With purse strings tightening across the UK, now seems an especially good time to own a cashback and reward site.
So we’ve posed a few questions to Neil Durrant of Submission Technology, which has been involved in cashback for five years and recently bought the cashback.co.uk domain for a “substantial” sum.
We ask Neil how cashback sites could improve their offering to consumers and merchants (including the challenge of tracking), and how marketers could get more out of them.
Can you give us a quick introduction to the business?
To give you a bit of history, we launched the first cashback site in the UK, under the brand Greasypalm, about five and a half years ago. It proved incredibly successful; it was just a small bootstrap start-up between two of us. We now have 12 staff, two offices and have turnover in excess of £3m a year. We have numerous white label partners, including the likes of GMTV.
Cashback is more and more entering the mainstream. We’re enjoying more media attention on the cashback model — we were featured on Working Lunch a few weeks ago, and have been covered on The Guardian online. Cashback is coming into the public eye. More and more large corporates are looking at it, so we felt we needed a domain name that was really appropriate. We therefore acquired the cashback.co.uk domain a few weeks ago.
How much did it cost you?
I can’t tell you, but it was a substantial investment.
What info can you give us in terms of the size of the UK cashback market?
Our database, which includes both our sites and those of our white-label partners, is about to reach the 1m registered user milestone. Not all of those are active — some will have joined five years ago.
At a guess, if you aggregate all of the key players in the cashback space, you will probably get up to around 2m to 2.5m UK consumers. I guess the activity rates of those consumers will be around the 35% to 40% mark. There’s huge scope for additional growth in the market.
What spending trends are you seeing from consumers?
A great deal of new members attracted by cashback sites are through word of mouth. They get testimonials from family and friends — people that have started to get cash in the bank and are singing its praises. There is a real value add — you are buying the same product from the same retailer, but getting a share of that organisation’s marketing spend.
That does have a direct influence on consumers’ spending patterns. I was looking at data from our white label partners the other day, and consumers that were offered an incentive to purchase a product in the insurance market were up to 500% more likely to convert than those that weren’t offered one.
When you talk about the lower value incentives in the retail market, that figure was still between 300% and 350%. That was for a big name electrical and a big name fashion brand.
It also increases average order values. Average order values are seeing an uplift of anywhere between 15% and 20%. Consumers get a little bit back so treat themselves a little bit more.
What are you seeing in terms of repeat usage?
I do know that Greasypalm users log into their account seven times a month on average. We see an average customer lifetime of 43 months. I took a sample of 50,000 users that had made a transaction one year and looked at whether they had made a transaction the next year. Then extrapolated the customer lifetime from that.
Do a lot of users d their research on price comparison sites before purchasing via cashback sites?
Yes. If you are a very savvy online shopper, you will first ascertain where to buy a product. You will then come back to the cashback site and make sure you get the maximum value for that purchase.
Kelkoo made an announcement a few weeks ago that it was planning to introduce coupons and cashback, so I assume it has looked at the model and seen that consumer interaction with price comparison sites is changing.
How does the fact that you are effectively giving away much of your commission affect your ability to acquire and convert traffic?
If you compared us to a typical affiliate doing PPC arbitrage, the chances are they would just be driving a sale but not focusing on the overall loyalty of that consumer.
We take a much reduced margin on the sale. However, the cashback model then encourages that consumer to transfer his or her spend to our partners. Although margins are thin, we have our advantages over paid search affiliates.
We do have a lot of word of mouth referrals, but we’re not totally reliant on word of mouth. We still do a lot of online marketing and have a large monthly search budget.
How do you see the cashback model developing in the future?
We’re always looking at ways to develop the model. Areas of interest include looking more closely at product feeds. We already get several million product feeds from our retailers, to help consumers to research products. So that could allow us to provide price comparison and product rewards.
There are a number of interesting directions in which I see the model developing in the future, particularly in terms of encouraging loyalty. Microsoft is using the model to drive search traffic, and there are at least two financial institutions in the UK that are looking at the cashback model to provide added value to customers.
I would imagine there are a number of other markets where consumers subscribe to a service and the provider would want to encourage loyalty and reduce churn.
Are you seeing any best or worst practices developing in the sector?
We need regular communication with our retail partners, so we can pro-actively merchandise their special deals and offers to our user base. We do that through our website and email marketing, so we need open dialogue with retailers and information on what is working and what isn’t.
The one core business problem cashback sites have is the issue of missing transactions. We rely on networks to track transactions and tell us if they have taken place. If that doesn’t happen, the consumer comes to us to ask where their cashback is. We have built quite a robust infrastructure to handle those queries over the past five years.
How often do you see missing purchases?
It is a very small percentage of transactions, considering the tens of thousands we deal with per week.
Approximately 2% of transactions are reported to us as not tracked, in the first instance. Of those, the bulk are reported straight away and resolved within a few weeks.
Related research: Affiliate Marketing Buyer's Guide