Are You Rewarding the Wrong Behaviour?
"Cobra Effect": When an incentive is designed to solve a problem but makes it worse. (The British offered a bounty for dead cobras. People started breeding cobras to kill them for the bounty).
Retail Cobras
1. The "New Customer Only" Deal You offer £20 off for new signups. Result: Your loyal customers create fake email addresses to get the deal. Lesson: You punished loyalty and rewarded gaming the system.
2. The Bulk Buy Discount "Buy 10 packs of toilet roll, save 20%." Result: The customer stocks up. They don't buy from you again for 6 months. Lesson: You pulled future revenue forward at a lower margin. You didn't increase consumption; you just spiked your own supply chain.
Smart Incentives
Reward the behaviour you actually want: Consistency. "Shop 4 weeks in a row, get £20 off." This builds a habit. It prevents stockpiling. It rewards the "Good" customer.
Frequently Asked Questions
What is the Cobra Effect?
An anecdotal economic term for when an attempted solution to a problem actually worsens the problem due to unintended consequences of incentives.
Why is "New Customer" pricing dangerous?
It alienates existing customers ("Loyalty Penalty") and encourages churn/re-acquisition loops.
What is a "Habit-Forming" incentive?
An incentive that releases value only after repeated actions (e.g., a coffee stamp card), reinforcing the neural loop of the habit.