Digital: Cashback sites drive web sales

by Gareth Jones, Promotions & Incentives 07-Mar-08, 10:05

Affiliate marketing is attracting bargain hunters who resist online advertising and price promotions.

With one pound in every six now being spent online, a new kind of website has emerged offering customers the ultimate incentive to do more e-shopping - cash.

The amount of money spent in the UK online increased by 54 per cent last year to an all time high of £46.5 billion, according to figures from the Interactive Media in Retail Group. A growing number of sites are now helping shoppers make their money go further by refunding a fraction of the price each time they buy through an affiliated retailer.

Boots, HMV and Tesco are among hundreds of UK retailers to have already signed up to one of the 70 or so existing cashback schemes. The premise is simple: retailers agree to pay a commission for each online sale the sites generate. The cashback site passes money back to the consumer in an attempt to boost loyalty.

Wide network

With a network of more than 1,200 retailers, including John Lewis, Dell and Superdrug, Quidco is emerging as one of the most successful cashback co-operatives. In an effort to incentivise shoppers to make repeat purchases, it gives back all commissions to customers bar £5 per member per year, which it keeps as a fee for being part of the service. Quidco doesn't disclose user figures but it claims to have generated well over £70 million in sales and made £10 million on behalf of its members. Shoppers using the site can earn up to 10 per cent cash-back on computers, £100 on mobile phones and £125 on insurance products.

"Internet users are flocking to cashback communities where they can shop cheaply, in an advertising-free environment," claims Quidco founder Paul Nikkel.

Retailers only pay for results they receive and this cost-per-acquisition (CPA) model helped the affiliate marketing industry grow by 45 per cent last year to generate more than £3 billion of online sales for e-commerce brands, according to E-consultancy.

It all chimes with increasing consumer resistance to online advertising and web price promotions. "Brands need to be more creative to incentivise internet users," says Nikkel. "Loyalty sites are an evolution of the online advertising model." Part of Quidco's appeal could also be its anti-spam and data-protection policy. Although consumers are required to sign up for the service, Quidco claims it does not share personal details with retailers.

One retailer attempting to reap the benefits of cashback is online entertainment firm Play.com, which approaches the affiliate model in the same way as a loyalty programme such as Nectar or Airmiles. "Giving something back to shoppers through ongoing discounts is having a positive impact on our brand's popularity and strength," says Play.com online marketing manager Heidi Bernecker.

Research from Tickbox.net shows that 70 per cent of consumers start their online shopping trip with a search engine, a cashback co-operative or a price comparison site rather than going straight to the retailer's website. This is prompting brands to widen their promotional strategy to include cashback incentives. "Loyalty sites are enhancing our position in the online shopping sector by letting us tap into a hard-to-reach online community of ad-resistant consumers," claims Bernecker.

Retailers including JJB Sports, Halfords and Burton have helped cashback site Greasy Palm attract more than 700,000 members. Each member is rewarded with a cheque when they reach a credit of £25 or more by making purchases through the site. Greasy Palm founder Neil Durrant believes cashback sites are taking off because they allow retailers to appeal to new groups of shoppers not on existing customer databases. He also insists that consumers spend more via cashback sites because they perceive them to be better value for money. "Our research shows that the value of purchases rises by between 10 per cent and 30 per cent when retailers use a cashback site,' says Durrant.

Rising demand

Rising demand from brands keen to target online shoppers with a high propensity to purchase is driving the growth of cashback co-operatives. Freefivers operates a similar model to Greasy Palm for its 250,000 members, who get around 40 per cent of commissions, while Cashback Junction provides its 50,000 members with more than 95 per cent of the money it makes from retailers. Reward, founded in 2001, provides loyalty and reward programmes for more than 3,000 retailers, restaurants, entertainment venues and online retailers in its network. More recently, Pigsback entered the market, offering consumers 'piggypoints' that can be redeemed against future online purchases.

With the threat of recession looming, cash-back sites look set to benefit from a rise in the number of consumers hunting for online bargains. Retailers will in turn make more of their products available via these cut-price co-operatives in an effort to drive sales and maximise the return-on-investment of their online marketing activity.