Striking the Right Balance
We have conducted numerous tests of membership discounting in direct mail campaigns. We achieve the best results when small rate reductions at the entry levels of membership increase the response rate while proportionally larger reductions at the higher levels of membership help maintain a strong average gift.
Striking the right balance between response rate and average gift is the key to the discount offer made in membership solicitations. Discounting too aggressively at the entry levels (20% or more) may force the average gift too low and offset the gain made in response. Discounting the higher levels too little may not provide the expected lift in the average gift.
Striking the right balance between size and value of the membership base is the key to an overall discount strategy. Modest annual increases in value (as measured by the average gift) should be the norm for membership programs with or without gains in size. A stagnant or falling average gift may signal that a discount strategy is off the mark.
The Groupon Phenomenon
We have witnessed the growing use of Groupon and Groupon-style discounts of up to 50% on memberships. Nearly all result in a short-term surge in member households and broad exposure in the marketplace, all gained at no net cost or even with a small profit.
On the back-end, however, we consistently hear about very low retention rates for these highly discounted members. When a year’s worth of benefits are factored in, the economic advantage of these steep levels of discounting begins to fall away. Add to that the unintended consequences—a growing expectation of continued deep discounts and the potential erosion of the membership brand and perceive value—and this strategy seems to lose its advantage altogether.
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