The absolute truth about Cashback & reward points you need to know in 2022?
Cashback promotions are only another tactic for enticing customers to purchase a business’s goods and repaying them with incentives. How can the loyalty programme experience for customers and companies be improved with the current structure of cashback, reward points, and discount coupons?
About seven years ago, Nikunj Parsana, a 37-year-old IT expert from Ahmedabad, joined the e-commerce craze when few others were as enamoured with it as they are now. Parsana and his wife Shweta started shopping everything online for convenience, from gadgets to diapers for their little son. Given the couple’s propensity for making online purchases, Parsana reasoned that he might as well take advantage of all the available internet promotions. He stumbled and discovered the then-unpopular concept of cashback but had doubts about how beneficial it would be.
What it does
An offer for cashback seems too good to be true. When you make a purchase, the seller reimburses you for a portion of the cost. But in principle, it is similar to a discount; nevertheless, it is more advantageous to the seller in the long run. A cashback is just a portion of your bill that is given back to you; however, this does not always equate to financial savings. Instead, you can receive store credit or points deposited into your account and can only be used to make future purchases from the same retailer.
A rebate, in the eyes of the seller, keeps customers coming back. Imagine shopping and discovering that some things are available at significant discounts. Even if you overspend on purchases, you may not return to the store immediately. In contrast, you are much more likely to return to the store to take advantage of the offer if the cashier hands you a coupon as your items are billed that you could only use on a future purchase from the same retailer.
According to behavioural economics, this is an example of the sunk cost fallacy, which is the urge to get the most out of something because you have already paid a portion of the cost. This is also how cashback functions.
“Credit cards and e-wallets offer cashback to encourage using their particular payment method. To promote client loyalty, they paid for the payback themselves in this instance.
When Paytm first came out, people had little incentive to start using it, but they encouraged it by giving out Paytm cash for each transaction. As a result, some of us grew accustomed to the wallet and now use it even when there is no cashback available, according to Swati Bhargava, co-founder of CashKaro. This website compares prices and offers cashback and coupons.
Offers for various vendors are listed on specialized cashback websites like CashKaro, Sitaphal, and Coupon Duniya. You must visit the cashback website and select the offer you want to take advantage of them. After that, the website will link you to the seller’s website, where you can complete your purchase.
“Sellers pay cashback sites for each sale we refer to them. We will earn the commission and provide you with a rebate from that sum if you make purchases on any of our partner websites using your CashKaro account, explained Bhargava.
Get the most out of it.
The days of coupons and vouchers having a list of limitations and conditions stating that they couldn’t be combined with other discounts or deals are long gone. Vendors and marketers are content to give you the best of both worlds. By combining several discounts and sales, you may maximize your benefits. You can receive 1 per cent to 5.5 per cent cashback depending on your purchase if you access a retailer website like Amazon through a cashback service like CashKaro. Additionally, the seller may provide you with a straight discount off the MRP. In my experience, a discount on a whole order typically ranges between 10% and 15%.
Being a subscriber also entitles you to discount vouchers and other benefits, according to personal finance blogger Gopal Gidwani of bachatkhata.com.
All this sounds good, but here’s some math behind your cashback.
Nowadays, receiving cashback when using credit cards, e-commerce websites, and online payment platforms is increasingly frequent. But the crucial query is, what exactly is a cashback, and how does it benefit customers and online retailers? Cashback is a small portion of a purchase’s cost that the customer receives back.
How is cashback calculated?
Cashback is a tactic a business uses to market its brand and increase market share, particularly over the long term. Some credit card issuers give their cardholders a 1–1a0% return on each purchase (depending on customers’ buying habits) when using a credit card. For instance, some businesses offer up to 5% cash back at specified retail establishments but just 2% cash back at certain eateries. They provide cashback in reward credit points or cash credited to cardholders’ accounts.
On the other side, credit card firms earn a small portion of the money paid to merchant websites via credit cards in the form of merchant fees.
Select clients receive a portion of this cost from the credit card companies as cashback.
When it comes to cashback websites, they operate under the affiliate marketing model. They collaborate with various businesses to assist them in marketing their goods or services. The cashback websites receive a fixed fee from each of their partner companies for every sale made through their website or app, and they distribute a percentage of that commission to their users in the form of cashback.
While the cashback % is never fixed and isn’t always in cash when it comes to e-commerce sites or digital payment providers, sometimes it comes in the form of points, discounts, or wallet money that can only be used on their website or with a small number of their carefully chosen partner businesses.
The main benefit of using a cashback website is that earnings and rewards can be deposited immediately into a bank account.
Cashback vs Discount
Discounts and cashback rewards appear to work similarly—they make a consumer pay less than the actual cost—but they operate in very different ways. According to experts, offering a product at a discount temporarily increases sales. Long-term use of discounting strategies damages the value of your brand and devalues your items.
Long-term promotions with discounts cause a business to lose credibility. Therefore, effective strategies like cashback offers are required for long-term sales growth. It stops your brand from losing value and offers your target audience financial incentives. Customer pleasure and enhanced brand loyalty result from this.
The rationale behind the cashback strategy
Although the cashback offer technique may seem straightforward, it is considerably more complex. A consumer must make another purchase on the same website to receive the payback. He gets revenge once more in exchange, and the cycle continues. This helps the business keep clients over the long term and increases sales more than any other tactic.
Additionally, cashback frequently has terms and conditions attached. You can often only receive cashback if you spend a specified amount, like Rs. 1000. In other words, if you conduct a transaction for less than Rs. 100, you won’t receive any incentive.
In addition, cashback is typically capped. However, this isn’t always the case.
For instance, you will receive a 10% cashback up to a specific sum, say Rs 500. As a result, if you spend Rs. 10,000 on a product, you will only receive Rs. 500 as cashback rather than Rs. 1000. These factors add to the complexity and technicality of cashback offerings. Despite this, cashback offers are a guaranteed way to save money.
How to decide?
According to the most recent figures from the Reserve Bank of India, credit card expenditure reached a record high in May 2022 when it reached Rs 1.14 trillion and increased by 8% from April to that month (RBI). Card spending increased by 118% year over year (YoY).
Card-issuing banks collaborate with various network businesses to provide users with personalized reward programmes to further fuel this expansion. Most credit card issuing banks in India provide a variety of reward programmes, including Air Travel Miles, Cash Back on Purchases and Payments, Discounts or Gift Cards, Airport Lounge Access, Free Movie Tickets, and Fuel Surcharge Waiver.
Then came Cred, which added excitement to using credit cards and making minimum payments. Paying your invoices on time results in cashback and reward points being awarded. Unfortunately, Cred is not for everyone, just like credit cards. To utilize Cred services, you must have a decent credit score.
You must be aware that just 5.56 per cent of India’s 1.4 billion people (as of March 2022) have access to credit cards. Additionally, Cred services are available to 73.6 million credit card holders with fair credit scores. You cannot use Cred if your credit score is low.
Why should the fun be limited to credit card users only?
The top digital wallets already offered cashback and discount coupons to add debit/credit cards to the wallet and for every transaction made using the wallets. They duplicated the same rewards scheme on UPI transactions when UPI began to gain traction.
Suppose you conduct UPI transactions through one of the UPI applications. In that case, you will receive cashback credited to the original payment method or cashback points that may be used to purchase gift cards, discount coupons, or discount vouchers.
Everyone enjoyed the advantages of cashback, awards, and loyalty programmes. It makes no difference if you are among the privileged 5.6 per cent of credit card users or the 94.4 per cent of pre-paid consumers who transact—a win-win scenario for customers, UPI wallets, and credit card issuing banks. Customers using transaction-facilitating partners’ products (cards and wallets) are increasing, and these customers are earning cashback and reward points.
When most of these transaction ecosystem stakeholders prioritized profitability, things turned wrong.
Better luck next time! The denomination values of cashback began to decline and were almost replaced with cashback points or scratchcards. If you scratched a couple of those scratch cards and got this, please let us know in the comments.
When most UPI apps started treating scratchcards as advertising inventory, the reward system began to deteriorate. Imagine the extent of the advertising inventory of any UPI app with over 50% – 60% of the market capitalization when there are 5.95 billion UPI transactions each month.
Threshold limits were introduced and scaled up and down to increase user transaction counts to earn reward points and reach threshold limits. These threshold limits apply to the conversion of cashback points (not the actual cashback that vanished in due course) or reward points to discount vouchers/coupons.
How vital are cashback, discount coupons, and coupons to consumers today? Although we may disagree, consider the following exciting discoveries.
Suppose the information above and your opinions indicate yes! Then, how do you think the present cashback system, reward points, and discount coupons should be enhanced to enhance the customer and merchant experience with loyalty programmes?
Conclusion
Because the cashback plan outperforms conventional sales promotion strategies, hundreds of businesses adopt it globally. Cashback incentives are a means for businesses to thank their most devoted customers by enticing them to purchase more of their items.
