Cashback – How it works

Despite the twenty-first century being an era where people seem to have more of a disposable income and access to low interest credit, a fickle economy with fluctuating house prices and higher taxes means that people are a little more cautious about parting with their hard earned cash than they ever were. For retailers, the competition for business is fierce and as we enter an age where people readily have access to the internet at home thanks to competitive internet packages, the choices in available products has grown at an almighty pace.

With the internet making the shopping experience more convenient in terms of variety and cost, businesses have had to take note of the fact that the high streets are beginning to look deserted; the future in marketing, it would seem, rests in the hands of the World Wide Web. But advertisement alone will not attract a loyal customer network, in fact, getting noticed at all can be a near impossible task given rise to the access people have to world-wide retailers.

Price comparison versus cashback sites
Customers are able to search thoroughly for competitive prices so the pressure on retails to achieve is high. Whilst a price comparison website can be useful – these sites search specifically for a required product and list those websites with the most ‘hits’ and best value-for-money offers – they are also vulnerable to those retailers willing to pay a high reward for advertising their products through these affiliate links. Though not necessarily a new phenomenon, cash-back websites have started to gain more interest from those consumers wanting the best deals available on the internet.

Cash back websites offer financial rewards for their customers, primarily in the hope of attracting loyalty. Essentially they act as advertisers: retailers offer financial rewards to these sites in exchange for advertising space. The difference between these and the comparative sites however, is that cash back sites do exactly as the name suggests, they offer a financial return for the customer, usually at a percentage of their total spend or at a flat rate determined by the retailer. In short, the customer gets a portion of their money back when they spend online, and cash back websites not only direct you to the sites with the most compatible offers, but they establish a personal rewards program; the more you spend and save, the more cash back potential.

Cashback - tangible rewards
It would be easy to be suspicious of any website that claims to give free money but the rewards are genuine. To fully understand how these sites work, it is important to acknowledge that businesses can easily trace the direction from which their internet customers came. When we click on a link that leads us directly to a retailer’s website, the retailer can determine which of their affiliate sites, i.e. their advertisers, have been successful in directing customers their way. The cash back sites may be rewarded with either a flat rate or a percentage of that customer’s total spend and then the cash back sites return this to the customer after taking a small percentage for themselves.

In most cases customers can sign up with a cash back website for free and after being introduced to the sites they wish to purchase from, they retain the customers’ cash back reward for a set period of time (for example, they may keep the balance for three months and then release these funds back to the customer in one go after this time lapses). This ensures customer loyalty and therefore potentially more money but there are no hidden agendas, the cash back websites are merely returning the savings on cost. Many cash back websites reward their customers for introducing family and friends and this too can push up the cash back rewards significantly.

For those wondering why a product may be cheaper online than on the high-street, then it should be noted that depending on where the products come from (some retailers may be saving on certain taxes by selling online), the cost of marketing on the internet is far cheaper than say television or radio advertisements or the kind of product placements you might expect to find when walking along the high street or stuck to the side of a bus. With lower labour and administration costs, the retailer can afford to sell at a lower price and know that they must try to give back as much as possible with the threat of such strong competition; and research compiled by one of the UK’s largest cash back websites confirmed that these loyalty-based websites can be just as beneficial for the retailers.

Cashback - a win-win for consumer and retailer
Research from various networks, advertisers and retailers analysed the performance indicators of those customers who had reached the retailer through an affiliate site rather than a general web-search. Measured on an ‘Earnings per click’ scale, the results show that visitors are more likely to spend when given good incentives. One major high street clothing company saw an uplift of 183% whilst a widely known brand of pharmacy showed an uplift of 208%.

The savings available can vary dramatically and be on almost any product. Where as the latest DVD my cost £15.99 on the high street, online sales can be reduced by up to £12.99, sold and delivered directly to the customer who has essentially made a saving of £3 or 14%, and can expect to get an average cash back reward of anywhere between 50 pence and £3. Though this may not sound a lot, remember that the savings can add up and the cash back rewards can be doubled if a customer pays with a cash back credit card.

The cash back rewards on products like mobile phones can be much bigger: The Cashback club for example, offers rewards between £3 and £40 cash back, and £5 and £45 cash back on home insurance.

When earnings have reached a set amount dictated by the cash back websites, a request for payment can be made and the customer will usually be paid via BACS (bank transfer) or might even be given the option of being paid in vouchers.

Cash back websites are becoming an integral part of marketing on the internet, but the benefits can be seen not just by the customer but by the retailer as well.

Filed under: Cashback Guides