The ultimate guide to incentives

THE ULTIMATE GUIDE TO INCENTIVES
Psychology, Best Practices, and Cautionary Tales
Loyalty Bay’s eBook on the lost art of stimulating commerce

WHY THIS EBOOK?
In this eBook, marketers in companies who acquire subscription and other long-term customers will learn
- how you can use human psychology to improve your Conversion Rate and Customer Lifetime Value
- what are the dos and don’ts of successful incentive schemes
- which companies do a great job with incentives … and which ones don’t!
The Ultimate Guide To Incentives | 2

CONTENTS
How a cheap trinket sold millions of magazines...............................................................4
PART 1: WHY it works - the psychology of incentives.............................................6
What’s an incentive, anyway?.............................................................................................7
Principles of Incentive Psychology......................................................................................8
When is discounting your product a bad idea?.............................................................. 14
PART 2: HOW it works - the mechanics of incentives........................................... 18
Which incentives work well?............................................................................................. 18
The incentives industry’s lucrative little secret............................................................... 21
But aren’t incentives really expensive?............................................................................ 22
Which incentives don’t work well? .................................................................................. 24
A few extra tips ...................................................................................................................26
PART 3: FOR WHOM it works - companies who do incentives well ................ 30
Conclusion .......................................................................................................................... 33
Can we work together? ..................................................................................................... 35
Sources and Inspiration .................................................................................................... 37
Further Reading ................................................................................................................. 37

HOW A CHEAP TRINKET SOLD
MILLIONS OF MAGAZINES
In the mid-1980s, magazine publishers were in an arms
race of knickknacks. New readers expected to receive a
gadget of some kind as an incentive to buy a subscription.
Cheap digital watches, binoculars, and rooster-shaped
radio clocks accompanied every subscription. Even kids
were used to receiving a toy along with their comic book
(remember those temporary Donald Duck tattoos?)
In 1986, 26 year-old Martin Shampaine, marketing
manager at Sports Illustrated, was wandering around
Times Square. He was looking for inspiration - something
fresh to attract new subscribers for the magazine. He
found it when he saw a frog-shaped telephone in a shop
window. The outline of the phone reminded him of a
football. And that was the moment the lights went on.
The Sports Illustrated Football Phone cost $4 to produce
and was the most successful magazine giveaway of
Is it an iPhone? No, it’s the SI-Phone! (1986)
the 1980s, if not of all times. Along with a few similar
products, the phone was responsible for 1.6 million new
Sports Illustrated subscriptions between 1986 and 1991.

With the advent of the internet, the art of the incentive
has somewhat fallen out of fashion. The web opened a
giant playground. Marketers have so much to explore
and so many ways to find new customers. These days, we
come across incentives mainly in the form of discounts.
We at Loyalty Bay believe that an untapped
opportunity lies in reigniting that 1980s
spirit. Done right, incentives can be a great
way of boosting conversions and driving ROI
at very low incremental cost.
This why we wrote this eBook. We wanted to give you an
instruction manual on how to grow your conversion rate,
using incentives and rewards.
This eBook has three parts.
In PART 1, we cover the psychology that makes people
receptive to incentives. We outline principles that explain
why incentives work and how to take advantage of the
subconscious forces that guide human behaviour.
In PART 2, we dig into which types of incentives work
well, and which ones don’t. We also cover the peril of
discounting as an incentive. Sometimes useful, discounts
can have a negative impact on your brand. Finally, we list
a few uncommon use cases where incentives can be very
effective.
In PART 3, we show examples of companies using
incentives effectively.
We hope you enjoy it.

PART 1: WHY IT WORKS—THE
PSYCHOLOGY OF INCENTIVES
Magazines like Sports Illustrated are easy. They create an
emotional or intellectual connection with the customer
through their content.
But what can companies do when they sell more mundane
products—phone data plans, insurance etc?
Some go to great lengths to bond with the customer
outside of their core value proposition. Gocompare’s
opera singer or the Compare The Market meerkat are
successful examples.
Good incentives are the little sibling of these elaborate
marketing investments.
“Just a spoonful of incentive helps the
conversion go down.”
Mary Poppins
(In her second career, running an online childcare marketplace)
“Good incentives are the little sibling of elaborate
marketing investments. They create a temporary
emotional connection, and help the medicine of a
long-term commitment go down.”
Click-to-tweet
Compare the incentive. Simples!
They aren’t necessarily
there to generate a long-
term brand association.
But they can create a
temporary emotional link,
and help the medicine of
commitment go down.

Broadly speaking, incentives are nudges that accelerate decision-
making. For the purposes of this eBook, we define incentives more
narrowly: They are items or services of value that speed up an
online user’s decision to become a customer.
Incentives are often positioned as scarce. In
reality, the customer often knows this is a
trick. On a subconscious level, scarcity can
really work, as we will explore in the following
principles of incentive psychology.
What’s an
incentive, anyway?
Incentives help generate a transaction in
the following use cases:
• Standard purchasing
• Up-selling and cross-selling
• Reducing churn
• Acquiring user feedback
• Boosting NPS and customer satisfaction
• Resolving complaints
• Switching to direct debit
• Opting into receiving promotional
material under the new GDPR rules
Incentives include:
Discounts A promise of free
shipping when a certain
spend is reached
An extra unit of
product added
to the order
A complementary
product or service
offered for free

Psychology plays a big role in why incentives work.
Understanding it helps us make our incentive schemes
more effective.
Incentive psychology #1 - Reciprocity
If you do something for others, they’ll often do something
for you in return—this is hardwired into human nature.
In the context of incentives, reciprocity helps us in three
ways:
• When someone signs up for a recurring service, they
commit to something big. As a result, they feel that
the company owes them something. In the moment
of saying yes, the customers believes they gave more
than the company did. An incentive (which doubles
as a thank-you gift), closes, or at least narrows that
reciprocity gap.
• Reciprocity gets reinforced by repeated beneficial
transactions. Doing nice things to each other
strengthens a relationship.
• If the incentive is valuable, it generates a feeling
of gratitude and indebtedness. When she opens a
delicious bottle of wine from her phone provider, a
customer has positive feelings about the company.
This principle of emotional indebtedness is the basis
for the entire sector that is experiential marketing.
(e.g. see Carlsberg’s If Carlsberg did… videos)
Where reciprocity is really effective is when a gift is
expected the least. In some markets—insurance, for
example—you collect a lot of data during the sign-up
process. Why not use it to reward a customer at an
unexpected time, such as their birthday? How about a
theme park ticket if you know they have kids?
Principles of Incentive Psychology

(1) If you run the experiment with your pet reptile or arachnid, please let us know.
(2) Choices, Values, Frames - by D. Kahneman and A. Tversky in: American Psychologist, Vol 39(4), Apr 1984, 341-350
Source: CreditDonkey
Incentive psychology #2 - Scarcity
Try this experiment next time you feed your cat. Serve
two plates of identical cat food. Put a big portion on
one plate, and a smaller portion on the other. See which
plate your cat eats first. Most of the time, she will take a
few sniffs, and then eat from the small portion plate.
So apparently, it’s a cross-species phenomenon (at least
is applies to mammals1
). Whatever there’s less of must
be better. This is evidence of the power of scarcity. If
there isn’t enough of something, we want it more.
You can use scarcity to your advantage by showing
an offer expiring soon, using a countdown clock, for
example. Or by making a reward only available for the
next few days. Just don’t overuse it. Most customers will
see through it and may start doubting your integrity.
Incentive psychology #3 - Loss Aversion
Loss Aversion, first identified by Daniel Kahneman and
Amos Tversky2
, is the human tendency to fear loss more
than to enjoy gains. The difference is roughly 2x. Losing
£100 is twice as painful when compared to the joy of a
£100 windfall.
Loss aversion matters to us in two ways:
1. Just get them over the finishing line
We want to get the customer to try our service or
product. Why? Once they try it, we hope they like it so
much that they won’t want to lose it. This idea is at the
core of incentive theory: get as many users to sign up as
possible.
2. Buyer’s remorse
In a 2013 study, 44% of respondents said they feel
buyer’s remorse sometimes, and 10% do so often or
very often.

Some of the people affected with buyer’s remorse will
return a product or cancel a service. A well-designed
incentive can prevent this:
• Design the
incentive in a way
that the customer can
enjoy it immediately, but
knows that she has to
return it if she cancels
the whole contract. The
hassle of having to return
the gift will help her stay.
• Create the impression of
a package deal. Make the
incentive complementary—e.g. a bottle of champagne
as the incentive to buy a cocktail dress. The buyer will
see the whole being greater than the sum of its parts.
Also: the more personalised the incentive is, the less
expensive it can be—see Principle #5-Personalisation.
• Sometimes, the customer has to wait to experience
the service (e.g. a premium TV package). You can
blunt the edge of buyer’s remorse by immediately
providing the incentive. While enjoying it, they are
more likely to make peace with their purchase.
Incentive psychology #4 - Instant
Gratification
People are hardwired to want things now.
Instant gratification can move the needle when
customers have to wait to experience the service they
bought. Think broadband, utilities, and financial services.
Because these products are similar between competitors,
the company that offers a relevant reward for immediate
use will be the one that picks up the customer.
“The company that offers a relevant reward for immediate
use will be the one that picks up the customer.”
Click-to-tweet
Incentive psychology #5 - Personalisation
Say the first thing that comes to mind: What’s the best
gift you ever got?
It wasn’t the most expensive one, right? Even if you’ve
been showered with Louis Vuitton bags and Cartier
watches all your life, probably your best gift is that
memory book your friends made for you when your

family moved to a different city. Or that red go-kart you
dreamed of for months on end (and regularly reminded
your parents about).
It’s because the givers had YOU in mind. Either they
created the gifts from scratch for you (the ultimate
personalisation), or they knew how badly you wanted it.
The relevance of a reward is often more important than
what the item actually costs. Let’s say you’re flying to Sao
Paulo, and we give you an e-guidebook to Brazil. It might
only be 79p on Kindle. That’s not an expensive gift, but it
has a high perceived value, because it’s very relevant to
you at that moment.
In travel, margins are tight. If the prices are the same
between Orbitz and Expedia, and the only difference is
the guidebook, it’s clear who will win that customer.
Another great benefit of personalisation is that the more
personalised an incentive is, the cheaper it can be, and still
achieve the desired effect. That memory book didn’t cost
your friends any money—only time!
On top, personalisation also attracts the right customers
and discourages the wrong ones. The worst customers
are reward hunters, i.e. people who are mainly in it for the
perk, and who spend the absolute minimum to qualify3
.
All that said, the principle of personalisation only goes
so far. You cannot see inside people’s heads, so it’s best
to add some choice. When you assume too much about
your customer, you can go down a wrong path. Offering
the buyer of a cocktail dress a bottle of champagne won’t
always work as she might not drink alcohol. Best to add
another incentive option for the customer to choose from.
“The more personalised an incentive is, the cheaper it
can be and still achieve the desired effect.”
Click-to-tweet
3
The most extreme case of reward hunters was the Hoover fiasco - see page 18

Incentive psychology #6 - Decision Fatigue
Customers often suffer from decision fatigue. They’ve
been trained that shopping around will get them a good
deal. But they already have too much choice to cope
with. They’d be happy to stop looking and go about their
day.
The right offer at the right time can leverage decision
fatigue. An incentive can reduce the complexity of
decision-making. It gives the customer an excuse to pull
the trigger and bring their search to an end.
“The right offer at the right time reduces the
complexity of decision-making. It gives the
customer an excuse to pull the trigger and
bring their search to an end.”
Click-to-tweet

Most companies who do incentives use only one flavour:
discounts. In line with psychology principle #3 (Loss
Aversion), they reason that once the user has signed up,
they will enjoy it and stick around.
Now, this may be a valid approach for products the
customer doesn’t know well enough yet. For example, The
Economist offers 12 weeks for £12 on new subscriptions.
The idea is that a subscriber will slowly start appreciating
the thoughtful analysis and commentary as the weeks
go by. They will get hooked into the product and not
want to lose it. As a result, they will then continue the
subscription at full price.
So for content subscriptions, this may work because
there is a genuine trial period. But for commodities with
very little experiential value (broadband, insurance,
banking), there is no real “trialling”. In these cases,
discounts can be corrosive in four ways.
When is discounting your
product a bad idea?

1. Discounts impact the brand
Price promotions devalue your product in the mind of
the customer. If you’re willing to discount, the product is
obviously worth less than the original price. People will
assume that you still make enough money on that sale,
even after the reduction.
Discounting also directs the focus away from the
product’s features and benefits. The price comes centre
stage. Instead of keeping an attachment to your brand,
customers start performing mental trade-offs on cost vs
benefit. As a result, the brand experience deteriorates.
Say the price of a service is £100 and there’s a 30%
discount for new customers, i.e. the customer pays £70 in
Year 1. Twelve months later, when it’s time to renew, the
customer has to pay the full price of £100 to continue.
That’s an poor brand experience if they remember that
the first time around, they only paid £70. What should
have been a happy renewal of vows will have turned into
a worse-than-last-time experience.
“Discounting impacts your brand because the
day will come when it’s time to pay full price.
What should have been a happy renewal of
vows will turn into a bad experience.”
Click-to-tweet

2. Discounts foster a mercenary
relationship with the customer
By offering discounts without a good reason, you create a rod
for your own back. Your customers will consider the new price
the new normal.
If later you want to go back to the original price, customers
won’t take kindly to it and will be more likely to leave. You will
have to conduct many churn prevention conversations. And
you’ll often end up extending the discount. This leads to a
continuous hit on your bottom line. Instead of creating brand
goodwill with the customer, you have nurtured their inner
mercenary.
It’s very hard to recover from that.
In contrast to discounts, you can position the incentives we
advocate for (experiential, emotional, complementary) as one-
offs. That way, customers won’t automatically expect them at
contract renewal.

3. Discounts don’t create joy
If you get 10% off an insurance contract, you cannot take
that money and do something with it. Well, sure, you can,
but almost no one will actually say: “Excellent! I’ll go and
buy a luxurious cheese-tasting experience for me and my
wife with those £100 I saved”. For most people, there’d be
too much guilt associated with that—they just spent a lot
of money, after all.
But if you just give them the cheese-tasting experience,
they can either have it or not. And most will have it, and
enjoy it—because it was guilt-free spending. It’s their
enjoyment you’re after. You want them to associate
with you, however faintly, the lavish restaurant and the
buttery taste of the Zamorano. You made this experience
possible, after all.
Compared to the brief flicker of “oh cool, £100 off
the contract”, the enjoyment of an experience is in a
completely different ballpark.
And that’s what you’re missing out on when you use
discounts as incentives.
“Compared to the brief flicker of “oh cool,
a discount of £100”, the enjoyment of an
experience is in a completely different ballpark.”
Click-to-tweet
It’s cheese that creates joy.

4. Competitors can discount, too
Discounting doesn’t only lead to the erosion of your own
margins. Effectively, you are engaging in a price war and
your competitors will follow suit. The end result isn’t fun
for anyone.
With incentives, it’s more about how creative you are
and how well you hit your customer’s taste. Developing
this kind of insight is not something that competitors can
easily copy. And it prevents a price race to the bottom.
Instead of discounts, provide an experience
Yes, we know—we’re starting to resent that term
“experience” as well. It’s a worthy entry in the buzzword
bingo hall of fame.
But it’s true. Call it experience, call it emotional
connection—the holy grail of incentives is for the
customer to associate a great experience with you.
And that’s what we’ll cover next.
“The holy grail of incentives is for the
customer to associate a great experience with
your brand.”
Click-to-tweet

PART 2: HOW IT
WORKS—THE
MECHANICS OF
INCENTIVES
Incentives should tick the following boxes:
The incentive has to be relevant for the audience
It should not be worth more than the product or
service you’re selling.
It should have an experiential component.
Which incentives
work well?
Cultivating the bottom line with wine—how
Loyalty Bay got started
In the beginning, there was Dropwines, a wine ecommerce company.
Honestly, it’s not a good business to be in. The margins are slim, the
product breaks easily en route, and people’s tastes are subjective.
As we were struggling to find customers, we had the idea of forming
strategic partnerships with other websites. After a while, we made
a deal with a large B2C price comparison site. The arrangement
worked like this: If you signed a new contract with them, you’d get a
free case of wine from Dropwines as an incentive.
It was a huge success for Dropwines. We reached hundreds of
thousands of users, we more than halved our original cost per
customer acquisition, and we increased our wine turnover by 10x.
We were moving product—but what was it doing for our partner?
The answer: It was working great for them. We drove double-digit
growth in their conversion rate. Our wines were the switching
incentive. One thing became clear to us: We could help our partner
and other companies even more if we expanded beyond wine.
People would call up and say: “Actually, I don’t like wine—can I just
have the £40? Or something else instead?” We realised that wine
didn’t appeal to our partner’s entire audience. Teetotallers felt
like they’d lost out on £40. It gave us the idea: What if we applied
data and intelligence to offer people a choice of rewards? Perhaps
we could improve results by matching the right offer to the right
customer. We started a project that later became Loyalty Bay.

Relevant for the audience
Research the incentive’s likely success as
you would research a new product.
Remember Martin Shampaine,
the marketing manager for Sports
Illustrated? He didn’t just start
producing the football telephone. He
created a fake prototype, took pictures,
and sent direct mail to 35,000 potential
subscribers. Production only started
after the positive outcome of this test.
This example is quite elaborate, as far
as market research for the success of
an incentive is concerned. With the
possibilities of the internet, validating
reward ideas is faster and easier.
The incentive has to be worth
(much) less than your product
This point is illustrated by a cautionary tale:
In 1992, the UK division of floorcare
company Hoover needed to sell some
surplus stock. They decided to offer two
round trip tickets to the USA to each
buyer. Minimum spend: £100. Hoover
assumed that only few would redeem
the flights. But this deal was far too good
to pass on. More than 200,000 people
bought £119.99 hoovers, the cheapest
ones that qualified. They didn’t really
need the (outdated) appliances—they just
wanted the flights. Overwhelmed with
demand, Hoover desperately tried to
protect themselves with some fine print.
The result? Six years of lawsuits, £50m
in cost, Hoover’s UK division sold to a
competitor, lots of negative publicity, and
a marketing case study for the ages.
The moral of the story: Don’t use an
incentive that is worth more than the
product you’re selling.
Loyalty Bay can help you track your
incentive’s success with real-time
performance and metrics.
If you want to know how we can boost
your conversion rates and engage your
audience, give us a buzz at
+44 (0) 20 8626 3679, or drop us a
line at enquiries@loyaltybay.co.uk

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CLAIM
“Incentives should be relevant for the
audience, not be worth more than
the product or service you’re selling,
and should have an experiential
component for the customer.”
Click-to-tweet
The good experience for the customer is the
unpacking of the book and leafing through it.
For a while, she will remember: That book on
the shelf was a gift from that publisher.
Albeit small compared to a fancy dinner,
that’s a solid positive experience.
As mentioned in Part 1—a good incentive should have the
customer connect a great experience with your brand.
Granted, not every type of contract will allow you to spend £100
on experience gifts. Sometimes the experience can be more
fleeting. For example, we ran an incentive scheme with a publishing
client who wanted to reward their long-term subscribers. It looked
like this:

At some point, you’ll have to decide how much your
incentive should be worth. In your ROI calculation,
you’ll compare this number to the expected increase in
conversions and growth in Customer Lifetime Value.
And that’s when breakage comes into play.
Breakage is the amount of money the incentive provider
retains because customers didn’t redeem their incentive.
Example: Say 100 people sign up to your service, and
you offer a case of wine as an incentive. But then, only
70 customers redeem their voucher to order the wine.
That’s your financial benefit: You saved money worth 30
cases of wine because 30 people let their voucher lapse.
Breakage, generally, is not good from a customer
engagement point of view. By now, we probably made
it clear that it’s the experience that counts. Breakage
means there’s no experience to be had.
Therefore, some companies continuously nudge the
customer towards redeeming. They want to maximise the
positive association a person has with the brand.
Other companies have the bottom line in mind and are
happy when customers don’t redeem.
Both approaches are legit, and it’s up to you which
one you choose. Just be mindful of your choice when
calculating your ROI. You may accept a breakage of 30%,
which is roughly the industry average. In that case, you
will be able to afford more costly incentives than if you
wanted to nudge all customers towards redemption. Yet
again, make sure you test everything before you scale.
Let’s look at a concrete example, with numbers.
The incentives industry’s
lucrative little secret

Not everyone manages to pull off a Sports Illustrated-style
coup where a $4 knickknack drives year-long magazine
subscriptions. Often the cost will be much higher.
We mere mortals have to run the numbers to understand
how much we can afford to spend.
Let’s make the following assumptions:
• Value of a conversion to you: £200 in gross profit
• Current conversion rate (CR) of visitors who visit the
product detail page: 10%
• Cost to get a user reach the product detail page: £10
Scenario 1: With 100 users visiting the product detail
page, you make:
• Gross profit: £2,000 (£200 * 100 users * 10% CR)
• Minus £1,000 in cost (100 users * £10 to get them
there)
• Net profit: £1,000
How much would we make if we could increase the CR
from 10% to 12% (= a plus of 20%), using an incentive?
Scenario 2:
• Minus £1,000 in cost (same as above)
• Net profit: £1,400 (minus the cost to deliver the
incentive)
Now we need to find out how much room this new profit
gives us to finance the incentive. Divide the incremental
profit of £400 by the number of customers we received
(12). We see that we can afford to spend up to £33.33
on an incentive. Any incentive that costs you less than
£33.33 adds to your bottom line.
£33 incremental spend on a customer worth £200
sounds like a lot. But if it reliably increases your overall
profit thanks to a higher conversion rate—who cares?
You have more customers and more profit. You do have
less profit per customer, but who wouldn’t rather have a
quarter of 100 pies than one whole pie?
But aren’t incentives
really expensive?

So how much incremental profit
does this incentive give us?
Let’s assume that we have settled on an incentive that
costs £25 to procure and deliver. And let’s also assume
the industry standard of 30% breakage applies
Scenario 2a—without any breakage (i.e. we push all
customers to redeem)
• Minus £1,000 in cost (same as above)
• Net profit (before cost to deliver the incentive):
£1,400
• Minus £300 in cost to procure and deliver the
incentive (£25 * 12 customers)
• Net profit: £1,100 (that’s £100 more than without the
incentive, i.e. a 10% increase)
Scenario 2b—with 30% breakage
• Net profit (before cost to deliver the incentive):
£1,400
• Minus £210 in incentives (£25 * 8.4 customers [12
customers * (1-30%)])
• Net profit £1,190 (that’s £190 more than without the
incentive, i.e. a 19% increase)
If you assume a stable breakage of 30% and don’t try to
nudge customers to redeem, you can afford to provide
an incentive worth up to £47.62 (£400 / 8.4), and still
generate a higher profit than in Scenario 1.
There’s a lot you can do with an incentive costing
you £30-35. The famous case of wine “worth £50” is
definitely covered. Remember, we at Dropwines were
selling our wine to our comparison site partner at
wholesale prices.
That is after taking the cost for the incentive into
account. +10-19% is the net gain for your business.
Finally, this entire calculation doesn’t take increased
customer satisfaction and repeat purchases into account.
So you’ll be even better off.
So, in sum, we see that
running an incentive which
increases our conversion
rate by 20% boosts our
total net profit by 10-19%.

At Loyalty Bay, we’ve learned a lot from our mistakes. And
because knowing how not to lose money is more important
than how to make money (three cheers for Loss Aversion!),
here’s what we’ve learned doesn’t work:
Third-party discounts don’t work as
incentives to start a relationship
At first, we tried offering third-party discounts as
incentives. We’d tempt people with free 30-day trials of
online services and free magazine subscriptions. That
kind where you start paying if you don’t cancel.
They were easy to source and didn’t cost us anything. But
from a customer’s perspective, they didn’t perform well.
Don’t confuse third-party discounts with gift vouchers
with a specific monetary value. These always do well
because there’s no catch and no minimum spend.
That said, third party discounts are very useful as a perk
to nurture a relationship. Much of the success of our
parent company Perkbox is based on exclusive third-party
discounts. Third-party discounts just don’t work well to
start one.
There’s another nuance to this rule: Third-party discounts
work for new customer acquisition if there’s many
discounts to choose from, and they are tailored to your
audience. In Part 3, we show how Worldpay acquired
customers with third-party discounts (page 32).
Which incentives
don’t work well?

Loyalty points don’t work
We’ve seen companies trying to use
loyalty points as a reward. The only
problem: They don’t work for the
marketer because they don’t work for
the customer. We’ve all accumulated
points that don’t translate into
anything meaningful. You might need
far too many points to get something
worthwhile, and it isn’t transparent
how it all works. Using them is a
frustrating, demotivating experience.
Generic rewards don’t work
Apparently, the first Mars Rover didn’t
have a single electronic component
that hadn’t been used in production for
at least five years.
Best Guess: We can try to predict which
offer will convert the best, but we can’t be
certain. That’s why we always offer a choice.
Sending a car to Mars is not the time to
try new things when you don’t have to.
Offering a conversion reward is the
same. You naturally want to offer the
item that has the highest likelihood of
getting a customer to sign up. It’s no
wonder the first question we get is:
“What’s the best performing offer?”
The simple answer is that there is no
single “best performing” offer. People
are different.
The key is to always give the customer
a choice. Maybe a customer already
has all the photography gear they need.
So we’ll add three other choices, just
to make sure we’re giving ourselves
as much opportunity as possible. No
matter how much we know about you,
we can never know better than you. In
the end, the results are the same—we
can greatly increase results if we can
tailor the rewards to the customer.
Want to use rewards and gift cards
to instantly reward your customers?
Rewards Hub by Loyalty Bay lets
you instantly send digital gift cards
to your customers.
If you want to know how we can
boost your conversion rates and
engage your audience, give us a buzz
at +44 (0) 20 8626 3679, or drop us
a line at enquiries@loyaltybay.co.uk

It’s not just YOUR stuff that people want
B2C companies often incentivise with their own products.
For example, a fashion brand encourages a conversion by
throwing in a pair of sunglasses. But that could be short-
sighted. No pun intended ;-)
Often, complementary, unexpected products will be
more successful. For example, if someone in London
is buying an evening dress, throw in a voucher for two
glasses of champagne in a West End bar.
A few extra tips “Don’t just offer your own products as
incentives and rewards - use products from
third parties to complement the purchase.”
Click-to-tweet
Situational marketing
We call this situational marketing.
The user is in a particular frame
of mind, and you bring them over
the finish line with an incentive
that complements their purchase.
Ideally, it should be something that
makes them smile.
Ideas:
• Customer is buying a table and four chairs—offer a
cookbook as an incentive
• A 19 year-old woman buys a mobile phone plan—
throw in a £10 Accessorize voucher for a phone cover
As Manish Patel describes in his article on situational
marketing, ask: What is on the to-do list for my customer?
How can our marketing plan check items off that list?
Often this will not go without a great deal of creativity
and trial and error. Slice your audience into demographic
groups and tailor the incentives based on the data you
collect during the purchase process. For example:
• Men in their 20s: offer sports-related products
• Women in their 50s: offer M&S products
Have a roster of 100 incentives that you test repeatedly,
learning every time a customer selects or rejects one.

The cost advantage of complementary
incentives
You may think it’s better to use your own products as
incentives—you only have cost of production to pay.
However, remember breakage: If you give away your own
products, you’ll have to send them in every case. But as
per the example above, the phone cover at Accessorize
comes in the form of a voucher—and ~30% of those will
not get redeemed!
The message here is: Test it. Your products could be
killer. But see if third party products or complementary
services work better. You may be in for a surprise.
Bake incentives into the top end of the funnel
Most people think about incentives as something to
use in the final stages of the conversion funnel (i.e. on
the checkout page). Others may use them to drive the
customer through the consideration process and keep
them from researching alternatives.
But you can also run incentives early on. If you run PPC
ads and offer an incentive, you will increase your CTR
without paying more for it.
As always, testing is your friend.
Don’t overdo it, though—you don’t want to be the
company that appears to be insecure about their own
product by peddling the same old tired case of wine in all
their Facebook ads.
And you only pay for the incentive if the user converts—
double win!
When searching the term “switch broadband”, one of the
ads we found was this:
What if, instead of the experience-free “42% off” the ad
looked like this:

Use cases you may not have considered
Beyond getting more customers to convert on a
purchase, there are other use cases where incentives can
smoothen the path.
Moving customers from credit card to direct debit
“Switching a customer to direct debit is
like dragging a sleeping hippo through a
malarial swamp.”
Winston Churchill
Ok, we don’t know if the great statesman really said that,
but we’re sure he would agree if he only knew.
If Castle Water were to donate money anyway, this is a
great way of combining the good with the useful.
Boost customer reviews
Endorsements are the holy grail for word-of-mouth
marketing, so use an incentive to get your customers to
leave a review on an aggregator site (Yelp, Tripadvisor,
Trustpilot etc).
Offering incentives is a creative way to achieve it, though.
The below ad from Castle Water, a utility provider, is a
great example.

GDPR
Many large companies have millions of customers in their database.
But unless you have explicit consent to send them marketing
materials, GDPR, in force from 25 May 2018 onward, will prevent
you from doing it. You’ll have to ask your database for permission.
Very few customers will voluntarily opt into your marketing drip
without anything in return. If you incentivise them to opt in, you will
be able to recover a good part of that database.
Granted, this won’t be an opportunity to give everyone a case of
wine. But a £3.99 Kindle book or a £2 film from Rakuten TV could
make the difference. Especially if you show product suggestions that
might appeal to your specific audience.
Awakening a dormant database
Even beyond GDPR, you may have dormant audiences who have not
engaged with you for a long time. You can periodically attempt to
invite them back, using different kinds of incentives.

PART 3:
FOR WHOM
IT WORKS —
COMPANIES WHO
DO INCENTIVES
WELL
1. Compare The Market
This is a film-themed campaign incorporating two
types of incentive: Toy and cinema discount. It ticks
the boxes of emotional connection, it’s experiential
and worth far less than the main product. It’s fairly
generic (i.e. no personalisation), but that’s not a
problem given how popular the company’s mascot is.

2. Orange Wednesdays
This is a two-for-one campaign that Orange offered as
an incentive to attract new customers. Good experiential
factor. The personalisation comes from the ability to
choose the film.
3. Price Comparison Site
We have to keep the client confidential on this one. Here,
we offered the following rewards for customers who
closed a deal on the client’s site. The result was a 17%
increase of their conversion rate.

4. Worldpay Discounts
Here’s an exception to the rule that third-party discounts
don’t work for customer acquisition. Using Loyalty Bay’s
Always On Perks, Worldpay offers a wide range of third-
party discounts that are highly relevant for their small
business customers. Given the breadth of the offering,
this selection of saving opportunities is a strong incentive
for new customers to join.
Using Always On Perks, Worldpay has engaged 92% of all
of their customers and saved them a total of £18m.
Want to know how you can attract your
customers through Loyalty Bay Always
On Perks?
Give us a buzz at (+44) 20 8626 3679,
or drop us a line at enquiries@loyaltybay.
co.uk.

CONCLUSION
In this eBook, we have covered the following points:
• How a $4 plastic phone in the shape of a football
went viral in the 1980s and sold over a million of Sports
Illustrated subscriptions.
• Why incentives work - Principles of human
psychology that help explain why incentives are so
effective: Reciprocity, Scarcity, Loss Aversion, Instant
Gratification, Personalisation, and Decision Fatigue.
Leveraging these hardwired human traits will improve
your incentive game considerably.
• Mainly using discounts to nudge people over the finishing
line damages your brand. You focus the transaction on the
price when it should be all about benefits and features, and
you foster a mercenary relationship with the customer.
Discounts don’t create an experience for the customer,
which is what you’re after. £100 saved on a big contract is
meh—a candle light dinner costing £100 is a completely
different kettle of fish.
• We covered which incentives work well: They have to be
relevant for the audience. Research what your audience
likes, in the same vein you would do research for new
products. Make sure the incentive isn’t worth more than
the product you’re promoting. Hoover’s flights fiasco is a
big memento mori in this context.
• We covered breakage. Running a £25 incentive to get
someone worth £200 over the line can make a lot of sense.
• We also discussed what doesn’t work: Third-party
discounts usually don’t work for customer acquisition
(unless there’s many of them like in the Worldpay
example), and loyalty points are pretty rubbish, too.
Also, don’t just offer once incentive: You may know your
audience well, but it helps to add choice.
• You can offer your own products as incentives. But
complementary products may be more effective because
of personalisation. They can also save you money because
of breakage.
• Don’t just use incentives to nudge customers over the
finish line while they are at the bottom end of the funnel.
Use incentives to drive new traffic, e.g. via PPC ads.
• And finally—incentives aren’t only great for driving typical
first-time purchases. They can help with any transaction:
Up-selling and cross-selling, reducing churn, acquiring user
feedback, increasing ARPU, boosting NPS and customer
satisfaction, resolving complaints, switching to direct
debit, or opting into receiving promotional material under
the new GDPR rules.

The upshot is simple:
Incentives are hugely underused in
today’s ecommerce environment.
Having a good database of freebies and
rewards for different demographics, as
well as a smart algorithm for delivering
them at the right time can be a big
competitive advantage for your business.

Can we work together?
Hey, William here, Founder of Loyalty Bay.
I hope we left you with many ideas on how you can
expand that narrowing conversion funnel, using
personalised, experience-rich incentives.
Loyalty Bay uses data and rewards—gift cards, discounts
—to incentivise any action (sale, signup, referral, content
download, call booking) by the customer at the right time,
with the right offer.
We have three solutions that will boost your conversion
rate and engage your existing customers:
Always On Perks gives your customers a wide range
of rewards and incentives, available 24/7 from a fully
branded web-based platform.
Rewards Hub lets you instantly send digital gift cards to
your customers via email—particularly relevant for small
businesses who can’t do tech integration work.
Zapier integration - With Zapier, we can link any
trigger generated in a third-party tool with the release
of a reward on our Rewards Hub. For example, you can
instantly reward a customer for completing a survey.

Loyalty Bay is a London scale-up company,
founded in 2013 by William Roberts. We’ve
been doing rewards, incentives, and loyalty
solutions ever since. In November 2017, we
were acquired by Perkbox.
If you want to chat about what we can do to boost
YOUR conversion and customer engagement, give
us a buzz at +44 (0) 20 3626 3679, or drop us a
line at enquiries@loyaltybay.co.uk.
I look forward to hearing from you!
William Roberts,
Founder and Director of Product at Loyalty Bay

Sources and Inspiration Further Reading
The Sports Illustrated Football Phone
https://www.rollingstone.com/sports/features/the-funky-little-football-
phone-that-sold-a-million-magazines-20151028
Buyer’s remorse
https://www.creditdonkey.com/buyers-remorse.html
Hoover example
https://www.independent.co.uk/life-style/great-financial-disasters-of-
our-time-the-hoover-fiasco-1171711.html
Situational marketing
https://www.marketingtechnews.net/news/2015/oct/14/situational-
marketing-rise-hyper-personal-experience/
How discounts impact brand and customer relationships
https://www.fastcompany.com/3006315/price-promotions-may-be-
killing-your-brand-heres-what-you-can-do-about-it
Breakage
http://www.destinationcrm.com/Articles/Web-Exclusives/Viewpoints/
Rewards-Breakage-Boon-or-Bane-80863.aspx
To catch the squirrel, you must become the squirrel. To understand
conversion, it helps to understand consumer behaviour.
1. Predictably Irrational by Dan Ariely. The decisions that smart people
make will surprise you. The reason they make those decisions will
surprise you even more.
2. Priceless by William Poundstone. Price and value are two different
things. How can you influence value without necessarily reducing the
price? This is a book that will help you look at conversion in a fresh way.
3. Drive by Daniel Pink. Drive explains what really motivates us. It’s an
interesting lens through which to view rewards and conversion.
4. Influence by Robert Cialdini. Sales is about persuasion. Cialdini’s 35
years of research into influence and persuasion reveals six universal
principles. How many can you apply to your website?
5. The Psychology of Pricing by Nick Kolenda. Rewards are an important
part of the persuasion process—but you can’t get away from the fact
that price is also a pretty big factor. In this long, valuable article, pricing
expert Nick Kolenda describes 29 tactics to get customers to pay more.
6. Thinking, Fast and Slow by Daniel Kahneman and Amos Tversky.
Covers Prospect Theory which has led to the discovery of Loss
Aversion, one of the psychological principles discussed here.

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