Most of the online retail websites are offering cashback these days which sounds very lucrative. Paytm is one compny that pioneered in this concept. Other companies are also following the trend. Customers get attracted to cashback because they think that they are getting their money back – as the name suggests. But is that really so?
We have to keep in mind that no company will give products on a loss- they are always gaining from each transaction. Even if it is a discount or a cashback, the final amount will include their profit. Hence, giving cashback is another way of raising the price and then giving discount.
But the question is what is better – Discount or cashback?
For an example, If the product price is Rs 1000 and the company gives a discount of 20% . The final price will be Rs 800. Another way of showing this will be a cashback of Rs 200. Any customer will be happy taking a cashback .
Although in both cases, the customer has to pay only Rs 800 but cashback is not a good option. You can use your cashback only for buying products on the same website. Hence, your is money is stuck till you purchase more items. In case of discount, you would not have paid the extra money at all. So you end up spending the entire Rs 1000 when you could have saved Rs 200 ( in the example above)
This strategy is a big success for these companies because the customers end up buying more products just to utilize their cashback. The amount of new product purchased by customers will be generally higher than the cashback credits available.Hence, it scoops out more money from their pockets.That is why most websites are moving to the cashback scheme instead of discounts
In case of paytm, the cashback can be used for phone recharge, electricity payment etc which is still fine. But for upcoming companies like bewakoof.com , you will have to spend it there itself.
Hence, before preferring a cashback , one should analyze if it is worth and as lucrative as it seems