Loyalty programs and incentive programs are commonly used within businesses across the world to change behaviour. Though, sometimes the differences between the two concepts can become blurred.

When considering what strategy will work best for your business, it is important to know what separates the two and which will be the most effective for your company to reach their desired outcome. Loyalty / Rewards programs are targeted at customers who are already doing business with you and are rewarded for each transaction.

Man holding a gift box

The program allows the business to reward them for their loyalty, but it also helps protect customers from being poached by competitors. An incentive program’s primary objective is to deliver sales growth upon a customer achieving a target. If a customer achieves X, they receive Y. Recent research has shown that over half of Australians are inclined to spend more money with a company if they have a loyalty/rewards program in place.

Nielsen’s 2017 survey found six in 10 individuals are more likely to return to the business if they operate a loyalty/rewards program. Where, close to half will spend more with the company because they know they will be rewarded for their purchases. Megan Treston, director of retail services at Nielsen explained: “Done well, loyalty/rewards programs can also help drive more frequent visits and heavier purchasing”.

Incentive programs are a way for businesses to give more in order to get more from their customers. Instead of rewarding clients with a gift card or discounts, like a loyalty/rewards program does, an incentive scheme usually presents them with a more valuable reward.

Team working on a strategy at the table

The incentive could either be merchandise or a travel experience – but it is important to remember that cash-rewards are not always the best incentive. Recent research has found that individuals who were rewarded cash bonuses spent their extra earnings on financial commitments, such as bills and credit cards. Customers who received non-cash incentives, such as a paid-for dinner or a weekend away, were more grateful and formed an emotional attachment with the brand/business.

In conclusion, the difference is that in a loyalty/reward program, the customer is rewarded for every purchase, whereas, with an incentive program, a customer is only rewarded after achieving a sales target or sales goals. Therefore, costs are relative to the sales growth because if a client does not achieve growth, they don’t receive the reward. The real difference about each program is that loyalty protects customers and incentives drive growth.