Why Reward-Based Promotions—Not Discounts—are a Win-Win for Businesses and Consumers in a Tough Economy

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Consumers are finding themselves grappling with limited purchasing power as inflation slowly erodes the value of their dollars. As prices continue to be a concern, many shoppers are compelled to be more cautious with their spending, making each purchase decision a carefully weighed choice. Conversely, businesses are keenly aware of the economy’s impact on their marketing spend, and are seeking out strategies to optimize their ROI, capture market share and drive loyalty.

Marketers looking to build a recession-friendly marketing mix may not realize that the special sauce for solving these challenges is right at their fingertips in the form of reward-based promotions. While research from Blackhawk Network (BHN)* found that nearly three in four companies are already using reward-based promotions, there are more opportunities to grow their usage and pivot marketing plans for greater optimization and more effective marketing spend. With the winter holidays and associated shopping season right around the corner, there’s an impetus on marketers to make necessary strategy changes sooner rather than later.

What are reward-based promotions, and how are they different from other types of promotions?

Reward-based promotions use incentives and rewards to encourage specific shopper behaviors and/or purchases. These incentives can come in various forms, such as loyalty points, rebates, gift cards or eGifts, or virtual prepaid cards (i.e., cards that can be issued either digitally for contactless online experiences where the network on the card is accepted, or via physical cards. Unlike reward-based incentives, promotions like discounts directly reduce the purchase price at the point of sale for a one-time discount on that purchase. While discount-based promotions aim to decrease the amount shoppers spend, they don’t encourage follow-up behaviors from shoppers (e.g., redeeming loyalty points, using a virtual prepaid reward toward another purchase) that can build long-term brand loyalty, engagement and affinity.

Reward-based promotions are table stakes in today’s economic climate because they:

1. Are a go-to means of navigating the rising cost of living. Nearly all of the respondents (97%) in one of our recent studies** reported being concerned about cost of living pressures and 61% shared that they plan to change how they shop as a result. One of the most common tactics will be to actively seek out products on promotion. Offering rewards like virtual prepaid cards will help catch shoppers’ eyes, particularly since people are already buying them for this exact purpose: 37% of consumers report having purchased gift cards for self-use to help control and/or manage spending.**

2. Drive repeat sales and maximize marketing spend. Rewards allow your promotional budget to go farther by targeting your most motivated and loyal customers—optimizing your marketing spend while driving precious checkouts. Research from BHN* found that businesses that offer reward-based promotions experience the following staggering benefits:

    • 174% year-over-year increase in cross-sell and up-sell revenue
    • 105% year-over-year increase in annual revenue
    • 99% year-over-year improvement in customer lifetime value
    • 92% year-over-year increase in average profit margin per customer
    • 84% increase in sales attributed to reward-based promotions
    • 32% better ROI on marketing spend

3. Build long-term loyalty and customer retention. The act of receiving and redeeming a reward helps build and nurture relationships between brands and customers. Research* found that 73% of consumers surveyed think rewards provide larger savings than other promotions. More than half (54%) of shoppers surveyed* reported that they are likely to return to a brand if they’ve received a rebate. And you can also benefit from referrals: more than half of surveyed respondents* reported they’d recommend a brand that offers reward-based promotions over brands that do not. Long-term customer loyalty is crucial, especially during a tight economy, as your brand can remain top-of-mind as consumers become choosier with where their money goes.

4. Connect with people wherever they are. Many rewards are digitally enabled (e.g., virtual prepaid cards, eGifts) and can be earned, received and redeemed completely electronically from a smartphone or other mobile device. For example, you could offer a $10 virtual prepaid reward to shoppers that take participate in a new promotion. As soon as shoppers complete the check out process, the virtual prepaid card can be delivered—reinforcing the behavior that led to the reward while also driving positive brand engagement and potential future spending.

5. Boost brand awareness. Consumers tend to seek familiarity and trust in their buying decisions, but in today’s economy they aren’t opposed to trying something new—and rewards are a powerful promotional tool for attracting attention. For example, one quarter of survey respondents* will consider buying something from a different brand offering the same item if a rebate is offered. Considering nearly nine in 10 respondents* reported actively seeking out rewards-based promotions, you have a considerable opportunity to attract attention if you offer shoppers what they are looking for.

6. Elevate brand image. During a recession or tough economy, consumers want assurance that their purchases are worthwhile and of high quality. Since rewards don’t actually discount purchase prices, the brands offering rewards are seen as more premium options compared to brands that frequently discount their products and services.

Companies that implement reward-based promotions are poised to achieve better success and profitability than those relying on discount-based incentives. At a time when businesses and consumers seek more value for their money, rewards-based promotions offer a win-win scenario that can help both optimize spend and ROI in today’s economy.

* “Next-Generation Promotions: Foster Customer Engagement & Maximize Marketing Effectiveness” was an online study conducted independently by Aberdeen Group on behalf of Blackhawk Network between January and March 2023. The sample size included 4,250 consumers ages 18+ and 400 business professionals from the US, UK, Canada and Australia.
** BHN’s “2023 Global Gifting Study” is based on the findings of an internet-based survey conducted by Grassroots on behalf of BHN between February 3–8, 2023. The sample size included 2,000 US respondents ages 18+.

Bill Warshauer
Bill is a B2B industry veteran and a respected authority in developing and managing impactful incentive and reward solutions that lead to fruitful, long-lasting relationships. His expertise in how to drive and deliver results translates across industries such as retail, loyalty, travel, employee wellness, and more. With more than 25 years of experience—19 at Blackhawk Network—Bill has amassed a deep understanding of how companies can leverage rewards and incentives programs to achieve market differentiation, drive operational efficiency, create heightened engagement, and generate revenue.

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