What Is Incentivisation?

Incentivisation is a strategy that involves providing certain benefits or attributes that help to motivate customers or investors to move forward with some type of financial transaction. The idea is to identify exactly what type of benefits or incentives will be sufficient to generate the desired activity and increase the benefits that both the buyer and the seller realize from the transactions. Governments and businesses of all types make use of incentivisation as a means of generating business volume and in keeping the economy on a more or less even status.

With business situations, incentivisation usually involves providing customers with incentives that motivate them to choose one particular product over similar goods and services offered by a competitor. The incentives may be something as simple as a lower price per unit, or some additional benefit that helps to set the product apart from the competition. For example, a manufacturer of laundry detergent may chose to compete in the marketplace by offering a product that has a pleasing scent that is different from those offered by the competition, providing the same general quality in terms of the ability to effectively clean dirty clothing, and top off the incentives with a lower price tag for the same amount of detergent.

Governments also engage in incentivisation as a means of helping to keep the national economy healthy. Determining the level of taxes that can be assessed is one example. In this scenario, the idea is to make sure the taxes collected are sufficient to operate the government, but not so much that they make it difficult for citizens to purchase essential goods and services. Failure to find this type of balance can lead to citizens making fewer purchases, which in turn hurts industry and has an adverse effect on the economy in general. By setting taxes within a range that is considered more or less acceptable by residents, the government indirectly motivates or incites consumers to use their disposable income to make more purchases and stimulate the economy.

Along the same lines, governments may use the general process of incentivisation to stimulate certain types of fiscal behavior within the nation. Some countries offer tax breaks to citizens who buy homes, while others may take advantage of tax credits related to child care and other common expenses. A government may also work through a central bank to reduce interest rates, which in turn encourages consumers to borrow money for purchase ranging from new cars to new homes. There is the potential for using the basic idea of incentivisation in just about any economic situation that involves the need to motivate behavior that helps to produce a desired result.