Incentive Scheme - Meaning & Definition

Published in Marketing and Strategy Terms by MBA Skool Team

What is Incentive Scheme?

An incentive scheme can be defined as a formal plan designed to encourage or promote specific behavior or action by the target group during a specified period of time.

These programs are generally used in business management for various purposes like –

Sales - to attract and retain best talent in order to boost sales

HR - to motivate employees

Customers – reward customers for their purchase and thus inducing repeat purchases.

This concept can also be viewed as pay for performance scheme. Let us look at the common stages which an Implementation Scheme follows –


Identify the objectives – The first step is to identify what is the aim of incentive scheme. The common aims are increase in sales, employee efficiency, decrease in production cost etc


Setting a budget – There can be various costs that will be incurred in the implementation of the incentive scheme. A budget needs to be prepared for it.


Identifying the audience – It is very important to identify your target group. The particular group of employees or customers you are trying to target by your scheme.


Setting targets – Like every plan, it is important to set up targets which are in synchronization with the objectives of the plan as identified above.


Deciding on timescales – There should be a schedule stating the beginning and end date of the scheme so that the participants have a clear view of the schemes and the expectations from them at the different stages of the scheme.


Selecting appropriate rewards – It is very important to select rewards which the participants desire or value so that they can be motivated by the scheme.


Launch – It is vital to make an effective launch and communicate the details clearly so that everyone is son the same page.


Ongoing - The communication should be an on-going process so that people are always motivated and they stay focused on the incentive scheme.


Results - At the end of scheme everyone will be eager to know the results and it will be a great opportunity to reinforce the purpose of the scheme.


Measurements – This is the last step of scheme where you evaluate the effectiveness of the scheme and try to quantify the outcome.


Hence, this concludes the definition of Incentive Scheme along with its overview.

This article has been researched & authored by the Business Concepts Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.

Browse the definition and meaning of more similar terms. The Management Dictionary covers over 1800 business concepts from 5 categories.

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