The Illusion of Delayed Incentives: Evaluating Future Effort–Money Transactions

Abstract

In many real-world situations, consumers must evaluate future transaction opportunities in which money will be awarded for the performance of effort or for providing a service. In a marketing setting, consumers often are promised a delayed reward, contingent on the performance of future effort. In such situations, the author proposes that at the time of brand choice, the future effort is underweighted, relative to the future savings. Consequently, an incentive that appears attractive at the time of brand choice may appear unattractive at the time of redemption. The author hypothesizes and experimentally demonstrates the effect of face value, level of effort, and temporal delay on choice, redemption, and profits. Results show that temporal delay between choice and redemption causes a systematic underweighting of future effort, which mediates the increased attractiveness of alternatives with delayed incentives. The author also uses an analytical model to derive the profitability implications of delayed incentives.