In today’s competitive e-commerce landscape, customer incentives such as discounts and cashbacks play a vital role in increasing conversions and enhancing customer loyalty. While both strategies have proven effective, understanding their cost-effectiveness is crucial for merchants aiming to optimize profit margins, reduce cart abandonment, and increase customer lifetime value.
This report explores the strengths, trade-offs, and key statistical insights behind discounts and cashbacks, offering a clear recommendation for when and how each should be deployed.
1. Definitions and Timing
2. Conversion Rate Impact
Key Stats:
• Average global e-commerce conversion rate: 2.5%–3.65%
• Discounts can increase conversion rates by up to 10% during campaigns like Black Friday.
• Cashbacks lead to:
• 3.4x higher conversion rates for brands using them
• 46% higher average order value (AOV)
Insights:
• Discounts remove price friction, making them powerful for first-time conversions and urgency-driven campaigns.
• Cashbacks, while slightly less immediate, are highly effective for high-value baskets and can lead to more profitable conversions due to increased basket size.
3. Cost Control & Perceived Value
Insights:
• Cashbacks offer better margin protection and psychological appeal, often costing less while feeling more valuable.
• Example: U.S. shoppers spent $13.3 billion on Cyber Monday 2024, with high-ticket items benefiting most from 30%–39% discounts. However, cashback campaigns during the same season were shown to drive higher repeat spending and lower returns.
4. Loyalty and Retention
Stats:
• 22% increase in return customers through cashback programs.
• Cashback users spend 18% more on average.
• 46% of cashback shoppers say it impacts their brand choice.
Insights:
• Discounts create a “deal-seeking” behavior but don’t foster brand loyalty.
• Cashbacks create a sense of investment in the brand (“I have credit to use”), increasing repeat visits and customer lifetime value.
5. Profit Margin Considerations
• Discounts: Immediate hit to gross profit. Example: 20% discount on $100 sale = $80 revenue.
• Cashbacks: Treated as marketing costs. Delayed and sometimes unclaimed, improving profitability.
6. Best Use Case Scenarios
Final Recommendation: Use Both Strategically
• Use discounts sparingly to spark conversion or address cart abandonment.
• Deploy cashbacks for loyalty, increasing customer LTV and future revenue at lower net cost.
• Implement smart checkout incentives using tools like personalised Wallid’s cashback engine, enabling merchants to fund offers without costly card fees or complex setups.
About Wallid.co
Wallid.co is a fintech platform that empowers e-commerce businesses to offer AI-personalised, instant, cost-effective account-to-account checkouts, dynamic discounting, and automated cashback — all without card processing fees. With Wallid, incentives become a strategic growth tool, not just a cost center.
Website: www.wallid.co
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Company Name: Wallid.co Ltd
Contact Person: Ilya Mikin
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Country: United Kingdom
Website: https://wallid.co