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Customer shopping once stores reopen

Why you should offer rewards over discounts, to recover from the crisis

5th June 2020

As lockdown measures begin to lift across the UK, many businesses will be preparing for a ‘new normal’. Recovery in the wake of COVID-19 will look vastly different across sectors, with each area having faced a unique set of challenges, threats and opportunities in recent months.

Despite differences, the unifying priority for brands will be to attract and retain custom. As competitors scramble to recoup losses incurred during the crisis, the marketplace is set to become oversaturated with promotions. With consumer confidence down to the lowest level since 2012, every customer, lead and sale will count on the road to recovery. Ensuring that your brand stands out from the crowd will require a carefully planned marketing strategy.

When planning your post-crisis marketing mix, consider the power of reward-based promotion.

Discount-based promotions reduce part of the upfront cost at point of purchase. Though discounts may seem attractive, they offer a short-term solution. Sales may be bolstered within the initial discount period, but often fall away again when the full-price returns. There is even research to suggest that price promotions and discounts may damage brand equity in the long-run.

On the other hand, reward-based promotions like rebates, gift cards and e-gifts are designed to incentivise an initial purchase, whilst encouraging further engagement down the line.

Rebates are a form of reward-based promotion which can offer similarly attractive savings on purchases. The difference being that brands can assert control over how and where rebate savings are spent. Gift cards and e-gifts also offer the opportunity to make customers feel rewarded, whilst carefully targeting their future spend.

Some recent research from the U.S. has provided a helpful insight into the benefits of using rewards, instead of discounts:

Rewards offer higher profitability per customer

Over time, organisations that offered reward-based promotions generated a 6% greater average profit margin per customer than those that offered discounts1.

Rewards encourage spend-back

Consumer research from Blackhawk Network2 found that getting a reward from a brand or retailer would encourage 63% of respondents to spend more with the business giving them the reward. 65% of respondents reported that they would purchase more often from the business giving them the reward.

With disruption to the UK economy expected to outlast the current Coronavirus pandemic, the relevancy of these findings from across the pond will be paramount, as businesses fight to make up lost ground.

Wider benefits of reward-based promotions can be seen globally:

Rewards increase customer retention and loyalty

Customer loyalty will become even more difficult to maintain post-crisis, and reward-based promotions offer businesses the opportunity to keep shoppers coming back by regularly reaching out to them. When given rewards, shoppers often associate a positive experience with your brand. This can lead to a long-term affinity and a higher likelihood of maintained engagement with your brand over time. Conversely, discounts are often forgotten shortly after checkout. 

Rewards are attractive to digital-minded shoppers

Rewards drive a high customer response rate because they offer deeper savings after redemption. Also, many rewards, like virtual prepaid and e-gifts can be delivered digitally ­- making them perfect for consumers who will be emerging from isolation, more digitally enabled than ever before. Digital rewards have a greater speed of delivery and ease of use online and in mobile wallets.

Rewards provide valuable customer insights for the long-term

Customers are typically willing to provide information in the rebate redemption process. This data can inform on shopper demographics and purchase information and can be used to better define buyer personas and purchasing habits, encourage future behaviours and elevate your marketing strategies well into the future.
Companies that can incorporate reward-based promotions into their marketing mix will be more likely to experience greater success and profitability in the wake of COVID-19 versus those that offer purely discount-based promotions. The competitive recovery market will provide a great opportunity for marketers to try this promotional strategy.

To discuss your post-crisis promotion with one of our rewards experts, contact us today by calling 0207 419 8191 or completing the form on your right.

1. The “Next-Generation Promotions” research was a study conducted independently by Aberdeen Group on behalf of Hawk Incentives between February and March 2018. The sample size of 212 American businesses was comprised of companies with a self-reported average annual revenue of $4.5 billion, and included companies in the Fortune 500 and Fortune 100. A probability sample of the same size would yield a margin of error of +/-3%.

2. “Gift Card State of the Union” is an online survey conducted by Murphy Research on behalf of Blackhawk Network between February 4 and February 12, 2019. The sample size of 10,126 U.S. consumers was comprised of respondents between the ages of 18–75.

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