Cashback reward program: Everything retailers need to know

A cashback reward program is a tremendous driver which positively influence consumer shopping behavior.

According to Statista, the global cashback industry is expected to be worth more than $200 billion a year by 2024. Cashback is therefore a promising market for consumers who can improve their purchasing power and earn money, but also for retailers who see it as a good marketing technique to attract shoppers.

What is a cashback reward program?

A cashback reward program is a type of loyalty program where customers receive a percentage of their purchases as cash rewards.

When customers make qualifying purchases, a portion of the purchase amount is credited back to their account as cash or cash equivalents.

This cashback can be redeemed for future purchases, converted into gift cards, or transferred to the customer’s bank account or loyalty wallet.

Cashback bonus vs discount offer: what’s the difference?

Cashback and discount offers are both marketing tactics used to incentivize customers, but they operate differently.

While promotions aim to influence immediate buying decisions, cashback rewards encourage long-term loyalty through ongoing benefits.

Promotions typically involve offering discounts, special deals, or freebies on specific products or services. Customers may receive an immediate price reduction or an extra item with their purchase.

On the other hand, cashback bonus focus on providing a percentage of the purchase value back to customers as cash.

Is cashback free money?

Cashback is not technically free money since customers need to make purchases to qualify for it. However, it can be seen as a form of earned value or a discount on future purchases. Customers receive cashback as a reward for their loyalty.

Is cashback attractive to consumers?

Yes, cashback rewards are one of the most appealing for retail customers. Inflation and prices are high, so shoppers are always on the lookout for ways to maximize their budget since their money doesn’t go as far as it used to.

They provide a tangible benefit by giving customers a financial incentive to continue shopping with a particular brand or retailer. Cashback programs offer a sense of immediate gratification, as customers can see the actual savings they accumulate through their purchases.

Last but not least, cashback rewards often provide flexibility in how customers can use or redeem their earned cash.

Consumer attitudes towards cashback rebates (by annual household income)

This survey represents consumers attitudes towards cashback rebates. It shows that 78% of the respondents find the opportunity for cashback rebates a great saving opportunity:

Does cashback generate ROI? How?

Cashback programs have the potential to generate a positive return on investment (ROI) by increasing customer loyalty and retention.

When customers are rewarded with cashback, they feel valued and recognized for their loyalty. This positive experience can enhance customer satisfaction, encourage repeat purchases, and foster long-term relationships.

By continuing to shop with a brand that offers cashback rewards, customers are more likely to remain loyal and be less susceptible to switching to competitors.

What are the downsides or risks of cashback?

The problem is that cash is fungible and generic; it has no “trophy value” like a branded loyalty currency. Over time, consumers don’t even notice it.

Cashback rewards, especially when automatically accruing in an account, are not very motivational to consumers. Once cash is returned, the consumer can spend it anywhere else, which cuts off the cycle of profit for the brand in question.

While cashback programs have benefits, there are some downsides and risks to consider:

a) Cost:

Implementing and managing a cashback program incurs costs, such as the cashback itself, administrative expenses, and potential fraud or abuse.

b) Margin erosion:

Cashback rewards reduce profit margins on purchases, especially if the cashback percentage is substantial. This can impact the overall profitability of the business.

c) Customer expectations:

Once customers become accustomed to cashback rewards, they may expect them as a standard offering. Failing to meet these expectations in the future can lead to dissatisfaction.

d) Disengaged customers:

Some customers may only engage with a brand for the sake of earning cashback bonus and not out of genuine loyalty. This can result in lower customer engagement and potentially attract less profitable customers.

Cashback rewards: benefits for consumers

Cashback rewards programs are easy for the customer to understand. There’s no confusing rubric for how spend translates into points earned, or for how those points become more merchandise or some sort of other coupon/credit certificate.

Customers using rewards and loyalty programs want benefits which are simple to find and redeem.

In essence, cashback rewards meet 3 criteria for making consumers happy:

• they are rewarding
• they are relevant
• they are effortless

In this time of rising prices, cashback bonus on purchases offer a chance for the consumer to offset increased costs. Earning money back for retail purchases in a cashback rewards program is like getting a little bit of a rebate on every shopping trip. In fact, 90% of consumers reported that current inflation is causing them to seek cashback rewards and discounts when they shop online.

Even if it’s only 1 to 3%, it’s still a great deal; cashback rewards can really add up over time – and who doesn’t like getting free money?

And yes, of course… some people say they can’t be bothered to spend 15 seconds at the cashier with a loyalty card, that the time isn’t worth “the pennies”.

Here’s a short demonstration that these 15 seconds are the highest salary most of us will ever make.

Let’s assume a typical consumer…

• Spends €70 a week at the grocer, 52 weeks per year
• Takes 15 seconds each time to swipe their loyalty card
• Get 1% cash back

Let’s do the math together now:

• Yearly spending = €70 X 52 = €3640
• Time spent on loyalty = 52 X 15 = 780 seconds
• Cashback = €0.01 X 3640 = €36,40
• Cashback per second spent = €0,046
• Average work day = 8,5h = 30.600 seconds

Cashback rewards: benefits for retailers

Does a cashback reward program work for retail? As you know, retail businesses can reward consumers for loyalty in a variety of ways:

• Offering them exclusive discounts
• Giving them exclusive sneak-previews of products or services
• Rewarding them with “points” or other company currency for purchases or actions
• Returning them cashback on their purchases

The reality nowadays is that consumers simply expect rewards from businesses. Cashback rewards programs help to build repeat exposure and loyalty towards a brand or company.

How to create a cashback rewards program?

To create a cashback rewards program, consider the following steps:

Define objectives:

Determine what you aim to achieve with the program, such as increasing customer loyalty, driving repeat purchases, or attracting new customers.

Allocate resources:

To successfully launch a cashback rewards program for your company, you must have a dedicated resource on the team who will effectively be the program’s product owner.

If you expect your cashback program to grow and deliver the results that you’re projecting, you need to have someone actively managing every aspect of it.

This person will be your internal champion, making sure that the new program:

• Has the correct positioning to customers
• Is supported by enough marketing to drive results
• Maximizes any optimization and growth opportunities
• Has performance metrics and goals, AND receives regular reporting on results vs. these goals

Without the equivalent of a product manager, responsible for the overall performance of the cashback rewards program, your new program is likely to be orphaned in the organization, and only receive attention when people notice that it’s not performing as it should.

Set cashback terms:

Decide on the cashback percentage customers will receive, the qualifying purchase criteria, and any limitations or restrictions.

Choose redemption options:

Determine how customers can redeem their cashback rewards—whether as loyalty points, direct bank transfers, gift cards, or other forms of value.

Establish tracking mechanisms:

Implement the software to collect purchase and customer data and calculate cashback amounts accurately.

For many retail companies, partnering with a loyalty management software that can handle cashback rewards makes the most sense – because the complexities of a cashback platform have already been built-out, the amount of work to launch something to their customers is comparatively much easier.

Communicate the program:

You know what they say, you can have a great product, but without marketing, it’s doomed to fail. The same goes for cashback rewards programs.

Just imagine: you’ve spend time and resources to create it… and now you need to make sure you get the word out to your customers so they actually begin using it!

Planning marketing support to communicate about your cashback bonus includes:

• Determining the key messaging & benefits for customers
• Making it a key feature with benefits that you tout to any new customers, e.g. messaging it during the onboarding process
• Knowing what channels/ opportunities you have to share the new program with customers
• Creating an outreach campaign with multiple touch points to inform your customers once the cashback program goes live
• Planning for how you will drive usage of the program, e.g. how will you encourage them to use it every time they shop? Remind them of the benefits.
• Monitoring the results of your marketing efforts

Eventually, the cashback reward program should tie directly back to your company’s mission.

Conclusion

Cashback reward programs have proven to be a compelling tool for boosting customer loyalty and retention in the retail sector.

By offering customers a tangible financial incentive for their continued loyalty businesses can create a win-win situation where customers enjoy the benefits of earning cashback while the company benefits from increased customer engagement and repeat purchases.

However, it is crucial to carefully consider the costs, potential margin erosion, and customer expectations associated with implementing a cashback program.

By effectively designing and promoting a cashback rewards program, businesses can enhance customer satisfaction, generate a positive return on investment, and position themselves as leaders in customer loyalty within the industry.