Report: Rewards-based promotions beat discounts

Global research by Aberdeen for Blackhawk Network highlights choices and returns of rewards vs discount promotions

Organisations using reward-based promotions get 8.6 per cent better return on marketing investment (ROMI) compared with firms using discount promotions, according to new international research by Aberdeen Research. 

Commissioned by payment solutions firm, Blackhawk Network, the report by Aberdeen surveyed 100 Australian firms largely in financial and retail sectors and another 300 in the UK and US, Canada, Latin America and Mexico. Most brands surveyed report evenly mixing reward-based and discount promotions 50:50 despite the report's conclusion that rewards-based promotions return greater benefits in terms of marketing payback (54 per cent vs 49.7 per cent globally).

According to the report, sales increases attributed to rewards promotions are also 47 per cent higher than those won by discount promotions, or a 4.7 per cent increase vs 3.2 per cent increase. 

Locally, Australian businesses reported the lowest ROI on all marketing campaigns, from promotions to advertising, across regions at 39.2 per cent. This contrasted with 48.9 per cent globally, 55.2 per cent in the US, 53.5 per cent in the UK and 47.5 per cent in Latin America.

The average ROI for Australian performance of reward-based promotions versus discount promotions was also in the negative at -2.09 per cent and -2.88 per cent, respectively. However, rewards still offered a 27 per cent better performance rate than discount-based promotions. 

“With Christmas around the corner, businesses are now looking at promotional strategies,” said Blackhawk network senior marketing director APAC, Marc Cheah. “This research clearly demonstrates the greater benefits of reward-based promotions.”

Redemption rates 

Globally, firms using rewards-based promotions of various types get redemption rates that are 10 per cent higher than discount promotions (35.2 per cent vs 32 per cent). Aberdeen suggested this might be due to the user-friendliness of digital rewards promotions and/or longer-term benefits seen by customers in in some rewards programs. 

However, when customers did not need to validate, rewards promotions give firms 13.2 per cent better ROMI over discount promotions (56.3 per cent vs 49.7 per cent). 

Credit: Aberdeen / Blackhawk Network

Goals for rewards-based promotions overlap but driving sales lift or purchase frequency was a main reason for 40 per cent of companies. More than two thirds (36 per cent) also wanted to drive intent to influence a customer to buy now. Price as a basis for competition came in third on the list at 26 per cent.

Only 23 per cent of firms included competing on their brand’s image among their aims for reward-based promotions although rewards do not cheapen a brand as discounts can. Yet, when looking at criteria for selecting rewards promotions over discount promotions, 40 per cent wanted to create or maintain the impression of a premium brand compared with brands that frequently discount. 

Read more:  Promotions and brand messaging

 Other primary criteria for selecting rewards-based promotions were to drive purchase intent (56 per cent) and to foster customer engagement (53 per cent). Minimising potential loss of revenue due to discounting was a strong fourth reason (30 per cent) for running rewards-based promotions.

While fostering customer engagement is overwhelmingly the top criteria for US and Canadian firms’ use of rewards-based promotions (66 and 60 per cent respectively), elsewhere the main criteria was to drive buyer intent to purchase. Pushing buyer intent was the overwhelming reason for promotions-based campaigns in Australia, (52 per cent), and results were even stronger in the UK (61 per cent), along with Canada and Latin America (60 per cent). 

Credit: Aberdeen / Blackhawk Network

The report suggested organisations choosing rewards programs in order to foster customer engagement are likely to be looking to build relationships and customer lifetime value. By contrast, those looking to drive buyer intent to purchase want to use rewards programs data to improve personalisation to influence future purchasing. 

Brand loyalty 

Internationally, marketers’ preferences for digital rewards-based promotions over discounts and coupons were mainly due to the aim to generate brand loyalty (45 per cent), for fast reward redemption and delivery (37 per cent) and to link rewards promotions to broader loyalty programs and customer profiles (36 per cent).  Customers’ preference for a digital reward over a discount came in fourth at 34 per cent. 

In Australia, the ability to link digital rewards promos to membership, loyalty benefits and other applications was the reason for 43 per cent of companies. The speed of delivery and redemption was the reason for digital reward-based programs for 45 per cent of US companies, in line with the international figure. Meanwhile in Latin America (55 per cent), Canada (55 per cent) and the UK (42 per cent), most companies chose rewards-based programs to generate brand loyalty. Those striving for brand loyalty as well as Australian firms aiming to link promotional programs are doing so to support end-to-end tracking of their digital marketing.  

Consumers’ preferences 

For consumers, ease of claiming rewards is the overwhelming value for 53 per cent taking part in a rewards-based promotion. Customers are also attracted to personalised rewards (49 per cent) and value of a higher loyalty status (48 per cent). 

Measuring customer retention is the main way marketers measure rewards-based and discount-based promotions, in keeping with organisations’ reasons for running them: To foster engagement and activate buyers. Although many firms choose rewards-based promotions so as to improve or maintain brand image, it’s not often used as a measure of success simply because it’s complex and expensive. 

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