Reward-Based Promotions Beat Discounts

28 Sep 2020

A smart marketer’s toolkit includes a wide array of options to attract, retain and win back customers. Promotions are certainly one of the most powerful tools you can use at all stages of the customer journey. Here’s something that might influence which type of promotion you use next: reward-based promotions (such as “buy two, get a $5 gift card”) can actually outperform instant discount promotions across several important performance metrics.

A recent study by the Aberdeen Group explored two types of marketing promotions: reward-based and discount-based promotions. The study summarized that “overall, companies using reward-based promotions achieve far superior performance results” as compared to those that go the discount-based promotions route.

Profitability per customer is an important metric when evaluating promotions. That’s why it’s important to know that companies using rewards-based promotions see an average profit margin per customer of 20.8%; companies using discount promotions see an average profit margin per customer of 19.6%. This may seem like an unremarkable difference on the surface. But 1.2% can certainly add up!

If we compare reward-based promotions to discount-based promotions, the average profit margin per customer jumps to 24%—a sizable (22%) performance improvement over discounts. That’s effective marketing! Reward-based promotions also beat discount-based promotions when it comes to ROI; the former performs 13% better, averaging 31% ROI versus the 28% of discounts.

The gaps in profit margins only widen with time, giving marketers a good reason to stick with reward-based promotions for the long-term. Companies that use reward-based promotions report 62% better performance than companies using discounts when it comes to annual improvements in average profit margins. Average profit margin per customer follows suit: companies using rewards see an annual improvement of 30% versus discount-based programs, which only experience an 18% improvement.

As an additional bonus, companies enjoy 20% greater customer satisfaction annual improvement in customer satisfaction rates when rewards-based promotions are used. Rewards-based promotions see improvements of 33% in this area, while discount-based promotions see improvements of 28%.

Running successful promotions means first understanding how the success of those promotions will be measured. If you’re hoping to increase profitability per customer, annual performance and your customers’ experiences with your company, use reward-based promotions. Rewards can take many forms, but the most popular options include Mastercard® or Visa® Reward Cards or merchant gift cards.

*The “Next-Generation Promotions” research was a study conducted independently by Aberdeen Group on behalf of Blackhawk Network 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%.

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