Gifts form an emotional connection that discounting can never achieve

Savvy marketers are realising discounts ruin brand image and slash margins, but gifts and rewards can boost sales while building loyalty.

Nobody wants to be the marketer at a business that survives on continual discounting. A perpetual race to the bottom on price serves neither the customer nor the brand.

Savvy marketers are realising the more effective way to drive the customer acquisition and retention expected of them – without eroding margins and devaluing their products – is to surprise and delight customers.

Whether it be a gift card to spend at a selection of retailers or a meal out at a restaurant, it’s a way of showing a customer how their business is valued by the brand. Psychologically, it creates emotional bonds that cannot be replicated by those businesses which rely solely on endless discounting.

Countless marketing problems are caused by price-slashing, but perhaps the most obvious is that it forms a customer habit of always expecting a cut-price deal. Once the ‘pay’ button is hit, the discount is probably never thought of again. However, if the brand tries to charge full price next time, it is highly likely consumers will feel cheated and carry on looking for savings elsewhere.

Crucially, with no emotional connection formed between the consumer and business, there is no loyalty generated, and by competing on price alone, there is no room for marketers to differentiate their brand.

When Aberdeen Group surveyed marketers, it discovered rewards bring in an additional 11.5% revenue, compared to 7.3% for discounting. The crucial point for marketers is that this sales uplift is achieved by maintaining brand positioning rather than eroding price points.

Hence, 40% of marketers reveal they use rewards to help them maintain a premium brand image. More than half say they use rewards to drive sales (56%) and foster customer engagement (53%), while nearly one in three (30%) use rewards to avoid losing revenue to competitors.

Choice and brand alignment are key

When considering how to get the most out of a rewards strategy, a crucial aspect is consumer choice. Too few marketers think hard enough about what they are offering: even if you give away a high-value item such as a tablet computer, many consumers are likely to have one already, limiting the appeal.

With any gift, it makes sense that the person receiving it gets to choose what they want; for example, a gift card or e-voucher for a single retailer such as John Lewis or Marks & Spencer. Or, for greater choice, a multi-retailer gift card such as One4all, redeemable at a variety of outlets, empowers them and maximises the perceived value to them as individuals. Other brands opt for experiences and days out, where a business can truly build up an emotional connection as they’re enabling the customer to spend time with friends or loved ones.

Nobody will remember the money they saved on a purchase, nor the freebie they didn’t want; but they will remember the one they chose, and will cherish a meal out with their family. These kinds of rewards allow a brand to become a part of a customer’s life.

Not only does the consumer feel valued in these exchanges, they also ensure the brand’s gift does not benefit a rival. A common issue when offering cashback, for example, is that customers may use the money received to buy a rival’s product. And by selecting an appropriate range of retailers, marketers can ensure a rival does not stand to gain when the gift is redeemed.

Another crucial aspect is to ensure the gift is branded. A little over half of our rewards programmes for clients are delivered digitally, always through a branded site showcasing their gift with a redemption code. We also offer branding on physical cards and in the welcome letter that accompanies them. It means the brand offering the reward remains front of mind – it’s all part of the emotional connection they are building with customers.

Multiple KPIs and contexts

The brands that really understand this area don’t just want to show customers they are valued when they sign up. They stay in contact and, particularly for products that require renewal, they offer another reward for the person as a thank you for staying loyal.

Many are now also realising that rewards do not have to be for a high monetary value. Over the pandemic, brands began offering a free coffee voucher when arranging a business call on Zoom, for example. This means that, even when it’s not a face-to-face chat, you can still communicate the very human message that we’d love you to have a coffee on us. This is part of a growing movement that is not always focussed on measuring sales alone. Marketers have many KPIs where they need to move the needle, and rewards can be used to help there too; for example, car showrooms offering reward vouchers for people who take a test drive.

Rewards programmes have the flexibility to suit a variety of objectives at a range of monetary values. They are effective within different strategies because of psychology. Everybody loves to get a gift. It’s exciting, it makes them feel valued and it allows them to get something they’ll cherish or spend time with the people who are important to them. It builds an emotional connection, while protecting price points. As such, it is the antithesis of endless discounting, which erodes price and only diminishes consumers’ perception of the brand.

By Ed Ward, Senior Marketing Director, EMEA at Blackhawk Network.