Cashback vs discounts, what is better for your online store? The blog will explore the differences between cashback and discounts.
When people search for a product online, what they notice other than the price is the discount or rewards that the website is offering. Off-late rewards in the form of loyalty programs or cashback are becoming popular. A critical question that comes up in the discussion of discounts and rewards is what is better?
There is no clear cut answer to the question because it depends on the goal a business is trying to achieve while giving out discounts/rewards. But in the current scenario, cashback is the winner.
Cashback vs discounts
| Cashback | Discount |
| 1.Gives a slightly delayed gratification as it is given after purchase |
1. Gives instant gratification as it is offered upfront |
| 2.Can be used for other products |
2. Applied only on the product being purchased |
| 3. Customers surf other products, and may purchase something they generally would not have without the added reward |
3. Since the discount is applied on the same product there is no motivation for customers to check out other products |
| 4.Best for long term customers |
4. .Best for customers looking for one-time purchase |
| 5. Helps retain customers as it ties them for future purchases |
5. Discount helps in finding new customers |
| 6. Helps in future sales |
6. Helps in an immediate increment of sales |
| 7.Creates a positive impression on the buyer |
7. High discounts can often give a negative impression |
If the goal is to increase sales or get new customers, go for discounts, but if the goal is long-term retention and a loyal customer base, go for cashback. A combination of cashbacks and discounts can work too. However this should not be a permanent strategy as it gives customers an impression that the listed price is too high or the actual cost is too low.
Advantage of cashbacks
- Cashback is like money that customer can use for future purchases
- Cashbacks lure the customers to come back to the store to use the rewards they earned
- Cashbacks helps form a loyal customer base
- Cashback Is Cash Forward: Delaying a Discount to Increase Future Spending
- Cashback can be used to simplify refunding returns/cancelled orders
Flits store credit as a loyalty program is the perfect form of cashback that you can give to the customers. Credits on first order or x order number is the ideal way to make the customer come back in the future.
Flits store credit as cashback
Flits gives a loyalty program that has a unique module. Merchants can reward their customers at various steps. Best part about Flits store credit is that 1 credit is equal to the currency that the store uses. This means a store that uses dollars as a currency can give 10 credits if they wish to reward their customer with 10 dollars.
Stores give store credits on sign-ups, subscription to newsletters, placing orders, leaving reviews, etc.
Below is the screenshot of a Shopify Plus store that offers rewards on first and subsequent orders. Read about other methods to use store credits here.
Credit on the first order nudges the customer to purchase again. Merchants can create an endless cycle of purchases by rewarding customers after every purchase or on specific purchases.
Merchants can also set up bulk and bonus rewards for a set of customers. Flits store credit feature also allows merchants to give credits manually to customers if needed.
Benefits of using Flits app for store credits for cashbacks instead of using a discount app-
- Store credits in a loyalty program give a higher value of satisfaction than discounts or points as they are equivalent to the currency.
- Store credits can be used right after the customer receives them or at any later date (unless the store decides to set an expiration date to create a sense of urgency) this makes the loyalty program viable as compared to discounts.
- Credits are measurable in the sense that a customer in the U.S. who has 20 credits knows that the value of 20 credits is 20 dollars.
- After first order, credits can help initiate first sale by a new customer, and the credit on the first order can make the new customer a repeat one.
- Merchants can set multiple credits for different order numbers, which is a milestone credit.
- Merchants can also reward customers for buying certain products with product tag credits.
- Merchants can use store credits to give refunds or damage compensations via store credits by manually adjusting credit.
Loyalty programs using point system is also popular, but points system often feels dissatisfactory to the customers. The main issue with points system is the conversion rate. For example: 100 points are equal to 1 Rupee/1 dollar, customer looks at the earned points and when the conversion rate is too low it decreases the satisfaction of using those points. When it comes to credits, customer knows that it will be converted to same amount of currency they use.
When it comes to discounts, they can be used seasonally to get rid of merchandise you not longer wish to keep in stock, or increase footfall on your store for marketing purposes.
There is no doubt that cashbacks are better than discounts, cashbacks achieve multiple goals. If you design your loyalty programs centered around cashback you are missing out on a chance to make them come back to your store. Cashback will also help get word of mouth referrals and thus leading to more sales.
Also read: How to calculate the value of store credits given to customers