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Ask HN: Best practices around discount offers?

3 points by snoonan ↗ HN
We have a lot of choices when deciding when to offer discounts as incentives for our free users to upgrade to a paid product. We have had very impressive results from our discount campaigns in the past, so we know it works well, at least in our case! The problem is that we don't REALLY know if we're leaving a lot of money on the table and just doing it completely wrong. Valid testing is hard because we have a small number of buyers paying a relative high price.

Should we send them when sales are slow? Should we send them when sales peak, reducing friction among people CLOSE to buying already? Should we just work on modeling behavior and offer them on a case-by-case basis?

Do any best practices exist around this?

8 comments

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scottishguru
There should be no need to hold a sale. In the long to medium term, reducing prices has never been the answer. By this stage you should've already worked out where you are in the market and what your optimum price point is.

You should focus on providing the very best service possible and work out, from your customers' perspective, how you can add value to your product.

Once you've done this you'll be surprised at how less important a factor the price become to new customers. Also, these new customers will stay with you longer as they aren't fickle about price and so won't jump ship as soon as something a few pennies cheaper comes along.

Feel free to drop me an email for a chat: fortitude3141@gmail.com

snoonan
Thanks! We have 5 years of sales on this mature product and know the space well. It surprised us that the discount offers were effective since we had a handle on when people buy after first visiting, etc. The push made by the discount offer really does make more people buy and overall increases our net profit.

It's a one-time purchase. We raised prices by 50% two years ago and saw a big jump in revenue. We could probably go up another 25% to the next price point and still do about the same.

While this advice is very good and it's what we try to do, the original data still show offering the discount makes us more money. Maximizing the timing of the discount offer is still worthy goal. I hope that sounds like a fair point.

scottishguru
I should've added the caveat that I was speaking 'generally', so apologies.

I am interested to know... What percentage of your sales are at a discounted rate? Are there spikes in volume centred around discount periods?

snoonan
No apologies, it's good advice! Anyway, for 2013, 51% of unit sales have come from 2 discount offer email events this year. The discount IS the old price we had for years, so it's not that this price is somehow magic on its own. We are pretty sure they're responding to the psychology of the discount, not the actual price.

The sales volume is absolutely huge during these offers. At least by our standards. The two months that we ran the promotions, we brought in 400% and 437% extra on top of a typical monthly revenue, and it all comes in in just 2-3 days, but it's probably because we put a time limit on the offer.

scottishguru
After doing some (very brief) research, the average price point for you product is between $130 and $150. Your discounted price is at the top end of this scale. Also, the fact that so many of your sales come from your discounted rate suggests that your regular rate needs to be (urgently) revised.

Also, have you ever tried providing monthly, quarterly or 6-monthly access to your product instead of a lifetime access?

snoonan
I'm not sure if you caught the other post, but the discounted rate is the price we charged for a few years. Only after revising it UP did we hit a new higher plateau on revenues. Then discounting it these two times in a "sale", we again hit another increased plateau. The market has no memory of our price.

We started originally with monthly, 3 month, 6 month and 12 month access. The LTV of the customer was less and the satisfaction was much lower. Since we promise language learning results, a common sentiment was that they were penalized for learning slowly. When we charged a fixed price, people were more committed, got better results and were happier.

I guess what I'm asking is how can I know that reducing the price to the discounted rate will result in an increase in sales since we already priced it this way in the past. I would actually very much like to have a sub $100 price point, but i'm pretty sure we won't make it back in increased unit sales.

jmedwards
What do you define as an 'impressive result': increased unit sales? Are you signing up people who absolutely would not have signed up over time? Are you looking at number of sales and signups only, or are you also considering your margins?

> Should we send them when sales are slow? Should we send them when sales peak, reducing friction among people CLOSE to buying already? Should we just work on modeling behavior and offer them on a case-by-case basis?

Why don't you flip the question around: Everything has a value and a price. I assume in this case these customers would buy eventually. What is that 'eventually' and what price are you wiling to bring forward those sales and have that money sooner rather than later?

snoonan
Fair questions! increased unit sales and we're up over 20% in total revenue for the same period last year. We did our first back in March where we were actually declining year over year for this product. So we're confident to say it's a long term good play.

On your second point, there is some time element to the buyer's calculus, we think. We're in the language learning space and people tend to trail off of their initial momentum after a few months. We think this translates to lost sales, which is why the extra push seems to really make a difference. To say we would get the same result from offering the lower price all the time may not be a fair statement given the fear and discomfort around making the choice to buy or not to buy.