Optimal design of incentive schemes

Optimal design of incentive schemes

Introduction

Keeping consumers occupied and responsive is a challenge and is increasing in a world that is continuously overwhelmed with messages of advertisements across numerous media platforms. Gaining attention and allegiance is not easy; hence incentives and rewards are being added in several marketing programs to earn recognition from the crowd. They are things that motivate individuals to conduct an action such as completing a survey or making a purchase. Customer rebate is an incentive type, which is essentially a reduction in price. Rebate is when a consumer buys an item at full price, and then a portion of the buying price is returned to them. Some of the common types of incentives offered to customers involve the “we pay if you state”, gain or profit-sharing incentive, stock-based long0term incentives, and the good old cash bonus.

In this research, the primary motivation originates from the automotive industry practices. For instance, in America, labor and production costs of auto manufacturers are virtually fixed in part because of union costs, and therefore through using promotions, they concentrate on increasing revenue (Weingarten and Humphreys, 2010). Manufactures have used promotions frequently as a means to increase revenues, market shares, and sales by raising awareness about their brand, thus reduce the designing of slow-moving items. There are different promotion programs in the auto industry, which include financing at a low-interest rate, employee programs of pricing, and customer rebates (Busse, Simester, and Zettelmeyer, 2010). Furthermore, manufacturers may sometimes provide incentives to retailers hence encouraging them to advertise more to customers, and therefore, more sales are generated.

A great deal of supply chain management emphasizes matching demand and supply via various means, including managing lead-time, the flexibility of production, and channel coordination. There has also been a specific focus on supply or demand manipulation in recent years by the use of dynamic promotions to attain higher profits. It is exceptionally accurate in industries like airlines, and automotive were revealing changes in capacity are costly to do and difficult. Therefore, this research aims to investigate how incentive schemes impact customer rebates under whichever market conditions.

Statement of the problem

Without consumers, organizations diminish productivity and have a difficult question to achieve their objectives. Hence attracting customers is their main achievement. But this has proven to be challenging over the years due to the stiff completion experienced in marketing management (Piercy, 2014). Several organizations use incentives to retain their customers, thus promoting their business. However, customers are keen on finding suitable options offered before deciding on purchasing an item. It is an issue for organizations as customers mainly focus on the price of a product and the average star ratings, and they are attracted to the organization that offers rebates. These factors are a challenge as several organizations experience a loss due to failure to invite customers by their unfavorable incentive schemes.

Dependent variable

• Customer rebates.

Independent variables

• Price of a product
• Average star ratings

Objectives

• To determine the effect of incentive schemes on customer rebates
• To learn how the price of a product impacts customer rebates
• To investigate how average star ratings impact customer rebates

Research question

This research mainly focuses on how incentive schemes impact customer rebates and if the factors have an influence on customers’ decision in purchasing a product. Hence the research question involved is, do incentive schemes affect customer rebates?

Hypotheses

The research will examine the following premises:

• The price of a product affects customer rebates
• The average star ratings affect customer rebates
• Customer rebates reis dependent on incentive schemes

Significance of the study

For an organization, incentives are rewards that are given to the employees when they achieve their targets. They are mostly financial rewards, for example, annual bonuses, one-off pay bonuses, and increasing salary pay. To the customers, these incentives are mostly about discounts in the products purchased hence known as customer rebates (Demirag, Keskinocak, and Swann, 2011). In designing optimal incentive schemes for customers, the following are considerations to develop interests in consumers: the offering of extra reward points in credit cards, discount on products, free product, giving upgrade bonus on trial basis, offering to pay for products related, and giving additional samples to them. These factors contribute enormously to the customer’s decision to make the purchase of various products in an organization.

Incentive schemes have various advantages for customers. They ensure customer satisfaction as the customers feel valued and not exploited. This is by offering the best beneficial service that will intern profit a company. It is expensive to acquire new customers; hence incentives enable customer retention. By implementing marketing campaigns, it attracts customers who become interested in the latest products introduced and require support; thus, employees need a trail of proper relationship development with consumers. Positive customer relation is very crucial to an organization (Henning-Thurau and Hansen, 2013). Also, incentives offered by some businesses allow consumers to hold up charitable causes which improve the trust between the organization and the consumer. Having motives in an organization for employees improves motivation, increases competition, enables employees to be recognized in their performance differences, and creates processing costs that are uniform. Therefore, offering incentives to both employees and customers direct efforts nearing achieving objectives of the organization.

Incentive schemes of an organization are neither remedy to the problem of productivity, nor are they applicable universally to all organizational types of work. There are conditions upon the use of incentives effectively (Shaw and Horton, 2011). These conditions include quality standards of products to customers; output units identified readily, inducement of sufficient finance, cost reduction opportunity, sound measurement systems, reliable management committee, and a suitable unit cost system. All these contribute to affecting customer rebates. This research study is vital because it will help outline the significance of customer rebates to an organization by mainly focussing on how the factors of price of a product and the organization’s average star ratings influence customer rebates.

References

Busse, M. R., Simester, D. I., & Zettelmeyer, F. (2010). “The best price you’ll ever get”: The 2005 employee discount pricing promotions in the US automobile industry. Marketing Science, 29(2), 268-290.

Demirag, O. C., Keskinocak, P., & Swann, J. (2011). Customer rebates and retailer incentives in the presence of competition and price discrimination. European Journal of Operational Research, 215(1), 268-280.

Hennig-Thurau, T., & Hansen, U. (Eds.). (2013). Relationship marketing: Gaining competitive advantage through customer satisfaction and customer retention. Springer Science & Business Media.

Piercy, N. (2014). Export Strategy: Markets and Competition (RLE Marketing). Routledge.

Shaw, A. D., Horton, J. J., & Chen, D. L. (2011, March). Designing incentives for inexpert human raters. In Proceedings of the ACM 2011 conference on Computer supported cooperative work (pp. 275-284).

Wiengarten, F., Humphreys, P., Cao, G., Fynes, B., & McKittrick, A. (2010). Collaborative supply chain practices and performance: exploring the crucial role of information quality. Supply Chain Management: An International Journal.