NOTRE DAME, Ind. — It’s common for unhappy customers to be offered discounts by a business in order to smooth things over. After all, the customer “is always right” and in today’s day and age of online reviews and ratings, no business wants to incur the wrath of a disgruntled patron. Surprisingly, a new study out of the University of Notre Dame says that when it comes to subscription-based services, this approach may result in subscribers taking their business elsewhere.
Researchers found that while offering discounts for bad experiences will likely keep subscribers happy in the short term, it may also backfire by reducing the likelihood of subscription renewals once their current agreement expires.
The study’s lead author, Vamsi Kanuri, says that unhappy customers who are offered discounts end up getting used to the cheaper price. So, when the time comes to renew their subscription, that normal price seems a whole lot more expensive.
“In turn, this will lead them to compare the price of the service renewal with their reduced service price following the service failure. A higher discount results in consumers forming a lower reference price, which in turn increases the difference between the full renewal price and the reference price. This difference then translates into a perceived loss, which ultimately results in lower renewal probabilities,” Kanuri explains in a release.
Simply put, subscribers end up feeling cheated by a discount that was intended to make them feel appreciated or taken care of.
Kanuri and his team analyzed the renewal decisions of nearly 7,000 subscribers who recently threatened to cancel their subscriptions to a large U.S. newspaper firm following a service delivery failure. These delivery failures were incidents such as late delivery, property damage during delivery, or a newspaper being delivered to the wrong location, among other similar mishaps.
Researchers admit that in many situations offering subscription discounts is still the best option to appease unhappy subscribers in the short term. In such situations, Kanuri has a few suggestions to decrease the likelihood of a cancellation come renewal time; lower the renewal price on the subscriber’s next contract, extend the subscriber’s current contract, or frequently reach out to the subscriber using emails or phone calls to remind them of the original subscription price.
The study is published in the Journal of Marketing.