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Strategic insights
The Two Discounts That Works

Written by on December 19, 2013

I gave into temptation the other day and bought the latest game in the Assassins Creed series (Black Flag) ... it's absolutely superb BTW. But I want to show you something. When I first started the game, they showed me this:

This is a great way to create long term loyalty.

The reason I post this is because it ties into the world of discounts. Giving a discount is generally a bad idea because of three things:

  1. People who buy at a discount in the first place tend to keep wanting to buy at a discount.
  2. While days with discounts usually does increase revenue, it also often takes it away from all your other days, which equals an overall drop in profit.
  3. All the truly successful companies rarely, if ever, give out a discount. They don't need to because people are more than willing to pay the full price. So if you find yourself in a situation where you constantly have to give people discounts, it's really a sign that you have a product problem.

There are cases in which giving a discount makes sense. For instance, it makes sense to offer the first month at 50% for a fitness center, in the hopes that people will sign up for many years afterwards.

And then we have the type of discount Ubisoft is doing here. They are giving people a loyalty discount. The reason why this work is because they further loyalty rates and make the connection to your brand stronger. And there are many other great examples of this.

There are times, though, when giving people a loyalty discount doesn't work. It is when your customers has already turned into super-fans. Super fans can't become more loyal because they are already deeply in love with your brand. And they would gladly pay even more if you ask them to.

So giving them a loyalty discount just means you are wasting profit.

One example of this is Audible. I'm a long time audible fan, and I subscribe to their 'Platinum Plan' giving me 24 books (credits) per year. That makes me a super-fan. Despite this, I regularly get emails from them offering me discounts on audiobooks.

Why?

Sure, when I get those emails ... I usually react to them. Like buy 3 for 2 credits. But I always shake my head doing so. I would gladly have paid for all three books, but their email marketing team is so afraid to not produce results that they keep giving me free books.

Sometimes they make it even worse for themselves and send me offers like this:

I'm already a Platinum Member, which means that I get 24 books per year at roughly a 30% discount (or about $4.4 per book). So why would I buy 4 books at full price and get $10, when I just use my Platinum membership to get the same 4 books and save $17?

This offer is for people who don't know how to do math... and for those who do know, it is killing loyalty and trust because they are basically just trying to cheat me.

And before you think this is just a case of an email not being targeted correctly, this offer comes with the disclaimer: "Only Audible members are eligible for Listening Rewards".

Audible's email discounts, while beautifully designed, are some of the worst I have seen.

Note: They do also send out targeted recommendations for what I should read next, which are quite good.

Loyalty discounts are great if it makes you feel special and part of a secret club (like the example from Ubisoft). And opening offer discounts works great too if they lead to a long term commitment.

Pretty much all other forms of discounts are generally the result of either a product problem or, worse, an over anxious email marketing team.

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Thomas Baekdal

Thomas Baekdal

Founder of Baekdal, author, writer, strategic consultant, and new media advocate.

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