The rebate debate

The rebate debate
Tags: Customer Service, Loyalty Programs, Marketing, Retail - General
May 17, 2011

According to research released by the Aberdeen Group last week, half of retailers use rebate programs as part of their mix of customer loyalty.

In addition, half of the study respondents, both retailers and manufacturers, said the top benefit of rebates is customer retention. One of the study’s researchers said in a press release that the study findings “revealed a persuasive business case for rebates…demonstrates the value of rebate programs.”

I beg to differ — particularly if, as loyalty marketers, you are focusing on customer retention and, therefore, long-term consumer relationships.

After all, if 50% of companies offer rebates, where is the added value for the consumer? What possible reason would they have to stay loyal based on rebates alone?

Rebates have their place — no doubt about it: They cast the widest possible net and they help gather and identify the maximum number of customers in a short span of time.

However, rebates are easy to copy. Any company, whether they offer fine customer service or treat consumers poorly — can throw a rebate out there. Simply put, there’s nothing special about it, so there’s nothing to throw your loyalty behind. There’s no deeper value proposition to a rebate.

A customer may take advantage of a rebate in the short-term, but how will you hold onto that consumer when you’re just solely focused on price?

Stay lasered in on price, and you’re also just one step away from falling into price wars with your competitors — not a place you want to be when the biggest retailers with the greatest scale will always win on price, while your margins become ever-more razor-thin across the board.

A well-planned, well-executed loyalty program can beat straight rebates on several fronts:

1) It’s not just price-focused.

You can still go the discount route with a points program, but you can round out the rewards mix with soft benefits that take the weight off of price as well as give customers other reasons to value your brand.

2) You’ll gain more understanding of your core customers.

A strong loyalty program offers you the opportunity to gain knowledge of the customers that really matter — the ones that keep coming back. A rebate spreads the net wide, while a good program casts a focused net that gathers the data you need to provide clues that help improve the program overall.

3) You can win over your customers again and again — without jeopardizing future sales.

A rebate can be a band-aid fix for a much deeper problem — the lack of vision for a long-term customer value proposition. A well-planned, well-executed rewards program can offer a mix of incentives, both hard and soft, that, combined with excellent everyday service, can give consumers a range of reasons to stick with you.

The rebate debate has a long history, with arguments for and against. Certainly, discounts such as rebates have their place — but they shouldn’t, and needn’t, be your central go-to for customer retention.