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Reward programs in marketing works and we don’t have to look very far behind, to find the evidence. A recent study found out that 82.4% of customers tend to shop more from stores that have some form of reward program. This goes on to prove the effectiveness why use reward marketing and how it can help you in edging out the competition. This blog attempts to dig deep and find out the inner workings of the marketing strategy in question - What is Reward Marketing and How it Can Help?

What is Reward Marketing?

Reward Program has a vast scope as it can be used to create better engagement with - employees via employee rewards, channel partners, and customers via different reward and loyalty programs (anything to do with building a human relationship). When applied in marketing, rewards can help you -

  • Build connections
  • Increase customer loyalty
  • Deepen engagement and
  • Attract new customers

Reward marketing is a practice where you leverage a reward or loyalty program through program participation. This is done by providing appealing and attractive rewards.

Reward Marketing Can Help You Across the Marketing Funnel

Acquisition: Customer acquisition is essential for businesses of any age and size. Being able to attract and convert new customers systematically, keeps companies healthy and growing — and investors happy. But how do you do that?

Consider reward marketing. Reward marketing helps you provide that extra something - be it incentives, credits, physical gifts, monetary rewards or even non-monetary rewards to your customers. The best thing about reward marketing is its multi-purpose properties. Reward marketing is not just a one-way funnel but a flywheel that helps you acquire the right kind of customers who will stick around.

Retention: Building a new customer base is expensive. The costs may vary across industries. But according to Mehdi Khosrow-Pour in his book "Emerging Trends and Challenges in Information Technology Management," replacing a customer is five times more costly than keeping an old one.

Emerging Trends and Challenges in Information Technology
Emerging Trends and Challenges in Information Technology

A better approach is to keep the customers you have, by opting for customer incentives or smart reward marketing programs. This will help you in retaining customers and making them loyal towards your brand. Knowing that making a second purchase from your brand will earn customers coupon codes/vouchers will make your product more attractive than those of your competitors.

Referrals: Another benefit of reward marketing is that it can help you tip a potential customer to make a purchase – especially when backed up by a friend's recommendation. Referral rewards come in all shapes and sizes, but the trick is offering ones that complement your brand experience and meet your customers' needs. The most common ways are -

  • Rewarding both parties with coupon codes redeemable at next purchase
  • Rewarding the recommender with bonus points
  • Getting creative with free-products

Customer Advocacy: Customer Advocacy is a way that allows brands to acquire new and valuable customers organically. The positive attitude of the customers towards your brand's products/services and leads them to recommend the same to others after experiencing it themselves.

Your customer advocates are driven by something called - SAPS (Status, Access, Power or Stuff), and reward marketing can do that. You see, reward marketing is not only about giving coupons and freebies but creating an ecosystem where customers can share knowledge, expertise and making customers feel that their opinion matters.

Types of reward marketing

Point-based system: This is a kind of reward program that lets customers collect points that can be redeemed on various products/services. They are much easier to set up, making it the most popular type of customer retention program.

Many e-commerce businesses who struggle to get customers in the virtual door might find a solution in this kind of loyalty program. There are various ways the customer can earn such points. For example - social sharing, grievance compensation, emails, or any other actions you take to drive traffic to your site.

Frequent buyers program: It is an excellent tool for maintaining brand loyalty. It's generally in the form of a gift card, voucher, discounts, freebies, or special customer treatment. It is usually given to customers who come to your site or store and hit "purchase" more frequently. It is an easy and commonly used customer retention program for both technical (Amazon, Victoria Secrets) and non-technically advanced (coffee shops, gas stations) businesses.

Gamification: Gamification is not a new tactic in the marketing field. Companies have been creating experiences of a game in a non-game environment to increase sales. Gamification will always be relevant because it plays on people's natural competitive instincts, to trigger action and influence buyer choices. This type of program can be used for both customer acquisition and retention. There are different elements to gamification, and each drives a different result -

  • Redeemable reward points provide feedback that feeds the customer's need for instant gratification.
  • Badges are like visual status symbols. They influence behaviour that triggers the customer to engage with your brand more, to earn more badges.
  • Milestones reveal the success journey of the customer with your brand. They inspire a sense of achievement and more competition.
  • Avatars can be used for creating a narrative context. They allow customers to become part of a community, which triggers more interest.

Referral program: In this program, you reward your advocates or happy customer for successfully referring their friends to the store. For example, Some brands give cash-back to customers who refer your app to their friends. Referral Rewards is a great way to enhance sales because it not only generates new leads but also retains older customers by rewarding them.

Contest/Sweepstakes: Contest/sweepstakes are designed to fulfil the human need to win. A win is of no use if there is no reward. However, the way of determining the win is different for both contests and sweepstakes. In sweepstakes winners are chosen by luck.

The prizes can range anything from - stickers, t-shirts, houses, cars, and enormous cash wins. They are a great way of acquiring new customers. Contests, on the other hand, draw winners based on some merit. In such cases, the prize is also something that gains the interest and motivates customers to enter the contest. This is a useful tool for retaining customers who are already part of your target base. Contest and sweepstakes together are a force to be reckoned. They not only generate interest but also help in expanding your reach to a larger target audience.

Product reviews: The e-commerce sector commonly uses this kind of reward marketing. Customers can rate and comment on products they have purchased on the product page. Other consumers can read remarks when making a purchase decision. However, nudging customers to share their positive feedback is not easy.

What is in it for them?

Winston Churchill Quotes
If you want your customers to rate and give feedback positively, you have to give them something back. That is where reward marketing can help you out. For example, there is this apparel company that uses reward marketing to up its product reviews. After 3-5 days of product delivery, they re-engage their customers by asking them to rate/ review their products. For each product review, customers gain points. They can redeem those collected points for their next purchase.

It is a win-win situation because -

(a) it leads to increased traffic, as customers come back to redeem their points.

(b) Their ratings and reviews help new customers in making the crucial decision of purchase.

Tips for building a successful customer reward program

A perfectly running reward program should be rewarding, engaging, and motivating. Here are some tips to consider while running a reward marketing program :

  • Make rewards appealing: Customers may sign up for your rewards program, but it doesn’t always equate to loyalty. Did you know? Only 13% of customers are complete loyalists. Therefore, your rewards program has to be appealing and enticing enough for customers to sign up and use it regularly. For example, many high-end beauty salons charge members a fee to join but also offer seasonal and monthly coupons of the same amount to offset the cost of the program.
  • Make the reward program easy to understand: One of the most complicated parts of launching a customer reward program is explaining it to customers. If your plan is too confusing, or time-consuming, your customers won’t sign up. Here, minimalism is the key. While explaining your program, keep the language simple and keep the description small (one or two sentences), and don’t forget to mention what is in it for them.
  • Rewards need to be Relevant: Rewards create loyalty only if your company knows how to share value. Which means you need to give customers rewards that are relevant and valuable for them. The best way to do that is by creating different tiers. Segment your customers based on where, when and how they shop and reward them accordingly.

In Conclusion

The relationship between your brand and the customers is like a marriage.

It is not always a smooth road. Your consumer’s (your spouse) relation with you can get complicated, and their needs and behaviours can change over time.

Hence, brands will sometimes need to work hard and be more sensitive to their customer needs. They will need to come up with new engaging strategies, one being reward marketing, if they do not want their relationship to end up in a divorce.

Mohit Bansal

Mohit Bansal

Mohit Bansal has 6 years of experience in solving early product and product marketing problems. In his last stint, he along with his co-founders bootstrapped a profitable startup.