Great post at the Brandthroposophy blog by Robert Kozinets, a very good explanation, and overview of the research, about the Crowding Out effect. Kovinets conclude that an insight into the difference between market and community logics, would point to the conclusion that branded communities using rewards are ultimately counter-productive. We recommend reading the whole post, here are just some representative extracts.

– The Crowding Out Effect, by Robert Kozinets:

“I’ve recently had a chance to formulate my contentions with a bit more precision. I saw a terrific presentation in Munich by Florian Jodl, a doctoral student at Ludwig-Maximillian University who is doing his thesis on as topic that looks at the way that giving rewards to customers can actually undermine a company’s relationship with them. (Florian is also working for McKinsey). His basic proposition is that we give consumers a lot of rewards, such as the various kinds of Frequency Programs, in order to inspire their loyalty. But the net effect, according to solid psychological theory, can be just the opposite. I had a “Murray Davis moment.” I thought, “That’s interesting, and that’s really relevant to the stuff I’m trying to say about sponsored communities.”

There is, in fact, a massive amount of research that supports the idea that when you pay people to do something for you, they stop enjoying it, and distrust their own motivations. The mysterious something that goes away, and that “Factor X” even has a name: intrinsic motivation.

Intrinsic motivation is a person’s sense that they are doing something because they want to do it, because the doing brings joy, it is rewarding by itself, on its own as an activity. Extrinsic rewards suggest that there is actually an instrumental relationship at work, that you do the activity in order to get something else, and that something else (like a monthly check) is actually the reward for doing it. We don’t need to be paid to play, because it in itself is fun and enjoyable. If you pay me for it, it must be work.

Some of the classic work in this area, by Mark Lepper at al in 1973 found that if you took kids who loved to paint, and you started rewarding them for painting, they actually started painting less.

Edward Deci in 1975 found that when you took adults who were playing with a puzzle and trying to solve it, and you rewarded them for solving it, they actually started playing less with the puzzle.

The results were replicated in a large number of different laboratory studies and real-world contexts. For example, when you paid kids in a classroom for doing math tasks, they stopped being engaged with the math task (Greene et al 1976). When you paid students to read they stopped being internally motivated to read and only did it when rewarded (Deci, Koestner, and Ryan 2001). When you took adults who were trying to lose weight and you introduced external rewards into the weight loss program, the program stopped working (Kohn 1993). When you paid them for donating blood, they started to refuse (Seabright 2002). There are, literally, ka-jillions of such studies, meta-studies, and meta-analytic mega-studies of the meta-studies.

It’s what we would call a robust effect. It shows up in many contexts. And there’s been considerable testing to try to find out exactly why it works. A major school of thought is that there is an “Overjustification Effect.”

– Community Logics vs. Market Logics:

Robert continues and concludes:

“I believe that we have cultural categories that oppose marketplace modes of behavior (or “market logics”) with the more family-like modes of behavior of caring and sharing that we observe in close-knit communities (”community logics”). When we start to pay people for a particular “transaction” then that becomes culturally coded as a “market logic”–market logics are in effect. This signifies to the person a set of meanings: this is labor, this is work, just do it. When communal logics are in effect, all sorts of norms of reciprocity, sacrifice, and gift-giving come into play: this is cool, this is right, this is fun. I write about the interplay of these two forms of logics explicitly in my article about Burning Man (Kozinets 2002), other book chapters related to that topic, as well as in some of my work on online communities (Kozinets 1999), and fan communities (Kozinets 2001). So think about paying a kid to clean up their room, paying parishioners to go to church, paying people in a neighborhood to attend a town hall meeting, paying people to come out and vote. All these examples seem a little strange or forced. Why? Because they mix and match the communal with the market-oriented.

The two theories are actually quite compatible and look at the same phenomenon from different levels of analysis.”