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.
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.
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.
It’s the other way around. Not all coupon users are worse customers (who would refuse a 5$ discount offered during checkout?) - but the worst customers will also go out of their way to find coupons.
But even that isn't so simple, because there are at least three types of people who use coupons.
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.
Some of your "analysts" seem like they can be net loss. I'm thinking someone who only ever buys the groceries that are at least 50% off, having no particular recipe in mind so no need to combine with regular-price items. Grabs them by the truckload when the sale comes, then lives off their freezer for months.
I don't know if it's common to do it so perfectly though.
That's only true if you issue coupons that exceed your gross margins.
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.
> 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.
> 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.)
Careful there. People also may also not feel good about being taken advantage off. They may also not feel good about valued less than a little more paying people.
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.
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.
If you’re asking why a referral program would forbid the listing of referral links on coupon sites, I’d imagine it’s because most people visiting a coupon aggregator are already on the website checkout page ready to make a purchase. You’re not referring these customers and bringing someone new to the table.
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.
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.
Why would making 1,000 games (that can be translated to many) that lead to a game startup and successful exit would call you to question if the parent was a millionaire.
If 1,000 games can be translated to many, then multimillionaire can be translated to “at least many thousand dollars in net worth”?
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..
There's a difference between being frugal where it actually moves the needle and pinching every penny when the effort/scarifice far exceeds any benefit.
What effort/sacrifice was expelled? Flipping through the paper with a pair of scissors? You didn't even need to buy the paper as the coupons were ignored by the majority of those that did buy the paper and would just toss the coupons. It took no more effort than what people expend doom scrolling the socials.
People "waste" time on lots of things. But, yes, coupon-clipping and redemption is a certain amount of effort and I'm not going to bother unless it hits a fairly high threshold for something I'd have bought anyway.
Couponing is a hobby that is practiced by many people who have secure financial positions but get a thrill out of saving a few dollars on stuff they didn't need to buy in the first place. It happens that these sort of people are often pains in the ass from a retail worker perspective. They try to bend the rules by stacking coupons, using expired coupons, twisting what product the coupons are for, etc. They also waste a lot of time rifling through coupons looking for the best one to use, and just generally waste a lot of time and cause grief for everybody near them.
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.
Coupon clipping is not wasting time. Understanding how much you pay finding coupons to reduce that is will save a lot of money. Just the awareness itself will help.
Write on here that it's a waste of time is probably the biggest waste of time. At least it's low effort.
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.
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.
Yeah: when I see "mail-in rebate" I just think "low-key scam". It also now tells me the "real price" of the product is cheaper, and so I feel screwed if I don't intend to put in the effort to deal with the scam, which is a rather different mechanism from coupons.
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.
Though they weren't a flash in the pan thing. It's true that their allure for marketing was that a lot of people priced the rebate in and then never mailed for it or violated some term/condition. But they were commonplace for a long time.
Sending outgoing mail is more rare now though? Perhaps when it used to be common to stamp and mail letters then one more wasn’t as big a deal. Now, I’m not even sure where our stamps are or if we have any at home.
Yes, as I wrote in another comment. I know where my stamps and envelopes are but I imagine a lot of people are like "I need to fill out a form and mail it? ROFL. Like that's going to happen. Stuff your rebate. That's fake news."
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).
I suspect it's some combination of the human processing cost increasing and the idea of finding a stamp and an envelope to get a check (maybe) mailed to them making more and more people roll their eyes and just discount rebates out of hand.
Lots of the manufacturer’s rebates have become instant rebates because of pressure from places like Walmart (who really, really dislikes having to advertise a higher price than possible).
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.
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.
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.
Today it is pretty much actively a scam and you are better off searching for a newsletter subscription that often come with a 15% off code etc.
(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.)
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.
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.
Alternatively, free shipping (or free shipping at quite a low threshold for what's being sold) is sufficiently normalized that if shipping is not free, some percentage of users will just close the window and move on.
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.
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.
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.
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!
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.
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.
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.
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
This is a good explanation. I think the word "abundance" is more fitting than "growth." I also like how you frame it as someone with an "abundance mindset" possibly being wrong, foolish, etc. to think that they can always get more resources whenever they need them. When I've seen this written about before, it really seemed like it was framing the "scarcity mindset" as being wrong; like the person with that mindset is just obviously leaving so much (money, pleasure, etc.) on the table.
> 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.
Neither is more right/wrong in a general sense.
Either in their extreme can be "wrong".
It also has impacts on how your kids turn out to relate to money later.
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.
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.
I have experienced this as well, mostly among people who did not grow up with a lot of money but managed to make a lot of it throughout their adult life.
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.
There's nothing wrong with either mindset, most people are incapable of doing both at once. You can have "scarcity mindset" and be rich. Of course someone with scarcity mindset grows savings over time because they have scarcity mindset! They are good at saving your money!
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!
I see where you're coming from regarding "[settling] into that job & [accepting] that life path" as a government employee. I thought about that after I wrote it myself. The alternative, however, strikes me as taking imprudent risks, if one is supporting a family, and having a work-life balance that one's family wouldn't appreciate (mine already thinks that I work too much). You're right on the mark: my savings rate, and government pension, should result in early retirement. I think I'm interested in having more time, not more money. I'm really content with consuming relatively little.
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"
It could be more like risk vs conservative / growth vs savings / etc.
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.
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.
To be fair, gym memberships are often crappy rent-seeking contracts. They love it when people start memberships for their New Year’s resolutions and then stop coming in February but keep paying, and they often try to hike the prices on you, renew automatically, and make it difficult to cancel. I’m perfectly fine with paying for a gym but I absolutely hate signing up for memberships. Currently I’m going to a city-run gym that has a day rate, and it’s more expensive than a monthly or yearly rate, and I still pay it happily and I feel like I’m getting a good deal, because I’m paying as I go for what I use and I’m not locked in and there’s no risk of wasting money.
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…
I'm amazed at this point, given the "subscriptions are a nightmare to cancel" meme, that nobody's turned that into a marketing message. Some of the gym ads say "cancel anytime", but "sure, just bring in this blood-endorsed document countersigned by at least five Supreme Court justices" is still implied.
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.
In 2016, a gym in Canada had a news article written about it in The Globe and Mail, a national newspaper [1], due to the notability of its policy at the time of only offering a pay-as-you-go plan. You would pay each time you visited, until you hit a cap at a maximum fee per month—this would make future visits free for this period. The marketing clearly worked, as the business earned a national news article solely due to this policy.
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.
You actually hit the nail on the head re: gift giving.
I stumbled upon this years ago with family more..
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!
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.
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.
> 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.
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
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
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.
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?
For me, it wasn't even so much the money as it was I had to plan and then do some (sometimes fairly time-consuming) meal prep. There are things I can buy either locally or keep in the freezer that are good and are far less time to prepare.
But I agree with your basic point. More than a meal at McDonald's is probably a lot to many people.
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.
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
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.
> 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.
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?
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.
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.
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.
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 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.
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.
> 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.
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.
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.
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.
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.
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.
Turned out to be a huge waste of time and if I had actually billed them it would have been such a high sum that they would never be able to pay me anyway.
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.
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.
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.
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?)
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?
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.
Yahoo wasn't terrible but Gmail was definitely better. I kept using Yahoo for a while as the address I used when I ordered stuff but over time Gmail tabs did a pretty good job of compartmentalizing email and it made more sense to just have the one address.
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.
Electronics (excluding gaming console), furniture, interiors design stuff, appliances, clothing and beauty products are frequently 30 - 50% margin. I previously worked with buyers, the toy department expected around 40% margins, electronics didn't want to deal with anything that didn't make them 45%, unless it was part of some promotion.
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.
I don't feel that way. A 10% discount simply sweetens the deal for a commodity (clothing, furniture, etc) I could get at many other places. It's the cost of acquiring a new customer.
The whole reason I'm stopping to look around is because every price tag just got 10% lower.
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.
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?
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.
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.
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
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.
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.
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.
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.
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.
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!
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!
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.
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).
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.