Discount vs. cashback: Which one should you pick for your next promotion?
By Laura Ojeda Melchor●8 min. read●Apr 23, 2025
Do you ever feel stressed out over planning your company’s next promotion? As a marketer, you’re tasked with creating an incentive that encourages new sales and repeat purchases while simultaneously protecting your profit margins.
These might seem like conflicting goals, but by the end of this guide to discount vs. cashback promotions, you'll have a clearer idea of how to design a promo that checks both boxes.
Discount offers overview
Discount offers have the benefit of being pretty straightforward, and they’re popular with customers. If you need to attract attention to drive quick sales, or you have a short-term goal like clearing inventory, then a discount promotion might make sense. Discounts also help your products stand out from the competition, and they can make customers feel like they’re getting a good deal.
Brands like Target run discount promotions regularly. And members of Target’s free Circle program get even more plentiful deals, which incentivizes customers to join (and subsequently encourages repeat purchases).
Target also keeps the discounts themselves very simple. You’ll often see whole-dollar-amount savings on purchases of a specific amount, like $10 off a purchase of $40. This makes it easy for customers to understand what they’re getting and how much they have to spend to get the deal.
Pros of discount promos
Instant gratification: Shoppers see and feel the impact of a discount promo the second they make a purchase. These immediate savings can spur shoppers to buy spontaneously and spend more than they would otherwise. Roughly two-thirds of Gen Z and millennial shoppers are willing to wait until things go on sale before they buy.
Straightforward messaging: A discount like "20% off" is near-universally understood with no explanation or fine print needed.
Quick results: If you want a short-term spike in sales or signups, discounts are your friend. They're perfect for new-product launches or end-of-quarter revenue pushes.
High redemption rate: Since the discount gets applied at purchase, customers don't have to remember to follow up or take any particular action to get the incentive.
Cons of discount promos
Risk of brand erosion: Overusing discounts can make consumers view your product(s) as less valuable, which can tarnish your brand’s perceived value. This is especially true for premium product categories where customers expect to pay more for top-notch quality.
Delayed purchasing: Regular discounts can train customers to wait for sales before they buy, which makes them less likely to buy your products at full price.
Immediate cuts to margins: Discounts cause an immediate hit to your business’s expected ROI. Plus, you can’t tell for sure how discounts will affect customer retention or repeat purchases.
Limited strategic use: On their own, discounts don’t usually nurture long-term engagement or loyalty. You should plan to combine discount promos with other strategies.
Cashback offers overview
A cashback offer gives customers part of their purchase amount back after they complete the transaction. The amount back doesn’t have to be actual cash. You can pay out cashback rewards in the form of gift cards, store credit, or full-on monetary transfers, depending on your program setup.
Unlike a rebate, which usually requires the customer to submit proof of purchase or fill out a claim, cashback should automatically apply to a customer’s account after they meet specific conditions (like spending a certain amount).
For many consumers, credit cards are their most common source of cashback rewards. Credit cards from issuers like Discover and Chase offer customers a percentage of cashback when they spend in certain categories. Even some debit cards offer cashback rewards.
But product marketers can use cashback offers as well to incentivize purchases and encourage future spend. In fact, a Statista survey found that consumers prefer cashback rewards over other types of loyalty programs.
Pros of cashback promos
Cashback rewards preserve perceived brand value: Instead of watching prices drop, customers buy at full price and receive a reward afterward. Since there’s no price cut, your brand’s perceived value stays intact.
Rewards encourage repeat purchases: If the cashback reward comes in the form of a gift card incentive or store credit, it creates a natural motivation for customers to come back and spend again.
Cashback promos offer more flexibility for margins: You can cap or tier cashback amounts, which gives you more control over cost per acquisition (CPA). For example, Discover offers cashback credit cards that limit cardholder earnings to $75 per quarter.
Future rewards incentivize immediate sales: The promise of getting something back after a purchase can tap into humans’ natural reward-seeking impulses and give customers a psychological nudge to complete a purchase (even if they don’t ultimately claim the cashback).
Cons of cashback promos
Delayed gratification: With cashback promos, customers can’t immediately access the reward, which can make them less appealing than regular discounts.
Operational complexity: Setting up a cashback rewards system takes some doing. You'll need to coordinate with multiple other departments and sort out how to send rewards to recipients.
Redemption friction: Even with automatic cashback, your customers might feel confused about how to redeem their rewards or how much they can earn. If your redemption process is too difficult, then it can also impact customer retention.
More difficult messaging: The complexity of cashback reward promos makes them challenging to explain, and you might have to include legal disclaimers. If you fail to market the offer in a way customers can understand, then you reduce the impact of the promotion, or possibly even upset some of your customers.
When to use discounts vs cashback offers
When to use a discount vs. a cashback offer depends on your company's goals, your margins, and the type of behavior you want to encourage in your customer base. One type of promotion isn’t necessarily better than the other, but you can use the following four criteria to help decide which approach will work best for your use case:
1. Time to results
If your conversion rate needs a quick boost, discounts are the way to go. Discounts offer customers immediate savings at checkout and lower the price of a product in real time.
These types of deals — from buy one, get one (BOGO) deals to percentage-off coupons — serve as short-term promos for marketers who need to drive sales or attract new customers.
Discounts and the quick time to results they offer work well for:
Retailers who often need to move seasonal inventory quickly or adapt to competitive pricing in real time.
Ecommerce brands, especially those looking to boost sales at key times of year like Black Friday or on major holidays.
Subscription-based businesses, which tend to rely on discounts or free trials to reduce signup friction.
Marketers running time-sensitive promotions, like end-of-quarter pushes, new-product launches, or referral campaigns with quick turnaround times.
If you don't need results quite as fast, a cashback program could be a better fit. Cashback promos work well for:
Ecommerce brands that want to encourage repeat purchases and customer loyalty without discounting products at the point of sale.
Retailers with higher-margin products who want to offer rewards without permanently lowering prices.
Subscription-based businesses that want a long-term way to incentivize renewals or reward longer subscription times (like 3-month or annual signups).
Marketers who want to bring customers back for future purchases using store credit or gift cards as rewards.
For loyalty programs, which use cashback offers to deliver delayed value, through reward tiers or earning points, rather than offering immediate savings at checkout.
2. Campaign goals
Whether to choose discounts or cashback rewards also depends on the goals you've established for your specific promotion.
Use discounts to:
Clear inventory
Drive ecommerce traffic
Promote referral programs
Discounts are a perfect choice here because they're simple to communicate and easy to test. They also integrate well with coupon codes and other promotional strategies.
Example: A skincare brand launches a “20% off your first order” campaign using a sitewide banner and a coupon code at checkout.
It’s easy to A/B test this promo with different discount amounts or copy, and it requires relatively little additional setup.
Use cashback rewards to:
Encourage future purchases
Drive signups for loyalty programs
Retain an already-loyal customer
Cashback rewards work as powerful tools to help influence a customer's behavior beyond the first purchase. Plus, cashback offers are flexible. You can adjust the reward based on how much someone spends, which makes it easy to tailor rewards to different customer groups.
Example: A meal delivery service offers 5% back in the form of a gift card when customers spend less than $50. Customers who spend over $100 can get 10% back. This encourages larger purchases during the promo period without lowering the price of the entire menu.
3. Financial implications
From a budget viewpoint, discounts and cashback impact your business in different ways.
Discounts reduce revenue upfront. Customers pay less at checkout, which automatically affects your cash flow.
In contrast, cashback rewards offer more financial flexibility. Because customers pay full price, you keep top-line revenue intact. You can fund the cashback amount out of a future budget, while keeping in mind that not all customers will redeem their rewards.
If you’re good at managing variability and keeping track of time-delayed payouts in your budget, cashback programs are an ideal choice.
For industries with slim margins — like ecommerce stores or subscriptions — cashback can be a better choice because it gives you more control.
Discounts tend to work better for industries with wider margins, like luxury goods or financial services. Just make sure you don't use them too often, or offer steep discounts all the time, as this can slowly erode brand perception as well as profits.
In short:
Choose discounts when you can absorb an immediate hit for short-term gain.
Use cashback when you need more control over timing, cost, redemption rates, and long-term impact.
4. Psychological motivations
As you decide whether to use cashback programs or discounts, think about what you want your customers to get from the experience.
Cashback vs. discount strategies differ in emotional tone.
Discounts speak to shoppers who are always looking for the next great deal. They reduce friction at checkout and make it easier for customers to justify a spur-of-the-moment purchase.
But keep in mind that discounts can also train customers to wait for a markdown before buying.
A cashback offer is positioned as a reward — something your customers have to earn. It feels more like a perk, especially when it's paired with gift cards or store credit to use on future purchases.
That small shift can make a big difference in how customers perceive the value of your brand. It can also strengthen long-term customer engagement.
How to promote your discount or cashback offers
Even the best discount or cashback offer won’t move the needle if customers don’t know it exists. Or, even worse, don't understand how it works.
Here are some strategies you can use to promote your program:
Make the offer unmissable at checkout. Use a banner, pop-up, in-cart message, or all three to make the incentive visible and easy to act on.
Keep messaging clear and specific. Spell out exactly what the customer gets and keep it digestible — “Get $10 off a purchase of $100 or more.”
Use urgency and scarcity. Putting an end date on promotions creates a sense of urgency for buyers. Use limited-time promo codes and countdown timers to encourage customers to make faster decisions.
Personalize when possible. Create customized, high-value offers for your high-value customers. Think things like higher cashback rates or exclusive discount coupons.
Reinforce through email, SMS, and ads. A well-timed reminder can nudge someone off the fence. Especially for cashback programs that require follow-up or rebate-style, post-purchase engagement.
Test, measure, and refine. Use A/B testing to fine-tune your offers, copy, and delivery channels. Even small tweaks can make big differences in your conversion rate and ROI.
Key takeaways
Ready to build a promotion that hits all the sweet spots for your business? Take these key points with you as you begin.
Discounts drive immediate action and are easy to launch.
Cashback offers encourage loyalty and build long-term value, especially when rewards are offered as gift cards or store credit.
Choose between cashback vs. discount programs based on your goals, finances, and the consumer behavior you want to encourage.
Get the most out of either tactic by promoting the offer clearly, creating urgency, and testing what messaging resonates with your audience.
FAQs
Updated April 23, 2025
