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Sep 28, 2020

Reward-Based Promotions Beat Discounts

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 Blackhawk Network study explored two types of marketing promotions: reward-based and discount-based promotions. The study summarised that “overall, companies using reward-based promotions achieve far superior performance results” compared to those that go down the discount-based 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%, whereas companies using discount promotions only see 19.6%. This may seem like an unremarkable difference on the surface. But 1.2% can certainly add up!

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 programmes, which only experience an 18% improvement.

As an additional bonus, companies enjoy 20% 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.

*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%.