Discounts vs. Cashback: Which one is the ideal revenue-driver for your brand?

When it comes to driving sales and loyalty, discounts and cashback are the heavyweights in your corner. But which one packs the stronger punch for your brand? 

As rewards, they might seem like contenders in the same weight class, but launching the wrong strategy could lead to disappointed customers and less revenue. Ultimately, the choice depends on your goals: customer acquisition or retention. 

Let’s take a look at whether it’s better for your brand to slash prices now or promise customers a later reward — and how to implement your strategy. 

Attract new-to-product customers without devaluing your brand

Changing how you deploy the discount can be crucial to converting a new customer. For products at a higher price point, it may be tempting to incentivize customers with a discount. But do it too often, and they’ll begin to expect lower prices, which devalues your brand and attracts more price-sensitive customers. 

For first-time buyers of Bambu’s premium skincare line, the in-cart widget lets customers know they can receive 15% off sitewide if they sign up for the membership program. The discount is an attractive incentive for a high-value product with an appropriate price tag. While the discount isn’t exclusive to first-time customers, the widget frames it as a members-only perk. This helps Bambu retain the perceived value of their products, but most importantly, it tripled their automatic recurring revenue. 

Use discounts to attract price-sensitive customers

A discount is one of the easiest promotions to implement. You set up the code, notify your customers, and let the sales roll in. It’s one of the fastest ways to boost sales because customers love to save. From their perspective, they’re getting a deal, but you’re often just changing their frame of reference to counter price sensitivity objections. Still, seeing that instant savings is a powerful incentive to complete the purchase. 

However, the disadvantage of discounts has always been that your business bears the cost of the discount upfront, lowering profit margins and training your customers to only shop when there’s a discount. Understanding how to balance this upfront loss against the potential gains will help you decide whether this is the right strategy for you. 

For instance, discounts can also be used as part of a targeted loyalty strategy to attract and retain customers. T-shirt brand True Classic advertised the potential savings from the members-only 10% discount at checkout, providing a powerful incentive to opt-in. As a result, they doubled uptake of their membership program at checkout from 4% to 8%. Rather than being widely available to all shoppers, it’s an exclusive discount for paid members.

Incentivize immediate purchases with flash sales or timed discounts

The urgency of a limited-time promotion can make a huge difference to an indecisive shopper, often in the retailer’s favor. But with these incentives, you might be trading long-term engagement for short-term benefit. If you’re finding that many customers are only buying while these offers are active, switching to a different type of discount could be a better strategy. 

For both Bambu and True Classic, discounts worked best for the bottom line when consistently available through a membership program. These brands’ membership programs give customers the same discount they might receive during a flash sale, but with a much bigger benefit — both to the business through more consistent cash flow and to members who save on every purchase. For Bambu, this strategy increased gross revenue by more than $126 per customer. 

Offer cashback to encourage repeat purchases and loyalty

Cashback given as a store credit is one of the smartest ways to get customers back to the shopping cart. Retailers consistently see customers spend more than their available cashback amount just to redeem the full reward. However, when customers forget about their cashback, or the amount doesn’t make any purchase feel worth it, they often abandon it. That’s a lost opportunity for any business. 

Programs like Flamingo Estate reduce friction for redemption by changing the structure of their rewards program. When the household essentials brand switched from a dollars-for-points program to a membership model with a cashback perk, member value increased 2x compared to the value of non-members. 

Supercharge your LTV by incentivizing memberships

Building a connection with customers that makes them choose you over a competitor every time is the key to maximizing the potential of your membership program. For an annual membership, replacing points with cashback takes the mental math out of the equation and boosts rewards redemption. 

For instance, Sunday Swagger’s The Sunday Club only costs $20 a year to join, but the brand increased repeat purchases by 83% for members and increased spend per member by 53% compared to non-members. 

What’s more, their members are highly engaged, even interacting with other customers on Sunday Swagger’s social media and organically promoting membership perks. The benefit of such a loyal group of customers is that they think of Sunday Swagger first, and above other competitors when they need new golf gear. Members became their highest LTV cohort, even surpassing other retention channels, like email and app.

Maintain your product’s perceived value with benefits you control

Where discounts run the risk of eroding your brand value, cashback ensures you see the full price paid upfront, maintaining the brand’s perceived value. In cases like these, cashback can be a valuable tool in retaining more control over how rewards are redeemed, while still making customers feel recognized.

Just take a look at Carnivore Snax. The meat snack brand wasn’t interested in short-term wins from discounts. Instead, they wanted to cultivate relationships with their most loyal customers. Partnering with Inveterate on a paid membership proved to be the ideal strategy for this goal.

Among other benefits, “The Hunt” members receive 5% cashback on all purchases. It’s a welcome reward for a brand that doesn’t offer discounts otherwise — and members are eating it up. Carnivore Snax raised spend per customer by 319%, achieved a 223% return purchase rate for members, and increased order frequency by 181%. 

Key differences between discounts and cashback

Build a smarter reward system with Inveterate’s tailored loyalty programs

Inveterate’s loyalty programs are tailored to meet customers where they’re at in their journey. Implementation is handled through Inveterate’s platform, with ongoing maintenance and adjustments covered too. By partnering with Inveterate, brands like Flamingo Estate launch or rebuild their rewards programs quickly and efficiently, instead of spending tens of thousands of dollars on months of development. 

What’s more, the strategy you start with doesn’t have to be the strategy you stick with. Inveterate’s programs are modular. As you learn more about your customers’ behaviors and preferences, you can layer or combine elements to create a loyalty program tailored to your target audience. With five foundational loyalty programs to choose from, there’s something for everyone. 

Repeat Purchase

Our repeat purchase model consistently drives customers toward the next purchase by using pull-based rewards. By rewarding each transaction with cashback, customers become invested in your brand and return more often. 

Alternative Recurring Revenue

Keep customer loyalty but remove the burden of an ill-fitting subscription cadence with an alternative recurring revenue model. This program offers similar perks to a subscription model but avoids the resentment caused when customers receive more product than they can use in a subscription cycle. 

Exclusivity

A membership program that offers exclusivity through members-only rewards builds a strong sense of community and encourages long-term loyalty. Giving members early access to inventory, exclusive members-only items, priority customer support, and special gifts also creates a sense of urgency and exclusivity around your program. 

High-Consumption

Our high-consumption model unlocks recurring revenue for products with long-term repurchasing potential, like consumables. Rewards like free shipping, members-only pricing on the items they’re after, and dynamic members-only discounts encourage customers to buy more consistently instead of waiting for infrequent sales. 

DTC Shift

If you’re looking to increase purchases via your website while leveraging the awareness and new customer acquisition that you’ve generated from wholesale channels, a DTC shift model will support your strategy. It encourages purchases on your highest-margin channel by offering incentives like free shipping and exclusive products. 

Sound like the conversion unlock you need? Book a demo.