E-commerce tips
Cashback vs discounts: A complete comparison for merchants and retailers
By
Emma
on
Jul 17, 2025
Table of content
- 1. What is cashback?
- 2. What is a discount?
- 3. Cashback vs discounts: How each type works and when to offer them
- 3.1. Popular discount strategies and common use cases
- 3.2. Top cashback program types and examples
- 4. Cashback vs discount strategy: What are the key differences?
- 4.1. Mechanism of reward delivery
- 4.2. Benefit realization
- 4.3. Psychological impact on buyers
- 4.4. Effect on brand and pricing perception
- 5. Advantages and disadvantages of discount vs cashback promotion
- 5.1. Cashback strategy: Driving loyalty and lifetime value
- 5.2. Discounts: Quick gains and sales acceleration
- 6. Cashback vs discount: Which strategy is better to use?
- 6.1. Customer retention and loyalty
- 6.2. Return on investment
- 6.3. Competitive advantage
- 7. Additional tips & best practices for cashback and discount campaigns
- 8. Challenges of implementing store credits for a cashback campaign
- 9. What is better: Cashback or discount? Final recommendations
Regarding a promotional strategy, both cashback vs discounts are effective solutions. A 2022 survey by Wildfire Corp on shopper behavior reports that a large number of participants regard deals and discounts as key drivers in their purchase decisions.
Despite their benefits, discounts and cashback have different impacts on consumer behavior and business outcomes. But what exactly sets them apart, and which model works best in different scenarios? In this article, we will explore each strategy in great detail. The key aspects in the discussion include the definition, primary purpose, pros, cons, and best use cases.
1. What is cashback?
Cashback, also known as cash back, is the practice of rewarding customers when they complete a purchase. This incentive not only gives customers extra value but also encourages them to return and shop again in the future.
The cashback reward can take various forms. Depending on the program’s terms of the store, it can be a fixed amount in cash, a percentage of the purchase, store credit, or gift cards. And shoppers can receive it through credit cards, debit cards, retailers’ loyalty programs, or digital wallets.
It’s essential to note that cashback and rebate are two distinct concepts. Even though both involve providing post-purchase value to customers, the main difference is how they work. For cashback, it is an automatic reward for customers after shopping with the stores. That said, the time it takes to receive the cashback can vary. In some cases, it’s immediate, but when issued through credit card providers or third-party platforms, it is often delayed.
On the other hand, a rebate is compensation for customers if they are not satisfied with the products or services. A rebate requires customers to submit a claim and wait a few weeks or months for verification and reimbursement.
A practical example of cashback is Amazon’s Prime Visa card program. Accordingly, the U.S. Prime members automatically earn 5 % cash back on purchases from Amazon.com, Whole Foods Market, and Chase Travel using the card. The bonus cashback will be posted to your account within a week after the transaction is fully processed and may take up to 1–2 billing cycles (roughly 30-60 days) to be available for use.
Thanks to its simplicity and perceived value, cashback programs contribute largely to driving purchase incentives. A Statista survey found that over 50% of U.S. consumers prefer cash back over other types of loyalty benefits.
2. What is a discount?
Discounts refer to the deduction of the cost of a product or service. Merchants will subtract these discounts directly from the original product price, and buyers can buy the item at such a lower price at checkout.
There are two ways of implementing a discount strategy, which are offering straight discounts and discount codes. With straight discounts, the price reductions are clearly shown on the product page. With discount codes, customers need to enter a code at checkout to receive the reduction.
And similar to cashback, discounts come in many forms. Among the most common ones are:
Percentage-off discounts and fixed-amount discounts: A reduction applied as a percentage of the original price or as a set amount of reduction to the starting price.
Buy-one-get-one (BOGO): A promotion strategy where buyers receive an additional product for free or at a discount when buying one item.
Discount coupons: Issued codes for customers who complete certain actions, such as signing up for a newsletter or reaching a spending threshold.
Bundle pricing: A price reduction when multiple products are purchased together as a package.
An example of implementing discounts is H&M. The popular fashion brand often sends subscribers a 15% off coupon on their next purchase. Another example is Amazon which frequently runs limited-time Lightning Deals flash sales that pop up during the day.
Offering discounts is a common promotional campaign in both online and offline retail. More than half of online shoppers in the U.S actively search for promo codes or discounts. Additionally, around 90% of consumers have used a coupon at least once.
3. Cashback vs discounts: How each type works and when to offer them
As mentioned earlier, discount promotion vs cashback campaigns can take multiple formats. In the following part, we will look at the most common types of each and their use cases in particular.
3.1. Popular discount strategies and common use cases
A discount strategy is often used in short bursts or limited-time campaigns. Each type of discount supports specific business goals and fits different industries or customer segments.
The following are 6 common types of discount and their use cases:
Percentage discounts: This is the most common one and is often used for clearance, seasonal sales, or flash deals. You lower the price by a specific percentage, 10% off, for example. You will encounter this type frequently in the fashion and retail sectors. Some notable names include Zara, H&M, and Uniqlo.
Dollar amount discounts: Rather than applying a percentage, businesses assign a specific dollar reduction, like $5 per item. This type is common among cart-based or threshold campaigns - a type of campaign that helps customers save a set amount when meeting certain conditions. It’s popular in large retail chains like Target or Walmart to boost average order value.
BOGO (Buy One Get One): As the name indicates, you give customers one free (or discounted) item when purchasing another. BOGO discount campaigns are also a common tactic for slow-selling inventory or high-margin inventory. Brands like Bath & Body Works applied this in its 2024 Black Friday Buy 3 Get 3 Mix and Match Event and saw a 50% rise in unit sales.
Multi-buys: This refers to offering incentives for purchasing items in bulk. For example, “3 for $20” instead of $8 each. Its purpose is to increase the average order value by requiring shoppers to buy more units per transaction to unlock the deal. Wholesale stores and grocery chains widely use this type to drive volume. For instance, the U.S. Costco applied this in its “Buy 3, Save $10” apparel promotion during May 2024. While the company did not release specific results for its apparel promotion, Costco Wholesale’s total revenue still climbed 8.1% year-over-year in the month, reaching $19.6 billion.
Coupons/promo codes: Discount coupons or promo codes are temporary promotions delivered via email, ads, or affiliate sites. Customers simply enter the code at checkout to receive the discount. This is an effective strategy for acquisition and remarketing because it attracts new shoppers and re-engages past visitors with targeted deals. eCommerce businesses often use this approach, as seen with brands like Sephora. Sephora, for instance, offers 10% off codes via SMS to Beauty Insider members during seasonal events like November sales.
Loyalty program discounts: This discount is provided to members or repeat customers only. Its purpose is to facilitate retention, foster repeat purchases, and strengthen brand engagement. Starbucks Rewards and The Coffee House membership are prime examples.
3.2. Top cashback program types and examples
Cashback promotions are great for improving retention and long-term engagement. There are four popular types of cashback, including:
Flat-rate cash back: Flat-rate cashback is the simplest form of cashback. You provide a fixed percentage on all eligible purchases for your customers. For instance, a Direct-To-Consumer brand may offer 5% back sitewide for all logged-in members. Businesses often use this format for loyalty programs and members-only benefits.
Tiered cash back: This type also uses percentage rewards, but the reward rates differ between product categories or spending thresholds. For instance, customers might get 2% back on groceries but 5% back on electronics, or earn higher percentages when spending above $200. Tiered cashback is an effective way of encouraging higher basket value or pushing high-margin categories.
Rotating categories: This is a type of tiered cashback with the only difference being that the product categories that qualify rotate periodically, typically monthly or quarterly. Essentially, businesses partner with banks or credit card issuers to run these programs. Shoppers, in this case, will earn cashback rewards that are credited to their credit card accounts. This type of program is popular among multi-category chains because it helps them promote different product groups at different times. You can think of gas stations, grocery stores, restaurants, and eCommerce platforms like eBay.
Campaign-based cashback: It is cashback associated with specific promotional times, for example, holiday promotions or new product launches.
4. Cashback vs discount strategy: What are the key differences?
People often confuse cashback and discounts because they are both incentives for customers and help them save money on their purchases. However, the two strategies differ in how they influence customer psychology and perception toward the brand. In this section, we will break down what sets them apart.
Aspect | Discounts | Cashback |
|---|---|---|
Reward mechanism | Instanat reduction at checkout | Post-purchase reward |
Benefit realization | Immediate savings | Delayed benefit |
Psychological impact | Instant gratification, encourage impulse buying | Sense of earning, fostering loyalty and repeat purchases |
Brand and price perception | May devalue pricing, lowering perceived quality | Maintains price eintegrity; the cashback amount feels like a bonus |
4.1. Mechanism of reward delivery
Cashback is a post-purchase reward. To automatically receive the benefit, customers pay the full price of a certain product upfront. Upon being issued, customers can then redeem their rewards as cash, store credits, or gift cards to cover purchases, depending on the issuer’s or platform’s redemption policy.
Discounts, on the other hand, are immediate. Be it a right-away discount or a post-purchase offer, the discount is valid for that transaction only. In some cases, the value reduces the current order total or comes as a one-time code redeemable on the next checkout. In others, such as during Black Friday or Cyber Monday, it may be a multi-use promo code applicable throughout the sale period. Regardless, the benefit doesn't accumulate for future use.
4.2. Benefit realization
In the case of cashback, buyers can only perceive the value after the transaction is complete. This is due to its post-purchase mechanism that requires customers to complete the purchase to get rewarded. Meanwhile, the benefit of discount offers is clear and tangible. When customers go to the store page or add products to their cart, they will see the discounts instantly, allowing customers to know exactly how much they’re saving on each shopping trip.
4.3. Psychological impact on buyers
Cashback promotions lean more towards planned behavior and ongoing loyalty. Its post-reward mechanism brings in a sense of earning through the act of purchase. Such perceived earning creates a stronger sense of satisfaction than immediate savings, as it taps into psychological drivers like delayed gratification, loss aversion, and self-justification. Over time, this strengthens the customer’s emotional connection with the brand and repeat engagement.
Discount programs often do better at triggering buyer response, though. The upfront savings create a sense of instant gratification. According to a report, people who received a coupon had a 14% increase in oxytocin, known as the "feel-good hormone". This hormonal boost makes them more likely to make impulsive purchases when offered discounts. The emotional effect is even amplified when paired with urgency cues like “limited time offer” or “only 2 left in stock.”
4.4. Effect on brand and pricing perception
The next aspect in the cashback vs discounts comparison is how each promotion type influences customers’ views on brand value and pricing. At its core, cashback keeps the original price point. Thus, the brand image stays intact and premium. Because the benefit is received after purchase, it feels more like a reward or bonus rather than a markdown.
In contrast, a discount reduces the listed price immediately. This can make products appear cheaper and affect the perceived quality to a degree.
5. Advantages and disadvantages of discount vs cashback promotion
This section further explores the pros and cons of cashback vs discount for business owners as to why you should and should not adopt each strategy.
5.1. Cashback strategy: Driving loyalty and lifetime value
Thanks to its delayed reward mechanism and perceived value, cashback promotions stand out as an effective option for building long-term customer relationships. A survey by We Can Track points out that around 65% of users return to the same cashback platform for future purchases. These shoppers also tend to spend 20% more per transaction. Businesses gain more room to personalize offers compared to flat discounts.
Pros:
Encourage repeat purchases and boost average order value (AOV)
Protect price perception, especially for luxury or premium brands
Collect verified customer data
Support precise campaign targeting based on product, user segment, or channel
Cons:
Lack of urgency and lower customer attraction when it comes to short promos
Technical baggage regarding validation, fraud control, and payout
Impact on cash flow, as every cashback earned becomes money you owe
5.2. Discounts: Quick gains and sales acceleration
When comparing cashback benefits vs discount benefits, discounts are often easier to execute and deliver instant results. Nearly two-thirds (67%) of the US buyers say that they have made impulse buys when seeing a discount offer. Many shoppers also actively search for promo codes before checkout, and 57% admit they would abandon carts without a discount coupon.
Pros:
Quick results and instant conversions, as buyers are prone to price reductions.
Incentivize customer acquisition and reduce cart abandonment
Effective for seasonal/ inventory clearance
Easy setup and low overhead, as most eCommerce platforms provide built‑in support for discounts
Cons:
Can negatively affect brand trust and purchase intent, as discounts are often associated with low quality or price instability to some extent
It can cut into profit margins if overused or implemented without any strategic targeting.
Impulse‑led regret, with 56% of shoppers expressing regret towards impulse buying, and many of them later return the product.
6. Cashback vs discount: Which strategy is better to use?
Each promotional strategy has its strengths. Discounts are effective for driving immediate sales conversions, while cashback programs encourage repeat purchases and build long-term customer loyalty. So, which is better depends on your business goals. In this section, we will discuss the effectiveness of cashback vs discounts based on key aspects like customer loyalty, return on investment, and competitive edge.
6.1. Customer retention and loyalty
The next deciding factor when choosing between cashback and instant discounts is customer retention. Regarding the differences between cashback vs discount customer loyalty, discounts are weak at retaining customers in the long run. Despite driving significant spikes in sales, promotion codes and coupons may not always guarantee a revisit after they expire. This is because shoppers buying on promotion are usually price sensitive. And these customers are more likely to leave you for another brand with a better deal than ever.
Cashback works differently. The rewards are returned to the customer only after a purchase is completed. It gives them a tangible incentive to come back and use the earned value on future orders. This ongoing value loop helps keep them engaged and encourages deeper commitment to your brand.
6.2. Return on investment
ROI, or return on investment, is the ratio between net profit and the cost of the investment. It is a key metric in assessing the efficiency of a campaign. In the case of cashback vs discount ROI, the latter often results in instant ROI at the cost of margin. However, the impact is short-lived and discounts generally have little effect on customer retention in the long term.
Cashback rewards, on the other hand, deliver delayed impact but have better long-term value. The reason is that they do better at encouraging repeat purchases and increasing average order value over time. A Blackhawk Network report found that reward‑based promotions (like cashback) offer a 16% higher return on marketing investment. It also provides a 15% higher profit per customer compared to discount campaigns.
6.3. Competitive advantage
This is about how well your strategy helps you stand out from other brands. In the context of e-commerce, it’s common to come across a store with instant coupons, but few offer cashback rewards. This allows you to provide a more unique value proposition and is especially valuable when you are competing in a highly commoditized market.
Discounts, however, provide a greater pricing edge in highly competitive, price-sensitive markets and during major sales events. They enable brands to quickly match or undercut competitors’ pricing. That said, which approach has a more competitive advantage depends on the type of item on sale, customer purchase behavior, and others.
Those are some considerations for implementing cashback versus discount coupons. More importantly, it’s not a rigid choice between one or the other. You can figure out a way that works best for your business. That said, one can provide discounts for first-time purchases and cashback for repeat customers to maximize retention. Some brands even combine both in segmented flows. A case study by Hashting pointed out that combining cashback with digital coupons during a national cosmetics promotion resulted in 4× higher promotional impact and a 20 % increase in retail activation.
7. Additional tips & best practices for cashback and discount campaigns
This section further explores how to run effective campaigns for both cashback and discount strategies. The key takeaways are:
Match incentives to create a lifecycle stage: A great rule of thumb is to offer discounts to first-time customers and cash or store credit to repeat customers.
Set clear expiration and thresholds: Define minimum spend, clear expiration, and single-use parameters for cashback to manage payout risk and preserve profit margins. For discount codes, you can define a short time window and minimum order value to create urgency.
Personalize the offers: Design the campaigns based on customer segments, purchase history, or behavioral triggers when possible. Personalization helps both strategies feel more relevant and increases conversion rates.
Promote omnichannel awareness: Advertise reward programs through email, SMS, push notifications, and onsite widgets. Cashback programs and discount codes perform optimally when consistently advertised across touchpoints.
Use analytics for measurement and optimization: Track redemption, repeat purchase rates, and AOV variance across promos to identify which strategy performs best for each segment.
8. Challenges of implementing store credits for a cashback campaign
Store credit is essentially a digital balance that store owners can assign to customer accounts when they complete a qualifying purchase. It functions as a deferred reward that buyers can use on future purchases.
Issuing store credit is a highly effective alternative to cash payouts in online cashback programs. But it also introduces several operational and financial complexities due to the way store credit is tracked and redeemed.
Some common implementation hurdles are:
Little support with built-in tools. Store owners face high setup and maintenance overhead. Issuing, monitoring, and expiring credits manually takes time and often leads to errors.
Complex accounting workflows. Teams must log credits as liabilities and recognize revenue only when customers redeem them.
Low redemption if unclear rules. Customers can skip this type of cashback reward when brands fail to communicate expiry dates or minimum spend conditions.
That being said, the benefits of store credit often outweigh the cons. And a common fix to address such barriers is using third-party store credit tools. Among which, Koin stands out as the #1 ranked app for both store credit and cashback on the Shopify App Store. This free Shopify app boasts a strong feature set and provides you easy easy ways to issue cash back rewards in the form of store credit. In particular, it allows businesses to:
Set custom cashback/store credit rates by product or order value.
Automate issuance and redemption workflows using Shopify Flow integration.
Display credits clearly via front‑end widgets on product, cart, and account pages
Monitor performance through a clean dashboard that tracks credit issuance, redemption, and conversion impact.
9. What is better: Cashback or discount? Final recommendations
That concludes our article on cashback vs discounts. In summary, cashback provides clear advantages over discounts when it comes to repeat purchases, customer loyalty, and price integrity. It works well with high-margin products and brands focusing on long-term customer value.
Discounts, on the other hand, are more transactional. Providing discounts is a great conversion-boosting solution when you need a quick fix for increased sales, clearing inventory, or acquiring first-time buyers.
In the end, which one is better depends on the store’s pricing strategy and current business goals. It’s also important that you test things around to achieve great results. Feel free to experiment, run them separately, or combine both approaches to come up with an ultimate promotional campaign.
-About Author
Emma C.
As the Chief Marketing Officer at KOIN app, I’m here to build a robust ecosystem by collaping with Shopify apps. Together, we can create seamless integrations that add more value to our shared customers.
KOIN helps merchants retain customers, increase repeat purchases, and drive loyalty by offering cashback and store credit rewards.
📩 Let’s connect! emma@getkoin.io
