Cash Backs vs. Trade Ins – What you should and shouldn’t do
Posted: May 2017
1. Can you briefly tell us what your role at NDL is and the type of work you typically manage?
My role here is Head of Client Services and our team looks after end to end promotional campaign management which is everything from instant wins, prize draws, and skill based competition right through to cash backs, trade ins and gifts with purchase. We help clients to choose the best promotional mechanic, build and manage the digital platforms that enable a promotion to run and fulfil the rewards and prizes to participating customers.
We have a lot of expertise in this area and are trusted by our clients to manage large multi-territory campaigns.
2. What are the benefits of running a cash back or trade in compared to a monetary discount at the time of purchase?
It can be a huge cost saving for clients to run retrospective discounts, through cash backs and trade ins, rather than offering instant discounts applied at time of purchase.
With effective messaging of the offer, customers still apply the cash back discount to their purchase decision. However, because only a percentage of people will actually claim the cash back the client saves by only paying the discount to those who actually claim. That doesn’t mean to say that it doesn’t help in selling the product because it is still there and advertised as a discount, it is just that human nature means not everyone who purchased will claim so you are saving yourself money rather than doing a point of sale discount.
It is also a great method for applying a discount without devaluing the product. The sale price remains the same with a cash back reward applied. Therefore, customers are still seeing the product to be worth its original price with an added value of a cash back reward.
3. How do cash backs and trade ins differ in terms of their mechanics?
Essentially they are very similar – the offer of a cash reward in return for purchase. However, the cash back is a slightly simpler journey as the customer just needs to claim online.
With a trade in, customers are asked to trade in their old / previous product. NDL will handle any free post requirements and deal with all of the traded in equipment to make sure it is recycled according to local legislation.
Trade ins are great for upgrade messages, for example if you have a new product range coming out and you want encourage people who have purchased a product previously to upgrade to the new one it is a nice message which fits with your objectives.
4. What are the important dos and don’ts of running a cash back or trade in?
I think the most important rule is make it simple. The customer journey should be as straightforward and easy to understand as possible. If it is a complicated offer and it is not communicated properly then people just don’t get behind it. This isn’t necessarily to do with whether they claim, it is whether they see offer and decide to purchase which is obviously the most important part of a campaign like this.
It is also important to get the balance between spend and reward right. There are lots of cash back campaigns that are offering too little cash back (which isn’t compelling enough) or too much cash back (not cost effective and often seen as too good to be true). NDL can work with clients to establish the perfect ratio between spend and reward.
Also it is important to make sure the customers who do participate in the promotion and claim their reward have a great experience. I have seen cash back campaigns go wrong, NDL prides ourselves on giving each and every customer we service a great experience – we want customers to become and remain brand advocates.
5. How can you provide redemption security when setting up a cash back and trade in for a client?
With a compelling cash back or trade in message the risk of over redemption is high. The reason brands run these campaigns is to reduce the cost of discount, so it is important to be able to cap your costs and understand the total exposure before the campaign launches.
Fixed fee / promotional risk management can ensure your costs don’t spiral out of control. By analysing the details of the offer the anticipated response rate can be calculated and the costs capped and insured so that the brand understands their total exposure before the campaign is launched.
If the campaign is more successful and the actual response rate is higher than that anticipated – there is no additional cost to the client.
NDL can advise on the best risk management model for your campaign with the fees being calculated on redemptions rather than sales so that you get maximum value from the cost of the campaign.
6. What types of products have the highest redemption rates in these campaigns?
The highest redemption rates are often seen when the reward to spend ratio is at the right point.
The higher the reward is doesn’t actually mean the higher the redemption rate is. When cash back is applied to a large range of products of differing RRPs we often see the higher redemption rates on the lower value products with the lower cash back rewards – this is because the gap between reward and spend is also lower.
This is not to say larger cash backs on higher value items don’t work – they do.
The real ROI on these campaigns is in the uplift in sales a client experiences during the promotional period. The redemption rates just provide the evidence that the uplift was created by the campaign and that the campaign was successful.
We have seen over 400% uplift in sales by running a simple low value cashback campaign at the right time with the right messaging.
7. What product would encourage you to enter a trade in or cash back?
I have participated in a trade in.
My husband and I wanted to purchase a well-known vacuum cleaner and saw that there was a trade in offer available. Not only did we get a discount, but we was able to get rid of my old vacuum easily – it was great!
For me, I think a cash back or trade in offer would be most effective when it opens the door for me to buy a product I had perceived to be too expensive without the reward, or to buy a higher spec product that would otherwise be out of reach.
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