E-commerce's Best-Kept Secret: How Cash Back Offers Can Transform Your Business

Rebates are designed to screw over shoppers. They make it the highest friction redemption process possible. Cut out the barcode, keep the receipt, and mail it in. I create value. The shoppers have to choose to redeem it or not. This is not hidden.

Welcome to the High Voltage Business Builders Podcast, a show where we interview high voltage entrepreneurs growing and scaling through e-commerce, real estate, and other wealth without Wall Street ventures, showing you the path to making your first or next Million. All right, folks, welcome back to the High Voltage Business Builders Podcast. This is Neil, your host. If you like the original podcast or any podcast you've watched at this point on any of your favorite social medias, give some love, some like, and some commentary. I'm gonna have a person join us today who I think is gonna have a great conversation with me. We've got even an extra guest on, so this is gonna be really special. But we are gonna be talking about direct-to-consumer marketing in the channel of what we're gonna kind of conflict on here in marketing terms is what people typically know as coupons. Or discount codes. And in e-commerce, that seems to be to a lot of people the way to do things, but there's actually a better way to do it. And we, for those of you who know anything about what we don't discount outside of testing, and then once we know the lock-in price and stuff, we will not discount our brands. We're actually going to raise those prices. I know a lot of people do that and they think it's the best way to move more product or make more sales, but it's not always the right way to do it. So I brought a gentleman on today who's gonna talk a little bit about another method that they've been using. That I think is really cool and that you're going to want to listen to as well. And then after this call, decide whether or not it's something that could work well for your business. So as we bring him on here, we're going to have this conversation and hopefully we'll enjoy it. I think we will, because I had a great first call with him. So Oren, welcome to the call, buddy. And thanks for joining me today.

Happy to be here. Thank you for having myself and my 4-month-old who I've got in the carrier here, Adi, as well. Thanks, Neil.

Director, director of marketing who is currently with you there.

Yeah, she calls the shots.

Yeah, that's awesome, dude. I don't mind at all. So we're talking about, uh, which particular kind of method should we be talking about in terms of driving opportunity for customer in a discount coupon style, but not actually discount coupon style? What are we talking about here?

Yeah, so this totally comes from the perspective that discounts work. Shoppers want that dopamine hit that they're winning. And of course, if you're price sensitive, you totally do need the discount, but not every shopper does. And if you're giving someone a coupon code, effortless. So what we're talking about is cashback. We're talking about a coupon code alternative, a strictly more profitable and higher converting alternative. I will preach here, sir, but thanks for having me on.

Yeah. Well, and this is where we get into on the Amazon side. There's obviously differences for those who are paying attention to this in terms of coupon discounting and even offering these kinds of cashback incentives. Um, why don't we touch on that first so audience can kind of understand a little bit of which direction they might want to consider or what to go in terms of which channel, which opportunity and how they should consider Totally.

So today at Fondue, we're currently only able to support brands on Shopify, but we got plans to expand it elsewhere. So we're talking about D2C discounting, and that's where we're starting to conquer the coupon world.

Okay, awesome. And when is the most appropriate time for a D2C Shopify person to use these? Is it right at the beginning? Is it for marketing and activities during the holiday period, 50 times a year? Or what do you recommend from a strategy if someone wants to start thinking about this as a marketing approach?

From a strategy approach, we see thousands of brands discounting with so many different philosophies. For some of them, they're perpetually discounting, and they've trained their shoppers to always wait for it. There are those that seasonally discount, and there are those that are vehemently against discounting. We kind of believe that discounting strictly works. Let's take, for example, the pop-up for email and SMS capture. You could optimize color, font, design, and value prop. But your list growth is directly correlated to the discount value. There is a point of diminishing marginal returns. But discounting, there are places where it strictly converts more so than if you're not discounting. So wherever it is that you're discounting, we just think there's a better way to do it than coupon codes. We have no agenda. If you're not discounting, don't. And if you are discounting, great, consider using us regardless of how often you are doing it.

So in clarification of that, if you have a Shopify storefront where you already have a widget, a pop-up wheel, or some other mechanism which you're capturing emails into for for discounts, 10%, 20% off first orders or coming back orders. This is a great alternative or extra that you could plug in pretty quick to your store and test the differences between the two, right?

That's correct. Yeah. So what brands often do is they'll take their control, whatever discount coupon code they're currently offering, then just split test that traffic on that Klaviyo Attentive or Postscript popup where half of your traffic gets exposed to the control and the other half gets exposed to our funky discount type, the cashback. So you can measure list growth, net revenue from that welcome series, and then also that profit per conversion.

Excellent. So let's talk about the mechanics for a second. Let's back into business justification. So mechanically wise, we're putting a popup, we're grabbing and capturing that information. How much do I have to do as the business owner to implement this and execute the buy purchase tracking measurement of that? Do I have to do anything after I put the popup, uh, or does it handle some, you know, all of it for me really?

Sure. So, so 2 parts to answer that. The first is the mechanics of how cashback works. It's kind of a retroactive discount where shoppers pay full price, knowing they're eligible post-purchase to claim their discount. Some shoppers won't claim it, and many who do will take the gift card as opposed to cash, especially if you make it more valuable. So that's the mechanism of a retroactive post-purchase discount, if you will.

Okay.

As opposed to a pre-purchase effortless discount of the coupon code. So once a brand will install the Fondue app, they can literally add us to that Klaviyo attemptive postscript, where we can edit that pop-up for the A/B test. And then they'll just be measuring all of those metrics native to whatever A/B testing they'd be doing anyways.

Yeah.

In this case, they're A/B testing a different discount type. And then based on our data, which we spoke about, who claims the cashback specifically as cash, we'll provide the data on that profitability per conversion, who doesn't claim the discount, who takes it as a gift card as reconversion. So ultimately, the existing stack you're already doing to do the A/B test, And to measure the A/B test and then to understand the profitability of that A/B test, you could just look at our redemption data.

That's fantastic. Is there a minimum I should be doing every month if I'm already doing SMS and email marketing and I've got a prompt and follow-up and I want to split test this? Is there a minimum I should be doing every month to really see the results turn out sort of as expected or conditional to kind of what you guys are asking?

I think really it's how important is that popup and welcome series to your overall business? Right? It's not about a minimum amount of GMV, but how much are you focusing or your agency on it? It's a fairly low lift A/B test. So it ultimately comes down to opportunity cost, right? For us, like that marginal impact that we tend to drive is about 30% more welcome series revenue, about 20% more list growth.

Yeah.

So if that's meaningful to your business, let's go, whether you're at $500K or $500 million. We work with 6-digit brands all the way up to a bunch of 9-digit brands. So it just goes to what are you optimizing for?

Right on.

And if it's retention marketing, specifically that welcome series, let's go.

Yeah, definitely retention, always important. That's where the email SMS follow-up, any of that stuff is really great. And I definitely see this being a value added for that retention. What about first customer sale acquisition? Like on the front end, what are you seeing in terms of value there? Is it, I'm able to increase my spend by 30 or 40% on the front end to acquire more customers because I can now track them through to actual cashback and value? Is there a metric you guys track on that side, on the front side as well?

Yeah, so we're not really focused on ad spend per se, because we're— we want to replace coupon codes with ads, influencers, and affiliates. But all of our brands really always begin with that pop-up and welcome series. So it's really that on-site, and it's ironic that you call it retention marketing, because it's email and SMS, but yet it's the welcome series that's driving the first purchase.

Yep.

So yeah, this is extraordinarily first purchase conversion and first purchase profitability oriented. It has the wonderful feature of shoppers redeeming site credit as opposed to cash, which naturally, if you work with a consultant or an agency like, like you, Neil, you can just take whatever that shopper redeems. If they redeem as site credit, you create a different segment in retention marketing. So you target those site credit holders, which you should be doing anyways, right? And saying, hey, don't forget, you've got money with us, we value you. And if it's a shopper who does not redeem their cashback, That's a full-price shopper. Never discount to them ever again. And if they do redeem their cashback as cash and they go through that funnel and they take it as the cash form factor, that's called a discount shopper. Then you should be choosing how much you want to be investing to retain them because that is your least profitable first purchase out there amongst the 3 choices. So in that sense, that first purchase, you give people liberty, the ability to choose why did you convert? And if it's price, let me get you with a site credit. But if not, that is a discount shopper. That is that shopper who's just looking for a deal. So maybe don't spend more retargeting them.

So just if we can back up for just a second and ask the question, what is Fondue and how did it get started and what's your involvement and why did you do this?

Totally. Yeah, sure. So I'm the co-founder and CEO at Fondue. We started this because my co-founder, while finishing his PhD in machine learning and public policy at Carnegie Mellon, he did what most professors do. or doctors do, or soon-to-be doctors. And he started an adult diaper, he started an incontinence brand. And there he got addicted to coupons. He became an addict.

Right.

Like the rest of the world.

Yep.

And yeah, I came from the venture background where we looked at tools for brands and directly investing in brands themselves. And we'd always see this funny line item in other brands, which my co-founder William saw on his, which is the difference between gross revenue and net revenue was minus returns. and minus discounts. And there's so much great innovation in the return space, and there is nothing happening in the discount world. So this started just from being opportunistic where we saw a call center, and then we looked at coupon code alternatives, and then we implemented one called cashback, and we've been scaling it super meaningfully since we launched this about 6 months ago.

That's fantastic, man. It's a cool story. And so where is the company predominantly based? Is it US-based or is it overseas or?

Sure. So I'm coming to you live from my home in Tel Aviv, where most of the team is out here. We got a handful of folks remote in the States, and we're only supporting Shopify brands, their US dollar transactions. So primarily US-oriented brands. And we're fresh off of raising about $10.5 million to help brands overcome their coupon code addiction. Discounts are good. Coupon codes are the devil.

That's— is that your tagline for the business? Because that would be awesome.

It's— yeah, actually, the truth is, I don't know if I can curse here, but I will. Our slogan is literally Fuck Coupon Codes. If you go to fuckcouponcodes.com, that will redirect you to us. And it's something that brands have an emotional reaction to because they truly are addicted to them and they don't want to be.

So when someone takes this opportunity to execute this, implement it into their system and stuff, what are they seeing in the metrics kind of as an average? What are you seeing? You kind of alluded to this a minute ago, but let's double-click on that for a second and expand it a little bit. The number of people who accept the code, the number of people who have gift cards, the number of people who don't do anything with it. What are you actually seeing on that?

Is it— if they don't do anything, is there an expiration to it. Yes, we have fairly homogeneous data across like extremely diverse different brands from $5,000 golf clubs to $5 flowers. What we generally see in a really meaningful first deviation inside that bell curve is, again, shoppers have 3 choices with a cashback eligible purchase: claim the discount as cash, claim the discount at a greater value as site credit back to the brand, or simply don't claim it at all for a full price purchase. What we see is about 50% of shoppers, despite getting push notifications, don't forget to claim your cashback, do not claim the discount. Now, if you're buying anything D2C as opposed to on Amazon, it means you're brand first and price second, because categorically you could find a cheaper alternative on those great efficient marketplaces like Amazon. So the fact that 50% of shoppers aren't actually price sensitive should not be surprising, right? So that's number one, 50% of shoppers claim nothing, full price margin, incremental profit. Let's go. Number 2, 20% of shoppers are redeeming as site credit, both because they're in that honeymoon period of post-purchase. I haven't yet gotten the product and I love it. And because the site credit's more valuable than the cash, that opportunistic discounter will just go to the bigger number. So 20% turns into reconversion and about 30% claim it as cash. So because this only costs, costs 30 cents on the dollar, brands can literally double the discount if they so chose. If you move from 10% to 20%, but you only pay it out a third of the time, that's a 6.7% discount per conversion, which adds 3.3% more contribution margin than 10% off always. That's my first answer. The second answer is of those who take Site Credit, believe it or not, we only see a 17.5% utilization rate of those Site Credit dollars. And that's because not enough brands are retargeting the Site Credit holders. And when those Site Credit holders are using Site Credit, we see them spending about 2.75% the value of that. gift card. So we think there's awesome opportunities to drive more reconversion. And some brands love this. So we see them doubling the gift card value to the cash out choice.

So you're seeing at least 2.75 times purchasing more if they redeem the coupon, or excuse me, cashback. I almost said the curse word.

Yeah.

And a 17% increase in those who don't take it or those who do take it.

Yeah. So again, what we see is of those shoppers who do choose to redeem that site credit, We see only 17.5% of them ever using that gift card. And in the event that they use the gift card, they're almost spending 3x the gift card value.

Wow. So those who, even at 17%, 17.5% of those who are using it, they're spending 2.75% when they actually do spend it. So the majority of those who are not spending it, are they just hanging onto it? Are they forgetting that it exists or what's happening there?

It's like how many people say Starbucks is a bank because they have billions of dollars of loaded value that goes unspent. Brand gets to enjoy some free fricking money if those gift cards aren't used.

Is there a typical expiration time that makes sense to put it on there? Like, is it 12 months or?

So for the site credit, the brands can set whatever policy they want. We just trigger— like, again, I'm not a gift card company. I'm not a site credit company. I'll just trigger whatever API their order management system, i.e., Shopify's already got in place. We see some very aggressive things. We see some brands who set very short expirations. And we see some brands who will only send the cashback email 15 minutes later. So less people redeem it at all.

Right. Interesting. That's total brand driven, but you're, what we were talking about, I guess what I was asking was more best practices from your perspective, but again, brands can drive whatever direction and of course, whatever policy they want to drive on their own store, of course.

Yeah, no. So best practices is like your gift card should expire as per like standard Like state laws is number one. Like, like that, that's as a baseline.

Yeah.

And we think you can drive urgency to the shopper to spend the money by being empathetic to them and emailing shoppers on a regular basis saying, don't forget you have stored value with us from your site credit. We totally invite you to come and use it. Don't forget you've got something you can get wonderful from us. Having said that, you should do that during full price periods so you can drive as much margin, but building that direct relationship saying, I care about you, shopper. Don't forget, you can take money from me is way more powerful than saying you have 6 months. It's not an adversarial relationship. You could be aligned with the shopper. That's the best practice.

And some of it's going to be a little terms of service related for based on platform of 2, of course, right? Shopify is going to have a little bit different, you know, terms of service, uh, as opposed to somebody who might consider this type of option as it's not available, as we know, we mentioned that earlier. Uh, but if you want to strategize this concept on Amazon or some point in the future, you guys actually developed for it. How do we keep and make sure there's integrity of pricing for best practice-wise? We mentioned MAP earlier. Yeah. So talk about that for a minute, if you would.

Yeah. So we spent time, Neil, when we first met chatting about this, because of your, because of your Amazon concentration of your business, which is any omnichannel brand has to respect their biggest marketplaces in terms of MAP policy, Amazon, Walmart, eBay, et cetera. You're not allowed to do a coupon or a strikethrough price on your D2C site if you're selling it on Amazon. or walmart.com because they don't want to be a loss leader driving traffic to your site because it's a better deal. Yeah, because cashback is a full price purchase with this rewards orientation post-purchase. It's totally MAP compliant. So for all of our omnichannel brands or retail brands or brands that could be found also in Nordstrom, this is totally kosher and MAP compliant because it is a full frickin price purchase.

It's really great to call that out in terms of it because I know some of the people on here might have known about rebates or other methodologies people have tested in the past. And of course, Amazon really hammer down on the rebate concept due to the abuse of that on the platform, right? So with what we're talking about, we're not even in the same ballpark as that. Clarify that for us, for anybody who's listening, maybe difference between rebate, cashback, and the same kind of— and the differences in the strategy, just so for those who are listening, they can kind of clarify that.

Rebates are designed to screw over shoppers. They make it the highest friction redemption process possible. Cut out the barcode, keep the receipt and mail it in. Here, this is a shopper-aligned business model. Where you are offering a steeper discount most often, you are emailing them, don't forget, you've got money with us. And when the shopper redeems, you offer them more money as a site credit. It is strictly direct.

Yeah.

It's like the libertarian in me will say here, I create value, the shoppers have to choose to redeem it or not. But this is not hidden. This is a push notification to the brand. We draw a lot of inspiration here from returns tools. The way that D2C returns used to work are pre-printed labels, effortless returns, if you will. As soon as you get a product, you open the box, the first thing you see, don't forget, you don't have to keep this. And we made it easy. And now the shoppers have to go through a returns funnel post-purchase. Next to the terms and services on the bottom of a site's return portal, they have to find their order number from their initial email, fill out a form, say they don't want a different size, color, gift card, and then print the thing at home that used to be given to them. We're not nearly as extreme. We're emailing you saying, do you want money? It is like in every way the opposite or mistakes learned from rebate Yeah.

And that's really good. And that's kind of the one thing I wanted to call out in this because I know that there's a lot of people who may come across old postings and there's still Amazon sellers out there doing that, or even DTC sellers out there that are kind of jacking with the whole rebate idea. And, um, that's a very big negative in terms of the market. And I just want to make sure we call that out here in the differentiation, because I see the value of what you're doing in terms of removing that barrier and being customer-centric and making sure you align customer expectations, brand expectations with them, which is very powerful. Doing it in a way where they can see the benefit of it. And of course, those who do obviously take the credit are seeing the value of the brand and spending more with it because of that, which is a win. And you having that extra cash in hand will give you opportunities to market more. I think that's the other biggest benefit I'm taking away from today is that if I have that cash and I'm banking it, but they're not using it, I'll set a timeline of realistic expectations of when that will expire, continue to communicate that expiration to them. And if they don't happen to take it, well, that's more marketing dollars, isn't it?

Totally.

I can put back in my business.

And to your point, this is expanding the customer journey with a discount. You're doing a good thing for the shopper by subsidizing their purchase. Just like track your shipment was something that no one thought would be its own massive category, or returns. Discounting is an awesome thing. Celebrate it with the shopper, expand the journey, remind them you're doing a good thing for them. Wow them with an even greater value if it's a slight credit. Like, this is this neglected part of the customer journey that everyone's overlooked. Because coupon codes just are dumb old tech.

Well, Oren, is there anything that I didn't ask today that you'd like the folks to know about?

So I kind of just wanted to flip it around and ask you a question, which is, it seems like there's these 2 polarizing perspectives. I always discount and I'm addicted to it, or I will never discount. What's the path that like you suggest? Because, and it said in the beginning, you tend to test discounts away. Why are discounts bad?

Honestly, it's the effect of it. The simplest way to say it is if I'm discounting, I'm typically looking for where's the lowest amount and someone's willing to pay for my product. And I think that's more of a mindset shift. What I'm looking to do is dial in initially, where is the price point with the market demand for that product that I can then intentionally take and turn the next direction? I can elevate that, right? If I know that someone's willing to pay $25 for a product, but I can sell it for $35, at least I understand now where's my gap between $25 and $35 that I need to cover. And what am I missing in the value of my brand, my presentation, my graphics, images, and my value statement, solution-oriented, that I will get them to start raising that price $2, $3, $5 and start elevating that brand into a leadership position, which also gives me the opportunity to acquire more customers. So it's too focused in that way. If I know the value is there and the customers are willing to pay more for it, and I'm able to provide a great product, it's a win for everybody. Plus I'm able to add more profit in marketing. So discounting for me is just initially a testing of price point. And then from there, locking in price point and going after value of brand and elevating brand.

And do you see that there are some categories that cannot afford to not discount? Like, is this philosophy applicable to flowers, diapers, uh, like, uh, fashion? Like, what, what, where's it the hardest to overcome that discount addiction?

That's a great question. I think it gets down to the buyer psychology. And how you're approaching the buyer on which platform. And I was having a conversation about this earlier with someone in terms of a DTC marketing buyer psychology, the how they got there, how they had the audience conversation, how they landed on your page from an advertising, an advertorial, a Google ad, a YouTube, whatever, to actually making it all the way from add to cart to checkout is different than the psychology of a buyer on Amazon who came there and usually came on their mobile phone and already had some preconceived notion of the conversation in their mind, or with friends and family and they're there to buy really. They're there to qualify the buying purchase decision-making. Therefore, they're in a different state of buying. And I know a lot of DTC marketers who try to pull that conversation topic into Amazon and try to act like it's a DTC conversation and they lose at it because they're not understanding the buyer psychology is different and it's different on Walmart and other platforms too. But being that these are the 2 largest mechanisms and marketplaces out there right now. It's really good to understand the differences in whether or not someone on Amazon needs a discount or a couponing to actually fulfill the purchase, or if that is something they need on the DTC side in order to fulfill their purchase. And that's going to get down to really knowing your audience, knowing your product, knowing the value of your product and your comp against your competition, and then ensuring that the viability of your brand does not necessarily be degraded just because you're trying to get more sales through discount and couponing. That may not actually increase the value. In fact, we've proven the opposite.

Yeah.

To end, end this question is that we've raised our prices and actually increased sales. And sometimes people don't actually determine that in our process until they're having a bit of a moment where they realize, okay, my inbound stock is now going to be lower than my available run rate of sales. And so I'm going to stock out someday in the next like 13 days. And they panic a little bit. So they're like, okay, what do we do? Well, raise— one thing you can do of many things is raise your prices. So then they start to raise their prices. Well, guess what's happened quite a few times? They start selling faster and they start selling faster and they're like, oh, they raised their prices a few more dollars or whatever. And they're like, hey, we're still selling. It hasn't slowed down.

Awesome. Yeah.

So now they start out of fear and out of a, out of reaction, they start finding out, hey, I can sell this product for $3, $5, $7 more a unit than I was selling it before. And the sales didn't slow down at all. In fact, in some cases they're increasing, but you have to be willing to test that out and you have to be willing to try a new marketing or a new innovation. And I think that's the value and the gist of this conversation today, at least in my opinion, having you on is giving people a new idea, a new way to think about how to approach that psychology of the buyer in the direct-to-consumer market right now. If you've got a Shopify store and you're looking for ways to increase upfront cost to acquire a customer and your CPA, and you're wanting retention and longer value and you want an extra cash and maybe even be your own bank like Starbucks, this might be the way to do it.

Totally.

Uh, to get you in front of some cash and opportunity to increase those. Certainly can't hurt to test and split test. No doubt about that. And see how the value of it is increased, but always know that it is considered a test. Uh, and you will need to test it a few times, I'm sure, to figure out what the value of your presentation time expiration and value of your cashback rebate is going to be. Excuse me, not cashback rebate, but your cashback offering is going to be. Don't do rebates. We know that now. Uh, that's been kicked out of the marketplace and couponing, as you said very eloquently, blank the couponing, knock it off, stop devaluing your brand before you even know somebody wouldn't pay more for it.

Yep. Amen.

Good. Well, anything else you'd like to leave the people with?

No, that about covers it, Neil. It's been awesome to follow your content online. Great to connect a few times now. A longtime listener, first-time caller, and excited to stay in touch. Thanks for having me on, Neil.

All right. I appreciate you and the little one joining me today. Guys, check it out. If you like this podcast, give Oren some love. Go check out what he's doing at getfondue.com. Subscribe, do all that really cool stuff. Leave some comments, boost his ego, make him feel better. We sure appreciate it. Help us beat big tech at their game and get this out to everybody who needs to hear this call today. Ask you this. If you're serious about building an e-commerce business starting on Amazon FBA, what if myself and my team worked with you one-on-one to execute the steps outlined in the podcast while helping you discover what the heck to sell, how to make sure it's profitable, and how to successfully launch a brand? Plus how to do it under a consulting plus performance-driven model where I put a $10,000 skin-in-the-game guarantee. For those that show up and are serious about building a real business done with us. If yes, text keyword profit to +1-417-413-4209. That's 1-417-413-4209. And I will personally respond with a few simple questions. If you're not in the US or Canada, please visit voltage dm dot com. That's voltage dm dot com. Click get started and book a no-pressure discovery call with me. Or a member of my team to learn more about the Business Builders one-on-one coaching and mentoring for CEOs, entrepreneurs, and those looking to build an empire or retire using the power of e-commerce. Once again, thank you for listening, and be sure to tune in next week for a brand new episode of the High Voltage Business Builders podcast.