Today, brands have various techniques and tools to choose from when creating their promotional campaigns. These campaigns aim to increase sales, clear out inventory, boost traffic, and encourage action. Depending on the objective, different promotional tools can be employed, and sometimes they can even be combined. The choice is crucial because 74% of consumers consider promotional offers as a crucial factor when making purchasing decisions.
In this article, we will focus on reward-based promotion. This mechanism is particularly popular in Anglo-Saxon countries and has proven to be effective.
What is reward-based promotion?
Reward-based promotion is a strategy that motivates or encourages a specific behavior or action, such as making a purchase or adopting a mobile application. Unlike traditional promotional codes that reduce the purchase price, reward-based promotion works differently. The reward is granted after the desired behavior is performed. In other words, you first need to take a specific action or engage in a particular behavior, and then you receive the reward.
For example, let’s consider the following scenario:
If a consumer reaches or exceeds a shopping cart value of €100, they receive a €10 gift card for their next purchase. In this case, the buyer doesn’t immediately receive a price reduction on their cart. Instead, they need to fulfill a certain action to be rewarded.
Another example to better understand the concept is airlines’ rewards programs. The more a consumer flies with an airline, the more benefits they receive, such as free flights, upgrades, or exclusive access to VIP lounges. Again, the reward is earned for the next flight taken.
In summary, reward-based promotion operates on the principle of offering incentives or rewards after a specific action or behavior has been completed. It provides an extra motivation for customers to engage with a brand or perform desired actions, ultimately creating a sense of value and fostering customer loyalty.
Why is reward-based promotion better than a simple promotion?
With reward-based promotion, a brand can experience faster growth in its revenue from year to year. On average, reward-based promotions have shown an increase of +11.5%, compared to 7.3% for traditional price discounts. Additionally, the return on investment (ROI) for a reward-based promotional campaign is typically better (54% compared to 49.7% for price discounts).
Why do such results occur? It’s because reward-based promotions focus on increasing sales by encouraging repeat purchases rather than simply reducing prices. In a reward-based promotion, the reward is provided after the desired behavior is completed. For example, when a customer earns a €10 gift card as a reward, they are incentivized to return and make additional purchases, resulting in increased sales. This approach improves the profit margin per customer, unlike a simple price discount where the customer only pays the discounted price and leaves.
Controlled brand image
With a simple price reduction, customers base their purchasing decisions only on price. For them, the cheaper, the better. If a brand doesn’t offer competitive prices, customers will easily switch to alternatives. The primary focus becomes comparing offers, not considering other elements like brand identity or product quality, regardless of other factors.
In contrast, with reward-based promotion, customers take into account various factors such as additional services, benefits, brand identity, and product quality. The reward itself is fully customizable and can be accompanied by a message that reflects the brand’s image, laying the foundation for a strong relationship. An example of this is the e-gift card.
By establishing a strong foundation for the customer-brand relationship and using rewards that encourage repeated purchases or the exploration of additional services, we pave the way for long-term loyalty.
Why do brands use reward-based promotion?
Brands utilize reward-based promotion for various reasons, driven by specific objectives. Let’s explore some key motivations behind their use:
- Enhancing customer engagement (58%): Reward-based promotions are designed to create a stronger bond between brands and customers. By offering rewards for desired actions, brands can captivate their audience, encourage interaction, and build a loyal customer base.
- Increasing purchase intent (48%): Reward-based promotions influence customers’ inclination to make a purchase. By providing incentives, such as discounts, gifts, or exclusive offers, brands can motivate customers to take action and convert their interest into actual purchases.
- Stimulating sales and frequency of purchases (45%): Reward-based promotions are an effective tool for driving sales growth. By leveraging rewards, brands encourage customers to not only make a single purchase but also return for repeat business. This approach helps boost sales revenue and enhance customer loyalty.
- Minimizing direct revenue loss (44%): In some cases, reward-based promotions can help brands minimize direct revenue loss. Instead of resorting to significant price reductions or sales, brands can provide rewards that add value to the customer experience without significantly impacting their profit margins.
Which types of rewards should you choose?
Digital and Convenience
Now that we’ve established that reward-based promotions are effective for certain objectives, it’s important to consider the types of rewards to offer. To determine the most suitable approach, it is essential to turn to consumers and understand what they value the most.
50% of consumers prefer digital rewards that are easy to redeem and use. What’s more, 65% of consumers want the ability to store their rewards in their mobile wallets, ensuring they have them readily available when needed.
The next question to ask is whether these rewards reflect and serve your brand and its identity. The goal is to create a promotional mechanism that not only benefits the consumer but also enhances their shopping experience, without compromising your brand.
One reward option that aligns perfectly with these considerations is the e-gift card.
- It is digital and can be stored in a mobile wallet.
- It features a unique design, and the message can be personalized. The gift card, by its very nature, serves as an extension of your brand.
It’s important to note that in this context, we are not referring to gift cards solely as a service for customers to purchase. We are specifically discussing gift cards as rewards—a form of branded currency.
Why is it beneficial to use the gift card as a reward in promotions?
The offer of a gift card often leads to additional purchases beyond the value of the card itself. Gift card recipients tend to spend more than the amount on the card. Moreover, gift card holders perceive it as a gift, which often results in a pleasurable shopping experience and, consequently, purchases in higher-priced categories. This increases the overall value of the additional purchases.
Furthermore, gift cards provide an opportunity to gather valuable data for campaign management and enhance customer knowledge. By tracking the usage of gift cards, businesses can gain insights into customer behavior and preferences, allowing for more targeted and personalized marketing strategies. This data can be utilized to optimize future promotions and strengthen customer relationships.
Reward-based promotion mechanics
Why is it interesting to use reward-based promotions in customer acquisition as well as in customer loyalty and retention processes?
Reward-based promotions can be applied in both customer acquisition and customer loyalty/retention processes. It is crucial to have a clear understanding of your objectives, costs, and the products/behaviors that generate the most profit in order to tailor your promotion effectively.
Here are some mechanics commonly used by brands:
- If your purchase exceeds €100, receive a €10 e-gift card. If it exceeds €200, receive a €20 e-gift card.
- If you buy a specific product, receive a €25 e-gift card.
- If you purchase a gift card worth €50 or more for Mother’s Day, double your loyalty points.
- For your first order, receive a €5 e-gift card.
- If you refer a friend, earn a €20 e-gift card.
- Receive a €10 gift card for your birthday.
- If you take a specific action by a certain date, double your loyalty points, which can be redeemed for an e-gift card.
If you want to become an expert in using the e-gift card as a promotion, we recommend these articles:
Reward-based promotions generate repeat purchases
The e-gift card is a great reward
Reward-based promotions facilitate customer acquisition and loyalty