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What is a Customer Incentive?

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  • Written By: Tricia Ellis-Christensen
  • Edited By: O. Wallace
  • Last Modified Date: 31 August 2016
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A customer incentive is any number of things like free gifts, rewards, bonus points, or reduced pricing that are designed to increase sales, expand customer base, and establish customer loyalty. There are numerous ways that various businesses can employ these incentives to not only increase the happiness of their customers, but to also make their businesses more profitable. Each new incentive must retain or grow profitability for the company, and it must be something that has a reasonable chance of being attractive to customers.

There are many examples of the customer incentive in retail. Some of the most common incentives include sales and discounts on merchandise. A number of retail department stores now send out coupons offering a specific dollar amount off of purchases.

Some stores qualify this by specifying the customer must spend a certain amount to get the discount. In recent years, a few stores have offered incentives where no dollar amount is specified, i.e., “Get $10 off a purchase of $10 US Dollars (USD) or more.” Theoretically, a person can have $10 USD in free purchasing power, and the incentive is designed to get more customers in the door, with a secondary hope that a shopping trip will exceed the free $10 USD.

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Another customer incentive in retail and other markets is the gift with purchase, sign-up, or enrollment. Gifts with purchases are often used in cosmetic sales. Large companies like Sephora® offer free samples with each online order.

A variation of this is the “buy one get one free or at half price” approach, used in shoe stores, grocery stores and many department stores. Alternately, a customer incentive can encourage customer loyalty by offering a gift after several purchases. Cafes might offer a free coffee drink after nine coffee drinks have been purchased. The ingenuity of offering a reward at a later point is that it encourages people to keep using a business to get that reward.

A similar method for encouraging customer loyalty is practiced by service companies like credit card companies. Customers may accrue money back, bonus points, free gas or frequent flyer miles. People who most use their cards receive better rewards. Sometimes a customer incentive is combined with higher pricing demands. Costco®, for example, offers a premium membership that costs more, but that can also give customers a certain percentage of their spending back at the end of each year. Frequent users are most likely to benefit from this incentive.

In order for a customer incentive to be effective, it must have measurable positive results. Undertaking incentives without some investigation as to profitability and likely return for the business is not advised. Many companies hire marketing experts, or at the very least, they do their research when planning an incentive to determine which incentives are likely to have the most positive effects and accomplish the company’s goals. Business should also plan to carefully track results, such as through analysis of sales, new customers or increased customer loyalty, to determine if an incentive is worth continuing or worth using again in the future.

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