Case Study: A Deep Dive on Discounts
The Challenge
Like many subscription merchants, our client was worried about the steadily increasing discount rates they were running in acquisition campaigns to remain competitive. He wanted to make sure that the customers they were acquiring with the steep discounts were not churning too quickly and were producing a profitable Lifetime Value (LTV).
The Solution
In order to evaluate the impact of their overall discount strategy, they were able to leverage Sublytics to view the volume of customers acquired month over month compared to the lifetime value. As you can see above, a negative correlation between the data sets begins to emerge in October, meaning the strategies employed started to attract a high volume of lower LTV customers.
Seeing this trend in October, they decided to look into the discounts and promotion codes being run in that month.
To the right, you can see the clear trend between discount rate and its impact on Lifetime Value. As the discount rate increases, the Customer Lifetime Value decreases making the client’s sweet spot discount code 15% off.
Digging further into the retention rates associated with each of their promotion codes, they discovered that subscribers acquired with discounts over 25% churned twice as fast as customers acquired with lower or no discount. They were able to further validate their findings by determining that customers acquired with a high discount were more likely to cancel due to reasons associated with pricing and relative value; meaning this cohort wasn’t aligned with the value proposition of the product.
As a result, the client optimized their promotional strategy to target their sweet spot of a 15% discount rate to achieve optimal volume of their highest quality customers.
The client noticed a spike in cancellation reasons tied to product pricing issues and value issues, which were largely made up of customers acquired through discounts higher than 30%. Meaning those who were acquired on high discounts weren’t aligned with the value proposition of the product.
The Outcome
With these insights, the client was able to optimize their promotional strategy to focus discounts within the ‘sweet spot,’ increasing: AOV by 24%, LTV by 73%, and Retention Rate by 50%
By acquiring subscribers through a lower discount, the client saw that cancellations dropped and the average customer lifespan and revenue value increased overall because they were now attracting customers who were actually in market for their product, rather than attracting bargain hunters.
For proactive management of their discounts and ensuring profitable LTV, the client has leveraged Sublytics notifications to send email/text alerts when a promo code drives 200+ sales with a first renewal retention rate less than 80%.
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Up Next: The Essential Subscription Data Guide Chapter 2 – A Deep Dive on Customer Lifetime Value
