Do Discounts for Bad Customer Service Work? A Lesson From Newspapers
If you want to keep a subscriber—or member—happy after a customer service mishap, a discount won't be enough, according to a recent study from the newspaper industry. Instead, offer something more.
As the classic video game Paperboy showed, when people don’t get their newspaper in the morning—especially if they haven’t upgraded to digital delivery—they tend to get upset. They might call customer service with a few choice words, including the time-honored threat to cancel their subscription.
How do you get back in such customers’ good graces? Will a temporary discount do the trick?
According to a recent study, discounts actually discourage customers from sticking around. Examining an unnamed metropolitan daily newspaper with a circulation above 500,000, the researchers reviewed nearly 7,000 complaints from subscribers to whom the newspaper offered a one-time discount to make amends. Monetary compensation was a deterrent to renewals even for people who had subscribed for decades.
The reason? The offer creates a perception that the original “reference price” was too high, said the study’s authors, Vamsi Kanuri of Notre Dame and Michelle Andrews of Emory University, in a report published in the Journal of Marketing [subscription].
“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,” Kanuri said in a news release. “This difference then translates into a perceived loss, which ultimately results in lower renewal probabilities.”
There’s a better alternative, according to Harvard’s Nieman Journalism Lab: Rather than going straight to discounts, publishers can offer additional benefits—say, a full-week subscription rather than just the weekend, or access to more online offerings. Discounts can still be part of the strategy if they’re less obvious—by extending them over a period of years rather than months, for example.
“In other words, if it has been a longer time since they had to renew, people seem more willing to pay a higher renewal price,” Nieman Lab’s Laura Hazard Owen explains.
The parallels for associations are clear: Discounts as a remedy for poor service tend to lower expectations for subscribers, members, or customers. Instead, offer something they were not expecting, such as an additional product or access to a benefit they did not have previously.
“Everyone knows that firms are imperfect, just as human beings, and that there will be a service letdown at some point,” Kanuri said. “How the firm chooses to delight its customers can make all the difference.”
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