Look up the word “bonus” in most dictionaries and it will give the standard meaning as an additional payment made to reward good performance. It may be for traders in stocks and shares who have had a particularly good year, or it might just be a few dollars you give at Christmas to the team who take away your trash all year.
But for some businesses it has a very different meaning.
In their case it is some kind of gift or incentive used to either attract new customers or to reward existing ones for their loyalty.
The word itself is Latin, meaning “good”. Certainly, it’s good for the customers receiving the bonus, but is it always so beneficial for the provider of the business? It’s not as clear-cut as it seems, as we shall see.
The different types of bonus
Bonuses can take a very wide range of forms, usually dependent on the type of business that is providing one.
For example, who hasn’t been walking round the supermarket and had their attention caught by packaging that shouts “33% Extra Free”? In this case the marketing argument behind this kind of incentive it’s to get the consumer to pick this particular brand over a competitor one, and it’s one of the bluntest and most direct ways of doing this.
Another very widely used form of bonus is as a reward for using one particular service over another. This is widely seen in sectors in which competition is fierce with online casinos being a very good example.
With hundreds online all competing for new players and largely offering the same types of games one point of difference they can have is offering a bigger and better incentive than their rivals. Usually this takes the form of matching the amount of stake money put down by a new recruit, effectively giving them twice as much to play with. Most online casinos offer a no deposit bonus, this allows the player to receive a bonus for signing-up to the site without depositing any funds. The player can then benefit of trialling out the site and selected games before opting to deposit funds to play.
The rules of attraction
There’s no doubt that the provision of bonuses does work to attract new customers. This has long been proven by businesses who have run so-called A/B tests in which the same product or service is made both with and without an incentive.
As long as this is the only difference between the two it’s the incentivized version that invariably wins out.
For the consumer it comes down to a simple choice. Do I want to go for the option that gives me more for my money? The answer is generally “yes”.
However there are situations in which a brand is so strong and well-established that consumers will turn their back on others, preferring the security of knowing that they’re making a safe and reliable choice, even if there’s no bonus for doing this.
The role in retention
When it comes to keeping hold of existing customers the bonus system has a different form and purpose. While its aim is to give a sound financial reason to stay loyal, it also reaffirms that this is a business that values the customer for their loyalty.
In this way it can help to cement in their minds that this is a good brand with values that chime with their own.
Bonuses themselves take the form of “a little something extra” such as special savings for members of their loyalty scheme – although it’s worth noting that in the UK this approach is starting to have its legality questioned as well as the savings being not quite as good as they seem at first sight.
Nevertheless bonus schemes of various kinds are an important part of many businesses’ marketing mix, especially as the cost of recruiting new customers is often cited as being five times more than retaining them.
Some disadvantages to consider
While, on the surface, bonuses seem like they’re good for both business and consumer, there can be some drawbacks too.
For example, there’s always the risk that offering them makes a brand look just a little desperate. If it can’t attract customers on its own merits, people may think, is it perhaps a second-rate offering?
There are also the costs of offering bonuses to consider. They undoubtedly hit the bottom line in some way, although the gains of new business may go some way to off-setting this.
Plus, it’s very likely that the types of consumers who are attracted by bonuses will always be on the lookout for newer, bigger and better ones to encourage them to switch loyalty.
This is certainly an issue that has affected credit card providers in the past. Many found that when they made 0% interest offers on balance transfers for a fixed period of time the new customers they had recruited simply moved to another provider’s 0% offer when the time was up.
So it all comes down to the fact that bonuses can be good for business if used wisely. But caution needs to be watchword if they’re not going to backfire.
