Discounts and Promotions

A discount is a temporary price drop of the same product. This could either be a coupon or a fixed-period Free Trials. In contrast, a promotion adds extra value to the offering without dropping the price.

Why it matters: Both are tools to drive Conversion and their costs should be added to Customer Acquisition Cost:

• Discounts are best targeted to launch your product to a new segment or to Win-back lost customers. You could also offer them to potential customers in a new geography and drop the price as per purchasing power parity.
• Promotions are best targeted to to allow users to try out new products or to simply sweeten the deal without devaluing your core product.

Concerns

• If you give discounts and promotions regularly, then it becomes Habit-forming, i.e., users think that the actual value of the product is lower and hence they get used to wait for discounts.
• If you discount too much, you run the risk of someone seeing it as an Arbitrage Opportunity.
• If you drive up Conversions to Subscription products with discounts but the product is weak, then you’ll have high Churn and struggle during Retention.

Best practices:

• Good discounts are typically not scheduled, for limited time (until tomorrow evening) and can be for limited supply (for first 100 purchases). This creates a sense of urgency and creates a buzz that can drive in Top of the Funnel.
• It is recommended to provide bulk discounts if a user purchases your Subscription product using the annual plan instead of the monthly plan.
• Targeting is very critical else you’ll end up discounting users who could have paid full price. One way around this is to add new Pricing Tier.