i. Reduces customer attrition rates (churn)
ii. Increases and motivates engagement
iii. Encourages repeat purchases
iv. Stand out from competitors
i. Rewards loyalty
ii. Cashback to spend
iii. Instant reward
iv. Simple & easy to participate
a. Protects a brand’s bottom line
b. Prevents the ‘cheapening’ of your brand
a. Slippage
a. Fixed fees in cashback promotions
b. Fixed fee rate
Cashbacks come in various shapes and sizes, but there are 2 most commonly recognised.
One where you earn money for every qualifying purchase, usually as a % of your spend and then rebated back to you. These are generally run by financial institutions as an encouragement to use their credit cards to make purchases.
The second type of Cashback is a mechanic used in Brand Promotions. Usually for a short-term period or a one-off purchase on a higher-value product and is typically found in consumer electronics categories.
There will always be a portion of people looking to buy in the market - regardless of whether or not there’s a cashback incentive. A cashback offer can stimulate purchases with shoppers who are actively looking for a deal, impulse shoppers, and those who simply need a prompt to buy.
With a price discount, every shopper benefits, every shopper automatically gets the discount. With a cashback, shoppers still benefit but they need to “earn” that discount, usually by completing an online form. The more steps involved, the less purchasers will claim.
Used correctly as a brand promotion, the ideal is to find that sweet spot between a powerful consumer offer and the right amount of steps to claim. One that encourages shoppers to buy the product - with the intention of claiming - but where only 30% - 40% do.
Gaining long-term customer loyalty is far from easy, brands are always gaining and losing customers.
Cashback promotions are a powerful way to incentivise purchases - attracting new customers as well as rewarding loyal customers.
A cashback stimulates engagement beyond a simple purchase transaction into a sign-up, record details, and claim process. Brands now have their shoppers' data that they didn't possess if they ran a price discount.
Moreover, cashback promotions can help protect a brand’s bottom line. Instead of an indiscriminate offer like a price discount which is applied to every purchase, a cashback requires active engagement and is not immediate.
However, the main power of a cashback promotion
When brands create a positive experience via a brand promotion, customers who have claimed and liked the offer will be more inclined and open to participating in promotions by the brand in the future.
A Cashback doesn’t have to be a cash deposit to a bank account. A cashback can be in the form of a digital gift card. The card can be brand or retailer-specific, thereby generating further purchases or in the form of a universally accepted debit card with a pre-paid amount uploaded.
This is a win for the brand and a win for the retailer but requires clarity for the shopper in the terms and conditions. Check with one of our promotional experts if you need help with this.
When everyone in the category is running price discounts, a brand running a cashback is distinctive. Especially if the cashback is paired with say a travel-related gift card. Cashbacks also add value to a product offering. It incentivises purchases in a way that captures shopper attention.
Shoppers are rewarded for their loyalty and buying from a brand. Cashbacks actively give back and show customers that their purchases and engagements with the brand are valued.
Customers value cost-saving, however, with cashback, it feels like earning a bonus amount of cash which incentivises spending.
Whilst there is a process to make a claim, and a period of processing to give customers the cashback, it’s an instant reward without the chance factor of a prize draw or other similar brand promotions. There’s a sense of security with the promotion and active brand engagement is rewarded.
The process is straightforward, shoppers can claim in just a few minutes. They simply enter their details online and upload a receipt. It's the perfect opportunity for the brand to interact and promote more of its values and even future offers.
Price discounts are easy and fast for brands to do, consumers like it due to the price-saving factor and all consumers get the discount at the purchase point - for this reason, they can be expensive to run because the discount is applied to every purchase. Price discounts are also beneficial for retailers because they encourage footfall and store visits. However, there are a few major issues with price discounts that are tackled within a cashback offering that makes it an attractive promotional offering for brands, consumers, and retailers.
Although cashbacks take more time to set up and run, they are the closest promotional offering to a price discount. Customers still get a ‘discount’ but it relies on them to engage with the process to make that claim. Cashbacks are the closest type of brand promotion to a price discount. Yet, they can be up to 50% cheaper to run.
Not every person who is looking to buy is in the market because of the Cashback incentive.
Many people will be buying regardless. A Cashback offer can stimulate purchases with shoppers who are actively looking for a deal, with impulse shoppers and those who simply need a prompt to buy.
With a price discount, every shopper benefits, every shopper automatically gets the discount. With a Cashback, every shopper still benefits but they need to “earn” that discount, usually by completing an online form. The more steps involved, the less purchasers will claim.
To claim a cashback offer, entrants will often complete an entry online through a registration page which includes fields for their bank details, and their receipt. This can be hosted on a promotional microsite or as a page on a brand’s website.
Following the entry, participants will have to wait for their Cashback to be deposited to their bank account - usually within 30-60 days after the claim date.
Standard terms include making the shopper claim within the promotion date range, typically after the expiry of the product return date (eg: 14 days or 30 days after purchase) and before a fixed closing date.
Claiming a £150 Cashback is a £150 discount for the shopper.
However, not all shoppers will claim, for example, in a scenario where a customer buys a laptop for £1,000 and gets a £150 Cashback, 40% or more of shoppers don’t claim. A £75 cashback on a £500 clothes dryer (also a 15% offer) might be only 20% claim.
In high non-claimant scenarios, businesses can then advertise a much higher cashback amount than they would if it was a price discount. This makes a cashback offering much more powerful and much more appealing to shoppers.
Cash, gift cards and vouchers are some of the most popular promotional prizes because of their flexibility. For that reason, cashback promotions are very popular among shoppers. However, ‘cashback’ promotions are not limited to only cash offers. Brands can instead switch out cash for a same-value offer but as a gift card or pre-paid card.
These pre-paid gift cards can be tailored to use with certain retailers, still affording recipients the same reward value-amount, but generating more sales for the retailer.
A huge benefit to businesses using pre-paid cards instead of a cashback bank transfer is what the promotional industry calls ‘slippage’ or 'breakage'.
When a pre-paid card is issued as a promotional reward, there is a large percentage of recipients who will not spend fully the card balance. If there is a time limit on using the pre-paid card, then this jumps up to a high percentage of recipients not fully spending the card balance.
The unused amount on the card is called slippage, which is extra profit, often used to offset and keep other costs down, or is profit shared between the card provider and the business according to an agreed-upon percentage before the promotion begins.
If a cashback offer is very attractive, the brand running the promotion is at risk of experiencing higher-than-expected cashback claims, known as over-redemption. To manage this, there is specialist insurance used to cover circumstances of over-redemption.
Over-redemption insurance is called a fixed fee. Having this insurance cover, allows the business to enjoy the sales success without needing to worry about potential over-redemptions and budget excess.
There are a number of factors involved in negotiating and setting the cost of the fixed fee. Please contact us for more information on this. Speak to one of our experts at no cost. Consider using the PromoNow platform. Speak with a platform consultant at +44 (0)20 380 555 38 or email [email protected] to learn more.
PromoNow is a managed end-to-end cloud platform empowering brand owners with rapid, scalable and secure solutions for any promotional activation.
