Smart marketers like you already know promotions are important. They help achieve a variety of goals and drive more revenue. Here’s what you might not know: reward-based promotions (such as rebates) can actually outperform instant discounts across several important performance metrics.

A recent Aberdeen study explored two types of marketing promotions: reward-based promotions and discount-based promotions. The study summarized that “overall, companies using reward-based promotions achieve far superior performance results” as compared to those that go the discount-based promotions route. Let’s explore some of the reasons why.

Marketing effectiveness & profitability

We know profitability per customer is an important metric when evaluating which type of promotions to use. That’s why it’s important to know that companies using rewards-based promotions see an average profit margin per customer of 20.8%; companies using discount-based promotions see an average profit margin per customer of 19.6%. This may seem like an unremarkable difference on the surface. But 1.2% can certainly add up, so let’s dig deeper.

There are actually two sub-categories included under reward-based promotions: 1) rewards with no need for validation, and 2) rebates that require validation. If we compare rewards that do not require validation, the average profit margin per customer jumps to 24%—a sizable (22%) performance improvement over discount-based promotions! Companies that use rebates also experience a 22% greater annual increase in profit margin per customer versus those that use discounting (22% vs. 18% annual improvements, respectively). Reward-based promotions without validation beat discount-based promotions when it comes to ROI, too; the former performs 13% better, averaging 31% ROI versus the 28% of discount promotions.

Annual performance improvements

The gaps in profit margins only widen with time, sweetening the pot for marketers that stick with reward-based promotions for the long-term. Companies that use reward-based promotions without validation report performing 62% better than companies using discounting when it comes to annual improvements in average profit margins. Average profit margin per customer follows suit: companies using rewards without validation see an annual improvement of 30% versus discount-based programs, which only experience an 18% improvement.

Companies using rebates (rewards with validation) see better results almost across the board, beating out discounts in customer satisfaction (12% better results), average profit margin per customer (22% better results), annual company revenue (7% better results), and customer lifetime value (7% better results).

This data isn’t a hiccup, either. These positive results stretch across various annual company performance categories, making rewards-based promotions the obvious winner:

Company Revenue

  • Companies using rewards: 36% improvement
  • Companies using discounts: 28% improvement

 

Customer Lifetime Value

  • Companies using rewards: 30% improvement
  • Companies using discounts: 226% improvement

Customer Effort Score

  • Companies using rewards: 29% improvement
  • Companies using discounts: 28% improvement

Customer Satisfaction

  • Companies using rewards: 33% improvement
  • Companies using discounts: 28% improvement

 

Influence on customer experience

We know you also care about how rebates influence the customer experience (CX). So we asked. Overall, companies enjoy 20% greater customer satisfaction annual improvement in customer satisfaction rates when rewards-based promotions are used. Rewards-based promotions see improvements of 33% in this area, while discount-based promotions see improvements of 28%.

Do you want your customers to consider you easy to do business with you? We hope so! We also looked at customer effort scores, which reflect various points of customer feedback:

  • Customers’ perceived effort when interacting with a business on a scale from one (very easy) to five (very hard).
  • Whether or not customers find it easy to do business with the company.

Spoiler alert: reward-based promotions fared better than discount-based promotions in this category, too—to the tune of 29% improvements versus 28% improvements.

It’s a slight uptick, but it’s the little things that matter, right? Measuring year-over-year results for this area of CX can provide insights into how each promotion type is impacting customer effort, in either a negative or positive direction.

Conclusion

Running successful promotions means first understanding how the success of those promotions will be measured. That’s why we’ve outlined some financial and CX metrics that you can use to evaluate the success of your promotions. While each company has unique objectives, it is clear that rewards-based promotions often enjoy superior performance.