+ + + #2 Incentives + + +
Incentives can be a powerful tool in harnessing the power of the public – engaging people and motivating behaviour change. The impact of incentives clearly depends upon factors such as type, magnitude and timing of the incentive. In a competitive economic environment brands are increasingly using incentives to attract consumers and stand out from the competition.
Brands in the service industry – such as high-street banks, mobile phone network providers – are using incentives and rewards to become more attractive to consumers. However, the behavioural economic insight loss aversion is important in order to understand how best to use incentives in marketing. Loss aversion is used to explain that we dislike losses more than we like gains of the equivalent amount. What this means, for example, is human beings feel the loss of losing £1 more than we feel the elation of being given £1. Therefore, brands that emphasise the money (or reward) that people will lose out on by not taking an action/purchasing can have a more powerful impact and motivation on people’s behaviour, rather than simply highlighting the amount they could be given if purchasing.
Brands in the fast-moving consumer goods industry consistently have to compete for consumer’s attention. Unilever’s Magnum icecream is an example of a brand currently (April 2013) using incentives as a marketing strategy to drive sales and engage consumers. The incentive Magnum is giving consumers is the chance to win a designer handbag worth £800 every day. However, now understanding loss aversion, if Magnum had framed the incentive in a way that consumers feel that they are losing out if they do not purchase, then this could have a more powerful impact on people’s behaviour to drive sales. Although, the type and magnitude of the incentive of a £800 handbag could be significant enough in itself to demand attention from some consumers. Furthermore, people have a habit of over-weighing small probabilities – for example lotteries – and so consumers may over-weigh the small chance of winning the handbag.
Another example of using incentives to engage a community is ConAgra Foods. In order to increase engagement on it’s Healthy Choice Facebook Page, users who “liked” the brand received a coupon for 75 cents off their next Healthy Choice purchase. ConAgra then coaxed more consumers to join its Facebook page by dangling a “buy one, get one free” coupon offer. In other words, the coupon’s value grew as more consumers joined the page.
However, a fundamental problem with using incentives, is that once an activity (such as buying a Magnum) is associated with external reward (chance to win a handbag), then individuals are less inclined to participate with the activity in the future without further incentives. Furthermore, and worst still, is if a brand fails to deliver on a reward/incentive – an example would be Red Bull’s VIP trip of a lifetime to the Belgium Grand Prix Competition. Red Bull was censured and criticised by the Advertising Standards Authority (ASA) in February 2013 after sending competition winners on a budget trip across three countries, making them share a bed and then sending them home early after they were barred from entering the race’s VIP enclosure.
In summary, incentives can be a useful tool to engage people’s behaviour – and the impact of the incentive depends upon type, magnitude and timing. People have a habit of over-weighing small probabilities, meaning competitions can be effective. Losses loom larger than gains, and so framing incentives to consumers in such a way that they feel the loss if they don’t participate can be a powerful communication and marketing tool. However, if brands become associated with external reward/incentive then consumers can be less inclined to participate in the future without these external rewards/incentives.