After several years and endless conversations with brands across every vertical, we've noticed a recurring theme: Most brands see incentives as a powerful growth lever but could use more guidance on effectively deploying them.

While brands are always thoughtful about incentives, carefully testing each offer at different points of the customer journey, they often make crucial decisions in a silo without considering the overall impact that discounts have on performance and positioning in the market.

Brands looking to drive incremental revenue and cement customer loyalty must take a more holistic approach to their incentives. Since that's easier said than done, we're sharing the framework that we've been using to help our brand partners discover which incentive strategy is right for them and detail how our platform can help implement it.

Keep reading to discover:

• The tradeoff between long-term equity and short-term growth in incentive strategy
• Why incrementality is the key to a winning incentive strategy
• Four incentive strategies used by leading brands in 2024
• Why you should mix up your strategy to match the moment

The tradeoff between long-term equity and short-term growth in incentive strategy

From our experience at leading consumer tech companies like Lyft and Instacart, the underlying tradeoff that informs most incentive strategies is the one between long-term brand equity and short-term growth. Do you offer incentives at the expense of brand equity? Or do you pledge not to discount and miss the opportunity to accelerate revenue growth?

The brand equity side seeks to address the fear that offering incentives will undermine the value that customers and the broader market associate with your brand. The thinking is that over-incentivizing "cheapens" your products in the eyes of your customers to the point that they no longer see the original prices as reflective of their value. Consequently, customers might become conditioned to purchase only when they're offered incentives — which can lead to an eventual decline in demand.

Meanwhile, the logic behind the growth side of the tradeoff is simple: Consumers respond to offers. Whether you're struggling to meet your end-of-quarter revenue goal or desperately need to grow your contribution margin to cover costs, incentives can be an enticing fix. That's why marketers have long invoked the causal relationship between low prices and high demand to justify their incentive strategy.

Fortunately, you don't have to commit to one side of the tradeoff. With the right strategy and insights to back it up, you can effectively thread the needle between short-term growth and long-term brand equity.

Why incrementality is the key to a winning incentive strategy

Our answer to balancing brand equity with growth is to consider the incremental value your brand is capturing from its incentive strategy.

Defined as a way to attribute growth to a particular marketing effort, incrementality is especially useful in the context of incentives. At Monocle, we use incrementality to measure how much revenue or profit can be traced back to a particular promotional campaign.

We find that looking at incentive strategies through the lens of incremental gains provides marketers with an effective framework for internally communicating their value. In addition, assessing the full potential of offers in aggregate — i.e., across all flows or campaigns that target a certain use case (abandonment) or segment (repeat users) — empowers brands to make holistic decisions that lead to a more consistent strategy.

After conducting A/B tests to identify what type of offers resonate with buyers, brands can start to understand their customers' sensitivity to offers. From there, brands can decide on specific incentive strategies to affect their target KPIs, thus driving incremental value.

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Four incentive strategies used by leading brands in 2024

The four strategies in Monocle's Incentive Strategy Dashboard range in the degrees of incrementality they aim to capture. While the "brand equity first" strategy takes the most cautious approach to incentives, the "promotional growth" strategy aims to squeeze as much incremental value as possible from every offer. Here's a quick breakdown of the different approaches:

Brand equity first

This approach uses incentives the most sparingly, aiming to extend them to only the most offer-sensitive users. It might entail offering smaller incentives (like 10% off) to only a fraction of your customer base — or even just offering free shipping. Since the brand equity first strategy doesn't capture as much incremental value as the other three strategies, we typically recommend it for when you don't necessarily need incentives to drive conversions but still want to coax a smaller group of price-conscious customers towards a few of your products.

This incentive strategy is often best for ultra-luxury brands whose hero products are always in high demand. These brands enjoy plenty of prestige and don't want incentives to jeopardize that. However, they might revert to incentives to nudge new customer segments towards less popular or lower-AOV inventory.

Promotion curious

The promotion curious approach looks to capture a little more incremental value than the brand equity approach by rolling out higher-value offers to more users. Brands embracing this strategy still aren't offering excessive discounts or reaching out to most users, but their incentives are starting to show measurable results.

Premium (but not ultra-luxury) brands may favor this approach. Occasional incentives help these brands drive short-term sales without conditioning their customers to depend on them. You'll notice a lot of premium brands harnessing this strategy during big sales events like BFCM.

Sustainable growth

A sustainable growth strategy relies on offers to drive consumer demand throughout the year. It's thus premised on extending the most substantial offers to the largest share of users — but without resorting to making the largest offer in every single interaction.

Because of its heavy emphasis on customer acquisition, the sustainable growth approach can be an especially powerful lever for subscription-based brands. Although these brands don't want to sacrifice too much of their perceived value, they also recognize that a little leniency can have a profound impact on their customer LTV. They're willing to lose more money to incentives in the beginning because they know the customers they win have a much higher chance of becoming loyalists.

Promotional growth

A promotional growth strategy tends to take bigger swings (regarding offers). It uses its incentive strategy as a moat in highly price-sensitive categories or as a way to supercharge growth in time-bounded sale periods. Because this strategy combines a lot of incentivizing with a lot of strategic calculations, promotional growth captures 100% of the incremental value of each offer — empowering you to grow quickly without risking unnecessarily eroded margins.

As its name implies, a promotional growth strategy best befits consumer brands in commoditized categories — such brands want to drive short-term growth without diluting their long-term brand image. And this strategy gives them a middle ground by ensuring that they offer each customer no more or less than the precise incentive they need to convert.

Why you should mix up your strategy to match the moment

As part of our commitment to a holistic approach, we recommend testing each strategy and using your learnings to adjust as you go along. Even if you land on a strategy that works right away, you should stay flexible. Outcomes fluctuate with seasonality and shifts in demand patterns, and changing it up may be the only way to keep your finger on the market pulse.

Fortunately, Monocle is built to meet your evolving needs. Our platform uses reinforcement learning to make constant internal improvements to your offers, while our intuitive admin app gives you all the latest customer data you need to keep iterating. Whether you want to add or drop offers, control or configure new models, or overhaul your entire incentive strategy to meet new goals, you can do so at the click of a button.

Elevate your promotional prowess with Monocle

An ad-hoc approach to incentives isn't going to cut it when your brand's equity is on the line. Are you ready to embrace a holistic strategy that preserves brand equity while helping you gain net new customers?

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