In the subscription space, discounts seem to be the default. However, according to Matt Holman, QPilot’s Head of Growth, they really shouldn’t be the norm. Rather, Holman advises that subscription brands use specific types of discounts only for key purposes, or else, they risk leaving money on the table without a trade off.
For example, the “subscribe and save” offer is viewed as an exchange of value:
- The merchant gets recurring revenue and greater predictability for planning inventory.
- The customer gets a lower price and the convenience of automatic refills.
Typically, businesses use discounts to incentivize purchases that wouldn’t normally happen or that wouldn’t be recurring. But that’s not when you should offer them, according to Holman. While discounts can be useful in the subscription space, they can also hinder your growth if used incorrectly.
Read on to learn the pros and cons of offering discounts on your subscriptions and Holman’s advice on using “subscribe and save” offers to your best advantage.
When Discounts Help Acquire Subscribers
The benefit of offering a discount such as “subscribe and save” starts with how you’re thinking about the discount itself, according to Holman. “If you think about the discount in terms of incentivizing someone to buy something they wouldn’t otherwise, that’s not the customer for you,” he says.
Instead, you should only offer a “subscribe and save” discount when someone is already interested or already repeatedly buying a product but isn’t yet locked into a subscription relationship.
After all, your goal is to get people to subscribe — not just try out your product once and cancel after getting the one-time discount.
Instead of offering a large, one-time discount upon signing up (like 20% off the first box), Holman advises offering small “subscribe and save” discounts that continue throughout the subscription relationship.
When Discounts Hinder Growth
Based on data QPilot has collected, Holman cautions that the more discounts you offer, the more churn you’ll have.
“You have to look at your own business, cost to acquire customers, and margins,” Holman says. “And it really comes down to the type of customer you’re trying to attract.”
He identifies two main types of customers who join due to discounts:
- People who are shopping for price. These customers are attracted by a high discount. However, they won’t stay with you long because they’ll constantly be on the lookout for a better deal.
- People who are shopping for experience and community. These customers are attracted by low discounts (or even no discount), and will stay as long as you continue to provide value through the product and the customer experience.
Evaluating your business model and determining the type of customer you want to attract will help you decide whether a “subscribe and save” discount — or any discount at all — will be beneficial to your subscription.
How to Leverage “Subscribe & Save” Discounts
For those who are just launching their subscription businesses, Holman advises starting with a low “subscribe and save” discount as a baseline. From there, separate customer groups by month to test different offers and evaluate how each affects your conversion and retention rates.
As you analyze your metrics and tweak your offers accordingly, keep in mind that high churn isn’t always bad. Holman has seen some companies successfully offer high discounts, resulting in higher churn. However, those customers that remain have remarkably high average order values (AOVs) that make the churn worth it.
Take Legion Athletics as an example. According to a recent conversation with Holman, Legion Athletics ran a hefty promotion last year. By month three, that promotion had experienced 50% churn, but the remaining customers’ AOVs rose 42% and their lifetime values rose 172%. Economically, the discount paid off.
The high-churn model, then, can work — but it isn’t for everyone. Whether you use it or not, take Holman’s next piece of advice: be patient with your offer.
Generally, Holman explains, “discounts are a tool to get somebody across the finish line.” “[They’re] not a tool to get somebody to buy that isn’t already considering your product.” Most commonly, he emphasizes, “people buy because of your product, your brand, and the experience you’re providing.”
Whatever you do, don’t make the mistake of thinking that people will sign up just because you set a high discount. Instead, invest in good copy and quality product images, and ensure that your “subscribe and save” page explains how your offering benefits the customer.
Finally, Holman says it’s critical to find out why people cancel their subscriptions. If you don’t address the actual reason that people cancel, offering a bigger discount isn’t going to keep them around longer.
“The fundamentals are to offer a reason people should buy and then to understand why they don’t want to buy or why they cancel their subscription,” Holman explains.
If you can understand why subscribers leave, you can combine that knowledge with a “subscribe and save” offer to leverage them into happy, loyal customers.
A Discount Is Not Always the Answer
Holman’s general rule of thumb is that replaceable products such as razors, pet food, etc., require “subscribe and save” discounts because people are shopping around for the best price on comparable products.
Innovative products that provide an experience, on the other hand, shouldn’t try to offer discounts. There’s no basis of comparison for products like these, so people can’t price-shop. In such cases, offering a discount can weaken the conversion by implying that your product can be found (potentially cheaper) elsewhere.
A great example of this is Dry Farm Wines. The company is committed to never offering discounts, and focuses instead on marketing the value and integrity of the product. As a result, it attracts customers with a higher lifetime value right off the bat and can aim for profitability even on the first box.
“Subscribe and save” discounts appeal to people who have abandoned a cart or tried the product a few times already — not to people who have no idea what value your product offers them.
According to ProfitWell, higher discounts correlate with decreased willingness to pay upon renewal and higher churn. Customers who only subscribed for the discount are less likely to stick around once the price goes back up than those who already know and like the product.
Capitalize on Consumer Data
Whether or not a discount is the right answer for your business depends largely on the nature of your product and customer base. Fortunately, it’s perfectly feasible to use consumer data to determine how a discount program like “subscribe and save” can work (or not) for your company.
What draws consumers to your product? Why do they unsubscribe? Is your product a replenishable good with plenty of competitors on the market, or are you selling a unique experience with no basis of comparison for the value it provides? What happens when you tweak your offers for particular consumer segments?
You can use those consumer insights to create high-quality content and innovative subscriber experiences that will power your subscription company to the next level. Over time, you’ll be able to experiment and hone your offers for maximum value and customer loyalty.
And as you better understand your current consumers, you’ll be that much better equipped to target new consumers that fit your niche — and tailor your subscription strategy accordingly.
Looking for more ways to grow your brand? Discover the latest trends on how subscription businesses can expand by attending SubSummit!