Cashback Is Cash Forward: Delaying a Discount to Entice Future Spending

Abstract

The authors examine purchase behavior in the context of cashback shopping—a novel form of price promotion online where consumers initiate transactions at the website of a cashback company and, after a significant delay, receive the savings promised to them. Specifically, they analyze panel data from a large cashback company and show that, independent of the predictable effect of cashback offers on initial demand, cashback payments (1) increase the probability that consumers make an additional purchase via the website of the cashback company, and (2) increase the size of that purchase. These effects pass several robustness checks. They are also meaningful: at the average values in the data an additional $1.00 in cashback payment increases the likelihood of a future transaction by 0.02% and spending by $0.32—figures that represent 10.03% of the overall impact of a given promotion. Moreover, the authors find that consumers are more likely to spend the money returned to them at generalists such as department stores than at other retailers. They consider three explanations for these findings, and the leading hypothesis is that consumers fail to treat money as a fungible resource. They also discuss implications for cashback companies and retailers.

Keywords: Cashback shopping, electronic commerce, sales promotion, pricing