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Cashbacks: Benefit or Burden?

Cashbacks are highly popular for attracting customers. They can improve customer loyalty to the cashback program and induce repeat purchases, which gives retailers financial benefits. Cashback generation provides customers an emotional benefit, while cashback redemption gives them a financial benefit. Retailers need to combine these two strategies with proper promotion and stock management to maximise their gains from cashback programs.

In recent times, cashbacks have gained popularity as a means to increase customer loyalty and generate higher sales. Both cashback programs offered by the retailers themselves or

those offered by third-party vendors like Cashkaro are contributing to this trend. However, given the cost of such programs, it is critical for retailers to understand whether they impact sales and customer loyalty positively. A study tries to answer the question: Do cashback strategies yield financial benefits for retailers?

The study found that cashback programs can lead to an increase in customers’ average purchase amount and retailers’ revenues. This happens because cashbacks push up

customers’ loyalty to the membership or cashback program. For example, if an appliance retailer offers a cashback program, customers benefitting from it would feel greater loyalty to the program because it benefits them. They will likely buy more appliances from that same retailer in order to get maximum benefits, thus generating higher average purchase amounts.

It is important to note here that the customers’ loyalty is to the cashback program, not necessarily to the retailer. Retailers can leverage this loyalty to stimulate repurchases by

customers. For instance, if the purchase of a mobile phone through a cashback app gives a customer a satisfactory and substantial benefit, the customer might feel like “cashing-in” that benefit by purchasing mobile phone accessories that they might not have otherwise purchased. The greater the cash redeemed, the greater the inclination to make additional purchases through the cashback program, the higher the additional purchase amount, and the greater the revenue earned by the retailer.

Cashbacks affect customers in two different ways, and it is important for retailers to understand both of these strategies to build an effective cashback program. Cashback

generation gives customers money that they can use for a future purchase. While the customer cannot get direct monetary benefits from cashback generation (as the cashback can be redeemed only on a later purchase), it gives them an emotional incentive. Cashback redemption, on the other hand, gives customers a value-based benefit as they can use the accumulated “cash” to buy a product at a lower price.

Retailers can utilise these strategies in different ways to engage with customers. They can

use cashback generation to initiate a relationship with the customer, and then they can follow up with cashback redemption to increase their revenues through loyalty and repeat purchases. They should also promote the products under the cashback offer to ensure that customers’ sense of benefit is heightened and that they have easy access to products that can give them cashbacks.

On the negative side, retailers need to be careful about a few things while offering

cashbacks. The first is the cost of the cashback offer, which leads to lower margins on the offered product. To offset this impact, retailers can consider other, less expensive options like vouchers, gifts, discounts, and free delivery.

Retailers also need to manage stocks of products under cashback offers. Since the demand

for these products tends to be high, they might run out faster. Encountering a “sold out” or “unavailable” message for a preferred product that gives cashback can cause dissatisfaction amongst customers. Cashbacks are highly useful strategies that can lead to definite financial gain for retailers as long as they manage the offers intelligently and take care to avoid the pitfalls mentioned above.

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