Black Friday Cyber Monday (BFCM) is right around the corner. And it is the biggest sales event of the year as everyone buys gifts for friends, family, and associates, and even corporations reward employees. Last year, 196.7 million customers shopped during BFCM making it a once in a lifetime opportunity for merchants to attract new customers, boost sales, and enhance brand recognition.
In this saturated ecommerce market with retailers fighting for consumer attention, it’s necessary to position yourself using the right offers. Many merchants will run discounts and some will go with cashback; but to stand out, you need to choose the right one.
So, let’s discuss cashbacks and discounts and use a sample case study at the end of the blog to understand what's best for you. Making sure you get new customers, higher sales, and repeat customers that keep coming back for more.
Advantages of Discount Strategies in Boosting BFCM Sales
Higher Revenue
Discounts are a great way to boost sales, especially during BFCM when customers are looking for the most lucrative deals. With superior deals not only you get more traffic for your online store but also induce impulse purchases if the offers are compelling. Such compelling discounts can also push customers to spread the word, increasing further sales.
But, this approach come with its set of trade-offs:
Discounting is expensive. It can directly reduce the profit margins.
You won’t stand out: Discount is an accepted practice and is offered by everyone. So, customers nowadays seek benefits beyond discounts. As a store owner, you must offer something better than discounts to attract customers.
Still, a strategic implementation of BFCM discount strategies can help drive extra sales during this peak shopping season.
BFCM is an ideal opportunity for stores to attract new customers as almost everyone is shopping. Discounts can serve as a powerful magnet for customer acquisition during this period, especially when complemented by holistic Shopify Sales promotion techniques consisting Ads, Influencer Marketing and Email Marketing.
However, there are financial implications that you should know about:
Marketing costs: Marketing costs are higher during such events as every merchant is competing for the same user segment. Also, ad bids are only getting expensive with time. In a recent report, Instagram CPM has reported to be gone up by 39% in just a year.You can’t even leverage SEO in such a case as it takes months and even years to build authority. SEO is a long term game and in such a cut-throat market, there is only so much you can do about it. These factors increase your overall Customer Acquisition Cost(CAC).
Fleeting Customers: Customers that come for discounts tend to flock from one store to another. Retaining these customers is challenging since they are quick to move on to another store as soon as they find a better offer.
All this will eat down your profit margins. Therefore, store owners need a customer acquisition and retention strategy that not only leverages discounts but also integrates a robust post-purchase engagement to secure customer relationships beyond the sales event.
Clear Out Old Inventory
For Shopify merchants gearing up for BFCM, a well-stocked inventory is essential. However, an efficient clearance of this inventory is equally crucial. Discounts can help you make space for new stuff, and sell stuff that is prone to damage.
However, you might face these problems while running a discount to clear out inventory:
You might have to run bigger discounts just to clear out inventory.
You have to work more to fulfill these orders along with fluctuating inventory that might overwhelm you and affect your operations. And you can’t afford to get overwhelmed during BFCM.
But with reasonable discounts, you can ensure that inventory clearance doesn’t compromise with profitability of the business.
Why Is Cashback Strategy Better for BFCM?
Retaining Customers
Selling a product to a consumer is one task; and customer Retention through cashbacks is a different challenge in itself. As we already mentioned, getting even one customer is a mammoth task due to rising CAC. Nevertheless, by retaining existing customers, you save this substantial investment, building a more sustainable foundation for your business. Cashback offers, when given as right amount of gift cards or store credits, offer a solution to this challenge.
When customers receive cashback, it incentivizes them to return for subsequent purchases. Additionally, if you are giving cashback over a certain amount, it increases the AOV as well.
As you can see, implementing cashback offers can increase both customer retention and AOV to build a consumer-brand relationship. Also, a well-designed, branded gift card is a reminder of your brand that will help reinforce brand recognition.
For an effortless implementation and utilization of Cashback Benefits for Online Stores, explore Giftkart – a complete suite of Gift cards with automated cashback campaigns to win back old customers and retain Abandoned carts.
Offering cashback via gift cards automatically optimizes profit margins. Not every customer redeems their cashback, resulting in direct savings for your business. And those who do return, their spending only increases your sales.
Also, the amount of cashback you give can make customers spend more. For example, if you give $100 cashback, customers might be willing to spend $150 because they want to use that cashback, which makes the Average Order Value (AOV) higher.
This method effectively filters your customer base, attracting and retaining those who value your products while minimizing interactions with one-time consumers.
Cashbacks resonate more positively with customers compared to hefty discounts, which seems cheap at times. While discounts may attract bargain-driven shoppers, customers availing cashbacks see the value of your products, and are willing to pay upfront.
Such customers are likely to exhibit brand loyalty, not swayed by attractive offers from competitors, hence enhancing customer retention. Through maintaining a positive brand image and prioritizing value over bargains, you can build a more loyal customer base.
Allowing transferable cashback in the form of gift cards or store credit is a great strategy for acquiring new customers. Often, customers share their rewards with friends and family, serving as organic brand ambassadors. This approach lowers the Customer Acquisition Cost (CAC) as there’s no need for extensive marketing campaigns or reductions in profits.
By simply enabling the transfer of cashback, brands can efficiently expand their customer base while maintaining profitability and brand value.
Case Study: Cashbacks vs. Discounts in E-commerce Promotions
Comparing Discounts and Cashbacks is the best way to understand the usefulness of both. So, let's look at a case study to understand the benefits of both strategies.
Let's, consider selling a T-shirt valued at $100 which cost the merchant $60. Your profit margin right now is 40%. At first glance, offering either a 10% discount or 10% cashback seems equivalent, yet a detailed analysis shows superiority of cashbacks.
In today’s competitive market, consumers anticipate discounts, therefore you can’t get rid of it. Let’s say you give a 10% discount. Now, your profit margins are down from 40% to 30%. Furthermore, marketing the product will potentially shrink profit margins by an additional 10%, leaving a mere 20% profit.
But if you implement a 10% cashback, you get several advantages:
1. Upfront Payment: You receive immediate payment.
2. Encourages Loyalty: The cashback, limited to your store, ensures return visits and higher retention
3. Enhances Reach: When cashback is transferable among friends and family, one person's positive experience can lead to word-of-mouth recommendations. This attracts new customers as they trust the suggestions from people they know.
4. Profit Retention: Unused or expired cashbacks avoid financial loss and filter out non-committed customers.
A discount-driven customer, likely to make a singular purchase, offers a Customer Lifetime Value (CLTV) of $90, excluding marketing costs. However, a cashback strategy can elevate the Lifetime Value (LTV) to $270 even if the product is bought just twice more.
In conclusion, a comparative study of cashbacks and discounts reveals the following:
Customer Lifetime Value (CLTV): Cashbacks often result in a higher CLTV compared to discounts.
Profit Margins: Discounts can eat into profit margins more significantly than cashbacks.
Customer Behavior: Customers tend to exhibit more loyalty and higher AOV with cashback strategies.
To better retain your customers and build a loyal customer base, checkout Giftkart – It’s your ultimate retention suite that will help you easily implement cashbacks and rewards as gift cards to keep them coming back for more.
Last year, Shopify merchants made a record-breaking $9.3 billion in sales during BFCM! Compared to the previous years, the growth was undeniable. Shopify merchants saw a 24% increase in BFCM 2023 sales, from $6.1 billion in 2021.
Cashbacks and discounts both can help you attract new customers and get more sales during Black Friday Cyber Monday (BFCM) 2024. But, the bigger goal is not just acquiring customers; it is about maintaining a positive brand image, ensuring profitability, and gaining customer loyalty for sustained business growth.
Discounts have become a commonplace strategy, with virtually every brand employing them. While they are good for attracting customers, they often fall short in retaining them.
Using both discounts and cashbacks is a much balanced solution in this scenario. Discounts fulfill the immediate expectations of potential customers, while cashbacks nurture long-term relationships with consumers. Cashbacks, especially when transferable and used as store credit, not only increase customer loyalty but also lead to organic customer acquisition, optimizing Customer Lifetime Value (CLTV) and reducing Customer Acquisition Cost (CAC).
By finding the right balance between the cashback and discounts, you can leverage BFCM or any sales event for that matter to get new customers and retain them for a profitable business growth.
Checkout our BFCM 2024 guide and toolkit where we're offering a free audit to optimize your strategies and ensure you seize every sales opportunity. We will help you meet your goals and even exceed them!
FAQs
1. Discounts Cashbacks for BFCM sales: Which is better?
Both discounts and cashbacks are important, but cashbacks are better for BFCM. It encourages repeat purchases and higher order values, all at potentially higher profit margins than discounts.
2. How can cashback offers improve customer retention and profitability?
Cashback offers boost customer retention by incentivizing repeat purchases and increasing customer loyalty. They enhance profitability by driving higher average order values and potentially reducing marketing costs through word-of-mouth referrals.
3. How do discounts and cashbacks affect customer acquisition costs?
Discounts can increase customer acquisition costs due to higher marketing expenses and competitive pricing. In contrast, cashbacks, particularly when transferable, can lower acquisition costs by turning customers into organic brand ambassadors.
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Diksha P
Diksha leads Product Management at Skai Lama. She talks about discount campaigns, product recommendations, quizzes, and surveys to personalize Shopify stores.
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Boost Customer Loyalty with Tiered CashBack & Gift Cards
Boost Customer Loyalty with Tiered CashBack & Gift Cards
Increase your e-commerce retention with GiftKart's all-in-one gift card suite! Create branded digital gift cards, run loyalty campaigns, offer cashback, automate growth for holidays, issue store credits, and more.
Increase your e-commerce retention with GiftKart's all-in-one gift card suite! Create branded digital gift cards, run loyalty campaigns, offer cashback, automate growth for holidays, issue store credits, and more.
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