We’ve been data crunching recently, going back over past promotional history and reading up on industry trends and insights. Specifically, we’ve been looking at purchase habits on high ticket items and the sales stimulus of a sale versus a cash back promotion. Our findings have actually been quite surprising!
It suggests that consumers are twice as likely to purchase a high ticket item with a cash back offer, then when the item is on sale or discounted. We believe this is due to the perception they are getting a deal on a desirable and valuable item. As opposed to getting the item at a sale price, when they perceive that it is on clearance and being replaced by a newer item. Data also suggests there is more of a sense of urgency to make the purchase when the product has an associated cash back. The consumer likely feels the offer will be limited in time and availability.
It would therefore suggest that whilst sales can be a benefit to a lot of us, if you’re in the market for the latest gadget, a sale has negative connotations. It makes you think the item is coming to the end of its shelf life and a newer, better model is around the corner.
Obviously, promoters could put new items on sale for a limited period, as opposed to offering a cash back, but does this risk devaluing the product and the brand? The promoter or retailer may also have to increase the price first and so it’s more of a manufactured sale offer, rather than a genuine saving for the consumer. This too can create a negative impression.
Because of the redemption process and claim mechanism usually involved with a cash back, promoters don’t in fact end up paying the full rate of discount across the board. There is always a percentage of ‘slippage’ that comes by asking consumers to manually claim their cash back, which ultimately benefits the promoter. If the cash back promotion is part of a fixed-fee promotion we will often build this slippage in to our model to bring the activity within budget. Therefore a cash back can be cheaper for a promoter than simply putting the item on sale and our data suggests that it will work twice as hard as well!
Whilst we’re obviously strong advocates of the cash back model, there are effective alternatives as well. These can be even more budget efficient, whilst producing a strong sale impetus. Some retailers have recently employed ‘nth’ number prize promotions to award cash back or discounts to great success. For example, 1 in 20 purchases will get free delivery, or 50% of their purchase at checkout, or in some cases – the item for free!
So for us, the answer to the cash back versus sale question is clear. Why would promoters need to employ a sale when alternatives exist that are potentially cheaper, more effective at driving sales and don’t devalue the product or brand?!