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Discounts Don’t Build Brand Loyalty — But Rewards Do

By Team Fetch

May 8, 2023

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Building brand loyalty requires a deep understanding of what customers want. Rewards are a long-term strategy that drive shoppers to action and lead them from brand loyalty to brand love. When it comes to short-term promotions, however, there are some disadvantages of discounts. Let’s review the business advantages of using rewards, rather than discounts, to drive customer engagement.

What is the difference between discounts and rewards?

It’s easy to group discounts and rewards together. From the consumer perspective, they both represent free stuff, or even free money. But discounts diminish a company’s product retail price, whereas rewards encourage repeat purchases at full retail prices. 

The Disadvantages of Discounts and Advantages of Rewards

Discounts and coupon advertising can quickly affect a company’s bottom line, especially if customers use a discount and never come back. By contrast, rewards help brands increase repeat purchases and build loyalty while maintaining full retail pricing.

Breaking down the disadvantages of discounts

Consider a CPG food product like an all-natural sparkling water brand. If customers get used to the product always being discounted and paying a certain price, they’ll never want to pay full retail price — a classic disadvantage of discounts. Rewards establish full retail price at check out, while still providing value to the shopper. 

Breaking down the benefits of rewards

On the other hand, customer loyalty programs encourage shoppers to return time and time again. Rewards are designed to drive specific behaviors, like increasing spend or purchase frequency. This can help customers fall in love with the product, brand and service while racking up points. 

Programs, like Fetch, reward consumers every time they snap a receipt. This can encourage shoppers to seek out featured brands to maximize rewards earnings. For customers, there’s nothing more satisfying than receiving a gift card they’ve earned just by making regular purchases from the brands they love. 

Why do rewards work better than discounts?

Both discounts and rewards can help a business achieve new customer acquisition and trial — but rewards are what keep customers coming back.

From a brand’s perspective, it may be tempting to run sales, acquire new customers and hope they like the product enough to come back and pay full price. Short-term or recurring discounts build price loyalty, not brand loyalty. This is another disadvantage of discounts. Brands can attract the wrong customers who aren’t in their target audience and won’t become repeat customers who are loyal to the brand. Short-term discounts can lead to spikes in new customers and unreliable metrics followed by drops in engagement. 

By contrast, rewards lead people to return to businesses that offer valuable incentives. Even if the rewards pay out sparingly, the shopper will have built a purchasing habit. 

Historically, discounts have not created loyalty. In today’s challenging economic climate, consumers will shop wherever they can find a good deal. And when dealing with luxury brands, many will only shop when there’s a massive discount, like on Black Friday.  

From the customer perspective, discounts can trigger short-term satisfaction. But building rewards, accumulating points and using them to buy a special item is much more satisfying.  

How do brands build customer loyalty?

Customer loyalty keeps businesses thriving. Many companies focus early marketing efforts on reaching new customers, driving awareness and growing that base. But at a certain level of growth, it’s in a business’ best interest to shift focus to customer retention. Often measured in CLV, or customer lifetime value, companies can track the impact of their efforts by seeing how many of their customers come back — and how often.

Brands have many strategies for building customer loyalty, but rewards are among the best. Leaning on discounts and promotions to attract customers and re-engage existing ones has its costs. To create brand loyalty and encourage repeat purchases, offer personalized rewards. 

Building an audience of engaged shoppers takes time, and so does creating and maintaining an effective rewards program. Rather than starting from scratch, using discounts or trying to revive a plateaued rewards program, brands are turning to platforms like Fetch that do the heavy lifting. 

Benefits From Rewards – Beyond the Bottom Line

Rewards build brand loyalty. Over time, they can also help brands achieve brand love. And rewards affect more than the immediate bottom line: they can help generate long-term customer interest and increase overall customer lifetime value. 

Fetch provides a framework for centralized rewards programs. With this platform, all brands can help shoppers build rewards and redeem points. Providing the opportunity to earn more rewards helps encourage more purchases and contribute to verified incremental return

Want to tap into an engaged audience that values rewards? The Fetch community has over 17M monthly active users (even more than Starbucks Rewards), making it an ideal location to quickly scale a loyalty program. Get started with Fetch for Business

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