Price vs Rewards? Do Positive Motivators Work?

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In an earlier article, we discussed "congestion pricing", or more generally, capturing maximum value using price discrimination. As an aside, I mentioned research being performed by Stanford attempting to use positive motivators (rewards and lotteries) rather than negative motivators (price, i.e. money out of pocket).

The motivations behind the research appear to be two:

  1. The positive: Quite simply, are there alternate ways to smooth out the flow?
  2. The negative: Even if not explicitly mentioned (other than here), pricing means capturing value in a perceived public good, which people tend to instinctively reject. Even though congestion pricing has become accepted, something tugs at the gut of some in using pricing in the public sphere.

Personally, I have no issue with using variable pricing. I personally prefer to pay less than pay more for a good or service, but accept that I normally have to pay more for something that has greater value to me.

My interest here is not whether or not positive motivators such as rewards and lotteries can work as well as variable pricing. It appears, based on the Stanford research, that they can. The more interesting question is whether or not they can be sustained.

Lotteries and rewards work by inducing a rush of excitement at the potential of winning, and then at winning. However, the adrenaline rushes eventually wear off, as with most games. Ask Zynga how many people regularly play "Words With Friends", or Rovio how many play "Angry Birds" 6 months after the first download? I do not have the research to prove it - and I will be interested to see the results of the studies in 1-2 years - but gaming is a good way to get people into a system, not to sustain them in a system.

You sustain people by charging them their value. The higher their value, the more they pay; the lower their value, the less they pay.

I believe that, in the long-run, rewards, lottery and other gaming systems will be successful in driving people towards short-term behaviour changes, helping them get used to smoothing out the curve, but variable pricing will be necessary to gain and maintain significant scale.