How to Launch a Cashback Loyalty Program and Why It’s a Great Idea?

The idea of customers earning money while shopping may seem odd at first, but practice shows that if the cashback incentive is well thought-out and the audience is well-targeted, cashback rewards might be the right way to re-engage customers, giving them another reason to get back to your store regularly.

In this article I’m going to show you both opportunities and challenges that come with cashback rewards. I’ll show you some real-life examples of cashback campaigns and guide you through the setup and launch of a cashback loyalty program step-by-step.

What is a cashback loyalty program?

Though a cashback program has its own set of rules, it’s actually a type of a loyalty program – at least in most cases. So, to get a solid grip on that, let’s make sure we’re on the same page when it comes to loyalty programs.

In loyalty programs, customers gain points for numerous activities, such as buying items (obviously!), signing up for newsletters, creating accounts, commenting in social media, referring friends or even writing opinions about purchased products. Learn more about loyalty programs here.

On the other hand, cashback programs are usually built around one simple reward action – buying.

So how do they work? The primary rule is straightforward, yet addictive and incentivizing – each time a customer buys a product or service (ergo spends money), they get a small portion of money back. Here’s how it works:

The graph above is of course simplified, but it should give you the idea about cashback loyalty. What are the benefits of it?

Cashback loyalty from the customer’s perspective

It’s no secret that customers like to get rewarded – that’s why referral and loyalty programs are so popular; in fact, it’s tough to find a major online store which doesn’t run any membership program.

Theoretically, cashback rewards should be one of customers’ favorites – after all, who wouldn’t want to earn money for shopping? And the best aspect of cashback is the instant gratification it comes with – usually customers get their money in return immediately. Unfortunately, there’s often a catch. Yes, the money is visible on the account right after the purchase, but the customers can’t withdraw the money anytime – only after collecting a specific amount (e.g. $20 or even $50). Such a mechanism is created to incentivize customers to purchase more in order to collect greater rewards.

The downside of cashback programs is that retailers tend to allow low rates of cashback – usually it’s around 0.5% to 5%. There are some exceptions, but if a company offers high-rate cashback, there’s usually an amount cap – for example: 15% money back, but up to $50. Obviously it’s still a generous offer, but if the customers learn it the hard way (e.g. after paying $1,500 for a TV) they might get a bit…unhappy. So be sure to make the cashback program clear and avoid unpleasant surprises.

Why do retailers launch cashback loyalty programs?

Including cashback rewards in the company’s marketing stack is a perfect way to promote new things, such as a mobile app or a line of products. How does it work? For example: a company may offer cashback only for those customers, who place orders via mobile app, encouraging them to download and try out the app.

Advanced personalization of cashback programs (as well as loyalty programs in general) enables companies to set restrictions – one of the most common methods is to allow customers to spend cashback money only on certain products. Such an approach encourages people to check out new products – after all, they’ve already earned themselves a nice “discount” by purchasing the products they wanted in the first place.

Every rose has its thorns, and setting too strict limitations on spending cashback might become one of them: customers like to get money back (even if it’s a small fraction of what they spent), but finding out that they can’t do whatever they want with the money might be frustrating. This is why transparent communication should be a standard in such cases.

Important note: while cashback programs grow in popularity continuously, not every business would find cashbacks profitable. In some cases, it’s better to offer special treatment to the most loyal customers – priority support, physical gift packages or access to limited areas of the shop – anything that would make them feel special. Offering cashback for Lamborghini buyers might taint the experience. People who are willing to spend $200,000 for a car won’t bother getting 0,01% of their money back – instead, they need to feel welcome and appreciated. Cashback programs are a perfect fit for shopping malls, online retailers and fintech companies – their customers are usually the people who value each dollar spent and should welcome a small part of it back with open arms.

Cashback loyalty programs in 2022

The world of digital marketing is ever-changing due to shifts in customer behavior, growing trends, global events, new technologies, legal issues and so on. Marketing strategies and techniques must follow (or even overtake) those changes to stay relevant and attractive for customers. That’s why, although the cashback idea isn’t new, money-back programs in 2022 are nothing like their predecessors.

We now have companies that specialize in offering cashback (cashback aggregators),  cashback sites and mobile apps, which took the market by storm. Many companies, though, still manage cashback programs on their ends, preferring full control, individual approach and lack of provisions over streamlined processes offered by aggregator sites.

Point-based vs. cashback loyalty programs

It’s one of the most frequently asked questions – many companies prefer to choose a cashback program or a point-based loyalty program instead of launching both. That makes sense, since having two loyalty programs simultaneously could seriously confuse customers. Let’s take a look at a few examples:

Examples of point-based loyalty programs

One of the examples of successful point loyalty programs is the one made by UTU. Customers earn utu points by performing various actions, such as adding a payment method to their accounts, spending money using the app, or even participating in fun runs.

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One of the most popular loyalty programs is this one held by Uber. The rules are quite simple – for each dollar you spend on rides with Uber and orders with Uber Eats, you get 1 point. After reaching 500 points, customers can select an Uber Reward within the next 28 days. Depending on the region they’re in, they might earn a reward for each 500 points they earn. Also, there‘s a way to multiply earnings by taking UberX (2x more points) or Uber Black (3x more points) trips.

Chubbies offers a little more complex loyalty program – with more earning rules and diverse rewards. There are (exactly) a dozen ways to earn points in Chubbies’ loyalty program. Here are some of them:

• Follow Chubbies on Instagram (100 points).
• Create an account (100 points).
• Purchase from the Swim collection for the first time (50 points).

Such an approach shows precisely, how customer loyalty programs’ possibilities are limitless – companies can reward their customers for almost anything – especially if they have access to a powerful loyalty promotion engine, such as Voucherify.

Examples of cashback customer loyalty programs

Bank of America offers a personalized cashback program, offering customers 1%, 2% and 3% cashback depending on the category:

• 3% cashback works for purchasing in the category of customer’s choice.
• 2% cashback works for shopping at grocery stores and wholesale clubs.
• 1% cashback works for all the other purchases.

There are a few limits to this program, such as:

• Customers can apply the 2% and 3% cashback for up to $2,500 of purchases in all categories quarterly.
• Customers cannot choose their category (for 3% cashback) freely – there’s a list of categories they can choose from, including: gas, dining or home improvement/furnishing.

Bank of America have also prepared a tiered membership program called Preferred Rewards – if a customer meets the criteria of it (has an active, eligible BoA checking account, and an average daily balance of at least $20,000 (based on last three months) in deposit or investment accounts), they can join this program, unlocking higher cashback rates among other things:

Here’s a simple cashback solution by Famous Footwear – this online retailer offers 5% cashback for up to $250 a year, which is just enough to get yourself a nice, free pair of shoes at the end of the year. Customers earn 1 point for every dollar they spend.

What is more, loyalty program participants may combine their Reward Cash with other coupons, bonus points offers and sales – no limitations for this!

Famous Footwear adds another nice touch to their cashback program by rewarding $5 Birthday Reward AND doubling points per dollar spent during customers’ birthday month.

Pomelo Perks is one of the simplest cashback programs I’ve encountered while browsing the Internet in search for cashback examples. The rules can be shown in three simple steps:

1. The cashback is 5% – there’s no amount limit
2. You get cashback for every order, in-app or online.
3. The points expire after 30 days, so you’ve got a month after the purchase to spend your points.

That’s it!

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Your approach matters the most while choosing between point-based and cashback loyalty programs. If you’re running an online retail business, and you focus primarily on sales, the cashback program would probably be a better fit for you, as it incentivizes people to return to your store and buy more on a regular basis.

Also, cashback programs are tailored to fit businesses working in the financial area – banks, crypto and fintech companies. Such businesses encourage spending over anything else and with attractive cashback offers they can keep their customer engagement on a high level.

Classic, point-based loyalty programs would probably work better for those entrepreneurs, who seek to establish a long-lasting relationship with their customers. Offering them physical rewards and exclusive offers is one of best ways to make them feel cared about, while simple cashback refers to a more practical relationship between buyer and seller.

How to create a cashback loyalty program?

In Voucherify, setting up a cashback loyalty program is quite straightforward. The core of the issue lies in understanding the loyalty program module, which is one of Voucherify’s most popular and most advanced modules. Let’s take a look at how you can create a loyalty program in Voucherify:

Turning a loyalty program into a cashback loyalty program can be done in three simple steps:

• The value of a single point – to set the cashback mechanism correctly, you need to assign value to a single point. Since cashback is usually about low amounts of money, you are not limited to make 1 point = 1 dollar conversion. Feel free to set the value of 1 point to $0.01 or even lower, if your customers would collect thousands of points.

• Setting up earning rules (reward actions) – the key to setting up earning rules is the cashback rate you want to offer. For 1% cashback, set up a rule that would grant 1 point for each dollar spent. If you feel like giving a 5% cashback to your customers, grant 5 points for each dollar spent. Keep in mind the value of a single point, which you have set in a previous step.

• Setting up the pay-with-points reward – one of the rewards available in Voucherify loyalty programs is called pay-with-points. It’s the very rule that makes cashback programs possible. In our example, 100 points would be equivalent to $1, so the customer has to collect 1,000 points to acquire  $10 in cashback.

Note: as each loyalty program in Voucherify, cashback programs, too, can be tiered. There’s always an opportunity to offer better cashback rates for customers who gather more points for their purchases.

In a typical cashback program, users can spend their collected points as cash while making another purchase. It is also possible to design a whole different flow: let your customers withdraw their cash as actual money (transfer it to their bank accounts) or change collected points into gift card credits. Voucherify, with its API-first approach, lets you create any custom flow for a loyalty program you can think of.

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