Blog, customer incentives

What are Customer Incentives? Examples, Benefits & FAQs

May 5, 2023

Businesses are continuously looking for ways to stand out, acquire new customers and increase spend among a loyal client base. One of the most effective strategies to achieve this is to harness customer incentive schemes, which can be an absolute game-changer.

In turn, this has been proven to enhance customer satisfaction and build long-term - highly profitable - relationships. Such programmes offer a win-win scenario for both businesses and customers, as they boost revenue and increase customer loyalty.

In this guide, we’re going to look at some of the key examples of customer incentives in action, their benefits, and the ways in which you can measure their success.

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Why do you need customer incentives?

Customer incentives are an effective way to increase customer engagement and loyalty while also boosting sales and revenue growth. You can encourage customers to make a purchase, come back for more, and even recommend your business to others. Plus, incentives can set your business apart from competitors and make it stand out in a crowded market.

Studies show that 75% of consumers say they are likely to make another purchase after receiving an incentive. Additionally, 45% of consumers made one to three purchases in the past year because of incentives.

But it's not just about retaining customers; incentives can also attract new ones. 18% say incentives always sway them to choose one brand over another.

Happy customers are also more likely to share their positive experiences with others, which can help grow your business even further through referrals. And by gathering valuable customer data and insights through these incentives, you can inform future marketing and sales strategies to keep your business on the path to success.

9 Customer incentives ideas

There are numerous incentive options to choose from that will be dependent on your specific business and target audience. Some of the most widely used customer incentives include money off, bonuses, free samples or products, memberships, free upgrades, coupons, merchandise rewards and of course, our favourite - loyalty points.

1. Discounts

Offering discounts is quite a commonly used incentive mainly because its perceived to be the easiest incentive to implement, but it is an area we recommend you avoid. Discounts come in various forms, such as a percentage off the total purchase price or bundled deals where customers can save by purchasing multiple items together.

Discounts can help entice new customers, encourage repeat business, and shift slow-moving inventory. They can also be strategically harnessed to promote particular products or services, or to motivate customers to spend more to qualify for the discount.

It's important to note that while discounts can be effective, they can also be risky for businesses, read our article on the Dangers of Discounting. Offering discounts on products or services may lead to increased sales in the short term, but if used excessively, they can significantly erode profit margins. When considering customer incentives, it's crucial to strike a balance between providing value to customers while also protecting the business's bottom line.

2. Rebates

Customer rebate incentives involve providing a credit or cashback reward for each pound spent, which can be redeemed for future purchases.

This can come in various forms such as a £5 bonus for every £50 spent or cashback rewards for credit card purchases. This is a great way to encourage customers to spend more and reward loyal customers for their ongoing business. But remember, once you set the precedent its hard to remove it.

3. Free samples

Offering free trials of your products or services gives customers a chance to try before they buy. Here, you remove some of the risk and uncertainty associated with trying something new. This is particularly useful for businesses that offer high-value or complex products, where customers might be hesitant to make a purchase without first trying it out.

Free trials can also help customers discover new products they might not have otherwise considered. By providing them with a sample, you give them the opportunity to experience the benefits of your product first-hand. Additionally, when customers try your products and are satisfied with the result, they are more likely to tell their friends and family about it, which can lead to a boost in sales.

4. Free gifts

A free gift with purchase is a classic incentive that can be tailored to fit any business or target audience. For example, a beauty brand might offer a freebie of one of its newest products with the purchase of a full-sized item, while a clothing retailer could offer a free accessory with every order placed.

Providing customers with a tangible and valuable reward can go a long way in creating a positive and memorable experience. This can lead to increased customer satisfaction and loyalty, which can translate into repeat business and positive word-of-mouth recommendations.

5. Memberships/loyalty programmes

Customer loyalty programmes are designed to create a sense of exclusivity and reward customers for their repeat business. These programs often provide customers with special deals and perks that are not available to the general public, such as free shipping, early-bird discounts, or access to exclusive products.

In addition to incentivising repeat business, loyalty programmes also provide businesses with valuable data. By tracking customer behaviour and preferences, businesses can create more personalised marketing campaigns and product offerings that are tailored to their customers' needs.

6. Free upgrades

Providing free upgrades to premium versions is a smart incentive for subscription-based services. For example, a software company could offer a free trial of its basic version and then a time-limited opportunity to upgrade to the premium version for free. This not only allows customers to test out advanced features but also builds excitement and exclusivity around the offer.

7. Coupons

Coupons have been a staple of the b2c retail space for decades, and for good reason. They are a cost-effective way for retail businesses to attract new customers and encourage repeat business from existing ones. Coupons can be particularly effective for clearing out excess inventory or promoting products that are not selling as well as expected.

Percentage-off deals are a popular type of coupon that offers customers a discount based on the total purchase amount. For example, a store might offer a 20% off coupon for purchases over £50.

Buy-one-get-one-free (BOGOF) deals are another common coupon type that offers customers a free product when they purchase a qualifying item. Pounds-off discounts, such as £5 or £10 off a purchase, are also popular and can be used to incentivise customers to spend more.

Coupons can be distributed through a variety of channels, such as email, social media, or direct mail.

8. Merchandise rewards

Merchandise rewards are strategy used by businesses to encourage repeat business. Customers typically earn points with each purchase that can later be redeemed for merchandise such as electronics, apparel, and home goods. This is particularly effective for businesses that sell frequently purchased products or services and online retailers.

9. Loyalty points

As mentioned above, loyalty points are a popular customer incentive used by businesses to encourage repeat business. These programmes are typically based on a points-mean-prizes system, where customers earn points for purchases and can later redeem them for rewards such as discounts and free products. They are widely used across a variety of industries, including retail, trade, telecomms, hospitality, and travel. Once individuals start the process of collecting they soon get hooked and start looking at aspirational rewards on offer, working harder to achieve their objectives. Its a longer game than some incentives but that is the idea; to boost customer retention and create a loyal fan base.

Our top customer incentive examples

While it’s useful to understand the different incentives that businesses offer, seeing how they're used in real-life situations can give you a better vision for creating your own programme.

You can get inspiration from large brands like Uber and Deepnote, which offer incentives to end consumers, or from companies like HP, which sell through distributors and channel partners. These types of customers are also important to incentivise because they play a vital role in the success of the business.

Uber

Uber revolutionised the taxi industry by introducing a new concept of ridesharing. However, many potential customers were hesitant to ride with strangers. To address this issue, Uber implemented a referral programme that incentivised current customers to refer their friends to the service by offering free ride credits. This strategy helped Uber build trust with its customers and increase its user base, ultimately leading to the company's global success.

Deepnote

Deepnote, a cloud computing resource provider, offers a free plan with 50 monthly usage hours. To encourage customers to interact with their platform, they provide a list of onboarding tasks, such as inviting friends, creating teams, and following them on social media. Completing these tasks earns customers extra free usage hours each month. This not only motivates customers to utilise their service, but also fosters a sense of community and engagement with the platform.

HP

HP has a customer incentive programme that’s specifically aimed at B2B customers, such as resellers, distributors, and channel partners. The programme encourages these customers to sell more HP products by offering different benefits, such as cash rebates, marketing tools, training, and dedicated support from HP.

The programme is divided into three tiers, Silver, Gold, and Platinum, depending on the level of sales and engagement with HP. One of the notable features of the programme is "Deal Registration," which allows channel partners to register deals in advance and secure better margins on sales. This gives partners the assurance to invest in promoting HP products and services, knowing that they will be rewarded for their efforts.

HP also offers regular promotions and incentives, such as discounts, free products, and cashback offers to encourage channel partners to promote specific products or services.

How do you measure customer incentive success?

There are various metrics available to measure engagement with customer incentive programmes and the success of product offerings. However, the top five include Lifetime Customer Value (LCV), Monthly Recurring Revenue (MRR), Customer Satisfaction (CSAT), Net Promoter Score (NPS) and Churn Rate.

Each of these metrics provide a clear picture of the customer experience and the long-term stability of a business:

Lifetime Customer Value (LCV): The average amount of money that a customer spends on a business's products or services over their lifetime.

A high LCV means that customers are happy with the brand and its offerings, which leads to loyalty towards the brand. It's a good sign that the brand has a strong reputation in the market, and customers are willing to keep coming back.
Monthly Recurring Revenue (MRR): The total revenue that a business expects to earn from its customers through recurring purchases or subscriptions in a given month.

A higher MRR indicates that customers are satisfied with the service being provided and are willing to continue using it. It also shows that the service is reliable and provides value that customers are willing to pay for on a regular basis.
Customer Satisfaction (CSAT): A straightforward metric that businesses can calculate by asking customers to rate their experience on a standardised scale.

It's a great way to measure how happy customers are with a product or service. If a business has a high CSAT, it's a good sign that they're delivering a great experience to their customers.
Net Promoter Score (NPS): Ultimately, another way of saying how much customers love your brand.

It groups customers into three categories: Promoters, Passives, and Detractors, based on how likely they are to recommend your brand to others. This helps you figure out who your biggest fans are and what you can do to make even more customers happy. Basically, the higher your NPS score, the better your brand reputation is.
Churn Rate: Calculates the number of customers who have cancelled their subscriptions or services over a specific time period.

A high churn rate indicates that there might be underlying problems like poor customer service or performance issues. Basically, it's a way for businesses to gauge how many customers are leaving and why this may be.

Businesses should address any low scores on the above metrics promptly. Offering customer incentives such as win-back offers or tangible tokens of appreciation may help mend relationships with unsatisfied buyers and improve customer success metrics.

Group of friends discussing the incentives they've earned as happy customers

Customer incentive FAQs

Some of the most commonly asked questions we hear from newbies are based around fundamentals, such as what customer incentives are, the benefits of customer incentives and the difference between an incentive and a rebate, which are answered below…

What are customer incentives?

Customer incentives refer to the perks or rewards that businesses offer their customers to motivate them to buy their products or services or participate in certain actions. These rewards come in many forms, including discounts, freebies, bonus points, and loyalty programmes. The goal of customer incentives is to boost customer involvement, retention, and loyalty, resulting in increased sales for the business.

By providing customer incentives, businesses can entice their customers to continue shopping with them and stay loyal to their brand. These incentives help establish a strong bond between the customer and the business, making the customer feel valued and appreciated. This feeling of value can lead to customer satisfaction and loyalty, which can translate into repeat purchases and increased revenue for the business.

What are the benefits of customer incentives?

Here are the 10 key benefits of using customer incentives:

1. Motivate the customer to take action

Incentives are an effective tool that businesses use to encourage their customers to take specific actions - whether it's completing a survey, leaving feedback, or making a purchase. By providing a benefit or reward for their efforts, customers feel valued and appreciated, which helps build a positive relationship with the business.

2. Build a trustworthy relationship with long-term clients

When businesses offer customer incentives, they are conveying to customers that their loyalty is highly valued and deserving of rewards. As a result, this can foster a sense of trust between the customer and the business, which can lead to long-term and stronger relationships. Moreover, customer incentives demonstrate a business's dedication to providing value to their customers, which can increase customer satisfaction and loyalty.

3. Encourage returning customers spend more

Incentives can motivate returning customers to make more frequent purchases and spend more money per transaction. Knowing that they can earn rewards for their spending, customers are more likely to choose the incentivized business over competitors, resulting in increased revenue for the company.

4. Stimulate more impulsive purchases

By offering certain types of incentive, such as limited time offers or flash sales, businesses can inspire customers to make impulsive purchases that they may not have otherwise made. These incentives create a sense of urgency, encouraging customers to act quickly to take advantage of the offer. This strategy can be particularly effective for businesses looking to move inventory quickly or promote a new product or service.

5. Improve brand promotion

By incentivising customers to refer friends and family to the business, customer incentives can help generate positive word-of-mouth marketing, which is a powerful way to promote a brand. When satisfied customers share their experiences with others, they are essentially endorsing the business and its products or services, which can be more effective than traditional advertising.

6. Stimulate social media engagement

Businesses can leverage social media to host contests or giveaways. By offering rewards for customers who engage with their brand on social media, businesses can increase their brand's visibility to a global audience. When customers share their positive experiences with their social networks, it creates a ripple effect that can attract new customers and strengthen relationships with existing ones.

Social media contests and giveaways can take many forms, such as "like and share" contests, photo contests, and random drawing giveaways. By choosing the right type of contest or giveaway and promoting it effectively, businesses can generate excitement and buzz around their brand on social media.

In addition to promoting brand visibility, social media contests can also help businesses gather valuable data and insights about their customers. By tracking metrics such as the number of entries and the types of content being shared, businesses can gain a better understanding of their target audience and their preferences. This information can be used to tailor future marketing campaigns and customer incentives to better meet the needs and wants of their customers.

7. Gather feedback

By providing incentives for completing surveys or leaving reviews, businesses can gain access to valuable feedback from their customers. This feedback can help them improve their products or services based on customer insights.

Offering incentives can increase the number of responses a business receives and ensure that customers are motivated to provide honest feedback, which can lead to more accurate and actionable insights. As a result, businesses can make informed decisions that align with their customers' needs and preferences, ultimately improving their overall customer satisfaction.

8. Apologise for a mistake

When a business makes a mistake or provides a poor customer experience, offering customer incentives can be a powerful way to apologise and regain the customer's trust.

By providing a gesture of goodwill, the business can demonstrate its commitment to addressing the issue and doing better next time. This can help to repair the relationship with the customer and retain their loyalty, even after a negative experience.

9. Encourage repeat business

Encouraging customers to return and make more purchases is a great way for businesses to boost their bottom line, and offering incentives is an effective strategy to achieve this. Providing loyalty programmes or discounts can give customers a compelling reason to come back and shop again, which can ultimately result in more sales and profits for the business.

10. Reward reviews

Businesses can use customer incentives to thank customers who leave positive reviews. This can contribute to enhancing the business's reputation and attracting new customers who may be influenced by positive feedback from other customers.

What’s the difference between an incentive and a rebate?

Incentives and rebates are two commonly used sales promotion techniques by businesses to incentivise customers to purchase their products or services. While they may seem similar, they have distinct differences.

An incentive is a reward or benefit offered by a business to motivate customers to take a specific action, such as making a purchase or providing feedback. Incentives can come in many forms, including discounts, free gifts, loyalty points, or exclusive access to events. The purpose of incentives is to create a sense of urgency and provide immediate gratification to customers, leading them to take the desired action.

On the other hand, a rebate is a partial refund or cashback offered to customers after they have made a purchase. Rebates are typically a percentage of the purchase price and can be offered as an instant rebate or a mail-in rebate. The purpose of rebates is to provide a financial incentive to customers to purchase a product, as well as to collect customer data through the rebate redemption process.

The main difference between incentives and rebates is their timing.

Incentives are offered upfront and are designed to motivate customers to take immediate action, while rebates are offered after the purchase has been made, often as a way to encourage repeat business or to clear out inventory.

Get your customer incentive programme underway

Customer incentives can be a game-changer for businesses looking to improve customer engagement, acquisition, loyalty and advocacy. With the right strategy in place, businesses can forge unbreakable bonds with their customers, boost their brand reputation, and achieve long-term success. By taking advantage of customer incentives, businesses can stay ahead of the competition and thrive in an increasingly competitive market.