Do cashbacks work better than discounts on customer loyalty rewards?

In today's world, everything runs digitally. With the ease-of-access of the internet to millions, online and digital marketing has captured the marketing scene.

Apart from products that users' would prefer testing personally, (cars, phones, electronics, etc.) everything can now be sold more efficiently online. This begs the question to ask how does one sell online more efficiently and gain more customers and traction.

If we look at the data, the most amount of online sales is done during events, festivals and big sales (Black Friday, Diwali, Ramadan, Christmas). The primary driver for sales during these times is generally big discounts on products. However, an up and coming way of rewarding customers right now is cashbacks.

Cashbacks are currently taking the market by storm due to the customers post-purchase elation when getting money transferred back to their account. Cashbacks can almost be compared to the reward system of coupons.

From the seller's perspective, a cashback keeps customers coming back. If you go shopping in a store and find that some items have big discounts, you may be tempted to buy them. It's possible to overspend, but this doesn't mean you'll have to go back every time. Alternatively, if the cashier hands you a coupon at the time of your purchase, which you can only use on a future purchase from the same store, you will be much more likely to go back and make use of it. This is a case of what behavioural economics terms sunk cost fallacy or the desire to make the most of something because you have already paid a part of the cost. This is how cashbacks work as well.

This is why cashbacks in the current market-space are so effective and convincing to customers, they keep customers coming back. They effectively increase customer retention while delighting customers as well the moment they see the seller pay them a part of their bill back!