Unit 7: Incentives
How do sellers use incentives to convince consumers to buy their products?
Sellers often use famous people or enticing advertising to increase the incentive for a consumer to buy a product.
Matt's school offers Spanish classes for middle school students. Students may choose to enroll in this class, or to have an extra study period instead. Matt likes to get his homework done during the day, so in sixth grade, he picked the study period. When Matt started seventh grade, his class had a new student who had moved to the United States from Mexico. Matt wanted to help the new student fit in at his school.
The emotional incentive of helping another student will encourage Matt to register for Spanish class.
One weekend afternoon, Emma's father asked her to rake the leaves in the front yard. Emma wanted to read a new book instead. She asked if she could do the chore later in the week. Her father gave her a choice. She could earn five dollars by completing the chore that weekend, or she could do the chore later in the week, but receive no payment.
The monetary incentive will make Emma more likely to finish the chore that weekend.
penalty
a negative incentive
reward
a positive incentive
incentive
factor that encourages people to behave in a certain way
What is an example of a positive incentive for a waitress to keep working at a restaurant?
hourly wage and/or tips
What is an example of a negative incentive when a person decides to call in sick to work?
loss of pay for that pay period; loss of job for reoccurring absences
How might a retailer change a buyer's behavior when trying to boost sales of an unpopular product?
put the product on sale
What are other words for a positive and a negative incentive? What is an example of each, and how do these types of incentives shape behavior?
Another word for positive incentive is reward, and another word for negative incentive is punishment. An example of a positive incentive is earning points to redeem for free flights. An example of a negative incentive is social shame. Positive incentives encourage desired behavior, and negative incentives discourage undesirable behavior.
What are examples of positive and negative incentives that have changed your financial behavior?
Buying an off-brand piece of equipment that breaks soon after purchase may incentivize you to spend the extra money for a name brand item. A celebrity's endorsement of a product may incentivize you one way or the other depending on your opinion of that celebrity. Packaging may be an incentive, or a promotional price or bundle might be an incentive for you to purchase one product over another.
What is the difference between a monetary and a non-monetary incentive? Give an example of each.
Monetary incentives are incentives that involve rewarding or punishing people with money, such as taking 50% off the price tag on a shirt. Non-monetary incentives are incentives that involve feelings or other non-monetary rewards and punishments. An example is having someone you admire compliment you on a new pair of shoes.
