By Kohinoor Biswas
In the rapidly evolving landscape of financial technology, understanding the delicate balance between what Indian customers want and what they truly need is critical. This becomes particularly evident in the context of cashback and rewards programs, two strategies central to how a new-age industries like ecommerce and fintechs, and retailers engage with consumers. While cashback offers instant gratification and appeals to the desire for immediate rewards, the question arises: does it cultivate long-term loyalty and brand affinity? Let’s explore the psychological underpinnings of cashback incentives and their implications for building lasting relationships with customers, contrasting them with the potential of well-structured rewards programs.
Understanding Wants vs. Needs
The distinction between wants and needs is a fundamental concept in consumer behaviour. Wants are often driven by the desire for immediate satisfaction, while needs align with long-term value and fulfillment. In the context of fintech, cashback offers cater to wants by providing instant financial benefits. However, the key to sustainable growth lies in addressing the needs of customers—one that goes beyond immediate monetary gain and addresses a bigger issue, or adds value, thereby building trust and meaningful engagement with the brand.
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The Appeal of Cashback
Cashback programs have become a staple in the consumer market, especially within the fintech and e-commerce sectors. These programs offer instant financial returns on purchases, tapping into the human desire for instant gratification. The immediate reward of cashback triggers a positive impact, enhancing the shopping experience and encouraging repeat purchases. According to a study by Yotpo, a leading eCommerce marketing platform, 30% of consumers are more likely to make a purchase when a cashback offer is available. This phenomenon is particularly pronounced in a price-sensitive market like India, where consumers actively seek out the best deals to maximize their savings.
The appeal of cashback is undeniable—it provides a straightforward, tangible benefit that resonates with consumers. However, while it is effective in driving short-term sales and encouraging initial engagement, it falls short in fostering long-term loyalty. The transient nature of cashback rewards means that once the immediate benefit is received, the incentive to remain loyal to a particular brand or platform diminishes. Consumers are likely to continue searching for the next best deal, potentially with a competitor, which undermines the brand’s efforts to build a lasting relationship.
The Limitations of Cashback and the Case for Rewards Programs
The primary limitation of cashback lies in its short-term focus. While it may increase the likelihood of a purchase, it does not contribute to building a strong emotional connection with the brand or driving brand loyalty. Once the cashback is redeemed and the dopamine rush subsides, the customer is left with little reason to return unless a similar offer is available. This creates a cycle of dependency on discounts and deals, where loyalty is driven not by brand affinity but by the prospect of saving money.
A report on consumer behaviour highlights that simply offering financial incentives is not sufficient for customer retention. To cultivate long-term loyalty, brands must focus on enhancing the overall customer experience (CX). A superior CX fosters emotional connection, which is critical for building brand affinity. This is where rewards programs, with their emphasis on value creation and engagement, have the potential to outperform cashback incentives.
Rewards programs offer a different approach to customer loyalty by emphasizing long-term engagement over immediate financial gain. These programs typically involve earning points for purchases, which can be redeemed for future discounts, exclusive offers, or other benefits. This model encourages customers to interact more deeply with the brand, as they perceive greater value in accumulating points over time.
One of the key advantages of rewards programs is their ability to build a sense of belonging and exclusivity. When customers are part of a rewards program and are made to feel privileged with exclusive offers, they are often more invested in the brand, leading to higher levels of engagement. For instance, a well-designed rewards program can offer personalized services or solve specific pain points for customers, making them feel valued and understood. It can also give customers exclusive access to a lucrative deal or give them an opportunity to interact with the brand representatives. This, in turn, strengthens the bond between the customer and the brand, leading to repeat business and lack of customer attrition, in turn ensuring cost savings and higher customer lifetime value for the brand.
Rewards need to up their game to be perceived in the same light as cashbacks:
What has also been an issue with traditional reward programmes is that most issuers look at rewards as a cost and hence, the redemption experience (the stage at which it actually hits the P&L) has been created in a way to drive lower redemption.
Even today for most players in the market, practices such as devaluation, caps on issuance, redemption and removing categories from issuance and changes in the expiry of rewards is prevalent and often done without clear customer communication.
Also purely from an experience point of view the redemption experiences have multiple steps involved in order to promote drop-offs during the redemption flow.
All this creates mistrust in the consumer’s mind and reduces the perceived value of rewards and the customer ends up finding solace in short-term cashbacks which seem to be more transparent and upfront.
In order to drive a successful rewards program, brands should keep the following things in mind:
- The value of rewards at the point of issuance should be honoured at the point of redemption.
- Conditions around the value/conversions should not change frequently
- Redemption experiences should be smooth and seamless and finally
- Provide customers a plethora of choices for redemption so that it suits the needs of different customer segments
- Built redemption experiences for all denominations big and small so that customers don’t feel smaller rewards have no value.
The Shift in Consumer Expectations
As the Indian market matures, consumers are increasingly looking for more than just monetary benefits from their interactions with brands. They desire meaningful experiences, personalized offers, and value-added services that enhance their overall experience. They prefer brands to understand them well and in turn, plan their outreach in a personalized manner. A large number of consumers are also not keen to associate with a brand that lacks the larger purpose. This shift in consumer expectations necessitates a re-evaluation of how fintech companies, ecommerce and other industries structure their loyalty programs.
Instead of relying solely on cashback, businesses should consider integrating elements that promote deeper engagement. This could include gamification, where customers earn rewards for completing challenges or participating in brand-related activities. Personalized offers, tailored to individual customer preferences, can also enhance the perceived value of the rewards program. Additionally, community-building initiatives, where customers feel part of a larger brand community, can further strengthen brand loyalty as it helps get ‘like-minded customers’ in one place who could talk about what really appeals to them.
Balancing Instant Gratification with Long-Term Loyalty
Therefore, while cashbacks do offer immediate gratification and can drive short-term sales, they do not cultivate long-term loyalty among consumers. To foster lasting relationships, fintech brands must pivot towards creating comprehensive rewards programs that prioritize customer experience and engagement. By understanding the deeper needs of customers and focusing on building meaningful relationships, brands can nurture loyalty that extends beyond mere financial incentives. This approach not only ensures sustainable growth in a competitive market, but also creates a customer base that is truly invested in the brand’s success.
About the author: Kohinoor Biswas, Business Head- Consumer, Bharat Pe
Disclaimer: Views expressed are personal and do not reflect the official position or policy of Financial Express Online. Reproducing this content without permission is prohibited.
From: financialexpress
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