Reward-Based Promotions Outperform Discount-Based Promotions

New research completed by Aberdeen Group, a leading analyst firm, finds companies that offer consumers reward-based promotions to drive engagement and purchases are more likely to experience greater marketing promotion success and profitability versus those that offer discount-based promotions. Specifically, reward-based promotions can outperform discounts by driving better purchase intent and sales lift without damaging brands’ images from discounting.

These are among the findings of the study commissioned by Hawk Incentives, a Blackhawk Network business that provides incentives solutions, to assess the presence and impact of discount- and reward-based promotions among U.S. businesses. Reward-based promotions are defined as those that offer shopper incentives to encourage purchase or action; discount-based promotions reduce part of the purchase price at point of purchase.

“Businesses have plenty of choices when determining marketing strategy, but reward-based programs stand out as incredibly impactful options to achieve business goals and drive effectiveness,” said Theresa McEndree, Vice President of Marketing, Blackhawk Network. “These promotions enable businesses to encourage consumers to buy products while creating engagement that makes them more likely to make repeat purchases in the future. Consumer loyalty can be fleeting, but reward-based promotions offer businesses the opportunity to keep shoppers coming back while also encouraging revenue growth and building brand reputation.”

Aberdeen Group’s research findings were based on a survey of more than 200 U.S. businesses on the use and performance of reward-based and discount-based promotions. Key takeaways include:

Reward-based promotions can generate more annual company revenue and greater profitability per customer. Companies surveyed report an average year-over-year revenue growth increase of 36 percent that can be attributed to reward-based promotions as opposed to 28 percent attributed to discounts. Overall, compared with discount-based promotions, the companies surveyed that offer reward-based promotions generate a six percent greater average profit margin per customer (24 percent for rewards-based promotions versus 18 percent for discounts).
Businesses use reward-based promotions to achieve specific business goals. When selecting between reward- and discount-based promotions, businesses choose reward-based to foster customer engagement (58 percent), drive purchase intent (48 percent), drive sales lift and/or purchase frequency (45 percent) and minimize lost revenue potential due to discounting (44 percent).
Companies use reward-based promotions to elevate brand image. To create the impression of a premium brand image versus one that consistently discounts prices, 43 percent of companies surveyed consider using reward-based promotions. When directly competing with a rival on brand image, 44 percent of companies prefer to use reward-based promotions.
Marketers measure rewards- and discount-based promotion success differently. Of the marketers surveyed, 67 percent gauge reward-based promotion success on increases in customer retention and loyalty, as opposed to 55 percent of those that sponsor discount-based promotions.
“If a business is aiming to drive sales lift or purchase frequency, compete on perceived brand image or drive purchase intent, companies using well-planned and executed reward-based promotions typically perform better than peers using discount-based promotions,” said Omer Minkara, Vice President and Principal Analyst for Contact Center & Customer Experience Management, Aberdeen Group. “In fact, other research** has found that the majority of surveyed consumers—nearly 80 percent—prefer rewards in the form of prepaid cards to other incentives such as discounts or merchandise.”