Direct Incentive Substitution
Pay users directly for desired behavior instead of paying intermediaries.
- Difficulty
- Advanced
- Time to result
- ~months to results
- Steps
- 6
- Confidence
- 97%
Direct Incentive Substitution reframes an existing marketing expense by asking whether the recipient of the desired behavior can be paid directly. The marketer first identifies the action the business wants—learning a product, referring a customer, contributing content, exercising, or remaining engaged—and calculates what is currently paid to an advertising platform, agency, employee, or other intermediary to produce it. The business then offers a controlled reward directly to the participant after verified completion. Performance is judged through downstream value, fraud resistance, retention, and unit economics. The method creates a new acquisition option without assuming that every intermediary should immediately be eliminated.
Origin
Extracted from Marketing Against The Grain as the hosts reduced Web3 incentives to a simple operational choice for marketers.
Core principles
- 01Acquisition spending can flow to the person performing the desired behavior.
- 02Direct rewards reduce reliance on advertising and labor intermediaries.
- 03The target behavior must be explicit and verifiable.
- 04Rewards should correspond to business value, not attention alone.
- 05Direct incentives belong in the acquisition portfolio rather than automatically replacing every channel.
How to run it
- 1
Specify the behavior
Define the exact action the business wants a person to perform and the value it is expected to create.
Pro tip Use an observable completion condition.
Watch out A broad objective such as engagement is too ambiguous.
- 2
Map current spending
Identify every platform, employee, agency, or promotion currently funded to induce that action.
Pro tip Calculate the fully loaded cost rather than media spend alone.
- 3
Set a direct reward
Offer the participant a reward lower than the expected value of verified completion.
Pro tip Use tiered rewards when actions differ materially in value.
Watch out An excessive reward can attract people interested only in extraction.
- 4
Verify and protect
Confirm that the behavior occurred and implement controls against duplication, bots, collusion, and low-quality completion.
Watch out Fraud can make apparently strong acquisition economics meaningless.
- 5
Compare downstream economics
Measure conversion, retention, customer value, and total reward cost against the intermediary-driven approach.
Pro tip Run a bounded experiment before reallocating a large budget.
- 6
Reallocate deliberately
Scale direct incentives when they outperform, while retaining intermediaries that continue to add unique value.
Watch out Do not assume direct payment is automatically appropriate for every customer relationship.
In the wild
A software company normally pays an ad platform to acquire trial users and an onboarding team to encourage setup. It instead tests account credits paid directly to users who complete verified activation steps, then compares conversion and retention with its conventional acquisition cohort.
→ The company discovers whether direct rewards produce activated customers more efficiently.
A media portal shares part of its advertising value with readers and authors through tokens. Rather than retaining all value at the platform layer, it rewards the participants whose attention and work make the network useful.
→ Participants receive a direct economic reason to read, contribute, and remain active.
Common mistakes
Paying without verification
Unverified rewards invite fraud and make it impossible to connect spending with real behavior.
Optimizing for the paid action only
A cheap completed action is worthless if it does not lead to activation, retention, revenue, or another durable outcome.
Assuming every intermediary is waste
Platforms and employees may provide targeting, trust, quality control, or creative work that direct payment does not replace.
Is it for you?
Best for
Businesses with verifiable user behaviors and rising intermediary acquisition costs.
Not ideal for
Contexts where the target action cannot be verified or where direct payment would undermine trust or intrinsic motivation.
From the transcript
“you know what you want people to do, and you are used to paying a third party or an employee to try to get them…”
“A new option has come. You can pay the person directly to do the thing that you want them to do.”
“The money you pay Google and Facebook now, you're gonna move to incentives for your community”
From the episode
Web 3, Customer Acquisition, and Value Props (Twittersode)