What is the value of promotions, referrals and loyalty?

Many brands still view promotions as a simple sales tactic or a tool to shift excess stock. At the cutting edge, however, promotions have evolved from their humble beginnings into highly complex digital campaigns that can react to a diverse spectrum of use cases, customer needs, and business demands.

Promotions are now an integral part of high-level business strategy, helping brands increase customer loyalty, brand recognition, customer retention, and many other core business objectives.

Digital promotions have become ubiquitous in ecommerce, retail, and a huge variety of other industries. Customers increasingly expect sophisticated levels of personalization and targeting, turning promotions into a battleground for innovation.

At their most basic, promotions allow businesses to increase their appeal to customers by altering the perceived value of their products or services. However, this misses much of the nuance that really highlights why businesses use promotions.

Promotions allow businesses to bridge the gap between their own objectives and the desires or needs of the customer.

Amazon Prime is a key example. Amazon launched this program as a way to increase customer loyalty. The best way they identified to improve retention rates and increase order recurrence was to offer customers something of value outside of the usual product discounts. It was already fighting other ecommerce companies with tight margins on various products, but executives spotted a potential solution in the form of shipping.

Rather than simply making shipping free, Amazon decided to offer free 2-day shipping for a small yearly fee. This offered customers a permanent incentive to shop with Amazon, which in turn significantly increased Amazon Prime customers’ yearly spend. 

Another example of a promotion that addresses customer and business needs simultaneously comes from Tier, a Berlin-based e-mobility that offers customers free minutes when they swap batteries on low running scooters. Tier saves money by not having to replace the batteries themselves, and customers get a reward for their efforts.

Businesses can now run reactive, personalized promotional campaigns around any target objective with minimal software investment or extensive prior market research. The barrier of entry is now low enough that even smaller businesses can launch promotional campaigns to rival much larger competitors.

Digital promotions drive results and provide additional business value in many different ways, including:

A well-planned and well-executed promotional campaign can provide a huge boost to brand recognition.

Take McDonald’s Monopoly and Uber’s referral program for example, both of which have become synonymous with these brands

Fundamentally, this is the main purpose of promotions. It’s what they’re best at.

As of October 2020, the Starbucks Rewards program accounted to 50% of the brand’s entire revenue

Offering more attractive or competitive deals helps businesses improve their standing among competitors.

‘10 minute’ food delivery app Jokr doesn’t charge a delivery fee or require a minimum delivery amount, a risky move but definite selling point over competitors.

GoPuff opts for a different approach — a more limited product selection to concentrate purchasing power and offer bigger, more regular discounts.

Promotions can be used in all sorts of ways to build competitive advantages

Costco uses a variety of promotional strategies, including a paid membership system and bulk product pricing, to give it a competitive advantage against rival retailers.

As well as being customizable for any business objective, promotions are applicable to practically every industry.

It doesn’t matter whether you operate in general retail, services or a specialist niche, it’s always possible to build promotions that will help drive results.

The motivations behind loyalty are diverse, varying customer-to-customer and brand-to-brand. But the key to doing loyalty right is recognizing each customer’s individual motivations and preferences and finding a way to personalize rewards accordingly.

On a strategic level, loyalty has become a huge focus for brands because it boosts sales, helps keep customers away from competitors, and contributes to customer retention.

Younger consumers, especially Gen Z, are much less brand loyal than previous generations. Brands have had to up their loyalty game with creative new promotions when dealing with younger customers for this reason. They’ll readily switch between brands depending on how well each one meets their current needs, which could be value for money, green credentials, product fit, etc.

One industry where loyalty programs have taken off as a valuable brand differentiator is financial services. With online banks emerging as a real competitor to online banks, especially among younger consumers, enticing, rewards-focused loyalty programs have popped up across the industry.

Take Bank of America’s Preferred Rewards program, for example. It offers three tiers, Gold, Platinum, and Platinum Honors, which are determined by the customer’s account balance. Higher tiers get a range of perks, including better interest rates, cheaper mortgage and loan rates, and free ATM transactions.

Bank of America's Preferred Rewards program

Getting loyalty right is all about understanding what your individual customers want, and what kind of incentives they respond best to.

Expectations for modern loyalty programs have progressed past simple, points-based systems with generic rewards, to now include:

Many brands are also turning to a paid loyalty program membership model. Making the investment in a fully personalized rewards and customer service system can increase customer satisfaction by ensuring a high-quality loyalty experience all round.

To maximize the impact of your loyalty program, you need to start thinking about it as a permanent, continuous touchpoint with your customers. It will help you understand exactly how they shop and what they like, so you can incentivize each purchase with relevant rewards whenever you need.

This means offering opportunities to earn and redeem loyalty points seamlessly across all channels your customers use. This is part of an omnichannel approach that is becoming increasingly essential for businesses that want to use their loyalty programs as a tool for a wide range of business objectives.

Loyalty strategy should also be revisited regularly to realign it with your wider business goals. If your current approach isn’t working, you’ll need to change your campaign set up to better meet your needs.

Referral programs are another important promotional technique that uses rewards to drive new customer sign-ups. Existing customers get a referral code that they can send to friends. When friends redeem the referral code, the existing customer and the friend get a reward.

Referral programs are one of the most cost-effective promotional techniques because they effectively get the customer to do all the hard work finding new referrals.

But referral programs also have another big selling point — the quality of customers they attract.

There are a couple of reasons for this:

This means referral programs can also have a significant positive impact on sales, customer retention and brand loyalty. While they are primarily customer acquisition focused, they’re multi-dimensional in their benefits. But achieving a full range of benefits from referral programs requires solid referral strategy and planning.

Referral programs and referral strategies have evolved since promotions went digital. To run a successful referral program, businesses should consider implementing the following features:

There are two sides to every referral program — your existing customers and the people they refer. Providing the right incentives and rewards to both of these groups is the key referral program success. Depending on whether you're prioritizing customer acquisition or customer retention, you'll want to change you approach to these two groups.

New customers can quickly become advocates themselves, so it's a good idea to monitor individual referral stats for each customer. Offering special VIP rewards to your highest performing advocates will drive their referral efforts even more.

Incorporating other promotional techniques into your referral program will also help personalize the customer experience. This could be via custom coupons with secondary effects and benefits, and personalized loyalty rewards.

Digital promotions have reached full maturity, mainly thanks to improved third-party software capabilities and widespread cross-industry adoption. Businesses used to have to rely on in house-solutions, which are expensive to set up, both in terms of time and money. These in-house promotion builds ultimately fail to cover a broad range of use cases and lack advanced campaign capabilities needed to set up specialized promotional campaigns.

Digital promotions can now be launched, managed and monitored from dedicated promotions platforms. This has cut required investment hugely, and allowed businesses to experiment with new promotional campaigns for highly specific use cases.

Talon.One’s Promotion Engine was built to allow limitless customization and personalization options for digital promotions. Businesses can build any promotional campaign they want by combining coupons, discounts, loyalty and referral programs, bundles, gift cards, geofenced campaigns, and much more.

For more information on the benefits of personalization and personalized promotions, download our Essential Guide to Personalizing Promotions.