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Why cashback instead of discount in consumer marketing

Posted by Roger Bretau on 19-Apr-2018 07:50:00
Roger Bretau
Cashbacks vs discounts
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Not only is new technology revolutionising how we live, it is also changing how businesses market to new customers. An example of this change is the increased use of cashback promotions. Here’s why businesses today are preferring cashbacks over traditional discount.

Cashback promotions do not kill your brand

Even though it is still in its infancy, online cashback shopping is growing at a rapid pace and this is prompting more and more businesses to invest time and money into cashback promotions.

It is easy for any business to take the traditional route and go for discount promotions. It is a safe bet and it may get the desired outcome. However, the keyword here is ‘may’. Over the years—especially in recent times, it has been proven that discount offers aren’t the best way to promote a brand or product as the only marketing tactic to use.

Why is that? Perhaps the biggest reason to limit your use of discounts or price promotions is not ‘killing your brand’. If you gotten into a habit of offering price promotions, then break the habit and quick.

If you do that, it won’t take you long to get your brand healthy again. So, if you’re not going to use discount promotions, then what’s the next best option you have? it is cashback promotions.

‘Why cashback instead of discount? It is something we are going to discuss here but before we do that, let’s take a quick look at why you need to use discount or price promotions less often.

Why You Should Limit Your Use of traditional Discount Promotions

What is that one thing all businesses want to do? They all want to build a strong brand.

To ensure this, they invest heavily in sales activities and marketing promotions. With these activities and promotions, they aim to build a strong brand in terms of more revenue, bigger margins, higher customer loyalty, and ultimately a bigger market share. Yet, most of them make the same mistake on a regular basis that hurts their brand value and that mistake is running discount promotions continuously.

While discounts may bring in more sales in the short term, they are generally not a good long-term strategy to promote your brand or product. At least, if being used as the only marketing tactic to grow sales.

When you offer a traditional discount, you devalue your product and brand and there are no two ways about it. Contrary to what many businesses believe, promotions don’t always have to be discounts.

In fact, it is debatable if you should use them at all for your business. Okay, maybe you do need them but not as often as you think.

Checklist download:  Successful promotions implementation from A to Z

 

Successful businesses also use discounts to promote their brand but unlike their less successful counterparts, they do it ‘strategically’. They do not overly rely on discounts to gain traction because they know they are equally—if not more effective, promotions out there that can help them do the same and one of them is cashback. Next is why cashback instead of discount is a better option to promote your brand.

How do cash back promotions work?

Cashback refers to the option where the spender is promised a percentage of cash or virtual cash for spends made. You can offer cashback incentive to drive more online and offline business without devaluing or hurting your brand. 

Here's an example of a cashback promotion mechanic that we ran for one of our clients:

example how cashback promotions work

As you may understand, if you run the right promotions or use your promotions strategically, they will increase your long-term profitability without hurting your brand. Making use of more cashback promotions and less discount promotions is part of the equation.

In fact, using the same type of incentives over and over again is one of the fatal mistakes we usually see in consumer marketing promotions strategies.

Unlike with discounts, when running cashback promotions customers have to ‘apply’ for a cashback and often the take up is surprisingly low. This means that the offer has a high perceived value but, in reality, the cost is a lot lower.

Yes, there are a few more people involved in the transaction than the traditional discounts which involves only you and your customers. But, cashback makes much more business sense than a discount. You’re not constantly offering your product at a lower price and most importantly, you’re not devaluing your brand.

Our recommendation is that you estimate results even before launching your promotion. This can be done with an appropriate calculator of digital promotions results.

 

Free download here: Digital Promotions ROI Calculator Template

 

Also, if you are offering the cashback through a cashback site, you will have to pay a small commission to the site to get people to click through them to buy your products or services. So really, cashback instead of discount, is the way to go.

So, cashback promotions stimulate demand at multiple points in time. According to one estimate, almost 10% of the money paid out in cashback payments is spent again through the cashback company a business is affiliated with. Many businesses are not aware of this fact and thus, continue to use discounts over cashback promotions to increase sales and promote their brand.

 

What Makes Cashback Better Than Discount

When you overly use discount promotions, your customers become conditioned to buy only during the ‘sales’ period. They buy in bulk and store up to have enough supply till the next sale.

Moreover, they become more focused on price and less on product differentiators, perform mental trade-offs based primarily on cost/benefit rather than on emotional attachment to the brand. They are also more likely to switch brands to get a lower price.

What does this all mean for your business? You continually sell your product at a lower price throughout the year and offer more discounts to lure customer back from the competition. Over time, the discounts lower your profit margins significantly, hurting your brand and market share in a big way.

Your brand will lose its credibility if you offer price discounts all the time.

An effective way to drive and increase sales, cashback promotions rewards your ‘loyal’ customers and not those who are looking to save money.

The more money customers spend buying from you, the greater their reward. So, you’re not ‘begging’ them to buy from you, you’re just rewarding them for supporting your brand. 

So, we've just explained why cashback promotions are better than continuous discounts as a marketing tactic, for getting the benefits of sales growth while not devaluating your brand. We hope it's useful for your strategy :)

 

Topics: digital promotions, sales promotions, Promos, online promotions, cashback promotions

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We think and write about inbound marketing, digital revenue, digital customer promotions, digital sales & marketing planning. 

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