by Alex Palmer | October 16, 2018
While discounts are often a default option for merchants seeking to motivate consumers to make a purchase, rewards make for a more effective incentive. Those are the findings of new research from rewards and incentive provider Hawk Incentives, which determined that companies enjoy an average year-over-year revenue growth increase of 36 percent that can at least partly be attributed to reward-based promotions (including such as physical gift cards, egifts, prepaid cards, merchandise, checks, rebates and more) as opposed to 28 percent attributed to discounts.

Conducted by analyst firm Aberdeen Group, "Next-Generation Promotions" drew on the responses of 212 American businesses with a self-reported average annual revenue of $4.5 billion. It found that compared with discount-based promotions, those companies that offer reward-based promotions generate an average profit margin per customer of 6 percent (24 percent for rewards-based promotions versus 18 percent for discounts).

"Businesses have plenty of choices when determining marketing strategy, but reward-based programs stand out as incredibly impactful options to achieve business goals and drive effectiveness," said Theresa McEndree, vice president of marketing, Blackhawk Network, parent company of Hawk Incentives, in a statement. "These promotions enable businesses to encourage consumers to buy products while creating engagement that makes them more likely to make repeat purchases in the future."

She added that while "consumer loyalty can be fleeting," these kind of promotions based on rewards than simple money savings allow businesses to create return shoppers without eating into their revenue growth or impacting brand reputation.

The report's findings highlighted these reputational considerations, with 43 percent of companies surveyed saying they consider using reward-based promotions to create the impression of a premium brand image. Additionally, 44 percent of companies say they prefer rewards-based offers when competing with a rival on brand image. 

The research also found that when deciding between reward- and discount-based promotions, businesses reported that they chose reward-based to foster customer engagement (58 percent), drive purchase intent (48 percent), drive sales lift and/or purchase frequency (45 percent) and minimize lost revenue potential due to discounting (44 percent). 

"If a business is aiming to drive sales lift or purchase frequency, compete on perceived brand image or drive purchase intent, companies using well-planned and executed reward-based promotions typically perform better than peers using discount-based promotions," said Omer Minkara, vice president and principal analyst for contact center and customer experience management for Aberdeen Group, in a statement. "In fact, other research has found that the majority of surveyed consumers -- nearly 80 percent -- prefer rewards in the form of prepaid cards to other incentives such as discounts or merchandise."