Rewards vs Discounts: What’s the Difference?

On the surface, the terms discounts and rewards may look the same. In fact, they are often used interchangeably, but when it comes to marketing and cultivating customer loyalty, discounts and rewards couldn’t be more different. Keep reading to learn which strategy you should be using. 

Some Quick Examples of Discounts 

I once worked at the jewelry counter at a large retailer. One day, I was told to mark up every piece of merchandise and place “70% Off” signs in strategic places. If you had never been in the store before, you might think, “Oh man, this is my lucky day. I better take advantage of this incredible sale.” 

However, if you were a regular customer, this seemingly generous discount was easily pegged as a pretty transparent ruse. When there is a 70% sale on jewelry, several months of the year, it doesn’t exactly scream value. Customers know that they are essentially just paying the retail price. 

It’s like the furniture stores that have been displaying “Going out of Business Sale” banners for the last ten years. The discounts seem contrived and are further devalued by the fact that they are available to everyone. 

For businesses, offering non-discriminating discounts is the equivalent of casting a wide net and hoping to catch a particular species of fish. At the same time, businesses that advertise discounts generate a low return on their investment. Discounts are simply too general and lack the targeting that makes today’s marketing efforts effective.

Why a Rewards System Improves Results

Technology has made it possible, and even easy, to gather all sorts of information on customer behavior. For businesses, this creates opportunities to cultivate custom experiences for each customer. Implementing a rewards system is a great way to target customers based on their specific value to your business.  It enables you to provide specific incentives to drive their value up even higher!

Instead of offering a discount to everyone, reward customers for their loyalty and their past purchase behavior with you! Rewards can be calculated and offered in a variety of ways. Let’s say that they earn ten points every time they purchase a pair of jeans. Once they have collected a total of 100 points, they may receive a free pair. They have an incentive to keep shopping at your store and there is a certain amount of excitement.  More importantly, they have motivation as they get closer to earning their next reward.

There also are infinite ways to use rewards to target customers based on preferences that you can glean from data. For example, a customer has spent $200 on sweatshirts last year, but hasn’t visited in the last three months. You could send them a general discount and hope it motivates them.  In contrast, you could target them with a “20% off a Sweatshirt” incentive, which is more likely to appeal.  A rewards program enables this, and increases your chance of getting them back into the store. 

When it comes to winning over customers, targeting is the name of the game. Fortunately, technology makes it easy to not only collect data and analyze customer behavior but to automate your marketing. It doesn’t require constant vigilance to deliver a customized shopping and rewards experience. User-friendly interfaces allow you to segment customers and send targeted rewards, with just a few clicks.

Targeted marketing and automated rewards systems are here to stay and represent the future of business. Businesses who are relying on traditional approaches of offering general discounts are quickly finding themselves losing customers. If you would like to learn more about how a rewards system can benefit your business, contact Preferred Patron today.