Cash Back Reward Program - Is it Illegal? Don't See it

Discussion in 'Starting a Business' started by LindseyInteract, Jul 3, 2015.

  1. LindseyInteract

    LindseyInteract
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    Hello Guys,

    I have a question, I am looking to start a business plan, and it involves a "Cash Back" reward program, where we would literally send them a check each month based on their reward points, this is sort of in the retail industry.

    Is this illegal? I am asking as I see a bunch of retail stores that have Reward Programs, but they all do like coupons, percentage off, etc but none that offer a "Cash Back" option, so trying to figure out why, is it illegal or something, or just don't want to get rid of "Cash".

    Thanks in advance for any answers we get!
     
  2. Corzhens

    Corzhens
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    I don't think it is illegal to send back money to your customers because it is outgoing. It can be in the form a rebate. But I guess you have to register that promo. Over here, any promo about sales, that includes contests like raffle, should be registered with DTI (department of trade and industries) and you have to include the permit number in the poster or any advertisement.
     
  3. Elysium

    Elysium
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    If it was illegal, many credit card companies would be in some trouble.

    I highly doubt this is illegal, however I would check with the local sheriffs department and ask if you need a license, permit, etc. to run this kind of program in your area. (They would also tell you if it's illegal or not. :p )
     
  4. missbishi

    missbishi
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    The main reason that retailers offer discounts and coupons rather than cash back is that they want you to come back to the store and spend some more money. Look at it this way, if you had a voucher for say $1 off a tube of toothpaste at that store, you'll be more likely to visit and would probably pick up some other, full-price items whilst you're there.

    Discounts and coupons are simply a sneaky method of retaining your custom. However, for the business owner, they can be very useful tools indeed.
     
  5. backpackstatus

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    You ask a good question. It is not illegal for them to give cash back to the customers. However, they have a reasoning behind not doing so and instead, as you mentioned, giving them coupons, rebates, etc.

    It's the same logic behind why companies want consumers to buy their gift cards. Often times, they go unused! Let's say that you have a gift card of dominos pizza, for $25. You order and the total comes to $23.22. Well.... Now you have $1.78 left on it. The next time you order, you may deem that card a waste of time. You then have to read off all the digits of the gift card, and then read off all the digits of your credit card. Many people will likely find it a waste of time. If you assume that dominos sells $25 million worth of gift cards every year, and you base it on the same numbers as stated above, they make $1.78 million by doing absolutely nothing. All they have to do is serve their pizza and let the customers forget about the gift card that they have. Heck, the customers may even lose it! In which case, dominos can right it off as a $25 profit.

    So to answer your question, by giving a rebate or coupon, the customer will feel like you are giving them something back in return. They'll feel happy with your pleasant service, and therefore value you more. This happens with Ace Hardware and myself. They sent me a coupon yesterday saying that I could take $7 off any item that was not on sale if it was a purchase over $20. I'm happy about that, but in reality, I won't use it.

    You also need to consider that people don't generally go out to eat alone. This is applicable for retail stores as well. They don't typically go for only one item. Therefore, a gift card, or a coupon will get them to come to your store. They may buy many more items, and that will in turn generate revenue for you.

    So while this literal 'cash back' rewards program is good in theory, I think that it isn't a good business move. Every move that the major corporations and companies make has a strategy behind it. The decision to give out the coupons, discounts, gift cards, etc. all translates to more revenue and profit in the end; otherwise they wouldn't do it. There only motivation is profit (and shareholders in some cases).
     

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