What is incentive marketing?

By Amy Rigby|6 min read|Updated Mar 8, 2024

If you've ever braved the crowds on Black Friday for the deals, stopped by 7-Eleven on 7/11 for a free Slurpee, or collected freebies on your birthday, you’ve been swayed by incentive marketing.

A whopping 84% of US businesses employ this influential tactic, spending $75.6 billion a year on things like merchandise and gift cards to reward their customers.

Incentive marketing includes everything from cashback offers and rebates to attendance incentives and loyalty programs. It can move prospects further down the funnel, or create lifelong fans.

Below, we’ll look at seven highly effective incentive marketing strategies, including one that can boost customer lifetime value by up to 25%.

Incentive marketing rewards prospects and customers through gifts, rebates, and more for performing behaviors that move them to the next stage of the customer journey.

The only difference between marketing and incentive marketing is that prospects and customers get a reward for taking that next step.

Running an Instagram ad featuring a video of your product and a call-to-action to “buy now” is marketing. Meanwhile, running that same Instagram ad and offering a $15% off promo code is incentive marketing.

Below, we’ll outline a number of incentive marketing strategies and identify the stage of the marketing funnel at which they’ll be most effective.

A quick refresh on the stages of the marketing funnel:

Awareness: The lead is becoming aware of the problem they have that your product can solve.
Consideration: The prospect is now comparing your product against other potential solutions as they approach the decision to buy.
Decision: The prospect converts to a customer.
Loyalty: The customer goes from one-time buyer to repeat customer.
Advocacy: Your loyal customer becomes a brand advocate, referring others to your business.

Marketing funnel stage: Decision, loyalty

A cashback offer, also known as a rebate, is a partial refund given after the customer makes a purchase. While it’s typically cash, you can also issue a rebate as a Visa prepaid card, gift card, or store credit.

Why are rebates effective?

Shoppers feel like they’re getting a good deal. Rebates make shoppers feel as though they’ve saved money, even though many won’t follow through on redeeming them. In our research, rebate claim rates hovered between 38-60%.
Sellers get a bump in sales and protect their profit margins. Because of the relatively low claim rate, rebates allow brands to keep a higher percentage of profits than they would with discounts.

Here’s how consumers value the different forms of cashback based on our research (in order of most to least appealing):

Cash
Visa prepaid card
Gift card of choice
Store credit

Marketing funnel stage: Decision, loyalty

Unlike rebates, discounts happen at the point of sale, either through an automatically applied discount, a promo code, or a voucher.

Discounts are effective because they:

Offer instant gratification for the consumer. With discounts, shoppers get the guarantee that they’ll immediately get money off of the purchase, whereas the benefits of a rebate can feel uncertain and far in the future.
Nudge prospects to make the purchase. Sixty seven percent of shoppers have bought something they weren't planning to buy just because of a coupon or discount.

But from the seller’s side, discounts can be bad for business. They can:

Hurt profit margins. Discounts are claimed 100% of the time, whereas in our research, rebates are redeemed at a rate of only 38-60%. While discounts are more likely to give you an instant bump in sales, because of their all-inclusive nature, they can eat into your profit margins.
Harm brand perception. When you slash prices, you can unintentionally signal to consumers that your product is low quality. But when you offer cashback after a purchase, that’s less likely to happen.

Marketing funnel stage: Awareness, consideration, decision, loyalty, advocacy

Events are a versatile marketing tool because they’re effective from the top of the funnel to the bottom, depending on how you tailor them. Take, for example, the webinar, a common online event. If you're a company that sells employee recognition software, you might do the following:

Top of the funnel: Host a webinar with a broad topic that your ideal customer finds interesting, such as "Top Employee Engagement Trends for 2024." This casts a wide net and educates the audience about their problem and your brand. It also builds your brand authority.
Middle of the funnel: Now that prospects are aware of their problem and your brand, warm up those leads by hosting a webinar on "How to Boost Employee Engagement Through Recognition" that highlights how using your recognition software can help them.
Bottom of the funnel: Lastly, a bottom-of-funnel webinar would be something like a live demo of your software, with a sales pitch and time-limited offer at the end that aims to close the deal.

But ensuring people actually show up to your event can be a challenge. Incentives can help to push your event higher on your attendee’s list of priorities.

Here are a few ways incentives can help to increase the ROI of your events:

Boost attendance. Anyone who’s ever planned a party knows the pain of no-shows—and event marketers are no exception. Providing incentives like a raffle prize, a lunch voucher, or a gift card to attendees is one way to get them in the door. The right incentive can be the difference between packing your webinar with people, and presenting to a thin audience. FUSION Performance Group gave away digital gift cards to double attendance for its events.
Generate leads. Offering incentives, such as a free ebook for those who sign up for a webinar, can generate more leads in your pipeline.
Encourage participation. Using incentives even after your event begins is a great way to maintain attention and encourage participation. At Tremendous, we do this by sprinkling one-question quizzes throughout our webinars, and gifting $10 to everyone who answers correctly. People are way more likely to participate when there’s money up for grabs.

Marketing funnel stage: Consideration, decision

Participation incentives are particularly effective at warming up leads in the consideration phase and getting them to the decision stage.

You’ve probably received an offer in your LinkedIn messages to take a demo for a $50 DoorDash gift card, for example. Incentivizing demos is becoming increasingly popular as a way to make cold outreach messages more attractive to prospects.

"Using incentivized offers to generate demos has been a key tactic for pipeline generation for us," writes Bryttney Blanken, Senior Demand Generation Manager at Metadata.

Her company chose digital gift cards as demo incentives, and it’s been a huge success. Why? As Blanken explains, they’re “recognizable (high perceived value) and easily deliverable (100% digital, no shipping concerns).”

Marketing funnel stage: Loyalty

A win-back campaign aims to reactivate customers who haven’t engaged with your brand in some time. Typically, this means it’s been a few months since the customer has opened your emails or made a purchase. If you’re a subscription business, it could also mean the customer has canceled their membership.

With a win-back campaign, businesses try to get the customer to engage with your brand again (e.g., open your marketing emails or revisit your mobile app) and, ultimately, make another purchase.

But when a customer has lost interest, sending them more of the same type of communication isn’t going to make them any more likely to open them again. Instead, offer an incentive.

Incentives work because they play on our need for novelty. Win-back campaigns specifically target previous customers, meaning these campaigns need to stand out from any other marketing that has already targeted existing customers.

Providing a new and exclusive offer to a lapsed customer can catch their eye and convince them to return.

Marketing funnel stage: Loyalty

Brands use loyalty programs to encourage repeat business by rewarding members for every purchase. These programs may offer points that are redeemable for rewards, members-only benefits like free shipping, or cashback on purchases.

Loyalty programs work because they:

Gamify shopping. Amazon Prime, for example, offers free same-day shipping to members who spend a minimum of $25. Seeing the green status bar growing ever closer to $25, along with a countdown timer, evokes a sense of urgency to unlock this benefit.
Make members feel special. Massey University associate professor Valentyna Melnyk studied nearly 10,000 consumers and their opinions of loyalty programs. She found that giving loyalty program members special treatment (in the form of non-monetary incentives that non-members couldn’t get) was more effective at cultivating customer loyalty than offering bigger discounts.

Again, this is where Amazon Prime shines. In addition to discounts, it offers its members exclusive perks like unlimited photo storage and early access to newly released ebooks.'

Marketing funnel stage: Advocacy

There are loyal customers, and then there are advocates: those who are the first to buy your latest product, post about it on Instagram, and rave about your brand to others.

If you’ve got customers willing to recommend you to their friends, you’re sitting on a goldmine.

Research by University of Pennsylvania marketing professor Christophe Van den Bulte and colleagues found that referred customers have a lifetime value that’s 16-25% higher than that of non-referred customers.

Even if you don’t yet have brand advocates, you can create them with rewards.

Customer referral programs provide free gifts, recognition, discounts, or monetary rewards to customers who refer new business. These programs turn shoppers into brand advocates, helping you acquire new customers and boost revenue.

Referral programs are powerful because people are more likely to take their loved ones’ advice over yours (no offense). HubSpot found that 81% of buyers trust family and friends over brands.

Just look at PayPal. Before it was a $60 billion public company, it was a new technology that few people knew about and was struggling to gain critical mass.

In 2000, PayPal launched a referral program that catapulted it from 1 million users to 5 million in less than a year.

As you can see from this Wayback Machine capture of PayPal’s site in 2001, at that point, the company was still offering $5 to new users for signing up, plus $5 for every referral they made.

We’ll let the numbers speak for themselves:

Loyalty program members generate 12-18% more revenue for retailers than non-members do.
Consumers who receive a thoughtful gift from a brand are 50.3% more likely to do business with them again.
74% of Gen Z and 70% of Millennials will spend more if they’re offered cashback.
93% of consumers would buy from a retailer again if the retailer had good discounts.
84% of Americans say an exclusive offer would make them likely to buy from a brand.

While monetary incentives are highly desirable, you don’t have to reward customers with $100 or even $25 to influence their behavior. Incentive marketing spans all sorts of creative methods and reward types. It doesn’t have to be extravagant.

If you’re still doubtful, here’s another example: Simply receiving handwritten thank-you notes made customers of online form builder Wufoo 50% less likely to churn.

To succeed at incentive marketing, keep these tips in mind:

Tailor your incentives to the customer journey. The type of incentive you offer should change depending on where the lead is in the sales funnel.

To illustrate this, check out how Edgewood Heights’ incentives change for prospects in the consideration stage versus those in the decision stage.

The apartment complex’s decision-stage sales promotion is one month of free rent and $350 for moving expenses if you apply to move in.

But for a prospective tenant who’s still comparing their options, they’re not ready to sign anything. That’s why the company offers a scaled-back participation incentive of a free cocktail to entice prospects still in the consideration stage to at least come take a tour of the property.

Target wisely. Everyone loves an incentive—which is why you should be all the more selective about who you offer them to. Otherwise, you could end up attracting unqualified leads.

This is especially true for participation incentives. Because participation incentives don’t prompt an immediate sale, be more selective about who you offer them to. Otherwise, you could end up blowing through your budget fast.
When in doubt, money is a top motivator. Brainstorming how to reward your customers can be tricky, but a good rule of thumb is that everyone appreciates money. Monetary incentives in the form of discounts, Visa prepaid cards, gift cards, or rebates are your best bet.
Rebates are almost always better than discounts. Rebates are a win-win. Unlike discounts, where the brand suffers a loss upfront to sell products at reduced prices, rebates allow brands to sell most of their promotional products at full price while still giving many buyers a deal.

At Tremendous, we’ve helped companies big and small reward loyal customers and win new ones through monetary incentives. Whether you’re trying to issue rebates through Visa prepaid cards or reward event attendees with gift cards, Tremendous has you covered.

Book a call with us or sign up for a free account.