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In the subscription arena, and in the B2C environment in general, discounts seem to be the norm. The assumption is that discounts help incentivize purchases that wouldn’t typically happen, leading to new customers.
The reality is completely different. Discounts, when used incorrectly, can greatly hinder growth and decrease your chances of attracting long-term, brand loyalists. Here’s why:
Discounts attract the wrong types of customers
One of the fundamental issues with using discounts is that they attract the wrong type of customers to your brand. Customers who join a subscription service due to a discount are often shopping for price instead of unique and exclusive brand offerings. They’ll leave the minute they find a better deal.
This lack of customer loyalty has far-reaching implications. Data shows that only 52% of consumers who sign up for a new retail subscription will actually keep it. Higher discounts have been linked to decreased willingness to pay renewal fees. Plus, data from QPilot found that the more discounts you offer, the more churn you’ll have.
Instead, engage customers in long-term commitment opportunities. Research from Attest found that customers see more value in a 12-month commitment with two months free than with a shorter commitment coupled with larger monetary savings.
Discounts devalue your brand
The strength of the subscription-based model is in its ability to create belonging. As Jay Myers of Bold Commerce said at SubSummit, “People want to be a member of a brand, like a member of a sports team.”
Promo codes and discounts negate this approach. According to Nancy Harhut at HBT Marketing, coupon codes lead to distracted customers, with studies showing 27% of potential buyers abandoning their carts in search of coupon codes.
Coupon codes can also cause consumers to have post-purchase regret. When a customer pays full price for a product and later sees a promo code spot offering the same item or service for a discount, they begin to question the value of their previous purchase.
Discounts train a consumer to think they can get your product somewhere else for less money. This ultimately makes your product or service appear replaceable.
Instead, look to attract those who are shopping for experience and community. The strongest brands put an emphasis on the value they can provide in a customer’s journey.
Discounts directly impact perceived customer value
Offering a discount puts your name in the marketplace, but it doesn’t set you apart. In fact, the vast majority of subscription-based cancellations stem from voluntary churn, according to SUBTA’s State of Subscription Annual Report. Factors include price, perceived value and poor customer service.
That’s why the best brands focus on identifying what their target customer wants and delivering on that value. This involves shifting to a lifecycle journey, where brands consider the experiences a customer faces as they go through life. Then, they perfect a core offering that helps in that lifecycle.
This in-depth understanding of a customer allows you to stay engaged in a way no discount can. Rather than offering a promo code, brands with a central understanding of client value can identify value-add opportunities to engage their ideal customer on a regular basis, instigating belonging and inclusion.
What to offer instead
Discounts are not the only way to gain customers or increase value. Rather, consider some of these tactics in the new year:
Get creative with product-sourcing partnerships: Look for ways to incorporate unique, boutique items from up-and-coming brands who want exposure.
Clearly communicate the value of your price point: Furniture subscription company, Fernish, does just this by comparing the actual price a customer will pay for a piece with the value of the subscription.
Embrace the cancellation: Haroon Mokhtarzada of RocketMoney (formerly Truebill) encourages making the cancellation process as easy as possible and then surveying those cancellations to impact customer loyalty. In fact, the likelihood of re-subscription has been found to go up when it’s easy to cancel.
Utilize Subscribe & Save options: If your brand is a replenishment business, utilize the subscribe and save feature to upsell for a longer-term commitment and an increase in perceived value. More than 60% of consumers report that Subscribe & Save programs make their lives easier.
Discounts downplay the power of your brand. Instead of jumping on the promo value bandwagon, look for ways to utilize customer data to drive meaningful subscriber experiences. Creating value add-ons that promote long-term commitment and a loyal customer base will ultimately impact your bottom line and make for a more confident brand.