The worst users come from referral programs, free trials, coupons

https://andrewchen.com/worst-users-referral-trials-coupons-gamification/

by jyunwai • 2 years ago

182 166 2 years ago

steveBK12311• 2 years ago

Anecdotally makes sense.

Coupons attract scarcity mindset people. If your product targets more time poor money rich growth mindset people, this is a bad fit.

My wife has a friend that did every Groupon known to man. She routinely signs up for gyms that have a 30 day special then quits. She says she wants to get in shape but can’t get over her own scarcity mindset to just pay for a regular gym continuously.

baq• 2 years ago

She says she wants to get in shape but actually she likes visiting new gyms. Nothing wrong with that, right?

steveBK12311• 2 years ago

She is a gym member maybe 1 out of 3 months because she is perpetually rotating through the deal she can get.

The secret to this stuff is boring - persistent, continuous effort. If you can't even maintain a regular gym membership, you will not get that effort in. She's been complaining for over a decade as she continuous this charade.

AlexandrB• 2 years ago

It's really weird to frame this as a question of "mindset". I certainly had a "scarcity mindset" when I was younger and had no money. Now that I'm older and have some money I have a "growth mindset". But really the main difference is my access to resources.

warner253• 2 years ago

I agree with you. I've seen other people write about this before and it seems that the people talking about it are people who happen to make a lot more money than the average person. Good for them, but that doesn't mean that people who make less money just have the wrong mindset or some kind of moral failing.

I apparently have gone from an extreme "scarcity mindset," when I was in my 20s with questionable job security, to a moderate "scarcity mindset" now that I'm in my late 30s with a higher income, better job security, and 10x more in savings. It's still moderate because I'm a government employee with a relatively low ceiling on what I can make; not much room for growth.

steveBK12311• 2 years ago

It may come off this way, but I'm 40 and my friends doing this are.. NOT poor. The same friends who did this in college are the ones doing it now at 40 despite owning LV bags, $1M homes, etc.

It's sort of a mindset difference between "I'm going to make as much money as possible" vs "I'm going to spend as little money as possible". Ideally someone can try to do both, but I've met near zero who meet that criteria.

BytesAndGears• 2 years ago

I think you’re making a false comparison. Growth mindset is a separate thing entirely. “Growth” versus “fixed” in terms of ability to change your thought patterns.

It’s “scarcity mindset” vs. “abundance mindset”. In terms of ability to gain resources.

A scarcity minded person, such as myself, thinks that they should build extra buffer and not spend their resources, in case they need them in the future. If things go south, you might not be able to make money, so you should have extra somewhere to weather the storm. Resources flowing to you could become “scarce” (in your mind), so you’re cautious.

An abundance mindset person believes that they’ll always be able to find extra somewhere. They don’t need a big savings account because they’ll be able to figure out a way to make money, no matter the circumstance. Resources flowing to you are “abundant” (in your mind), so you are more carefree.

Neither is bad, they’re just different. If you’re older but still tucking away money and trying to not spend too much, etc, then you still have a scarcity mindset (like me).

I personally don’t know if my career will go away in the future, so I’m trying to build a nest-egg to be self sufficient regardless of my work, even though I have plenty of money in my budget to not think about it

arbuge• 2 years ago

Eh, YMMV.

There are innumerable stories of SaaS companies succeeding with referrals and free trials. And coupons + referrals have been the lifeblood of retail ecommerce for ages.

All of these are a function of what you put into them though. Poorly run referral / free trial / coupon programs cannot be expected to yield optimal results or ideal customers.

ghaff13• 2 years ago

Free trials in that context makes some sense. I don't want to pay you sight unseen. I'm not really looking for a discount. I just want to evaluate something at no cost other than my time (which isn't nothing).

palmfacehn• 2 years ago

I've seen similar outcomes where free users required more support than paid.

dazc7• 2 years ago

I once did a free gig for a neighbouring business, that was a lesson for me and not one I intend to repeat.

cpach• 2 years ago

What happened?

CM30• 2 years ago

This is one of the reasons free web hosting mostly died out. You'd spend more time and effort helping people that weren't interested in paying (and often didn't want to learn how anything worked) than you'd make through ads or upsells.

ghaff13• 2 years ago

I sort of expected something more insightful.

This general topic was discussed quite a bit when Groupon was a thing. The coupons brought in people who were pretty much only there for the discount, tipped poorly, and generally didn't become repeat customers. They weren't looking for a new place. They were looking for a deal.

ADDED: Per another comment, there is probably an angle whereby a free trial is the necessary nudge for someone to try something they'd be willing to pay full price for if they liked it. But I didn't get that distinction between those two modes from this short piece.

Veuxdo• 2 years ago

The note at the end that referrals performed better than non-referrals _for drivers_ was interesting. Plus I'd say that even if this isn't earth-shattering insight, there is still benefit hearing the results for something on the scale of Uber.

I agree that including free trials with referrals and coupons doesn't make much sense. As others have commented, free trials are all-but-unavoidable in certain markets.

gumby• 2 years ago

I sort of expected something more insightful.

It’s just marketing spam. The legal disclaimer is longer than the content in this self-described “high quality newsletter” (and in Safari reader mode all you get is the disclaimer!”.

Plus you need to enter something that looks like an email to read it — ironically, given the subject, nobody@a16z.com works!

Par for the course for a16z, really.

dazc7• 2 years ago

Recent example, a piece of furniture costing over £3k and I can get 10% off if I sign-up to their newsletter.

As someone who works in retail marketing, this is a guaranteed way to ensure I don't spend a penny in your store.

jstanley• 2 years ago

Are you saying that if they offer 10% off when you sign up to the newsletter, that will prevent you from buying a product from them at all? Why?

dazc7• 2 years ago

Because they are throwing money around which means they either have ridiculous margins or are just desperate for cash.

photonbeam• 2 years ago

It makes you feel overcharged even with the discount, the product must actually be junk

mrweasel2• 2 years ago

What programs like that tells me is that I can get at least a 10% discount if I talk to one of your sales people. My wife doesn't consider something a discount if it's less than 20%, because "You can always get a 20% discount" (on certain product categories).

I did have to deal with a store where I almost couldn't buy something, because I refused to signup for the "customer club program discount card", which gives you a 20% discount. The staff just looked confused and didn't know what to do. In the end my wife filled in the form and got the stupid card.

dazc7• 2 years ago

Not many genuine businesses have a margin of 20%, especially in retail. If you can get such a discount then it's already been priced-in.

red_admiral4• 2 years ago

If I wanted that product anyway, I'd sign up with my other email address I use when something looks spammy, and take the £300 discount.

rchaud3• 2 years ago

Doesn't the 10% off apply to the shopping cart total? I take it not everything in the store costs £3k?

Not sure why this would turn anybody off. Plenty of stores do this.

dazc7• 2 years ago

Yes, plenty of stores do this and it doesn't turn off that many people.

Think of an online retailer that has been around a while and is solvent though and I'll bet they don't do stuff like this.

penjelly• 2 years ago

Incentive programs often don’t perform

should be "incentive programs have a lower conversion rate".

less qualified (users) ... will use your app

Thats a good thing, and their negative interactions with the app can be measured to improve the experience for other non-technical users.

if gamification doesnt work, explain the popularity of the gacha games. Sure it may attract users who enjoy easy dopamine which is kinda dystopian, but apps need to make money, thats that reality app developers end up facing.

JoshTriplett2• 2 years ago

How well do invite systems perform, of the style that gmail and other services famously used, where you need an invite to sign up and users get a certain number of invites to hand out? (They do a great job of rate-limiting user acquisition, such as if you want to ramp up slowly for resource reasons. The question is, how's the quality of users obtained through invite systems?)

wcunning• 2 years ago

So it famously worked really well to create desire around Gmail, but it also famously didn't actually get anyone to use Google Plus or Google Wave. I was desperate for invites to both and then... never found a reason to use them? So it probably does better in terms of rate limiting than anything else. Maybe the right modern comparison would be Threads to BlueSky?

ghaff13• 2 years ago

Everyone increasingly needed email at the time, people weren't especially wedded to their current email providers, and Gmail was arguably better than whatever they were using and free.

Google Plus was a social network that never got widely used outside of certain circles and Wave was this new weird thing that never took off.

nottorp• 2 years ago

That's a definite it depends :)

In the case of Uber, all those didn't help acquiring me as a customer. I wasn't even aware of the existence of any coupons, referrals and stuff. I installed it because clicking a button in an app is much easier than calling for a taxi on voice AND explaining where exactly you are.

In other cases though, they help.

If you don't have a free trial or free tier and don't have an unique offering suited to me, how would I know if I want your product? As a small piece of anecdata, I would have never subscribed to GeForce Now if they hadn't let me try it for as long as I wanted in 30 minute sessions.

Coupons are a well known form of discounting for customers who have more time than money.

Referrals may be useful if your product needs to achieve critical mass.

Etc etc, I'm no professional marketer.

oatmeal1• 2 years ago

This is a big reason why it's so hard to start a startup. You need access to high quality customers. You can't just start by making the beta version of your product free, because the customers you want aren't motivated by price. Implementing feedback from the low quality customers you start out with can make the product worse for the customers you actually want.

rconti• 2 years ago

What quality of users come from forcing people to give up their email address to read a single effing blogpost?

vintermann• 2 years ago

Let me add one more: people who were signed up in some collective deal against their will e.g. cable TV). You bet I'm a bad "customer", I don't even want to be their customer!

forsyth2024• 2 years ago

For the most part, it doesn’t sound like these “bad” customers are doing anything illegal or in violation of TOS. They’re just exploiting offerings for something they wouldn’t normally spend any money on. To be surprised that they don’t stick around long or spend as much as non-incentivized customers shouldn’t come as a surprise to anyone and shouldn’t be seen as some kind of failing. They would not normally have used the service anyway so why moan when they use it for a little while and then stop?

red_admiral4• 2 years ago

For "bad", read "poor".

yCombLinks• 2 years ago

Nah, there is more than 1 bucket here. There are the poor people, who actually need the coupon to afford it, but they are not usually the problem. The problem is the stingy people. They'll complain the most, try to get refunds the most etc. Blah blah blah, if they can get it they should. Whatever, I'd rather not have their business, I'll take the 80% of people that are happy.

steveBK12311• 2 years ago

It's less a complaint and more a warning to people who try to use this kind of marketing. It generally doesn't work, and where it does.. only very narrowly.

If you are losing money to try and attract customers by this method, you may just burning money. They won't become regular customers, you just lost money for no reason. His point about it working to attract Uber DRIVERS makes sense because it's like a hustle culture thing. You could probably attract sales people or affiliates with this kind of thing, but again, not retail customers.

I had a friend who ran a gym and for a while he kept trying to get more people in using Groupon and Classpass. The problem was that literally zero of them ever converted to a regular membership.

So full paying members were complaining that the classes were getting crowded, meanwhile he was collecting pennies on the dollar from the discounters. In his case at least it was "free revenue" in that it didn't directly cost him anything to serve the discounters. BUT.. If even a single regular member quit due to crowding, it offset 100 Groupon/Classpass people. That's how skewed the economics are.

hnthrowaway0328• 2 years ago

Well then don't offer them?

red_admiral4• 2 years ago

The kind of people who ran coupon schemes in the pre-internet days could have told you this.

Back in the day, coupon schemes were things like you had to physically cut out and mail in vouchers from newspapers or magazines, and you got a discount on something like groceries in return. The point of this was market segmentation: you want to get people who (1) otherwise wouldn't buy your product, or at least not as much and (2) without giving it away any cheaper to those who would buy it already. Who goes through the effort to cut out and collect vouchers for a little bit off their weekly shop?

One answer is "poor people". Calling them "much, much worse customers", is a value judgement.

IG_Semmelweiss• 2 years ago

Actually , the one answer you gave, is a common myth[1]

https://www.investmentzen.com/news/the-surprising-identity-o...

vdaea• 2 years ago

Which makes sense to me - more educated people are those who know how to save.

RicoElectrico• 2 years ago

Polish HN readers laughing at the domain ATM ;)

Retric• 2 years ago

It fits my experience, the people I knew used coupons frequently where are all low income. One ended up having quite a large savings from compound interest and another got a healthy inheritance, but their jobs paid little.

dazc7• 2 years ago

The difference in those days is that people had to present an actual coupon that they had gone to trouble of cutting out and keeping. The advent of search 'business-name voucher code' brought this to anyone and everyone.

rchaud3• 2 years ago

9 out of 10 times, those online coupon finders never worked. You needed to use them pretty much on the day they were posted to the site, otherwise there would be too many redemptions by the time it found it ranked on Google search.

FredPret• 2 years ago

Another answer is “someone who would slog through some effort to get a tiny bit of a better deal” and these people are definitely worse customers, rich or poor.

electriclove• 2 years ago

Why the downvotes / disagreement? “People using coupons -> worse customers” makes sense to me. The shop isn’t getting more money from these customers.

ginko• 2 years ago

Coupon programs are arguably a form of price discrimination[1]. It allows you to sell at a lower price to people who a willing to put in the effort while still being able to sell for more to people who are fine with sticker price.

[1] https://en.wikipedia.org/wiki/Price_discrimination

akudha• 2 years ago

There is this movie on Netflix called Queenpins, who run a coupon scheme/fraud business.

I don’t have any experience with coupons, but I found the movie interesting.

almostnormal• 2 years ago

Lured into a physical shop by a voucher they are likely to by things they would have bought elsewhere, the effort to visit another shop not being justified.

yjftsjthsd-h• 2 years ago

A similar effect happens online with free shipping over a certain dollar amount, which incentivizes getting as many things as you can from a single site.

ghaff13• 2 years ago

I'm actually sort of curious why, sometimes substantial, mail-in rebates seemingly largely went away? I haven't seen one in years. A significant customer of a former employer processed a lot of these out of Minnesota.

lcnPylGDnU4H9OF• 2 years ago

Probably they were introduced as marketing and when more-preferred customers realized they never mailed anything in, and therefore the rebate price is misleading, it ceased to be effective marketing.

Sounds like it was also the difficulty around “doing it right” which is probably different per seller. https://www.consumeraffairs.com/consumerism/rebate_madness01...

red_admiral4• 2 years ago

This is a pure guess, but one of the things a buisness would get out of a mail-in rebate scheme is a customer's contact details, for future marketing (or even to sell on to other companies). Of course, along with the information that "this is the kind of customer who takes part in mail-ins".

That kind of thing can be done far more cheaply, and far more effectively, online these days.

rhplus• 2 years ago

They’re still going strong in the contact lens business. Annoyingly so.

bombcar3• 2 years ago

Cost of processing vs most customers ignoring them, based on my experience with the biggest one left that I know of (Menards 11% and the Home Depot equivalent).

anonymouskimmer3• 2 years ago

Just an anecdote but years ago when Tiger Direct was still a decent place they offered a mail-in rebate for a product and I sent in everything that was asked for. I asked later about why I hadn't gotten the rebate, and they told me that I hadn't sent in everything that was asked for and wouldn't be getting the rebate. I responded that I couldn't send the things in anymore as I had sent in the originals in the first rebate request, and that if they didn't rebate me I'd never shop from them again. They sent me the rebate. I also never shopped from them again anyway.

Probably not the reason they went away, but I do wonder how many customers were lost from bad rebate programs or rebate program mistakes.

treffer• 2 years ago

It becomes more funny once you shift online. Basically every checkout has a "coupon" field.

Now you look for coupons, and some coupon aggregator of doubtful quality pops up.

You find something that works. Or give up. Done.

The coupon sites are usually of doubtful quality because .... Basically all affiliate networks forbid it. It's also the reason why "last click" attribution is horribly broken.

Funnily enough it's now mostly magazins & newspapers that run these coupon sites in Germany.

legutierr• 2 years ago

The coupon sites are usually of doubtful quality because .... Basically all affiliate networks forbid it.

I wasn’t aware of this, and I’m not sure I understand why this would be the case. Do you have any more information about this?

shostack• 2 years ago

I used to run an affiliate program for a company and one of the top affiliates who was making a large sum annually from the program before I took over got quite hostile when I pointed out the bulk of their referrals were from coupon sites. They started trying to intimidate us about the backlash that would ensue if we took action and even brought a very physically intimidating person into a meeting for no other apparent purpose other than to be intimidating.

The data was very cut and dry and in blocking coupon sites in our terms as one of the first actions I took in taking it over they lost a very high double digit % of their revenue from the program overnight.

Surprise surprise, overall trials and subscription rates didn't change and channel ROI improved significantly. Goodbye Felicia.

jncfhnb• 2 years ago

My in laws side of the family still has plenty of grocery coupons active in their area. It’s definitely not a poor person thing. It’s a generational / cultural thing.

therockspush• 2 years ago

Mine are all online now.

So you can activate them before you go.

In the time it would take to pull the scissors out of the drawer, I can just .click() all of them.

I don't even pay attention to the ones I activate anymore, I just get a nice surprise on the receipt.

On a $100 grocery run it knocks off an average of $20.

tetrisgm• 2 years ago

This is a value judgment. You're assuming the author is scheming an elaborate way to be dismissive of poor people.

You just split the entire world of coupon users in 2 arbitrary sections. That's another value judgment.

There are many other reasons to use coupons. Such as: I like a good deal. I like to use coupons. I wanna try something new. I am bored and want to cut coupons. I got this coupon book. This place opened and I'm not sure I wanna try it full price. Etc.

There are so many ways to explore this question.

As for "worse customers", it is entirely possible for a customer to be bad, and for it to have nothing to do with being poor. I recommend studying the user journeys of user cohorts motivated by external rewards, vs those who aren't.

KorematsuFredt• 2 years ago

All customers are worse customers in my opinion, and those who seek max value for their bucks are often the worst. But I am always that customer. I harassed my car dealer so much that it took 9 months but he sold me the car for the exact price I have been demanding.

Spooky23• 2 years ago

Poor people is just one segment. Honestly, I’d say on average poor people are often not very frugal at all.

steveBK12311• 2 years ago

Thinking more on this, I have a group of friends who partake in these types of deals. They are arguably a leading indicator of business models that are going to fail. Why? Because they will cycle through every single deal and never sign up.

Every single one of them cycled through all the meal kit trial discounts during the ZIRP era, without ever signing up for one (it's free food dude). If you think I am kidding, go google "Blue Apron competitors".. there's so many more than I even remember.

If the startups they were hustling were public companies, they'd be an incredible indicator of stocks to short.. alas.

TheCaptain4815• 2 years ago

I did the same with the free money those gambling sites were all giving away. Stayed disciplined and made around $800

_puk• 2 years ago

That coupled with the crazy cashback deals that were on offer from referral sites..

I cleared double that, but doubt it would work these days.

pxx• 2 years ago

Ah with gambling the business model is very different. You just need to be fishing for whales. Somebody can't be a 1000x or even 100x customer on Uber compared to the median. Somebody can easily be a 1000x gambler

coffeebeqn2• 2 years ago

I remember playing a lot of very boring optimal blackjack to break even on money and pick up the deposit bonus. Usually you had to do something like play the total amount of the bonus once before you could withdraw it

ghaff13• 2 years ago

They still mostly were neither free nor a particularly good deal.

I tried Blue Apron once (probably with a discount). In addition to the dark pattern of we'll send you meals next week by default they pretty much all used, they all seemed to have a really narrow use case.

Basically, you had to be fine with cooking sometimes fairly time-consuming recipes for 2+ people three days a week, but didn't have a well-stocked pantry or interest in doing a grocery shopping.

steveBK12311• 2 years ago

Really depends on where you live.

In NYC/HCOL areas where the groceries are practically luxury priced, having a discounted meal kit delivered does add up savings-wise.

I think it's like some of the other HCOL urban business models that won't / didn't scale nationally during/after COVID. Favorite example is Peloton. $40/month virtual gym is a great option in NYC where a "nice gym" might cost 5-10x that. In the rest of the country where you can get a serviceable gym for $20-50/mo and NICE one for maybe $100/mo.. it's not a compelling offer! People think I'm joking but my hometown which is 75mi outside NYC has a $20/mo gym. Why would anyone there get a Peloton?

972811• 2 years ago

yeah surprisingly that was ideal for me when I was single. i enjoy the actual physical act of cooking but hate the constant planning/prep/shopping. guaranteeing a few healthy dinners a week that I don't have to plan was pretty nice. unfortunately the meal quality dropped a good bit and the recipes get redundant after a while

i'd still recommend it to anyone who's never cooked before at all and wants to start

SkyPuncher2• 2 years ago

We use HomeChef now and only get their oven ready or “quick” meals. It’s wonderful.

Previously, we tried a few services. It would often take an hour for me to cook a meal. These weren’t anything special either. I had four major complaints:

* it often felt like recipes would include unnecessary steps just to make you feel like a cook. Things like mixing siracha and mayo to make the dressing when they could have simply sent it combined.

* reading the instructions was a ridiculous slow down. After a full day of work, it wasn’t fun having to interpret the overly zealous recipes.

* the time estimates were clearly made by someone who preps food all day.

* they still expected you to have certain basics. Not really the end of the world, but part of the point was to not worry about any other shopping.

rib3ye3• 2 years ago

I frequently use 50% off discounts to buy square pie guys pizza.

Will I buy that pizza at full price? _probably_ not, but I will tell everyone that it’s amazing because is it. So it’s a $12 review, right?

Compared to a $1k-$5k /video influencer, isn’t that a deal?

I’ve even spammed their name in this comment.

Disclaimer: I know nothing about marketing economics

dylan6043• 2 years ago

So it’s a $12 review, right?
Compared to a $1k-$5k /video influencer, isn’t that a deal?

I mean, that totally depends on the "influencer" right? How many people will you actually talk to where you've spent $12? How many people will hear about it from the influencer? If they have 1M subs and get $5k, that's half a cent per view.

Sometimes, simple arithmetic can disprove ridiculous viewpoints. Now, it's just a matter if you're one of the types of people that will hold on to ridiculousness in the face of evidence.

steveBK12311• 2 years ago

A loyalty program is probably a better model for attracting regular customers than this though, right.

You want to attract people willing to pay more or less full price. A program that you get the 10th pie free, and always get a free 2L soda with every pie or something would accomplish that better.

An example - I live part of the year in an area that is more a "summer destination" so a lot of the local restaurants close November thru April.

One hotel restaurant stays open year round, and in their first year they mailed everyone locally an offer to get a 15% off "locals only" loyalty card. You had to apply, send some proof you were local, wait for them to mail the card, and then keep it in your wallet. 15% is a nice little incentive, but given tax/tipping/etc, doesn't materially change the price. Going there off season, even just monthly, all the hosts/waiters know us well now vs the more transient guests. So it sticks out in our mind as a reminder that they are always open, and a friendly place to go eat.

rib3ye3• 2 years ago

The core issue here, is the campaign responsible for conversion or not?

Some of the most profitable businesses of our era are just endless free trials and, surprise, they are just portals that sell ads.

eightysixfour4• 2 years ago

I spent some time in UX consulting and I started to notice a pattern that surprised me a bit - having really slick UX (if that isn't your key selling point!) in a very early product seemed to be a bit of an anti-pattern for long-term success. My hypothesis is that there are a group of users who will sign up for anything and "play with it" if it is easy enough and slick enough, but that doesn't make them good customers, much like the customers Andrew is talking about.

graemep2• 2 years ago

Could you elaborate? Easy to signup for or initially easy to use?

Would it actually lose customers long term or just give you early extra customers you fail to retain?

eightysixfour4• 2 years ago

Sure - an example for me is RunwayML. It is a neat product that is very accessible to anyone, so I signed up and played with it a bit. Every once in a while I hop on and show someone a little demo of it as a cool GenAI/ML thing, but video isn’t a medium I work with or intend to work with. I am never going to become a paying customer.

The low barrier to entry (both in sign-up and usage) helps amp up user counts and usage which makes you think you have some sort of market fit, but the interest is not real.

The startups I worked with that experienced explosive growth were ones where their initial UX was mediocre or even hostile, but the demand for the thing was so high they had customers anyways. Improving the UX unlocked more growth.

I have a skewed perspective since people came to us for UX issues, so this isn’t an iron law or anything, but I think about it a lot when I see very shiny, polished launches.

A counter to this may be something like Linear, where the UX is the value.

SkyPuncher2• 2 years ago

This aligns with my experience as well.

My hypothesis is slightly different. When people have a strong enough need, they’re willing to look past UX/UI issues because they see the core value. They’re okay using a “crappy” product because it’s actually doing something really important for them. Later in a products life, it needs a better Ui to attract the remaining user and compete with the market.

The crappy UI serves as a bit of a filter, helping you learn quickly if something is valuable.

eightysixfour4• 2 years ago

I agree and I think our hypotheses are two sides of the same coin - if the UX is great it gains users that aren’t good for business, if the UX is bad it filters for users that deeply need the product.

I’d certainly rather be in a startup that is dealing with the latter than the former.

pflenker2• 2 years ago

Only tangentially related - one big hardware store chain in Germany ran bankrupt because they started to frequently ran „20% on everything“ marketing activities. The idea was to attract customers who would return when one activity ended, but the result was the opposite: the extra customers only came for the 20% and didn’t return between the activities, and the loyal customers started avoiding the chain and waited for the next program to start.

standardUser• 2 years ago

In the US we had Bed, Bath and Beyond which was famous for it's ubiquitous 20% off coupons. I'm not sure if their failure had anything to do with the coupons, but many people, myself included, only went there with the specific intention of using that coupon. They were bought by Overstock and all the stores were shut down.

jawns• 2 years ago

Those 20% off coupons allowed them to price an $80 item at $100. If the customer has a coupon, they get that item for as low as the store is willing to sell it for -- which works out to be market price. But if they lack a coupon, they're likely paying above-market price, and that's extra revenue for the store! Granted, this is an oversimplification, because many people might decide not to buy the item at a perceived above-market price. But I think, in general, coupons work. JCPenney famously got rid of coupons in 2012, and the customer outcry and effect on its stock price forced them to restore them soon after.

switch007• 2 years ago

That's pretty tragic. Did nobody realise that hardware purchases are infrequent?

pflenker2• 2 years ago

It’s even worse - those who frequently buy hardware are small one-person companies who drive from building to building gig. They are very cost conscious and very mobile , so they are the most likely candidates to buy bigger quantities whenever the price is right. They for sure are not loyal to any brand.

arthurofbabylon• 2 years ago

Incentives are a form of selection and you need to make sure you know what you’re selecting for.

That’s the best insight from the article.

I’m a little disappointed that the leader of one of the world’s most prolific referral programs didn't have more to say about it.

awinter-py• 2 years ago

have heard similar feedback from brick + mortar businesses

go-kart track: folks who came in through groupon never converted to repeat customers at full price

boutique fitness franchise: classpass users have low or negative margin, and don't convert to full price. they may be useful to fill out a part-empty class because that incurs no extra cost, but if you're spending new money to host them it's not economical

opposite case of this is pharma, where the subsidies go up the stack instead of down. arguably goodrx is the 'true' price, and the retail price you pay as a walk-in is drastically inflated

there are also communities of people who rotate credit cards to chase the best reward / rebates deals; imo they are behaving rationally in the face of an industry that offers bundles which decline in value over time

amluto• 2 years ago

You have a target market and sometimes it takes time for a product to spread through its ideal users — this is magical because word of mouth is free. And when it happens in an organic way, the intent is even higher. But if these ideal users encounter the product via an incentive program, you often “pull forward” these users, thus costing you money, when you would have gotten them anyway.

It’s worse than that. Some of these users you think you pick up via an incentive program were already loyal repeat customers!

As a silly example, there’s a local cafe that is part of a small chain that roasts its own (excellent!) coffee. I used to buy bags of coffee at their shop. But their website often has promotions, which they market to me heavily, which makes it cheaper to shop online and even cheaper if I wait for the right promotion.

And if I go to the cafe, I don’t cost them money in free shipping and I might buy a drink or a snack!

The moral: set up your pricing structure and promotions to incentivize the behavior you want from your customers.

amtamt• 2 years ago

The moral: set up your pricing structure and promotions to incentivize the behavior you want from your customers.

Is it aligned with the incentive digital marketing team has?

AlwaysRock• 2 years ago

But but but growth over everything... Right?

pierat• 2 years ago

Eh, probably.

When I bought a webcam at the local best buy, I price-matched scamazon's price that was 30$ cheaper. I trust Best buy to not sell scam shit, but do NOT trust Scamazon.

But hey, I'll get the scamazon price WITH the convenience of in-person pickup.

geor9e• 2 years ago

It's me, I'm the worst user. I subscribe&save at every opportunity, then cancel all of them before the next shipment. I get several new credit cards a year just qualify for the $500 sign up bonus, then never use them again. I have 20+ gmail accounts to use new customer promos over and over. You do not want me as a customer.

kbos87• 2 years ago

It’s really easy to spot effective vs. ineffective/“empty calorie” growth channels when you look at them through the lens of a single word - intent.

Ads appearing alongside search results are among the highest intent, which is why they perform well and are thus so expensive.

Referral programs and coupons are people looking for generic deals. You might form habits among a few of them, but the likelihood is low. Free trials are probably more dependent on the context.

oneoff123• 2 years ago

Ive always looked at it as a spectrum. You can buy thousands of hits for €3 but if you want to convert those you have to offer a service where one gets paid (very little) for visiting websites.

spiffytech• 2 years ago

I agree that low cost attracts "pathological users", but I was surprised to see this part presented as a negative:

But if these ideal users encounter the product via an incentive program, you often “pull forward” these users, thus costing you money, when you would have gotten them anyway.

The premise of annual discounts is that having $0.80 today is worth more than $1.00 a year from now.

Doesn't the same logic apply here? That if you can get someone in the door sooner, that's worth some cost?

anonimo37• 2 years ago

Another problem with these incentives to attract new users is how do you think existing users feel when they see discounts offered to new users? Their loyalty is rewarded by paying full price.

I may be the outlier but I have almost no interest in new user incentives. I know the discount will only last a short while before I am paying full price so I never factor the discount into the total cost of using the service.

Even free trials don't interest me as there is still the hassle of signing up and remembering to cancel before the trial ends. Why bother signing up for something that I intend to cancel a month later? If I intend to keep using the service then as I said above, the discount is meaningless in the long term.

carbine• 2 years ago

A lot of comments here from people who think this is "obvious" but have probably never been personally responsible for monetizing and scaling a product. If you run referral programs you will often drive meaningful incremental revenue, and founders/investors etc. will push for more.

Actually scaling a product successfully requires a lot of testing/pricing/segmentation. Crucially, advertising is the most expensive way to acquire a new user. If every high quality user refers >1 other net new high quality user, you cut your CAC in half. Well-run referral programs for the right type of product can be lucrative, but countering the narrative that every product needs to have one is probably a good thing.

zubairq• 2 years ago

Yes using referral programs brings users who want the bonus payment, but not the product. A good referral program should just be the icing on the cake, not the cake itself!

Ccecil• 2 years ago

My experience over the last couple decades working for myself (or running my own company) that the worst customers are the ones who want it cheapest. They start out by spending extra time negotiating lower prices...often with a story about how "getting your name out there will help your company" or "We plan on working with you a ton in the future so you should discount us now".

During the job they will have you do extra work to which you are supposed to "keep track of and we will pay you whatever it takes". I cannot think of one time where this did not end up where I end up eating even more of the already discounted profit.

After the job is done they tend to also be the ones who are hypercritical. Often requiring extra rework or doing the work over all together. Then they will use how they "paid you extra during the job" as a reason why you owe them.

All of that being said. The companies who are honest and understanding tend to make up for the trouble that the others cause. Throughout the years I have become able to spot the problem customers in the first meeting (sometimes phone calls are enough) to where I just say "no" before ever negotiating the job. In my case this has mostly led to me not working with the "local" people at all and mostly focusing on the remote customers.

pomatic• 2 years ago

Related: Our highest-maintenance users by far (SaaS) are the 'small fry' - companies with a handful of users. They are usually an order of magnitude more demanding than companies with 50+ users.

The worst users come from referral programs, free trials, coupons

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