statements, is that if you can get buy-in from employees, I mean, perhaps because, you know, the company does stand for some of the same things that the people do. That’s not such a bad thing.
Hal Weitzman: OK, well, on that note, unfortunately, our time is up. My thanks to our panel, George Wu, Ayelet Fishbach, and Dan Bartels.
For more research, analysis, and commentary, visit us online at chicagobooth.edu/capideas, and join us again next time for another The Big Question.
Goodbye.
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