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May 1, 2020 · 22 min read

What is Cashback and How Cashback Works 101

The concept of cashback is a growing trend amongst Australian consumers, with over a million Australians utilising cashback services. Find out what cashback is and how it could work for online businesses.  

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Cashback Landscape

Incentivised cashback affiliates have seen tremendous growth in the past few years. According to Statista 1, 43% of affiliate marketing placement was sold to cashback and loyalty partners in 2019. Moreover, we have seen sales revenue growth from this channel of affiliate increase by over 200% between 2018 - 2019. Similarly, the first retail quarter of 2020 (Q1: January - March) saw an average sales uplift of over 150% from this group of affiliates compared to how they performed in Q1 2019. 

Cashback sites are one of the top-earning publisher types within the affiliate industry. Companies who have participated in rewards such as cashback grew their revenue up to two and a half times faster 2 than competitors who do not use them while generating 100-400% higher returns 3  to their shareholders. The global cashback industry is expected to be worth more than $200 billion a year by 20224, with statistics showing that 46% of cashback participants 5 consider it a vital step in their purchase decisions. 

Additionally, advertisers highly value cashback and reward affiliates. According to the latest IAB Australia Industry survey 6, cashback credit card rewards and loyalty programs ranked second out of the nine affiliate models reviewed: 

Screen Shot 2020-04-29 at 1.15.02 pmSource: IAB Affiliate Marketing Australian Industry Review Jan 2020

 

Getting Started

Here are answers to the most common questions asked by advertisers when evaluating cashback partnerships: 

 

What Is Cashback? 

cashback website rewards customers by paying them a percentage of the commission paid to a retailer when they purchase goods and services with credit cards or debit card via their website or app. Cashback reward programs are also sometimes utilised directly by advertisers to incentivise their customers to purchase their products so that they may offer cashback directly from the total amount paid by the consumer.  

 

How Does Cashback Work? 

In the example below, Canon was running a cashback offer with a retail partner. The consumer pays the total price for the products eligible and then later claims the cashback directly with Canon, which the customer withdraws via their bank account or gift card amongst many other ways. These types of campaigns have helped to make the concept more mainstream amongst consumers. 

Canoncashback

Like most affiliates, the payment model for cashback affiliates is Cost per Action (CPA). The difference between the cashback partner and other types of affiliates, like content or coupon sites, is that cashback affiliates will pass on the part of their commission they earn to the consumer. 

cashback user journey

How Can Retailers Work With Cashback Affiliates?

Retailers can easily optimise with a wide range of cashback sites via their affiliate program. The advertiser would need to accept the cashback partner to their program, and once approved, they will integrate the advertiser onto their site. No additional tracking requirements or integration fees are required to partner with most cashback websites in Australia when working with them via the affiliate channel.

Once integrated, the advertiser will be active on the cashback site for shoppers and large member bases to engage with. The advertiser will be categorised depending on their product or service offering (such as fashion, travel or telecommunications) so users can quickly and efficiently search for what they are looking for.

Businesses can also optimise with the cashback partner by negotiating a commission increase for an agreed time frame, in exchange for increased exposure. When confirmed , this will grant the advertiser increased coverage and presence on the affiliate’s traffic sources such as via homepage placement, email (EDM) placement or social placement.

In many cases, the extra commission offered means that the customer can be eligible for more cashback. The more commission there is to offer after each transaction, the more attractive the advertiser may look to the consumer on the cashback site.

 

The Cashback User Journey 

How does cashback work for consumers? While cashback might seem a little complicated, it can be broken down into a straightforward process:

Search - The consumer simply finds the product they need from an advertiser on the cashback site.

Redirect - The consumer clicks on the advertiser of their choice and is redirected to their website.

Shop - The consumer goes on to purchase from the advertiser’s website and receives cashback (for the percentage or fixed amount advertised) after the order is confirmed.

Payment – Once the advertiser validates the transaction, the consumer receives their cashback into their member’s account and can cash out the amount directly into their nominated bank account.

What are the Benefits Of Cashback Affiliates?

This model benefits a wide range of retail businesses including fashion, groceries, electronics, travel, department stores, liquor and food delivery services. However, due to cashback being a newer and less familiarised business proposition, many advertisers can encounter various challenges about how the concept can benefit their overall business development and growth. Some common questions advertisers may have in mind include protecting brand equity and image, new customer acquisition, targeting new consumer segments, and the overall incremental value that these cashback sites can provide.

The following are key benefits that advertisers may receive when partnering and collaborating with cashback sites:


Higher Average Order Value (AOV)

Many cashback website members may be incentivised to spend more to earn greater cashback, leading to an increase in the multi-product orders and higher AOV for advertisers.


Improved Conversion Rate

Members use cashback websites for one general motive - cashback. Rather than pondering over making a purchase, members ensure they receive this cashback by converting. Many cashback users already have purchase intent and are looking for that extra incentive. These users will choose to shop with an advertiser that provides the most value.


New Audience Reach

Some cashback sites have member bases of thousands or even millions of active users and continue to grow their user bases over time. These sites have the data and ability to run segmented campaigns to target new demographics of consumers, which simplifies the new customer acquisition challenge for advertisers.


Return On Ad Spend (ROAS) Targets

Cashback websites work on a CPA model, which means that commissions are received only after a successful conversion for an advertiser. Advertisers can often book in additional exposure by increasing the commission rate alone which scales up the volume while maintaining positive ROAS.

Increased commission equates to more cashback for the members. Increasing CPA converts more members as the advertiser becomes more attractive and compelling. In some instances, an increased CPA can cover the standard fixed cost of the exposure. In this scenario, the extra commission is not entirely passed back to the users. However, a positive ROAS can still be achieved since the advertiser is still working within the cost-effective CPA model.

 

What Are The Challenges Of Cashback?

 Below is a list of frequently asked questions about cashback, with answers: 

Will cashback websites deliver new customers? 

Cashback sites often have extensive and diverse membership groups, which companies can utilise to target different audiences to their existing customer base. Also, appearing in newsletters, homepage coverage or category sponsorships can put an advertiser in front of customers who were not necessarily looking for that brand. 

Cashback site users are loyal to the concept of cashback. If a particular business is not found on the cashback website, it may result in that consumer spending with competitor site who are present. 

Will cashback websites cheapen my brand? 

Offering cashback promotions can be enough of an incentive for cashback site users to shop with a business; therefore, it is unnecessary to provide additional discounts when working with a cashback site. This can assist with protecting margins but at the same time remain competitive and compelling to a range of different customers. 

This is why many high-end advertisers have chosen to work with cashback sites as they can incentivise customers without providing additional discounts. 

It is a common misconception that cashback shoppers do not spend much and are just looking for the cheapest price and product. The average cashback user is tech-savvy and part of a higher income demographic, which means they have more disposable income to spend. 

 

How can I control how much commission and cashback is being passed back? 

Advertisers can control the amount of commission they pay their affiliates. Custom commission rates can be scaled right down to product margins and even a specific product level. For example; a department store can assign 2% commission to electronics, 10% commission to children's toys and 8% commission to all fashion and apparel all at the same time. 

The cashback affiliate decides what percentage of the commission is passed to the user. 

 

How do I know the sales are incremental and I would not have received that sale anyway? 

This is dependent on how an individual advertiser views incremental sales. This could be % new customer sales, higher AOV or increased conversion rates. The answer here is to a) ensure your program is set up to optimally track and report all the most important incremental KPIs and b) test and review. One way to do this would be to look at performance metrics before partners have started promoting your brand and then measure performance against a like for like period after they are live. 

 

What Are The Cashback Strategies Retailers Can Explore? 

When it comes to working closer and building a stronger relationship with cashback sites; the below list outlines the primary ways that an advertiser can optimise via cashback: 

 

Increased Brand Exposure 

Tactical CPA increase can create a buzz around a brand resulting in increased exposure across sites, including homepage or category pages, including social media or EDM exposure.  

The exposure the advertiser receives is case-by-case and based on availability. Members are incentivised by the percentage of cashback offered by the advertiser, which could propel retailers’ performance if utilised at the right time. 

 

Optimal Paid Placement 

Cashback sites may offer some paid placement options to businesses, which are optional to participate in. These are premium placements that can include home page banners, dedicated email etc. Placements are common during key retail periods like the end of financial years sales period or the exposure is in a high traffic area.  

Paid placements on cashback sites are worth investing in because of the premium exposure that will be guaranteed in return. The CPA model still needs to be assigned when advertisers pay for paid placements. 

 

Flash Sales

Flash sales give consumers an extra jolt to act quickly and purchase when the cashback rate is at its highest, leading to a spike in sales. It refers to the advertiser assigning a higher commission rate to the cashback site for a shorter than usual time frame (typically 1-2 hours), and it can be a great way to control budget as the exposure will run for a limited time frame. Flash sales are organised by the affiliate (businesses) and are pitched to the advertiser on a case-by-case basis. 

 

PR and Marketing 

Cashback sites occasionally promote themselves to gain new customers, reach, and awareness. They do this to educate the market, making cashback more mainstream and understood. Businesses that partner with such cashback sites will gain from the exposure, including social media influencer exposure, TV and radio ads, news broadcasts and more. As the affiliate grows, their business partners have the ability to grow as well.  

 

Can You Work Offline With Cashback Affiliates? 

A recent development in the world of cashback within the Australian market is implementing this reward via bricks-and-mortar stores. Advertisers with storefronts can utilise card-linked technology to incentivise members to make purchases in store. In most cases, the member connects their credit card or bank account to their cashback account to be eligible for savings on purchases. Once their purchase has been approved, the cashback amount will be transferred into their cashback account, which can then be withdrawn into their bank accounts. 

This phenomenon has opened up much discussion regarding omni-channel optimisation and being able to utilise online marketing channels to increase in-store performance and change consumer spending habits in the bricks-and-mortar environment. Retailers are now also able to unite their online and offline strategies. 

 

Summary 

Working with cashback sites is simple and effective, with no barriers to entry for the advertiser. All that is needed is an active affiliate program and to accept these affiliates to the advertiser’s program. As more consumers adopt this method of shopping, it makes sense to trial this vertical if not already utilising it. 

With online retailing becoming more competitive, having a competitive advantage and staying relevant amongst shoppers is more vital than ever before.  

 

Key Takeaways 

  • Consumers’ acceptance of cashback is growing in Australia 
  • Cashback sites provide the opportunity for advertisers to reach new audiences  
  • Cashback is an effective way to incentivise consumers 
  • Cashback is now possible in both online and offline stores  

 

References 

  1. Statista - U.S. affiliate marketing sales by publisher type in 2018 
  2. Harvard Business Review - Are You Undervaluing Your Customers? 
  3. Incentive Solutions - Important Loyalty Program Statistics for 2020 
  4. PRNewswire - Loyalty Programs Market to Reach $201 Billion by 2022, According to Beroe Inc. 
  5. Cashback News - 20 Valuable Stats You Should Know About Loyalty Programs 
  6. IAB Australia - Affiliate Marketing Australian Industry Review 2021 

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