Cashback rewards have gained a reputation as the “king” of loyalty rewards. That is even truer in tough economic times, such as the ones we are living through right now. In a pandemic economy, companies assume that cashback rebates are highly valued by customers.
However, are cashback loyalty programs really “king”? Should companies heavily rely on loyalty cashback right now? At Reach, we argue: No, they shouldn’t. Read on to find out why.
Cashback Rewards: Why Do Businesses Love Them?
This Forbes article argues that cashback loyalty programs work better than any other loyalty program.
Ryan Wuerch, CEO & founder of Dosh, a cashback rewards company, says he has seen how such incentives can impact customer loyalty. “We just surveyed 19,000 of our users about their shopping behavior, and 82% said they prioritize special promotions, discounts or cash back when choosing where they’ll shop. That’s a powerful loyalty stat.”
Furthermore, Wuerch cites neuroscience studies and research to prove why customers don’t want to part with their hard-earned cash. “Consumers have unpleasant emotions when contemplating the monetary cost of making purchases. Making customers feel positive about their purchase is crucial to not only the customer experience but also brand loyalty.”
His company’s solution: cashback rebates. Wuerch cites the current public health situation as a driver to customers becoming more eager for loyalty cashback programs. “In previous years, ‘value’ meant consumers attaining something meaningful for what they give to a business,” Wuerch says. “In the current public health crisis, consumer needs have shifted dramatically, and ‘value’ should now play out with brands and financial institutions helping customers achieve their budgetary goals.”
The Problem with Cashback Loyalty Programs
However, we at Reach believe cashback is not king. Why? Because real-life experience, according to loyalty veteran Howard Schneider, shows cashback rewards, especially when automatically accruing in an account, are not very motivational to consumers.
Cash is fungible and generic; it has no “trophy value” like a branded loyalty currency. Over time, consumers don’t even notice it.
From a brand’s perspective, cashback rebates do not assure that customers will spend the cash they receive with the brand or a partner. Once cash is returned, the consumer can spend it anywhere else, which cuts off the cycle of profit for the brand in question.
Another issue with loyalty cashback is the payment problems that may arise. The whole point of a cashback loyalty program is… well, to get some cash back. However, sometimes, this doesn’t happen within a reasonable amount of time. Some programs issuing checks to their account holders have received criticism due to delayed or missing payments.
True, most if not all companies that experience this are prompt enough to address the problem immediately. And while many programs deliver cashback as a statement credit, that is also problematic because customers in many cases don’t even notice, much less appreciate, the credit.
How Brands Earn True Loyalty
This is not all to say that cashback rewards are ineffective. As Wuerch said in his Forbes article, cashback loyalty programs can benefit consumers during these pandemic-riddled times. However, it takes more than cash from brands to build trust and loyalty with their customers.
Netflix proves that with its simplicity and how easy it is for customers to access their services. Mattel and Fisher Price proves that, as well, through their virtual toy museum that taps into the childhood nostalgia of their consumers. Small businesses owners have shown how to build loyalty through selfless service.
It’s the brands that provide unique, customized experiences for their customers. It’s the brands that empower their customers to take control of their data, and compensate them well for sharing it. It’s the brands that reward the customers from more than just buying stuff; for community engagement, shared reviews and opinions, and other non-transactions.
Lastly, it’s the brands who have a “customer first” mindset, the ones who treat their customers with respect and create mutually beneficial partnerships. These are the brands who will truly be king.
What do you think? Let us know your thoughts.