The worst users come from referral programs, free trials, coupons
andrewchen.com
andrewchen.com
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.
https://www.investmentzen.com/news/the-surprising-identity-o...
Write on here that it's a waste of time is probably the biggest waste of time. At least it's low effort.
It may not seem like an exciting hobby to you so maybe you think this is made up, but try to remember that there are people who collect stamps or sit around train tracks to see locomotives. One man's absolute bore is another man's nailbiting thrill.
I wonder if that was a lie too? :)
Successful exits usually are worth millions.
The point for criticism of unlikely claims online is that it is hard to know if made up, thereby kinda dubious as an justification for an acclaim of authority on a specific topic..
(I assume the mechanism here is to obscure the coupon enough that Amazon doesn’t get mad you’re selling under their pricing but you let the customer have some of the savings from avoiding Amazon’s commission.)
I buy toothpaste. A dollar off coupon will encourage another brand purchase to a more expensive product that may get repeated.
The shop may get addition money by having me buy other items to save me the time of multiple store visits.
There is a reason why each week a different item goes on sale. That loss leader leads to more purchases
Except that I, the person who already buys that product, buys nothing, or buys it from another store, because it's no longer in stock when I make my purchases in the evening. (I've since changed to shopping in the morning or early afternoon, so run into sales pricing outages much less frequently, but the general point stands.)
The first are the ones coupons nominally target -- not people who go out of their way to find coupons. Just ordinary new customers who need an incentive to try the product once and then might become repeat customers. These are actually great when you can get them, but they're not that big a percentage of coupon users.
The second is the, let's say, analysts. Smart retirees who now have lots of free time and can use it to find a good deal. Tech savvy customers who know how to use advanced search features to find the best deal or are willing to set up a scraper to send them an alert. These customers are great too -- you don't make much margin from them, but you make a little, and then they immediately go away and leave you to keep their money in peace. And when you offer a good deal, they will come to you, so your margin is lower but so is your marketing expense.
The real problem is Karens. They don't know how to read but own a fanny pack that says "the customer is always right" and want to spend two hours arguing with you to try to get you to accept an expired coupon for the wrong product over something that has a $0.17 margin.
I don't know if it's common to do it so perfectly though.
Net margins in many industries are razor thin, a single digit percentage at best. Gross margins are much thicker, because the rest has to go to covering operating expenses like rent and utilities and salaries that don't really depend on how many sales you ring up. You can't allow your net margin to be below zero on average, but any sale that exceeds your gross margin still contributes to the bottom line.
Or to think about this a different way, suppose you have a million dollars in fixed costs you have to recover before you can turn a profit, and you're selling a million units at a gross margin of $0.80 and two million more at a gross margin of $0.20. You're making two hundred grand. But at 3 million total units your average gross margin has to be ~$0.33 just to break even. Does that mean you should abandon all the $0.20 margin sales and only keep the million "profitable" sales? What happens if you do that?
It's true that a sale at $0.20 profit margin is still a profitable sale, so if the alternative is to not make a sale at all, then better make it.
And... in the case of expirable things like food, even a negative-margin sale is not something to back out of, if again the alternative is to not make the sale at all. That nearly-expired porkchop was already stocked, no way to get back the purchase cost, but you can get something.
But you should not give out negative-profit coupons to begin with for perfectly fine non-expired goods. I hear that.
I guess you would also worry if a customer's behavior forestalls other customers' spending. Like if you have 50% off on bacon but you forgot to set a maximum amount of units, then one customer comes along and buys up the entire supply.
Even that's not really the end of the world. Okay, so you've lost a higher margin sale from the customer who wouldn't have had a coupon, but you've still managed to clear out your stock of nearly expired bacon, and the other customer is still standing in your store looking for some breakfast food and might just buy some breakfast sausages instead, or come back and buy their bacon next week.
You might have done better to do things differently, but only a little bit, which is probably true of every reasonable decision anyone has ever made about anything. And maybe you wouldn't -- maybe a purchase limit would have meant you didn't sell out on nearly expired bacon and would have had to throw it out. Sometimes there's no way to know for sure what would have happened in the alternative and you're just happy if you're making money.
I don’t have any experience with coupons, but I found the movie interesting.
Sounds like it was also the difficulty around “doing it right” which is probably different per seller. https://www.consumeraffairs.com/consumerism/rebate_madness01...
That kind of thing can be done far more cheaply, and far more effectively, online these days.
Probably not the reason they went away, but I do wonder how many customers were lost from bad rebate programs or rebate program mistakes.
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.
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?
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.
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.
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.
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.
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.
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.
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.
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.
Maybe she’s actually staying more motivated to go this way, maybe her engagement is higher than if she paid. Or, maybe she’d love it if you gave her a gift and pre-paid for 6 or 12 months of membership somewhere? You could even tell her you got a deal, which is true regardless of what you pay. Valentine’s Day is here…
If you want to gift anything nice to family who is more scarcity mindset, you absolutely HAVE to talk up the deal/discount you got, or how you paid for it with points that were going to expire, or something. It's also better if the thing you are gifting has opaque pricing / is somewhat custom or uncommon so they can't just google the price.
Anyway.. everything turns into sales/marketing sometimes!
Services that say "prepay up-front and we'll never bill you" is a viable selling premise. Gift subscriptions are an obvious viable business that comes out of that model.
I wanted to get my father a gift subscription to the local newspaper, and they basically had no idea how to handle a fixed-term subscription-- all they could point to were recurring auto-pay setups.
However, after some time, the gym changed the policy to offer discounts for people who signed a contract—effectively make it more expensive for people to pay-as-you-go without easier cancellation. As of now, I can no longer find pricing on their website (maybe it's there, but I've looked around a while), nor any mention of their once-notable pay-as-you-go model. Instead, the gym's website now focuses on encouraging members to sign up for a personal trainer.
At least in this case, the gym showed that the "prepay and we'll never bill you" policy was, as you predicted, a headline-grabbing policy. But it appears that the owners decided it was more profitable to either cancel or de-emphasize the policy and promote the usual payment model for gyms, even at the cost of standing out from other gyms.
[1] https://www.theglobeandmail.com/report-on-business/small-bus...
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.
But this part: > 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.
Pretty firmly puts you in one bucket. You might have more money, but you are asserting that in your 30s your growth is limited. Someone with a growth mindset would not settle into that job & accept that life path. They'd be job hopping, running a side gig for extra income, squirreling away every last dime into investments so that they can immediately flip into private business at early retirement, etc.
Getty is an example of a really rich guy with scarcity mindset. My parents & in-laws were scarcity mindset.. which is how they retired at 59! People think it's a slur, it is not!
Maybe it's the "scarcity" and "growth" parts of the terminology that I take issue with, but I'm not sure what better descriptive terms would be. Edited to add: The more verbose descriptions that you wrote in your other comment make sense... "I'm going to make as much money as possible" vs "I'm going to spend as little money as possible"
Personal anecdotes - in college I wanted more spending money, so I ran a little eBay business related to my hobby. One of my roommates got big into MMORPG goods mining & selling. Our other roommates got into things like getting their baked goods for free by showing up to bakeries at closing time.
Later, at some point in our careers my wife & I found our industry to be stagnating and tried some side businesses. They didn't pan out after a couple years, so then we both switched industries/subindustries. We both change jobs every 4-5 years. I've had 5 jobs by 40, my wife 6.
But on the other hand we come from families where our moms didn't work and our dads worked the same jobs for 30 years.
For me, just like compounding interest makes a big difference in returns in terms of saving more earlier.. so does growth. If you settle into a stable safe job with 2-3% inflation raises, vs making sure you are always getting an average 5-10% raises, you would be shocked what it means to your compensation at the end of a 20 year period.
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.
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
> If you’re older but still tucking away money and trying to not spend too much, etc, then you still have a scarcity mindset
This does seem to become something of a problem when people earn and save prodigiously so that they can retire, but then never feel comfortable enough to actually retire and start spending down their savings. I don't want to be "the richest guy in the graveyard," dying at 80 with an 8-figure net worth (in today's dollars), but I see how that can happen.
My wife and I were the oldest child of scarcity mindset parents. For both of us it turned into a motivator to "not have to think about money" on the income side.
For me, the worst thing in the world was when I had to ask my parents for money, it was emotionally draining. I haven't asked my parents for a penny since I turned 20. They are generous in gifting money/things at time/place/amount/reason of their choosing, but I never wanted to have to ask again.
It drove me to want to have cashflow, and I started working when I was 14 under the table, officially W2 summers/weekends/after school from 16. I've really never stopped working, been doing my own taxes since I was 16.
My wife ended up with almost 6-figures of college debt ~20 years ago because her parents contributed very little & were sticking to a very strict budget to payoff their mortgage in under 15 years. After paying off the mortgage and retirement, they became much more generous. They bought themselves several (cheap) vacation homes and investment property. The impact on her though in her 20s was to feel very resentful of them for some time, fair or unfair as that is.
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.
I cleared double that, but doubt it would work these days.
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.
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?
But I agree with your basic point. More than a meal at McDonald's is probably a lot to many people.
i'd still recommend it to anyone who's never cooked before at all and wants to start
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.
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
> 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.
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.
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.
Is it aligned with the incentive digital marketing team has?
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.
Would it actually lose customers long term or just give you early extra customers you fail to retain?
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.
Thank you for this comment. I've been stressing over UI elements a bit and this was the kick I needed to just go and get it out there.
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.
I’d certainly rather be in a startup that is dealing with the latter than the former.
For example, several meetings in the local coffee shop where subjects covered could be done within an email. They once arranged a meet with their database guy so we could discuss how it would be stored and accessed etc? Both looked at each other as if to say wtf are we doing here?
The lesson for me is that if you don't value your time then no one else will.
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.
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.
As someone who works in retail marketing, this is a guaranteed way to ensure I don't spend a penny in your store.
The whole reason I'm stopping to look around is because every price tag just got 10% lower.
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.
You can always get a 20% discount on appliances in big-box stores, if you're flexible on the brand. I got 66% discount on a extractor fan when updating our kitchen, that's just insane.
Edit: depending on your script, you could get the Busybox image and use that as a base. Probably a little more work, but it does fix some of your dependency issues. It doesn't have bash, git or fzf though, so there's a fun challenge getting those build.
Retail is low margin only if you subtract salaries/offices/marketing AND cost of goods.
Not sure why this would turn anybody off. Plenty of stores do this.
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.
> 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?
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.
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
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.
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.
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.
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.
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.
Some of the most profitable businesses of our era are just endless free trials and, surprise, they are just portals that sell ads.
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.
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.