Shopping is one of the most enthralling activities for most of us. While a few people prefer to to get brand new products, others wait for the sale season to get discounts on things they want to purchase. More often than not, discounts are the most tempting reason for anyone to shop. Recently, a trend of cash back instead of instant discounts have been adopted by banks and credit card issuers to lure customers and make purchases through their debit or credit cards.
Apart from the sale season, festival cash back offers also picking up at both online store, as well are retail outlets. Ecommerce has played a pivotal role in making cash back extremely popular and widespread. In 2015, we witnessed both large retail chains and ecommerce giants move away from the traditional strategy of providing instantaneous discounts to customers and providing cash back as a means of customer acquisition.
Before dwelling further into this subject, let us first understand the difference between discount and cash back. A discount is an upfront reduction in price to give immediate gratification to customers. For example, a 15% discount on a product that costs ₹100 will enable a consumer to pay ₹85 and buy the product.
On the other hand, a cash back is something that is returned later. So, if a brand offers a 15% cash back on the same product, it means that a consumer will spend ₹100 to purchase that item. After the purchase is complete, the brand will usually give the purchaser a voucher for ₹15 that can be redeemed at the next purchase. If the cash back is being offered by a bank, then tis money will be credited to the customer’s account after a certain period of time.
The question that arises is that why are banks and brands moving away from discounts and embracing cash back. For banks, offering instant discounts is more expensive. If they offer direct discount, they have to pay the offered amount to the retailer at the time of purchase. However, when banks offer cash back, they pay the offered discount to the retailer at the same time but keep the customers money with them for a specified period of time and promise to credit the cash back amount to the bank account after that period. During this time, banks invest this money to generate surplus revenue.
This model works well for both customers, who are happy to receive the extra cash after a period of time, and banks, who are able to increase card swipes without incurring the expense of an instant discount.
For brands and ecommerce sites, cash back not just increases sales but also gives then repeat purchases. Since most retailed give out cash back in the form of credits or vouchers, the customer has to buy goods from the same retailer to be able to use these credits.
The government also incorporated Cash back as a policy this year. In order to reduce the number of cash payments and promote electronic transactions, the government aggressively promoted the use of RuPay cards by offering 1% cash back, in a direct challenge to card companies such as Visa and MasterCard.
Another government initiative was the LPG Cash back program, where the subsidies were directly credited in the bank accounts of the citizens after paying the full price.
Mobile wallets have taken cash back to the next level. Customers and buyers can now get cash back even on utility bills and mobile and data recharges. This money is credited in their mobile wallet accounts and it can be used to either shop for products or just paying bills.
While cash back shopping is relatively young, but it is a fast-growing phenomenon. In fact, it has become the king of the ecommerce market. While discounts attract shoppers, there is little that they do for customer retention. With cash back, retailers have identified a more permanent way of keeping customers with them. Since customer retention has become extremely important in the Indian ecommerce market, cash back has become the new age loyalty program.