Why reward-based incentives are working harder than discounts

In the current economic climate, with inflation increasing, fuel costs soaring and interest rates rising, the overarching narrative from business, media and government is one of cutting back, making your money go further and getting the best deals available.

Little wonder then that discounting seems a logical answer for businesses striving to keep their market share. However, companies are not immune to the forces affecting consumers and are facing their own financial challenges when it comes to rising energy and raw material costs. This makes effective discounting even harder to implement, and tougher on margins and profitability when it is done.

At the same time, the prevailing emphasis across every sector on offering discounts means that businesses are being forced into a ‘race to the bottom’, ultimately leading to a price floor where there is nowhere else to go.

Heavy discounting is also encouraging customers to buy solely on price rather than on other considerations such as service and quality, creating a generation of constantly moving customers, ready to switch to a cheaper option at the drop of a price.

Rewards build relationships

There are alternatives to discounting, which many companies are finding give them better results in terms of lifetime value and long-lasting loyalty – and recent research is backing this up with hard figures. Reward-based incentive programmes such as loyalty schemes, gift cards and prepaid cards are being used to create strong bonds with customers across their whole customer journey from acquisition to upsell, from break points to brand advocacy.

They work because they offer something that discounting doesn’t – a direct link between a reward and an experience or purchase. Imagine that a business offers an own-brand gift card as a reward that can be used at a variety of restaurants. When this is redeemed, it is often for a family occasion such as a birthday or anniversary – and that gives the reward added power and a long-lasting connection in the customer’s memory. Opportunities to create these bonds are endless, from buying Christmas presents to school uniforms, from booking holidays to doing the weekly shop.

Contrast that with a simple discount. It is given at the point of purchase and often immediately forgotten. It creates no long-lasting memory or brand loyalty, as the person shopping with discounts in mind is – almost by definition – going to look at all available options. Finally, the discount sets an expectation with customers that prices will always remain this low, or that discounts will always be offered. This may prove difficult to overcome when the full market price for a product, service or subscription has to be reinstated, for instance upon renewal.

Choosing value

A key to the success of reward-based incentives is the ability to offer choice. Giving a reward that can only be spent on your own brand can be seen as self-serving. Giving one that can be spent with a wider variety of partner brands, but not competing ones – whether it is for retail purposes or experiences – empowers the customer and maximises the perceived value of the reward. Integrated, connected reward-based incentives, when used this way, ensure businesses can add value to their offering at every step of the customer journey, not just on purchases.

Evidence backs up this approach. Blackhawk Network, a leading provider of reward-based incentive programs for over 40 years, has conducted research which shows a 58% greater year-over-year increase in annual revenue for companies using reward-based promotions and a 63% increase in brand loyalty.

During the current challenging economic times, the ability to keep customers loyal and increase their value to your business can offer a more cost-effective way of preserving and growing revenues than heavy discounting to win new customers. It also places businesses in a better position when, one day in the hopefully not too distant future, we come out of the current challenging environment and look to a brighter future.

You can download Blackhawk Network’s ebook exploring the power of reward-based incentives here, including their research findings. Blackhawk Network is also hosting a ‘fireside chat’ and interview with head of customer engagement Leona Heymerdinguer and Amanda Silcock, senior director of client development on 10 November 2022 at 4pm GMT. In it they will take questions and talk in-depth about the current environment, and how reward-based incentives are being used by Blackhawk customers to build more valuable, longer-lasting relationships. Sign up here.

Leona Heymerdinguer is head of customer engagement propositions for incentives, rewards and compensation payments at Blackhawk Network.