Retention

Profitability Simplified: Cost Benefit Analysis of Discounts, Store Credits, Gift Cards & Cashbacks

Skai Lama
May 20, 2024
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5 mins

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In the ever-evolving world of direct-to-consumer (D2C) businesses, finding effective strategies to boost conversions and maximize customer engagement is crucial. As an eCommerce merchant, you've likely explored various marketing techniques to attract customers and drive sales.

In this blog, we will explore the power of discounts, store credits, gift cards and cashback, and delve into a cost-benefit analysis to understand how these strategies can transform your D2C business.

Understanding the Customer Mindset

Before we dive into the cost-benefit analysis, let's first understand the customer mindset. In today's competitive market, customers are always on the lookout for a good deal. They are bombarded with numerous ads and promotions, which can make it challenging for any brand to stand out. Offering discounts, store credits, gift cards and cashback not only grabs their attention but also influences their purchasing decisions. By leveraging these strategies effectively, you can create a win-win situation for both your customers and your business.

Let's understand the features and benefits of discounts, cashback, store credits, and gift cards and compare the cost and benefits using a $100 T-shirt as an example. Please note that the analysis may vary based on specific terms and conditions, so it's important to consider the details of each offer.

Boost sales with GiftKart. Offer versatile gift cards to your customers.

Discounts - The Starboy of eCommerce

Discounts are price reductions offered on products or services for a limited period. They appeal to customers by providing immediate savings on their purchases.

Features

  • Temporary reduction in the selling price
  • Can be percentage-based or fixed amount
  • Commonly used to drive sales during promotional periods or clear inventory

Benefits

  • Attract new customers: Discount Strategy in eCommerce can entice new customers to try a product or service for the first time, as they perceive it as a great deal.
  • Increase short-term sales: By offering lower prices, businesses can stimulate impulse purchases and boost sales volume.

Cost Benefit Analysis

  • Cost: Let's assume a 20% discount on the $100 T-shirt. Therefore, the discounted price would be $80.
  • Benefit: The benefit of a discount is that the customer immediately pays less for the product upfront and increases conversion for the store.

However, discounts can have a negative impact on profit margins, especially when used extensively. Frequent discounts can condition customers to wait for deals, tarnishing the brand value and reducing the willingness to pay the original price.

Checklist for running discount campaigns

  1. Define types of discount : % based, Amount based, tiered based
  2. Calculate impact on profit margins : ensure that the discounts are sustainable
  3. Duration of the discount offer
  4. Restrictions on product categories or specific items
  5. Define the eligibility criteria for customers to qualify for the discount
  6. Promote discount via email marketing, social media and other channels
  7. Track the performance of the discount, impact on sales, readjust your discount strategy if required

Cashbacks

Cashbacks are a form of post-purchase rebate where customers receive a portion of their payment back in the form of cash or credits.

Features

  • Customers receive a refund or credit after making a purchase
  • Can be percentage-based or fixed amount
  • Often used to encourage repeat purchases or customer referrals

Benefits of Cashback in Online Stores

  • Encourage repeat purchases: Cashbacks incentivize customers to return to the store to redeem their earned credits, increasing customer retention and fostering loyalty.
  • Boost customer referrals: Offering cashbacks for referrals motivates existing customers to recommend the brands to others, expanding the customer base.
  • Increased Average Order Value (AOV) as customers are often motivated to spend more to achieve higher cashback values.

Cost Benefit Analysis

  • Cost: Cashbacks are typically offered as a percentage of the purchase amount after completing the transaction. For instance, if the cashback is 10%, consumer will pay the full $100 for the T-shirt initially.
  • Benefit: After the purchase, customer receives a cashback of 10% ($10 in this case) credited to their account, which can be used for future purchases or transferred to their bank account.

Checklist for running Cashback campaigns

  1. Define Cashback parameters - percentage or amount of cashback to be offered, minimum purchase amount by customer
  2. Use an app to drive cashback campaign and implements a system that automatically calculates and applies cashbacks to eligible orders like GiftKart
  3. Promote cashback on website or via email marketing, social media and other channels
  4. Track the performance of the cashback, impact on sales and AOV, if required, extend the validity of cashbacks

Store Credit

Store credit refers to a virtual currency issued by the brand, which customers can use as a payment method for future purchases.

Features

  • Customers receive a credit balance that can be used in the store
  • Encourages repeat purchases and customer loyalty
  • Can be personalized based on customer behavior and preferences

Comparative Benefits

  • Drive repeat business: Store credit encourages customers to return to the store to redeem their credit, resulting in higher customer retention rates and increased sales.
  • Enhance customer experience: By tailoring store credit offers to individual customers, businesses can create personalized incentives that improve the overall shopping experience.
  • Cost: When using store credits, customer usually pays the full $100 upfront.
  • Benefit: Instead of receiving an immediate discount or cashback, customer receives a credit of $100 to be used exclusively within that particular store for future purchases. This helps in repeat purchases and maximizing sales with Store Credits.

Store credit can be a powerful tool for increasing customer loyalty and generating long-term value. However, it's essential to ensure that the value of the store credit is carefully managed to avoid significant financial liabilities.

Checklist for running store credit based campaigns

  1. Define the store credit policy, does it cover returns and cancellations
  2. Use an app like Giftkart for Shopify that automatically tracks and manages store credits
  3. Track the performance of the store credits, impact on sales and AOV

Gift Cards

Gift cards are prepaid cards that hold a specific monetary value, allowing recipients to choose and purchase products or services from a particular retailer.

Features

  • Prepaid cards with a specific monetary value
  • Can be physical or digital
  • Suitable for gifting occasions and incentives

Benefits

  • Expand customer base: Effective use of Gift Cards in retail can attract new customers who might not have considered shopping at the retailer previously, leading to increased exposure and potential long-term loyalty.
  • Upsell opportunities: Customers often spend more than the value of the gift card when using it, which presents upsell opportunities for the retailer. They may be enticed to purchase additional items or services, generating higher revenue.
  • Cost: Similarly to store credits, customer will pay the full $100 upfront to purchase a gift card.
  • Benefit: A gift card allows the recipient to use the $100 value to make purchases in the store that issued the gift card. Gift cards provide flexibility for the recipient to choose their preferred products. Most cost efficient ⭐️⭐️⭐️⭐️⭐️
Maximize customer satisfaction with GiftLab. Personalize your gifting options.

Checklist for running Gift Cards campaign

  1. Define the gift card denomination (for eg. $50, $100), set gift card expiry
  2. Decide if you will provide customized or branded gift card designs
  3. Mention the redemption details on the giftcard and include it in the communication
  4. Use an app like Giftkart for Shopify to purchase and redeem gift cards on your website or in-store. Allow customers to send personalised messages/video messages for the recipient.
  5. Communicate gift card campaign via email to ensure maximum reach
  6. Review gift card sales and redemption data to gain insights into customer preferences and trends.

To determine the best option, consider your customer’s shopping habits and preferences:

  • If your store category doesn't have repeat users, cashback or discounts would be more favorable as they provide immediate savings.
  • If your customers visit your store to repeatedly, store credits and gift cards are a better option, as they enable customer loyalty and retention.

By understanding the customer mindset and leveraging these strategies effectively, D2C businesses can attract new customers, boost sales, encourage repeat purchases, and foster customer loyalty.

Strategic Insights: Choosing the Right Incentive for Your Online Store

  1. Discounts provide immediate savings and can attract new customers, but businesses need to carefully manage their impact on profit margins and brand perception.
  2. Cashbacks incentivize repeat purchases and customer referrals, but businesses should ensure they don't create excessive financial strain.
  3. Store credits drive repeat business and enhance the customer experience through personalized incentives, but their value should be carefully managed to avoid significant financial liabilities.
  4. Gift cards expand the customer base and present upsell opportunities, but the recipient's shopping habits and preferences should be considered.

Ultimately, the right revenue strategy for a D2C merchant depends on their specific goals, target audience, and business model. By analyzing the benefits, comparing eCommerce incentives and conducting a cost-benefit analysis, merchants can make informed decisions that align with their objectives and contribute to their long-term success in the competitive D2C landscape.

Frequently Asked Questions

1. What are the most effective discount strategies for eCommerce businesses?

The most effective strategy is to try all kind of discounts like time-limited, percentage or fixed-amount discounts. Then, focus on sustainability by balancing customer attraction with profit margins, and actively promote and track these discounts for effectiveness.

2. How do cashback offers influence online shopping behavior?

Cashbacks encourage repeat purchases and customer loyalty by offering a discount on future purchase, thereby also promoting brand referrals.

3. What are the benefits of offering store credits in online retail?

Store credits incentivize repeat purchases and build customer loyalty by offering personalized shopping experiences and rewards for future buys.

4. How can gift cards be used to boost sales in eCommerce?

Gift cards attract new customers and encourage higher spending so as to earn higher reward, often leading to purchases exceeding the card's value.

5. What factors should be considered when choosing incentives for online stores?

You have to consider customer habits, store category, impact on margins and brand, and align incentives with business goals and customer preferences for effective results.

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Table of Content

toc- heading

In the ever-evolving world of direct-to-consumer (D2C) businesses, finding effective strategies to boost conversions and maximize customer engagement is crucial. As an eCommerce merchant, you've likely explored various marketing techniques to attract customers and drive sales.

In this blog, we will explore the power of discounts, store credits, gift cards and cashback, and delve into a cost-benefit analysis to understand how these strategies can transform your D2C business.

Understanding the Customer Mindset

Before we dive into the cost-benefit analysis, let's first understand the customer mindset. In today's competitive market, customers are always on the lookout for a good deal. They are bombarded with numerous ads and promotions, which can make it challenging for any brand to stand out. Offering discounts, store credits, gift cards and cashback not only grabs their attention but also influences their purchasing decisions. By leveraging these strategies effectively, you can create a win-win situation for both your customers and your business.

Let's understand the features and benefits of discounts, cashback, store credits, and gift cards and compare the cost and benefits using a $100 T-shirt as an example. Please note that the analysis may vary based on specific terms and conditions, so it's important to consider the details of each offer.

Boost sales with GiftKart. Offer versatile gift cards to your customers.

Discounts - The Starboy of eCommerce

Discounts are price reductions offered on products or services for a limited period. They appeal to customers by providing immediate savings on their purchases.

Features

  • Temporary reduction in the selling price
  • Can be percentage-based or fixed amount
  • Commonly used to drive sales during promotional periods or clear inventory

Benefits

  • Attract new customers: Discount Strategy in eCommerce can entice new customers to try a product or service for the first time, as they perceive it as a great deal.
  • Increase short-term sales: By offering lower prices, businesses can stimulate impulse purchases and boost sales volume.

Cost Benefit Analysis

  • Cost: Let's assume a 20% discount on the $100 T-shirt. Therefore, the discounted price would be $80.
  • Benefit: The benefit of a discount is that the customer immediately pays less for the product upfront and increases conversion for the store.

However, discounts can have a negative impact on profit margins, especially when used extensively. Frequent discounts can condition customers to wait for deals, tarnishing the brand value and reducing the willingness to pay the original price.

Checklist for running discount campaigns

  1. Define types of discount : % based, Amount based, tiered based
  2. Calculate impact on profit margins : ensure that the discounts are sustainable
  3. Duration of the discount offer
  4. Restrictions on product categories or specific items
  5. Define the eligibility criteria for customers to qualify for the discount
  6. Promote discount via email marketing, social media and other channels
  7. Track the performance of the discount, impact on sales, readjust your discount strategy if required

Cashbacks

Cashbacks are a form of post-purchase rebate where customers receive a portion of their payment back in the form of cash or credits.

Features

  • Customers receive a refund or credit after making a purchase
  • Can be percentage-based or fixed amount
  • Often used to encourage repeat purchases or customer referrals

Benefits of Cashback in Online Stores

  • Encourage repeat purchases: Cashbacks incentivize customers to return to the store to redeem their earned credits, increasing customer retention and fostering loyalty.
  • Boost customer referrals: Offering cashbacks for referrals motivates existing customers to recommend the brands to others, expanding the customer base.
  • Increased Average Order Value (AOV) as customers are often motivated to spend more to achieve higher cashback values.

Cost Benefit Analysis

  • Cost: Cashbacks are typically offered as a percentage of the purchase amount after completing the transaction. For instance, if the cashback is 10%, consumer will pay the full $100 for the T-shirt initially.
  • Benefit: After the purchase, customer receives a cashback of 10% ($10 in this case) credited to their account, which can be used for future purchases or transferred to their bank account.

Checklist for running Cashback campaigns

  1. Define Cashback parameters - percentage or amount of cashback to be offered, minimum purchase amount by customer
  2. Use an app to drive cashback campaign and implements a system that automatically calculates and applies cashbacks to eligible orders like GiftKart
  3. Promote cashback on website or via email marketing, social media and other channels
  4. Track the performance of the cashback, impact on sales and AOV, if required, extend the validity of cashbacks

Store Credit

Store credit refers to a virtual currency issued by the brand, which customers can use as a payment method for future purchases.

Features

  • Customers receive a credit balance that can be used in the store
  • Encourages repeat purchases and customer loyalty
  • Can be personalized based on customer behavior and preferences

Comparative Benefits

  • Drive repeat business: Store credit encourages customers to return to the store to redeem their credit, resulting in higher customer retention rates and increased sales.
  • Enhance customer experience: By tailoring store credit offers to individual customers, businesses can create personalized incentives that improve the overall shopping experience.
  • Cost: When using store credits, customer usually pays the full $100 upfront.
  • Benefit: Instead of receiving an immediate discount or cashback, customer receives a credit of $100 to be used exclusively within that particular store for future purchases. This helps in repeat purchases and maximizing sales with Store Credits.

Store credit can be a powerful tool for increasing customer loyalty and generating long-term value. However, it's essential to ensure that the value of the store credit is carefully managed to avoid significant financial liabilities.

Checklist for running store credit based campaigns

  1. Define the store credit policy, does it cover returns and cancellations
  2. Use an app like Giftkart for Shopify that automatically tracks and manages store credits
  3. Track the performance of the store credits, impact on sales and AOV

Gift Cards

Gift cards are prepaid cards that hold a specific monetary value, allowing recipients to choose and purchase products or services from a particular retailer.

Features

  • Prepaid cards with a specific monetary value
  • Can be physical or digital
  • Suitable for gifting occasions and incentives

Benefits

  • Expand customer base: Effective use of Gift Cards in retail can attract new customers who might not have considered shopping at the retailer previously, leading to increased exposure and potential long-term loyalty.
  • Upsell opportunities: Customers often spend more than the value of the gift card when using it, which presents upsell opportunities for the retailer. They may be enticed to purchase additional items or services, generating higher revenue.
  • Cost: Similarly to store credits, customer will pay the full $100 upfront to purchase a gift card.
  • Benefit: A gift card allows the recipient to use the $100 value to make purchases in the store that issued the gift card. Gift cards provide flexibility for the recipient to choose their preferred products. Most cost efficient ⭐️⭐️⭐️⭐️⭐️
Maximize customer satisfaction with GiftLab. Personalize your gifting options.

Checklist for running Gift Cards campaign

  1. Define the gift card denomination (for eg. $50, $100), set gift card expiry
  2. Decide if you will provide customized or branded gift card designs
  3. Mention the redemption details on the giftcard and include it in the communication
  4. Use an app like Giftkart for Shopify to purchase and redeem gift cards on your website or in-store. Allow customers to send personalised messages/video messages for the recipient.
  5. Communicate gift card campaign via email to ensure maximum reach
  6. Review gift card sales and redemption data to gain insights into customer preferences and trends.

To determine the best option, consider your customer’s shopping habits and preferences:

  • If your store category doesn't have repeat users, cashback or discounts would be more favorable as they provide immediate savings.
  • If your customers visit your store to repeatedly, store credits and gift cards are a better option, as they enable customer loyalty and retention.

By understanding the customer mindset and leveraging these strategies effectively, D2C businesses can attract new customers, boost sales, encourage repeat purchases, and foster customer loyalty.

Strategic Insights: Choosing the Right Incentive for Your Online Store

  1. Discounts provide immediate savings and can attract new customers, but businesses need to carefully manage their impact on profit margins and brand perception.
  2. Cashbacks incentivize repeat purchases and customer referrals, but businesses should ensure they don't create excessive financial strain.
  3. Store credits drive repeat business and enhance the customer experience through personalized incentives, but their value should be carefully managed to avoid significant financial liabilities.
  4. Gift cards expand the customer base and present upsell opportunities, but the recipient's shopping habits and preferences should be considered.

Ultimately, the right revenue strategy for a D2C merchant depends on their specific goals, target audience, and business model. By analyzing the benefits, comparing eCommerce incentives and conducting a cost-benefit analysis, merchants can make informed decisions that align with their objectives and contribute to their long-term success in the competitive D2C landscape.

Frequently Asked Questions

1. What are the most effective discount strategies for eCommerce businesses?

The most effective strategy is to try all kind of discounts like time-limited, percentage or fixed-amount discounts. Then, focus on sustainability by balancing customer attraction with profit margins, and actively promote and track these discounts for effectiveness.

2. How do cashback offers influence online shopping behavior?

Cashbacks encourage repeat purchases and customer loyalty by offering a discount on future purchase, thereby also promoting brand referrals.

3. What are the benefits of offering store credits in online retail?

Store credits incentivize repeat purchases and build customer loyalty by offering personalized shopping experiences and rewards for future buys.

4. How can gift cards be used to boost sales in eCommerce?

Gift cards attract new customers and encourage higher spending so as to earn higher reward, often leading to purchases exceeding the card's value.

5. What factors should be considered when choosing incentives for online stores?

You have to consider customer habits, store category, impact on margins and brand, and align incentives with business goals and customer preferences for effective results.

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