Choose between cashback vs store credits for your Shopify store.
If you’re the owner of a business or a marketer for one, you know how critical it is to retain customers. Almost 75% of your business comes from retained customers.
And that’s why brands employ various strategies to bring back customers to their eCommerce stores. Some of the strategies are cashback and store credits—-where retailers give back cash or store credits to customers.
You must be using one of these in your eCommerce store. But is one better than the other? And which one is better – cashback rewards or points?
That’s what we find out in this article.
Cashback vs Store Credits: Which strategy works better?
What are store credits, and what are the benefits?
When an amount is credited to a customer’s account, it is called store credit. Customers can use store credits to pay for purchases.
For example, when a customer returns an item, the amount can be returned to them as store credit instead of a cash return. This way, the store doesn’t lose the amount they had earned. And customers can use the amount to pay for future purchases.
Another way for brands to give store credits to customers is when customers take different favorable actions—these could be making purchases, signing up for a customer account, on customers’ birthdays, sharing referrals, etc.
Customers can accumulate store credits and use them to purchase items from that store. Store credits is an effective marketing tactic to engage customers, increase average order value, and boost customer loyalty.
Store credits can be given in many ways, such as reward points or loyalty points. Customers, too, like to use their store credits in different ways. Look at the illustration to understand why customers love rewards or store credit programs.
Now let’s look at the benefits of store credits:
- Store credits give customers more options for how they want their amount to be credited
- It gives brands more flexibility to accept returns because they aren’t losing money
- Retailers can offer store credits in many ways—as credit, reward points, credit points
- Store credits help boost loyalty and customer retention
- It helps increase customer spending
- Customers make purchases freely without worrying about losing money if they have to return the item
Pros
- There are multiple ways to offer store credits
- Store credits can be clubbed with many promotional campaigns as incentives
- Help boost customer loyalty
- Increases average order value
- Boosts sales
- It helps make your returns policy customer-friendly
Cons
- Store credits are points, not actual cash
- It can’t be redeemed as cash
- At times, customers have to wait until they reach a threshold to use the store credits
What is cashback and what are the benefits?
The cashback feature enables retailers to return an amount when a customer returns or exchanges an item or as an incentive towards a purchase made.
For example, a customer returns an item they bought and does not want to purchase anything else in return at that moment. In this case, the retailer can repay the amount to the customer.
Or, a customer buys a product for which the retailer has promised to return part of the cash after a predefined time. For example, 5% cashback after three months.
In most cases, retailers return the amount in the mode via which the customer has made the payment. For example, if the payment was made via net banking, the cashback goes to the customer’s bank account. However, this can be a loss of future sales for the retailer because there’s no guarantee the customers will come back.
Let’s look at some benefits of cashback:
- Customers make purchases freely, knowing they’ll get their money back in case they return the item
- Cashback is an enticing incentive for customers—it helps retailers increase sales
Pros
- Cashback is real cash that gets credited to customers’ account
- Cashback eventually reduces product prices considerably for high-value products
Cons
- Customers don’t receive cashback instantly
- Cashback doesn’t guarantee customers will come back to the store
- Cashback can’t be used as an incentive for activities other than purchases
Now that we know what store credit and cashback are and their pros and cons, let’s take a deeper, comparative look at the two.
Cashback vs Store Credits: A detailed comparison
In the following table, we’re doing a detailed comparison of cashback vs store credits to help you decide what is better for your eCommerce business.
| Cashback | Store credits | |
|---|---|---|
| Guaranteed future purchases | Cashback does not guarantee that the customer will come back to your shop. | Customers can use store credits to make purchases, so they’re most likely to return to the shop. |
| Validity | Cashback does not have any validity because customers can use their cash anytime they want and in any store. | Store credits usually have a validity period, and customers have to use them within that period. |
| Incentive | Cashback is not given as an incentive when customers sign up for a customer account. | Retailers can give store credits as an incentive to customers to sign up for a customer account. |
| Time | Most brands take days to weeks to credit the cashback in the customers’ accounts. | Store credits are credited instantly to the customers’ accounts. |
| Flexibility | Cashback is a fixed amount or a percentage with a limit for the maximum amount. | Store credits can be flexible and variable based on the order value. |
| Customer loyalty | Once customers receive cashback, there’s not much brands can do to bring the customer back to shop more. | Over a short period, store credits can become a way to grow customer loyalty, as it’s an incentive for them to keep coming back and buying more. |
| Personalization | There aren’t too many ways in which brands can personalize their cashback strategy. Brands typically announce cashback offers to all, making it a less flexible strategy. | Store credits can be personalized more effectively compared to cashback. For example, offer extra store credits on items you know customers are interested in. |
| Data collection | With cashback, there’s less guarantee that customers will return to your store. And hence, there are lesser opportunities for data collection. | Offering store credits can help brands collect valuable customer purchase behavior data, which can be used for future marketing and personalization. |
| Transactional nature | Customers receive cashback only when they spend money. | Customers can receive store credits for actions that do not involve them spending money. |
| Limitation | There might be a cap on how much cashback can be given to customers. | Store credits depend on the actions customers take—when they perform an action; they get store credits due to them. |
| Customer- friendliness | Cashback offers might complicate the return policy for customers and retailers. | Store credits make your return policy customer-friendly. |
| Cash burden | With cashback offers, retailers have to give back real cash. | Store credits help keep money within the business. |
Now, let’s look at some examples of eCommerce brands to understand how they run their rewards, cashback, and store credit programs.
Sephora’s store credit program—they call it merchandise credit.
Abercrombie & Fitch
MTG Mint Card
Cashback vs Store Credits: What should you choose?
Now that you know the difference between cashback and store credits and the benefits of the two, you are better positioned to decide what you should offer on your Shopify store.
There are some factors you must consider to decide when to use store credit vs cashback. For example, which of these incentives you offer to your customers, depends on your products.
Decide based on your product value: For products of low price, cashback may not be suitable as the amount would be too less to excite customers or to make them feel they’ve received something in return. Whereas if the product is highly valued, the cashback amount would be significant. It will make customers feel good.
Choose based on the purchase frequency: Another factor to consider is the frequency at which customers buy the product. If the purchase frequency is more, you must go with store credits as it’s a good motivating factor for customers to make repeat purchases.
Earning store credits brings excitement for customers—the more frequently they purchase, the more store credits they’ll accumulate.
But there’s no fun in collecting store credits at longer intervals. Hence, cashback is a better option if the product is something that customers aren’t going to purchase frequently, for example, electronic gadgets.
There’s an efficient Shopify customer account app, Flits, to help you decide between cashback or store credits. Flits Store Credits feature can set up and manage your store credits program.
To explore Flits, book a demo.
And if you’ve decided to implement store credits on your Shopify store, install the app.
Read our blog on why cashback is better than discount.
