Marketing: Strategic Reward Programs Navigating User Behavior Through Time Discount

I have a friend who works in user operations. Every year-end, he selects the most valuable users and rewards them in various ways, inviting them to conferences in major scenic areas. Despite the apparent joy from users, these high-cost activities seem not to have a substantial impact on their behavior. What to do?

To address this “what to do” question, we first need to understand the essence of the problem.

User behaviors such as logging in, using, purchasing, and reviewing occur throughout the year, while the selection of the most valuable users happens at the year-end. How much incentive can a long-term reward provide for current behavior? Although users appreciate these rewards, the year-end deadline seems too distant. This involves the complex attitude of users toward “time,” known as “time discount.”

Time Discount

What is time discount? Let me give you an example.

Congratulations, you’ve won! Now you have two choices. A, receive $450 immediately; B, receive $500 a week later. Both options involve no risk, and you can choose A or B to get 100%. Which one would you choose?

Of course, many people would choose B, but some would choose A and take $450 right away.

For those who choose A, aren’t they irrational? You have $450 now, and $500 a week later. It’s like saving $450 for a week and gaining a guaranteed profit of $50. This translates to an annualized return rate of over 500%! Are their brains not functioning properly?

Their brains are indeed wired differently.

Every person has something called “time discount” in their minds. Simply put, the value of something obtained in the future is discounted because it requires waiting for a certain period. For some people, their “time discount” is so high that $500 a week later is still worth less than $450 in their minds. That’s why they choose A.

It may sound scary, this “time discount.” And indeed, it is. The larger your “time discount,” the less rational you become, to the extent of becoming a serious problem. Many individuals with addiction, loneliness, or binge-eating disorders suffer from significantly higher time discounts than the average person. Long-term health discounted is far less appealing than immediate pleasure.

Am I a normal person? The degree of your “time discount” is relative. In general, most people have a preference for “immediate satisfaction” over “delayed satisfaction,” known as “time preference.”

So, what should my friend do? Convert the grand rewards planned for sponsoring trips into smaller rewards distributed monthly, or even small red envelopes after each purchase, providing users with “immediate satisfaction.” You’ll find that the same amount of money can have a better motivational effect on most users.

I mentioned “time preference,” which is a rather complex psychological preference. It may sound like “time discount” is scary, but isn’t it simple? Yes. The reason “time preference” is considered complex is that our subconscious, in its irrational calculation of “time discount,” makes even more irrational judgments about the length, proximity, and future of this “time.”

For example, in the previous example of “now $450, and $500 a week later,” most people would choose $450. But if it were changed to “after one year, $450, and after one year and one week, $500,” most people would choose $500.

Why does this happen? Because the “time” in your mind is not evenly distributed. After one year and after one year and one week, although it is a difference of one week, it is much shorter for you, and even negligible, compared to the current one week. Therefore, of course, most people would choose $500.

In other words: the further the time, the shorter it feels.

Time Preference Method

So, how can we use this “time preference” to address other “what to do” questions in the business world?

I want to organize a lottery event. Should I draw and distribute prizes on Monday and Saturday, or draw on Thursday and distribute prizes next Tuesday? Although the intervals are both 5 days, as we mentioned, people’s judgment of time is irrational. Most people feel that Thursday to Tuesday is longer than Monday to Saturday. So, to reduce the anxiety of waiting, you should draw on Monday and distribute prizes on Saturday.

I want to give employees a bonus on July 1st, a month later. Should I say it’s on July 1st or a month later? Although fundamentally, it’s the same day, the timeframe gives people a sense of being closer. Saying it’s a month later, employees feel it’s just around the corner.

Conclusion

Finally, let’s summarize. What is time preference? The value of future benefits is discounted because you have to wait for a period to obtain them. Different degrees of discount lead to some people preferring “immediate pleasure” and others developing the ability to suppress “short-term joy” for long-term benefits. This is “time preference.” Profound insights into user time preference psychology have led to the success of numerous businesses.