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Deluge of cashbacks, discounts face drought

Brands are migrating from discounts to cashbacks in the game of clever marketing

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From Swiggy to Zomato, GoAir to IndiGo, Myntra to Koovs.com, Airtel and Amazon, every big brand is jumping atop the cashback bandwagon. Gone are the days when discounts were the key bait to lure in gullible customers. Brands are getting smarter and choosing cashbacks over discounts.

"A discount is a rebate given at the time of the purchase. Cashbacks, on the other hand, are given post purchase and can be usually availed only during the next purchase. Cashbacks ensure the customer comes back to the brand to redeem their 'earned' money," says Prashant Gopalakrishnan, senior vice president, Dentsu Webchutney.

A multitude of factors work to the advantage of brands that choose cashbacks over discounts. Firstly, cashback is a marketing scheme by brands to delay discounts to thrust consumers into spending further, says Shashwat Das, founder, Almond Branding.

TRADING TRICKS

  • Cashback is a marketing scheme by brands to delay discounts to thrust consumers into spending further
     
  • Cashbacks depend on multiple terms and conditions such as validity and customer's need to spend
     
  • Discounts are often seen 'unhealthy', every time a brand publicizes a discount, it devalues its product

Secondly, cashbacks are dependent on multiple terms and conditions set by the brand such as the validity of the cashback, how much a customer needs to spend to earn the cashback and whether or not it can be clubbed with other promotions, says Chirag Tekchandaney, co-founder and director, B Label by Boheco.

According to Harsh Shah, co-founder, Fynd, through a cashback, a customer actually gets no discount unless they have successfully been able to consume the cashback.

Citing an example, Shah says cashbacks create the false perception of higher value discount whereas in actuality, they only guarantee a repeat purchase. "If there is a T-shirt worth Rs 1,000 and it carries a 30% discount versus a 50% cashback, consumers will look at it as Rs 300 versus Rs 500 advantage, and they will most often choose the cashback since it is 50%, as against the 30% discount. So the customer chooses the cashback, gets Rs 500 in his brand wallet (virtually), which he can earn only while purchasing a second T-shirt. So the brand has actually spent only Rs 250 in cashback per T-shirt as compared to the Rs 300 discount they would have had to give instantly on one T-shirt. The brand also earns a repeat customer without having to invest in any kind of marketing," says Shah, adding that cashbacks, besides inducing repeat purchase behaviour, also provide a delayed discount and are hence becoming the preferred tool for brands.

Das believes cashbacks make the most of consumer psychology. "Many of us started using Paytm only because it incentivised us with cashbacks initially for almost every transaction. Now we are used to using it even without cashbacks. This is behavioural economics at play."

Another crucial factor for brands to gun behind cashbacks over discounts is that a lot of discounts are often seen perceived as being ''unhealthy", feels Gopalakrishnan.

Every time a brand publicizes a discount, it is devaluing its product, explains Das. Experts say through discounts, consumers become price focused and can switch brands to get a lower price. "Cashbacks, on the other hand, reward loyal customers and not those who merely look for discounts. Cashbacks don't devalue the product and they lead to further sales," says Das.

Cashbacks, along with other online performance marketing tools constitute over 10% of the e-commerce market. In India, the e-commerce market is growing at a rapid pace, says a report by Deloitte India and Retail Association of India, which predicts the sector will account for $84 billion by 2021, from about $24 billion in 2017.

Sensing the potential, Shah says Fynd has created an ecosystem to reap the benefits of cashback. "We encourage our brand partners to be a part of more and more cashback related promotions as compared to discounts."

According to Tekchandaney, brands will offer more cashbacks as it is a safe method in terms of managing brand reputation and it trumps discounts when trying to build feelings of brand loyalty within a customer. "However, there is still no better feeling of instant gratification when getting a discount on a purchase. We will aim to find a balance between cashbacks and discounts."

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