If you are a working adult, you may have heard of the word incentive. However, many people may not actually understand the meaning of the word incentive, or in what situations it should be used.
Therefore, in this article, we will provide an overview of incentives, which have the meaning of motivating the target person by providing encouragement or stimulation from the outside, and introduce the types of incentives. We will also introduce the advantages and disadvantages of using incentives in marketing, as well as typical examples of incentives, so please use this as a reference.
What is an incentive?
First, let’s start with an overview of incentives. Incentives are a form of
marketing
that refers to the use of external encouragement or stimulation to motivate consumers. Incentives have become commonplace in business, and are used in all kinds of situations, including sales activities, distribution, and sales.
Incentives are also often provided in the form of coupons or prize exchanges. For example, let’s say you want to set up an incentive worth 10,000 yen. In this case, from the consumer’s perspective, it feels like they are simply saving 10,000 yen by purchasing a product that comes with an incentive rather than purchasing a competitor’s product.
In other words, from a company’s perspective, setting up incentives has the advantage of differentiating itself from competitors and making it easier to sell its own products. However, it is also true that incentives are a double-edged sword. Incentives also have disadvantages, so we will explain the details in the section “Advantages and Disadvantages” below.
Type of incentive
When it comes to incentives, there are a wide variety of types. Typical incentives are as follows.
- consumer incentives
- trade incentives
- sales incentives
Let’s look at the details of each incentive in turn.
consumer incentives
Consumer incentives refer to incentives that companies provide to consumers. The reason for incentives is to motivate consumers. Incentives increase consumers’ desire to purchase products, leading to increased sales for businesses.
Examples of consumer incentives include sweepstakes, coupons, and free samples.
trade incentives
Trade incentives refer to incentives given to retailers by distribution companies and manufacturers. Specific measures include quantity discounts. This is a measure that sets incentives to lower purchase prices according to the volume of transactions, thereby increasing purchases as much as possible. From a retailer’s point of view, if a product sells well, no matter how much they purchase, they will still make a profit, and the purchasing price will also be lower, making it possible to build a mutually beneficial relationship.
An example of an industry where trade incentives are used is the mobile phone industry. Mobile phones on sale should cost at least tens of thousands of yen or more, but I’m sure some of you have seen mobile phones sold for just 1 yen. This is a system in which sales companies set trade incentives to companies that make mobile phones, and receive rewards from the companies that make mobile phones every time a smartphone or other item is sold.
sales incentives
Sales incentives are incentives set by management for employees who work on a daily basis. A typical example is a sales incentive in the form of “If you achieve sales of ¥00 or more, you will be paid 10% of the sales.”
From a company’s perspective, the more their employees work hard, the more the company’s sales and name recognition will increase. From an employee’s point of view, the more they work, the more their pay increases, so this is also a win-win situation.
Incentives in salary form
Earlier, I explained about sales incentives. For those reading this article, it may be easy to imagine sales incentives in the sales force. However, other forms of sales incentives exist.
A typical example is stock options. A stock option is the right to purchase a company’s stock at the exercise price, and refers to a system in which these rights are provided to executives and employees. Stock options have a certain period of time to exercise, but for example, let’s say one employee purchases company stock for 10,000 yen per share.
Assume that after three years, the value of your company’s stock increases to 30,000 yen per share. If we sell the property at this point, the employee will be left with 20,000 yen. The more shares you purchase, the more money you can return to your employees.
Stock option plans can be said to be one of the most common incentives for companies aiming to go public.
Benefits of using incentives in marketing
Marketing primarily uses consumer incentives and trade incentives. Here, we will focus on consumer incentives and introduce the benefits of using them.
- Customer information can be obtained
- It is also possible to reduce costs
- Incentives can be changed to suit your goals
I will explain each in turn.
Customer information can be obtained
As long as you do not mistake the types and measures of consumer incentives, you can easily obtain customer information. For example, suppose you set up an incentive in the form of sampling. If you obtain consumers’ names, email addresses, and phone numbers when sampling, you will be able to conduct list marketing using email addresses.
If you use
e-mail newsletters
to educate consumers during list marketing, you may be able to gain many repeat customers through free sampling. Utilizing incentives has the advantage of making it easier to obtain customer information.
In addition to the above, digital incentives such as gift certificates and coupons for online shops, and exclusive stamps on SNS are other ways to obtain customer information.
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It is also possible to reduce costs
Incentives are generally provided using the Internet. If you use the Internet, there are many cases where there is no cost, so you can also reduce costs. Incentives that are done offline require many costs such as management fees and rent. However, incentives offered over the Internet have the advantage of being inexpensive to start.
Incentives can be easily changed to suit objectives
If the initial incentives you designed don’t work out, you can always change them online. For example, let’s say you originally set up an incentive to give out electronic coupons. However, if the user’s response is poor, you can change the incentive to a freebie or a free sample. Another benefit of incentives is that they can be modified to suit the purpose.
Disadvantages of using incentives in marketing
Earlier, I explained the benefits of incentives. On the other hand, using incentives in marketing is not without its disadvantages. In conclusion, the disadvantage of using incentives in marketing is that without incentives, you may end up not selling.
If the same incentives continue to be offered for specific products, consumers may feel distrustful and think, “Product 〇〇 always has the same benefits.” This is similar to the belief that without incentives, products will not sell.
If consumers are made to feel the above feelings, even if the content of the incentives is changed, the consumer’s feelings that the product will not sell without incentives will not change. In other words, incentives are a double-edged sword.
Taking these into account, when setting incentives, it is important to decide on a period in advance and to set different incentives for each product.
Typical marketing incentives
So far, we have explained the advantages and disadvantages of incentives. So, what are the typical marketing incentives? Some of the commonly used incentives include:
- electronic coupon
- electronic money
- point
- prize exchange
The above incentives can be used only online, even if you do not have a physical store. If you collaborate with SNS and use incentives, you will be able to increase your SNS followers as much as your products sell. First, let’s take advantage of incentives that are compatible with your products.
Use incentives in your marketing
In this article, we have explained about incentives. By using incentives in marketing, you can obtain customer information and reduce costs. Additionally, by acquiring customer information, it is possible to change incentives to suit the purpose.
However, be aware that if you use incentives too much, you may end up in a vicious cycle where you won’t be able to sell your products unless you rely on incentives. Why not start by considering the incentives your company can introduce?