How Does ShopBack Make Money? ShopBack Business Model In A Nutshell

  • ShopBack is a cashback reward scheme available in the Asia-Pacific region. The company was founded in 2014 with co-founders looking to profit from the cashback reward scheme in the Asia-Pacific region.
  • ShopBack operates a marketplace business model and earns most of its revenue from affiliate commissions. Industries with higher margins tend to earn higher commissions, with a percentage then shared with the customer in the form of a cashback reward.
  • ShopBack also sells prominent advertising positions on its website and mobile app in the form of a flat fee.

Origin story

ShopBack is a cashback reward scheme available in the Asia-Pacific region. The platform was founded by Henry Chan, Joel Leong, Derrick Goh, Lai Shanru, Samantha Soh, and Bryan Chua in 2014.

The idea for ShopBack was born one night when Chan and Leong were brainstorming entrepreneurial ideas in the car.

The pair knew each other from their time at fashion retailer Zalora and were looking for ways to profit from the cashback rewards scheme – which had seen great success in the United States among other countries.

When ShopBack was launched in 2014, the entrepreneurs eventually settled on a year-round cashback model where shoppers could receive a proportion of their money back on purchases from specific retailers.

The platform was slow to grow at first, with some consumers finding it difficult to believe they could receive money for something they were already doing for free.

However, uptake began to increase as ShopBack made an effort to target price-conscious mothers and young professionals.

The platform disrupted the traditional advertising model that made companies such as Google and Facebook profitable, delivering better results for merchants at a lower cost.

In an interview with Malaysian business publication Options, Leong described this advantage:

In the e-commerce space, merchants always want to diversify their online marketing spend, which is understandable. We are always able to offer better rates than Google or Facebook because we charge on a cost-per-sale model. With Google, for example, you get charged even if there isn’t a resulting sale.

Today, ShopBack operates in nine Asia-Pacific countries, including Australia, Indonesia, Malaysia, Philippines, South Korea, Taiwan, Thailand, Vietnam, and Singapore.

Across this region, the platform has almost 30 million users who have driven $10 billion in revenue for more than 5000 participating merchants.

ShopBack revenue generation

ShopBack operates under the marketplace business model, connecting merchant sellers with buyers who are looking to receive cashback on purchases.

The company makes money via two strategies which are outlined below.

Affiliate commissions

The majority of ShopBack revenue is derived from affiliate commissions.

Essentially, merchants pay ShopBack a commission in exchange for sending them customers who are motivated to spend money.

The company then shares a portion of this commission with the customer in the form of a cashback reward.

Consider a scenario where a ShopBack customer purchases a $120 pair of jeans. The participating clothing merchant must pay a 5% commission which is then shared between the customer and ShopBack.

Exact commission rates are undisclosed, but in an interview with McKinsey, Leong stated that the total commission depended on industry-specific margins.

For example, online travel agencies with higher margins may pay a commission of 10 to 13% whereas general marketplaces margins are much lower with commissions as low as 1 to 2%.

Advertising

ShopBack also makes money by selling advertising spots on its website or mobile app. 

On the website homepage, for example, there are two prominent banner ads above the fold advertising various brands and promotional events.

The company is compensated by advertisers in the form of a fixed fee for the duration of the ad.

Main Free Guides:

Connected Business Model Types

Crowdsourcing Business Model

crowdsourcing
The term “crowdsourcing” was first coined by Wired Magazine editor Jeff Howe in a 2006 article titled Rise of Crowdsourcing. Though the practice has existed in some form or another for centuries, it rose to prominence when eCommerce, social media, and smartphone culture began to emerge. Crowdsourcing is the act of obtaining knowledge, goods, services, or opinions from a group of people. These people submit information via social media, smartphone apps, or dedicated crowdsourcing platforms.

Asymmetric Business Models

asymmetric-business-models
In an asymmetric business model, the organization doesn’t monetize the user directly, but it leverages the data users provide coupled with technology, thus have a key customer pay to sustain the core asset. For example, Google makes money by leveraging users’ data, combined with its algorithms sold to advertisers for visibility.

Attention Merchant Business Model

attention-business-models-compared
In an asymmetric business model, the organization doesn’t monetize the user directly, but it leverages the data users provide coupled with technology, thus having a key customer pay to sustain the core asset. For example, Google makes money by leveraging users’ data, combined with its algorithms sold to advertisers for visibility. This is how attention merchants make monetize their business models.

Marketplace Business Models

marketplace-business-models
A marketplace is a platform where buyers and sellers interact and transact. The platform acts as a marketplace that will generate revenues in fees from one or all the parties involved in the transaction. Usually, marketplaces can be classified in several ways, like those selling services vs. products or those connecting buyers and sellers at B2B, B2C, or C2C level. And those marketplaces connecting two core players, or more.

Wholesale Business Model

wholesale-business-model
The wholesale model is a selling model where wholesalers sell their products in bulk to a retailer at a discounted price. The retailer then on-sells the products to consumers at a higher price. In the wholesale model, a wholesaler sells products in bulk to retail outlets for onward sale. Occasionally, the wholesaler sells direct to the consumer, with supermarket giant Costco the most obvious example.

Retail Business Model

retail-business-model
A retail business model follows a direct-to-consumer approach, also called B2C, where the company sells directly to final customers a processed/finished product. This implies a business model that is mostly local-based, it carries higher margins, but also higher costs and distribution risks.

B2B2C

b2b2c
A B2B2C is a particular kind of business model where a company, rather than accessing the consumer market directly, it does that via another business. Yet the final consumers will recognize the brand or the service provided by the B2B2C. The company offering the service might gain direct access to consumers over time.

Open-Core Business Model

open-core
While the term has been coined by Andrew Lampitt, open-core is an evolution of open-source. Where a core part of the software/platform is offered for free, while on top of it are built premium features or add-ons, which get monetized by the corporation who developed the software/platform. An example of the GitLab open core model, where the hosted service is free and open, while the software is closed.

Open Source vs. Freemium

open-source-business-model
Open source is licensed and usually developed and maintained by a community of independent developers. While the freemium is developed in-house. Thus the freemium give the company that developed it, full control over its distribution. In an open-source model, the for-profit company has to distribute its premium version per its open-source licensing model.

Freemium Business Model

freemium-business-model
The freemium – unless the whole organization is aligned around it – is a growth strategy rather than a business model. A free service is provided to a majority of users, while a small percentage of those users convert into paying customers through the sales funnel. Free users will help spread the brand through word of mouth.

Freeterprise Business Model

freeterprise-business-model
A freeterprise is a combination of free and enterprise where free professional accounts are driven into the funnel through the free product. As the opportunity is identified the company assigns the free account to a salesperson within the organization (inside sales or fields sales) to convert that into a B2B/enterprise account.

Franchising Business Model

franchained-business-model
In a franchained business model (a short-term chain, long-term franchise) model, the company deliberately launched its operations by keeping tight ownership on the main assets, while those are established, thus choosing a chain model. Once operations are running and established, the company divests its ownership and opts instead for a franchising model.

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