You thought that discounts drive more clients to your shop?

You’re wrong. Some rudimentary A/B testing led me to a counter-intuitive result about e-commerce.

Until two weeks ago I would only show the normal retail price of a subscription on my site. However, if you are renewing or buying an additional subscription you get an automatic discount. People were complaining that they would renew more easily if they knew about the discount (other than telling them in three emails before their subscription expires and writing it below every page listing prices on my site).

So, I implemented a change on my site where it would show you the price you have to pay for a subscription based on your currently active subscriptions and any automatic discounts we give. At the same time I extended the automatic discounts to people buying similar products (e.g. backup software for Joomla!, WordPress and standalone). I was making it cheaper to combine 2 or 3 similar software products and let people know. Now people were complaining that they paid more than they “should”. For example, they paid 40 Euros (full price) for a product but now the price shows as 28 Euros (due to automatic renewal discount)… even though the regular price is also shown on the page and the pricing policy with automatic discounts explained was clearly stated on that page.

Observations from this experiment on displaying discounted prices:

  • The number of sales dropped, especially on the product with the biggest discount. I suppose people thought that if I can afford a 40% discount it’s probably not worth buying.
  • The income dropped. Due to less and cheaper sales, of course.
  • Support requests about pricing issues increased by 1000%. Because people thought that the retail price is the (30% discounted) renewal price.

Conclusion: Don’t give discounts. Charge people more. Don’t tell them about special offers and discounts. Let them believe they’re buying something exquisite. In other words: do it like Apple!

For what it’s worth, I am still keeping renewal discounts but I’m no longer showing them on my site. I know it’s irrational and diminishes my income but I’ll still do it because I think it’s fair. Am I an idiot? Yes, I probably am.

8 Replies to “You thought that discounts drive more clients to your shop?”

  1. Renewal discounts, even large ones, are rational in your case. Most of your per customer costs are probably from support and new customers are more likely to need support. Have you calculated average support time for new and renewed subscriptions?

    1. Yes. Renewals subside the new subscriptions. This is always the case with subscription based support services. To be clear, I still offer an automatic 30% renewal discount. I just don’t display it until you go to the actual renewal page, one step before the payment. I do send two emails letting you know that your subscription is about to expire and there is an automatic discount if you renew early, without even losing any subscription time. This works perfectly, according to the sales stats 🙂

  2. Somehow I am not surprised Mr. Former Business Consultant did the numbers. Or the they turn out that way. Given how variable support costs are using subscriptions to cover the costs probably is the best way available. Certainly, if you tried to explain your actual cost structure and charge people accordingly, you’d go out of business very shortly.

    On discounts dropping sales… Comparison to Apple was actually more apt than you (possibly, this site is also partially marketing, so you do edit how you say things to hide the dirty details) thought. Many people think Apple is expensive and charges an extra “Apple tax”. The reality is that they simply skip on selling cheap, low margin, products. And the reason they do this is because it protects the value of the Apple brand. It also allows them to focus product development more efficiently, which allows them to build better products with less investment. But protecting the value of the brand is what it is all about at Apple. And with good reason. Most markets they are in, you need a strong brand to have any chance to make sustained profit. If you are “just one of the competitors”, you’ll end up competing on price and being as everyone uses more or less the same technology and even manufacturing, you can’t really win that way. Forgive the rant, I had some built up frustration over how the common opinion (for more than a decade, actually) seems to think Apple is missing on business opportunities on the low end, and they must address that right away or they’ll lose to their competitors. None of which makes anywhere as much profit as Apple does with their premium brand…

    Back on topic, your business… You are not really selling software or even services, you are selling trust. Just like Apple does not really sell hardware, they sell, well, also trust. Most people don’t really compare products when they buy, not even when they go thru the motions and have the competence to understand the specifications. They buy trust that they will be happy with their purchase. Apple with its strong brand and strict focus on UX delivers on that. And because of the strong brand, potential buyers know that. Ergo, strong profits.

    For your part, people buy your products, because they trust, to put it blunt, that they will work and get the work done. And that if they don’t, you can tell how to get them to work. In advertising speak, that would be “Rock solid reliability!” or any of the ways you say basically the same thing on your site. That is the Akeeba brand, and it is a premium brand. And premium brands and value brands are two different categories entirely inside our heads. So no, promoting the value proposition by highlighting the various discount will not help. It will just confuse people because when they are thinking about backups and security, they don’t expect to be told about discounts, but reliability. Mind you, they’ll still like the discounts and look for them when making decisions about renewals (so keep them), but they don’t expect you to promote the discounts. Contrary to expectation -> Confusion -> Lost sales.

    Advertising firms work around this by tying the discounts to special promotions with limited duration. That is not really relevant to you, but you could promote the fact that you value established customers and give the discounts to them, not just new customers. I can’t be the only person who is annoyed by the way new customers are competed for with heavy discounts and benefits while old customers are treated like dirt.

    Also, part of Akeeba brand is being no nonsense and all business and that doesn’t really combine with anything that obviously looks like advertising, like discounts.

    Since I have already exceeded the length you will actually read unless you are totally bored with absolutely nothing to do, I’ll go totally off-topic and talk something that has bugged me for a while: weak passwords. The usual response to weak passwords is to blame users and try some combination of education and password policies, but I don’t really get that. Is admin/Admin.1234 really that much better than admin/admin? Why not go for the actual cause of the problem, fix that, and get permanently rid of weak passwords?

    And what is the root cause? Simply: Humans suck at being random. Totally. We are built to look for patterns and use the patterns, not the overwhelming deluge of raw data, when we think. A weak, deliberately broken PRNG, will still beat a smart professional at being random no problem. So why, WHY, does Joomla!, and pretty much everything else, expect humans to make up secure passwords when years of experience tell us humans utterly suck at it? Why not simply have a password generator give the user the password? While the generator can be tampered with it isn’t any easier than stealing the passwords is. Roughly the same level of compromise is needed for both.

    So why not have Joomla! generate a random number of sufficient length and give the user three options: Human Friendly (the number in base32 for you to copy and a “I have copied the password to safe place” checkbox), Policy Friendly (for people who need special characters in passwords, the same number in base64), and Use a password manager (gives a field you can PASTE, not type, a password of sufficient length in). This would be easier for users than making up passwords is and the passwords would for all practical purposes be immune to brute forcing or guessing. And the passwords would be much more likely to be unique to the site. Something “experts” always recommend, but isn’t really practical without password manager most people don’t have.

    So three questions, on the off chance you are reading this: Is there an actual reason sites force people to invent passwords when they obviously suck at it? Could you do this as an Admin Tools feature. And do you think this would be approved change in Joomla? The code should be relatively simple, I think I could write it to be honest, but I don’t want to waste the time if there is some actual reason Joomla forces humans to make up passwords and the PR would never go anywhere.

    Sorry for the long ramble, hope it wasn’t too boring.

    1. Actually, you are wrong that this is a marketing blog. For one thing, I’ve never liked using canned expressions and careful wording to convey a message.

      You missed the fine point. There is no problem in offering a renewal discount. I think it’s fair. You cost me less money, you pay less money. We’re both happy. The problem is that when I make it profoundly clear that you get a discount when renewing some people believe they are entitled to a lower price anyway because “I can afford it”. No, that’s not the case. I can afford it only when you are a repeat client. When you are a newbie you’ll ask tons of support requests and you cost me more than you paid: I have a negative profit margin.

      There are two ways to deal with this problem. The first is having people to pay for support. This doesn’t work because people default to thinking that their problem is the developer’s bug when in 97% of the cases it is not. Having to configure the software is not a bug any more than having to adjust your seat’s height and horizontal position to safely and comfortably drive your car is a manufacturing fault. Since people are not willing to apply common sense this leaves us with the second way to deal with the problem, not inform them of the discount until the point in time when they need to either renew or lose the privilege to a discount. The most frustrating bit is that this actually drives more sales than being honest upfront. For me it serves as a reminder that people are irrational creatures.

      Is there an actual reason sites force people to invent passwords when they obviously suck at it?

      Yes, there is. They don’t read. It’s very easy to generate a password for them and tell them “here it is, note it down”. They won’t. Then they complain that your piece of crap software locked them out. Case in point, Two Factor Authentication. They have to follow instructions to activate it, they are told what to do if they lose their TFA device and they still complain that our piece of crap software “locked them out”. Seriously, people can’t read and fail to accept that they could have possibly fucked up.

      And this is where browsers come into play. Modern browsers such as Firefox, Chrome, Opera and Safari (desktop and mobile) offer two very important features: a. secure password generation and b. password storage and synchronisation across all devices. Therefore all you have to do is use one of these browsers for a modicum of password strength and security.

      So, should we ignore the existence of a perfectly round, smooth wheel and try to create a square wheel? No. Just use your browser. If you are using Internet Explorer it’s time to repent and use a modern browser – or, better, use a password manager such as 1Password, KeePass or LastPass.

      1. I didn’t actually say this is a marketing blog. I said this blog is partially marketing, which basically means that having a blog and what you say here and how impacts your reputation and image, which impacts the reputation and image of your company, which impacts your sales. I’d be perfectly willing to take your word, if you say it is coincidental, but pretty much every web marketing advice I’ve ever read says to keep a blog exactly like this one and write stuff just like you do. In context the point was simply that if you start talking too much like a marketing guy, that is actually bad marketing and bad for a blog like this, which limits how you can say things. The fact that the correct method to write a blog for marketing benefit also matches how you like to write it anyway is what made me assume it’s intentional and “partially marketing”. Sorry. (I actually figured that might be the case, but thought implying a business owner does marketing wasn’t really that insulting.)

        Paying more attention to things you don’t really understand at the time they are actually relevant does not really count as irrational, it is simply efficient. There is a reason why “don’t make me think” and “keep it simple stupid” have become clichés… and keep on working. The simple truth is that your customers (with the possible exception of corporate accounts, if you have such), have no reason to care about your cost structure, so they don’t. And you should never ask them to. The same applies to your pricing structure: What am I going to pay for this right now? Can I trust this guy not to cheat me? Is this worth the price? Those are things a customer might care about. Paying less if they renew year later and the reason for that… Why would anyone care? All people will see is you advertising your software as a value product when they had it figured for being best of class. Not what you want, is it?

        If not being upfront (about your costs) really bothers you, you could try actually matching your pricing structure to your cost structure directly instead of doing it in inverse. You are giving a discount on renewals, when in fact it is new customers that have extra costs. Simply have a separate one time price for opening an account, show the total price large and itemization (open account + one subscription) small, and you are being as upfront and open as you can, and having the prices you’d actually prefer. Without requiring the customer to understand your cost structure or anything else you are not showing them directly. Frankly, I still think keeping it simple and not showing things irrelevant to what customer is doing at the moment will sell more. Your current solution works, so why change it? Also, people HATE being charged extra, so hiding that they are causing you extra costs makes sense. Probably why you inverted it into a discount, but you can’t really combine that with being upfront. People are simply not interested enough in your cost structure to spend time thinking it thru. That said, itemizing the new account cost separately WOULD give you the pricing structure you said you want. So as long as you can convince people there is value in having an Akeeba account… It might work.

        If it is a comfort, this is essentially people paying you (with extra sales) for not bothering them with your (irrelevant to them) business details, which for most customers actually is good value. And not irrational. In fact, the general rule is that when most people keep consistently doing something there is a solid reason for it. And if it looks irrational, you have missed something. (I am not really a people person -> most things people do look irrational to me -> I have spent LOTS of time thinking about stuff like this. And yes, so far there has ALWAYS been a rational reason.)

      2. Splitting the passwords talk (I honestly thought you wouldn’t even read a comment that long, much less reply…)

        I have one problem with your reply, you start of complaining about people reading and needing not to ask them to understand anything. When you follow by explaining how this is not necessary since solutions requiring MORE from users are available. Look, we can’t really expect that people we don’t trust to figure out generated passwords to install password managers and use them properly. Or find password generators in their browsers. I mean, I have been using Firefox since it was Netscape 6 and I actually go thru the UI to check available features regularly, and browse thru change logs (pathologically curious person)… and I had no idea Firefox has a password generator. Still don’t know where it is.

        People do read, they simply do not know why they should care until something goes wrong, at which point they no longer remember that unimportant technical stuff they did not really understand because they lack the proper frame of reference. 2FA is not really something most people know about or understand, you know. A short explanation about the feature does nothing to change that because you also need to know the context. Honestly, 2FA won’t be that useful to general public until it comes built in with browsers and is invisible to the users. (The browser doing the time dependent transformation automatically to password fields that have a flag set or something. And I DO know that would be less secure than separate devices/apps are, and even why. Although I guess browsers could make that reasonably secure by sandboxing the field…)

        My generated passwords idea is much easier in that sense because you don’t need to remember the feature just use it once in a way that can be verified during the same process and remember the generated password just like any other password. Browsers do help there.

        I totally agree this would be useless if people used password managers and that using password managers would be better in every possible way. But most people don’t use password managers and we can’t make them. We could enforce secure passwords, though.

  3. Oh, and add the “comments moderated” notice somewhere, I almost posted the ridiculously long ramble twice before I remembered it isn’t supposed to show up instantly.

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