Price vs. Incentives

English: "Happy Hour" sign on a pub ...

English: “Happy Hour” sign on a pub in Jerusalem (in Hebrew: all draft beers, 1 + 1 free) עברית: “Happy Hour”, פאב בירושלים (Photo credit: Wikipedia)

Many new entrepreneurs and a few experienced business people try to use price changes to motivate sales. While this sounds good on the surface, price is something you should take great care in changing. It is better to use incentives to motivate behavior and let price remain constant. Here are a few examples of using incentives to drive behavior:

  • The first five customers receive a 50% discount
  • 40% off all weekend on certain items
  • 10% off for every referral up to 40%
  • 1/2 price draws of beer from 4pm to 6pm

In each case the incentive has boundaries and attempts to drive a time specific behavior. Another incentive usage is to accelerate payments. In business to business transactions it is common to give a 1% or 2% discount for paying a bill within the first 10 days of receipt. In each case the incentive is targeted to a specific result. In addition, the incentive result can be measured and analyzed for future use. 

While some are advocating dynamic pricing, understand that changing prices frequently will lead to confusion and frustration. By leaving the price stable and using incentives to drive specific behavior you will have a better chance of motivating the behavior you want. 


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