When getting started in e-commerce, it’s important to familiarize yourself with all the terminology you may come across as part of the day-to-day running of the business.
And that’s exactly why it’s worth reading articles like this one that not only explain the terminology, but also give you sufficient understanding for deciding whether it’s something you want to implement for your particular business.
And in this article, we’re going to focus on the term “cash discount program”. We will also discuss how a cash discount program works, and its many benefits and drawbacks, before going into what to consider when thinking of implementing a cash discount program for your online store.
By the time we reach our final conclusion, you will be in a position to decide whether your business would benefit from a cash discount program.
Please feel free to scroll ahead to any section that jumps out at you. Here goes!
What Exactly Is A Cash Discount Program Anyway?
A cash discount program (or CDP) is an offer made by retailers to their customers where they provide a discount or promotional code which can be redeemed against a future purchase.
The customer receives such a discount because he/she has already purchased items from the retailer.
The discount offered varies depending on the type of product being sold. It could be a percentage off, a fixed amount off, a combination of both, etc.
It might sound complicated, but there are really two main reasons why a retailer would do this:
- To encourage repeat purchases.
- To increase sales.
If you’ve ever been shopping online, then you’ll have noticed that some websites offer discounts if you buy more than a certain number of products. This is known as a loyalty program.
However, what these programs lack is the ability to actually reward you for buying multiple items. A cash discount program does just that.
How Does A Cash Discount Program Work?
When a customer makes a purchase through an online store, the website automatically adds the item to his basket. The customer then proceeds to checkout.
As soon as the transaction is complete, the merchant gets paid immediately via PayPal or Stripe.
This payment triggers the creation of a unique coupon code, which is sent to the customer’s email address.
Once the customer redeems the coupon code, the discount is applied to his next order.
This means that the customer saves money on every subsequent purchase.
Benefits Of A Cash Discount Program
There are several reasons why a retailer would choose to offer a cash discount program:
- Customer retention.
- Increased or repeated sales.
- Brand awareness and image.
- Loyalty rewards.
- Online reputation management.
- Conversion rate improvement.
- Customer satisfaction.
- Website traffic generation.
- Higher earnings.
Drawbacks Of A Cash Discount Program
Of course, there are also some downsides to using a cash discount program. These include:
- The risk of fraud.
- The risk of overspending.
- The loss of potential revenue.
- The possibility of losing existing customers.
- The need to manage inventory.
- The risk of not getting enough people to use the program.
- The difficulty of managing the coupons.
- The cost of running the program.
- The risk of having to pay taxes on the profits.
- The risk of losing control of the pricing.
Should I Implement A Cash Discount Program?
In short, yes!
A cash discount program is a great way to attract new customers, retain old ones, and improve your overall conversion rates.
You should definitely consider implementing one in your business.
But before you start, make sure you know exactly what you’re doing.
Here Are Some Things To Think About When Deciding Whether To Go Ahead With A Cash Discount Program
Are There Other Ways To Sell The Same Product Cheaper?
Yes! There are many ways to sell the same thing cheaper.
For example, you could sell the product for less by offering free shipping, or by selling it at a lower price during a sale period.
Do You Already Offer Discounts To Your Current Customers?
If so, how much are they worth?
If you don’t offer any discounts to your current customers, then you can still offer them a cash discount program.
Just be careful to ensure that you don’t lose out on their business.
Do You Want To Increase Your Brand Recognition?
If so, then offering a cash discount program will help you do this.
It will give your customers something extra to talk about, and it will encourage them to share the news with their friends.
It will also allow them to show off your logo and branding.
Is Your Company Known For Its Prices?
If so, you may find that customers are reluctant to buy from you because they feel like they have been ripped off.
Offering a cash discount program will change this perception.
Your customers will now see that you are willing to give them a discount even if they aren’t buying as much as they used to.
Will Your Customers Be Happy With The Discounts?
This depends entirely on who your target market is.
Some people prefer to shop online, while others prefer to visit brick-and-mortar stores.
If you are targeting both types of customers, then you’ll need to decide which type of customer you want to attract first.
People who prefer shopping online might not appreciate being offered a discount, but those who prefer visiting physical stores might enjoy seeing a discount on the products they love.
Settling On A Cash Discount Program
If you decide to go ahead and implement a cash discount program, you have much to think about. This includes the following:
- Whether the discount is a flat amount of money off a future purchase or a percentage
- What is the maximum amount of discount you will allow in order to make a profit
- What time frame the discount is available for
- Using a discount on certain products or services only
- How to implement a cash discount program on your online store
So, now you know what a cash discount program is and how it works. And while we have mentioned just as many pros for it as cons, we would still argue that it’s worth implementing. You’ve certainly got some food for thought here! If you want to learn more go to our processing resource library.
Paul Martinez is the founder of EcomSidekick.com. He is an expert in the areas of finance, real estate, eCommerce, traffic and conversion.
Join him on EcomSidekick.com to learn how to improve your financial life and excel in these areas. Before starting this media site, Paul built from scratch and managed two multi-million dollar companies. One in the real estate sector and one in the eCommerce sector.