How to Inspire Customer Loyalty Through Discounts and Rebates

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Customer loyalty is imperative if you want your business to succeed. The cost of retaining a customer is 6 to 7 times lower than the cost of acquiring a new one, depending on your industry. The trouble is, inspiring loyalty through solid service alone sometimes isn’t enough to keep your customers coming back.

If you want to see better results—that is, higher customer retention and satisfaction—consider using a discount and rebate plan to achieve them.

Why Discounts and Rebates Work

Why are discounts and rebates so effective at securing customer loyalty?

The average customer’s loyalty is the product of both emotion and logic; they need to feel some kind of bond to your brand, almost the way they would a friend, and they need to feel like their loyalty is worth it. On the emotional side of things, discounts can be a display of appreciation and value for your customers, proving that you want to provide better service to your customers. On the logical side, your lower prices will seem more appealing, persuading more customers to keep returning to your store.

Ideas for Launching Your Next Program

So what steps should you take to maximize the value of your discount program?

  • Reward repeat customers. First, make sure you’re rewarding your most loyal customers by offering better rewards to customers who have been with you longer. For example, King Price Insurance offers gradually unfolding discounts to its customers, with premiums decreasing the longer you’ve been a customer. This makes it harder for your existing customers to abandon you, and serves as a bigger enticement for new customers to keep coming back.
  • Pick the right rewards. Not all customers are motivated by the same types of rewards. Amazon customers, for example, tend to order lots of products online, so they’re highly motivated by the fast, free shipping perks associated with Amazon Prime. If your customers care more about product quality, they may appreciate a free gift, or a direct product discount instead. Use market research to determine what type of reward your customers want most, and give it to them.
  • Offer channel-specific deals. Don’t remain content offering just one type of incentive through one type of channel; instead, offer multiple channel-specific deals. For example, you might have an exclusive discount for your email newsletter subscribers, and a promo code that can only be used by your social media followers. This will make each segment of your audience feel like they’re getting an exclusive deal, while ensuring that all your customers get some kind of benefit.
  • Include a social element. You can increase the effectiveness of your program by including some kind of social element; make your customers share deals with their friends and family members, and your rewards will reach even more customers. Beauty brand Tarte has become known for it, with its “<3 rewards,” which prompt its customers to share content on social media and use emails to refer their contacts to the brand.
  • Capitalize on missed opportunities. Finally, try to use incentives to capitalize on missed opportunities, such as customers who are dissatisfied with their previous brand interactions, or people who have abandoned their cart. These customers are disproportionately likely to abandon your brand, so they represent the most vulnerable segment of your audience; make sure you give them a special deal to bring them back into the fray.

Downsides to Consider

However, there are a few downsides to a discount-focused customer loyalty program you’ll need to keep in mind:

  • Margins and profitability. Obviously, if you offer your products for a lower cost, or if you give your products away for free, your profitability and margins are going to plummet. Depending on how extreme your offers are, this could present a problem long-term.
  • Lower sales at peak prices. If your customers are used to seeing heavily discounted prices, or if they know they can always get your products when they’re on sale, they’ll be less willing to pay for full price. This can make it harder to acquire new customers or make money without discounts.
  • Prioritization of price-driven consumers. These types of rewards also work best for price-driven customers, who care less about brand bonds and more about the prices they can get. Accordingly, they may be more likely to leave you for a competitor if they can get a better deal there.

If you can compensate for these disadvantages while increasing the reach and effectiveness of your customer loyalty program, you’ll greatly increase your customer retention—as well as your brand reputation. It may take some time and experimentation to find the right combination of deals and marketing, but once you find it, it will pay dividends for as long as you use it.

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