Interesting discussion from @andrewjfaris, @TaylorHoliday, and @digitallynativ around discounts on #DTC Twitter.

Found the conclusion of "discounts are a scalpel, not a sledgehammer" right, but incomplete.

Here's some data from 4.2k sub ecom brands to help with the thinking.👇
First - why discount?

Discounts lower the activation energy of a lead converting.

As Taylor mentioned, a promotion can diminish the trust gap, reframing the purchasing decision.

Where I quibble is with the depth of these discounts. 2/
Let's look at lifetime value (LTV) across 4.2k sub ecom companies, specifically the LTV of customers who received a discount at purchase compares to those who didn't.

Notice how as the discount increases, LTV decreases.

Why? 3/
Our thesis becomes: discounts leap the trust gap, but at a level the trust gap actually *widens* by the discount.

You'll get initial conversion, but not so great customers.

You could argue - more customers are better than less. Yet, here's why that's maybe not great... 4/
Look at NPS scores on our same scale.

Higher the discount, lower the promotion and WOM.

Maybe promotion doesn't matter, but less satisfied customers also churn like mofos.... 5/
Look at revenue churn based on discount at purchase.

Higher the discount, worse the churn.

It's hard to say whether this is ok or not. If I'm a brand like DSC that doesn't make money on first purchase this is problematic. If I was @soundslikecanoe this is probably ok. 6/
There's an argument that discounting leads to new channels of new customers.

If you're expanding into an outlet model, this makes sense, but that's not discounting, that's merchandising mix targeting different customers.

Your core doesn't change, so this feels tangential. 7/
That being said - here's a curious data point.

When we look at our LTV split, bundling discounts work better than % discounts. Ie. offering a free gift with purchase vs. 20% off.

Bundles appear to correlate with increased LTV.

It's the deal, not the discount. 8/

Discounting is more acquisition than pricing. It's a scalpel, not a sledgehammer that needs to be experimented with and executed well.

Results will vary, but:

- Offer promotions vs. % off.
- Be careful over 20%
- Don't do it out of pressure.

@TaylorHoliday, @andrewjfaris, and @digitallynativ hope this helps. Just wanted to add some good kindling to your arguments. 😂

Figure @web and @magdalenakala will get a kick out of this too, so tagging them.

Happy to dig deeper or chat more, too. 10/
If you found this worth at least $1, you should retweet the whole thread. Want to get this knowledge into the hands of as many people as possible.

What other benchmarks or research would you like next? I can do a #B2B version of this easily. :)


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More from @Patticus

8 Oct
Been thinking through a lot of the Q4 advice @web @magdalenakala, and @davegerhardt have published for #DTC. Similar to @hnshah and @bbalfour in #B2B.

There's one piece I think we're missing that's been accelerated with COVID: Price localization.

Here's all the data 👇
Price localization is when you price in your customer's currency and make the prices differ region to region.

Brick and mortar made this easy, because grandma in Tulsa buys a hallmark card for a different price than you in NYC.

Data shows this is lucrative online as well... 2/
If you simply cosmetically change up your pricing - price in the right currency, you'll typically see 30-50% higher AOV and ACV.

Just by making sure the prices used the right symbol.

People like buying comfortably and often get weary of purchasing from a different region.
3/ Image
Read 12 tweets
1 Sep
Got the @2pminc news alert that Walmart announced Walmart+ yesterday to take on Amazon Prime.

There's actually a case to be made that this is the perfect beachhead to take on Amazon and win back the retail crown.

Here's the data 👇
As @ctrlzee and @shanconnellan pointed out the big win here is Walmart groceries are cheaper without the Whole foods brand tax.

Throw in a 5¢ per gallon discount on gas and you have a good recipe for Walmart's target buyer: less affluent shoppers in rural and suburban areas. 2/
Those folks making under $75k per year haven't adopted Amazon Prime as quickly.

Sure, it's relative: 30-50% vs. 60-70%

Yet, if you're looking for a chink in Amazon's seemingly impenetrable armor this is where to attack - the market Amazon hasn't sucked up yet.

Read 10 tweets
21 Aug
The most common question I get asked:

How do you determine customer willingness to pay and pricing?

Here's how 👇
People treat pricing like sex, religion, and politics - "oh no we shouldn't talk about that"

In reality, if you don't have massive traffic (and if you think you do, you probably don't) the only way to determine willingness to pay is to talk to your customers.

You have to ask properly though.

We'll take advantage of how the human brain thinks about value, which is based on a spectrum.

We know that a bottle of water is worth less than a computer. Go to the desert for 3 days without water, and the value differential shifts. 3/
Read 16 tweets
3 Aug
Lots of requests for more specific retention advice for #DTC and #SaaS.

Let's walk through a framework for handling active cancellations and churn that focuses on your off-boarding.

(yes, that's a thing).

The goal is to triage cancellations into three groups:

1. Those who are gone anyway. Action: Let them go.

2. Those who just need to talk. Action: Get them on the phone.

3. Those who can be saved. Action: Get them more time with an offer (more below) 2/
To determine the group you'll add some friction (survey, open ended question, etc.). Some folks find forcing the user to call or email to cancel works. I wouldn't recommend doing this, as it hurts long term and squanders the opportunity for a save. 3/
Read 12 tweets
24 Jul
Yesterday a founder friend asked how to raise prices during sensitive times.

I explained raising prices is always sensitive, so you need to do it right.

Here's the right way, including email copy we use. 👇
First up - raising prices isn't "mean" and it's necessary. Your price is the exchange rate on the value you're providing, so if your brand, features, functionality - your value - go up, then your price should go up too. 2/
Sure, the safe thing to do is to keep everyone on legacy pricing, but it's not necessarily the *right* thing to do. You train customers to expect more for less, building resentment, and it's nearly impossible to go from $10M to $100M without raising prices in some manner. 3/
Read 14 tweets
23 Jul
I'm not the only pricing person :)

Today @robbylit launched a new series called Good Better Best on @ProfitWell. Here are highlights from the first post on Zoom's freemium decision tree that changed conferencing forever - and it's not as simple as "oh they used freemium" 👇
We all know Zoom used freemium to be successful, but when you're considering free there's a clear decision tree you need to flow through. This is where Zoom made gains by first making a distinction between freemium and a free trial.
Sure, you can certainly do both, but these are very different strategies depending on the outcomes you seek. Going freemium was a pretty easy decision for Zoom considering the market was already freemium dominant.
Read 8 tweets

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