An incentive is something which inspire people to act in a certain way. And economics assumes that rational people think at the margin, so they respond to incentives. “People respond to incentives” is one the principles of economics. People think rationally and therefore consider all the things that are beneficial and profitable us them. They keep on analysing things before they come to a buying decision unless they get the best under their budget. And whenever they get any kind of incentive, they respond to them.
For example, if we see online shopping sites like flipkart, amazon, myntra and others, we can how they well they increase their profits using incentives. They show the customers many kind of incentives such as ‘buy 1 get 3 free’, ‘70% off, 80% off, 90% off’, ‘10% extra off on paying from SBI bank account and many more. And they even cashback offers on online payments. All these things give people some extra benefits. In buy 1 get 1 offer, it may cost around 1599 for 1 product, but that extra 3 products people are getting, that gives 4 products at 1599 which is very much profitable deal which people will never get if they try to buy only 1 product or all 4 products separately without the offer. So here they are getting incentives.
Another example we can take is of Paytm. Paytm along with other offers, also gives offers like ‘ Rs. 100 off on movie ticket on purchase of Rs. 999’. In this case, people getting extra incentives. They are buying their product on best price and they are also getting Rs. 100 off on movie ticket. Paytm also gives an offer ‘Once in a month’. In this offer, It gives Rs. 200 off on purchase of 299 or more. All these offers gives people incentives. So, people wait for these offers to come and then they buy the products as they give them incentives. The success of these sites depends upon how positively people respond to incentives.
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