Unlocking capital through consumer loyalty
Businesses have discovered an elixir to boost returns and improve customer loyalty. These come in the form of cash back rewards (CBR). CBR is an effective way of encouraging repeat purchases. They also foster long-term customer relationships.
These programs are so much more than marketing tactics. Cashback programs can significantly impact customers, which has a domino effect on the economy. When implemented correctly, these programs can unlock capital and drive sustainable growth for businesses. This guide explains the nuances of cashback programs for business-minded individuals. We make the case that cashback programs are catalysts for unlocking capital through customer loyalty.
How does consumer loyalty work? An economic perspective
Business owners understand the value of customer loyalty. It is sacrosanct. This is especially true in competitive markets with high customer acquisition costs. Numerous studies indicate that retaining an existing customer is considerably less expensive than acquiring a new one. It makes financial sense to invest in existing customers. This is precisely why cashback programs are so important. They offer tangible incentives for customers to stay true to a brand.
And it’s not simply repeat business that benefits the enterprise; it’s the referrals and valuable feedback that come with it. This can help businesses improve their product and service offerings. Viewed in perspective, this translates into steady revenue streams, predictable cash flows, and decreased volatility. Many perceive this as the gold standard for strategic business operations.
Case study: An example of a cash back app in action
To be effective, a cash back app must appeal to consumers. In the current inflationary climate, consumers are struggling with out-of-control prices. This is particularly true of food and energy costs. Fortunately, savvy entrepreneurs created a viable cash back app that rewards customers with a percentage of cash back on routine purchases including filling up at the gas station, eating out, or in-store grocery shopping.
These systems are far more effective when they operate as economies of scale, with tens of thousands of participating businesses. Among the leading cashback apps, patrons can expect 50,000+ in-network grocery stores, restaurants, and gas stations. The more the merrier.
Beyond the basics, registered customers can earn dual benefits from top-tier cashback apps. These come in the form of credit card rewards used to make purchases and the app that rewards patrons accordingly. When strategically implemented, these types of apps can unlock significant capital. They encourage higher levels of spending among high-end customers.
Let’s assume a case of 5% cashback on purchases. At such a generous return, high-end customers may be inclined to spend more and get more back. When extrapolated across many customers, these incremental increases in spending generate significant revenues for businesses.
From a psychological POV, cashback programs engender loyalty among customers. It makes it much more enticing for a customer to use an app to shop at a particular store they like, for more cash back rewards.
This pattern of spending/reward maintains consistency in revenue streams, cash flow in businesses, and reinvestment for greater returns. Of course, companies must conduct careful analysis to ensure that the breakeven point is known. At this juncture, the cost of providing cashback is equal to the added revenue generated by the program.
The impact of cashback programs on consumer behavior & LTV
These programs impact short and long-term consumer behavior. They do it by way of spending. Consumers can choose which brands offer the best value through cashback rewards. This is how brand loyalty is built. Over some time, this loyalty translates into higher customer lifetime value.
This is the long-term value proposition that businesses seek. It’s the gold standard. The higher the CLV of each customer, the greater the company’s overall profitability. Plus, loyal customers are less price sensitive. That’s an essential consideration for businesses to bear in mind. Consumers with lower price elasticity of demand preferences don’t mind as much if prices are increasing.
Equally important and often overlooked is another benefit of cashback apps – data collection. Copious amounts of valuable data are collected through these types of programs. We can glean important information, including customer buying habits and preferences, spending patterns, price elasticity of demand, complementary products and substitutes, timing of purchases, etc.
Businesses can use this data to optimize inventory management. From a financial POV, these programs are sacrosanct. Companies can use them to attract new customers who might be reluctant to try new products and services. They can also be used for cross-selling and up-selling different products and services.
Through effective cashback programs, it is possible to drive higher sales volumes, improve customer retention, and enhance CLV. As more local, regional, and nationwide businesses invest in consumer loyalty initiatives, we will invariably see much more capital being unlocked in the economy.