Behind Cash Back Offer: Why Company Give Away Cash?

Ever see promotional brochure that mention you will get a cash back if you buy certain product? Have you ever think about it why they make it so complicated ? Why just discount the price – end of story…?  In this article you will know why it is and so you understand if this marketing strategy will be more and more often be used by more company near you….

This is the latest brochure I read: “Buy Fujitsu Reverse Cycle Inverter Split System for $1596 (after $200 “free money” via redemption from supplier). Meaning: you need to pay $1796 first, file a claim (as simple as filling an online form), then the supplier will send you $200 back to you…. Easy ? But why not just pay $1596 in the first place ?

Another example, Hewlett-Packard (HP) also use cash back marketing strategy a while back.  I remember getting $75 about 2 months after I purchase my HP C6180 printer as cash rebate. So, big or small company already embraced this strategy.

Cheap & Easy Promotion and Marketing Strategy

Of course this cash back scheme is just another marketing or promotion strategy. The purpose is clear: to make more sales (hence profit) – this is the bottom line – only with 2 distinct significant advantage for everybody:

  1. The marketing cost (cash rebate) is self funded (the company don’t need extra money to fund the promotion) as the cost is done after the sales is transacted – making it very cheap cost (no loan or even opportunity cost wasted). Also the cost will be fixed, there will be no over budget: if 1231 unit is sold then the cost is 1231 x $200 (no more no less). All other marketing strategy will involved doing much difficult forecasting of how much more sales will be induced by that promotion effort. So, this cash back strategy not only cheap but also easy. Furthermore, the pay out of the cash back is further months back, hence the company can use the proceed of the sales for something else first.
  2. The promotion money is invested in the customer itself (not advertising  media company) , hence in the long term will result in better brand image and brand loyalty for each customer.

Reward The Customer not The Middleman

Behind The Cash

Behind The Cash

Why not just discount the product ? The answer is: technically the manufacturing company doesn’t know the actual selling price. The manufacturing only can set and know what so called RRP (Recommended Retail Price) , for example a laptop computer has RRP of $1,500. But usually almost nobody will sell at RRP, the retailer will sell for cheaper price say $1,300 and quote “saving” of $200. (sounds familiar ?).

So, if a supplier/manufacturing company wants to give $150 as promotional strategy describe above, they cannot really mention the selling price as it will be different from retailer to retailer. Furthermore, it’s getting more complicated as the wholesale price (the price that retailer pay) also varies from retailer to retailer based on their buying volume, credit rating, reputation, etc. So, even mentioning 10% discount will not give the uniform benefit for every customer.

Therefore, a “cash back offer” or “cash back rebate” is the smart way to reward the customer but not the middleman (the retailer). It makes sure that the end customer is the one getting the benefit and the retailer still need to compete each other to form healthy market with their price. The manufacturing company just need to launch nation wide campaign to mention about the cash back offer.

Another reason to NOT discounting actual price is related to the image of the product. In the competitive market, say printer market. A $400 printer will be regarded as more advanced and “better” than $325 printer. Because it’s so highly competitive, if  a $400 is sold for $325, customer might wonder is there something “wrong” that they don’t know (obsolete product, known bug, etc)…. Hence, still selling it for $400 (and give $74 cash back) is much better strategy than give a discount and selling it outright for $325. It’s all about product image and branding.

What for Us, The Customer?

I would say generally, if you find a cash back offer, it will offer us as customer a genuine saving. It’s not merely a discounted price from already infaled price (again, usually). So, if you found a product that you need and that product offer you a cash back. Go for it ! The benefit is designed (also) for our maximum benefit (not the retailer).

Be Sociable, Share!

Author: Denis Kristanda

The author is an engineer, investor and director of investment company in Sydney.

Share This Post On

Submit a Comment

Your email address will not be published. Required fields are marked *