Do Discounts for Bad Customer Service Work? A Lesson From Newspapers

As the classic video game Paperboy  (opens in a new tab) 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  (opens in a new tab) [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  (opens in a new tab). “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  (opens in a new tab): 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.”

(Image Source/DigitalVision/Getty Images Plus)