Chapter 1: The Power of Discount Testing

Discounts can certainly work wonders, but they require careful experimentation.

Over the past ten years, I've held the role of marketing manager across various startups. One commonality among most clients was their hefty allocation of up to 60% of their marketing budgets towards discounts. This raises a significant concern: many companies fail to adapt their discount strategies despite such substantial expenditures.

They often choose a widely accepted discount model in the market and persist with it, assuming that a single discount will keep customers engaged in the long run. However, the effectiveness of any discount diminishes over time without introducing fresh options.

Consider hosting a weekly dinner gathering; if you serve the same delectable dish repeatedly, your guests may lose interest. Therefore, to foster business growth, it's crucial to continually refine your discount strategy. Failing to do so results in stagnating revenues once the initial excitement wears off.

The Challenge

My tenure at a ride-sharing company presented a similar predicament. In the initial three months, we employed a popular discount in our newsletters: $6 off the next ride via a promotional code. Confident in our approach, we mirrored our competitors, who were also utilizing this discount type.

Despite significant investment in these newsletter campaigns, revenue growth plateaued after three months. In an effort to counter this decline, I increased the frequency of newsletter distributions, only to witness a drop in email open rates and continued stagnant revenue.

We could not retain our customers for the long haul, much like serving only one enticing dish to a group of diners. We anticipated that a singular discounted offering would suffice to keep our clientele interested, but that was not the case. It became clear that we needed to pivot and discover discounts more aligned with our customers' needs.

The 3-Phase Discount Strategy

While the "$6 discount" was effective initially, its appeal faded over time, losing both exclusivity and uniqueness. The reality is that no single discount can remain effective indefinitely; instead, a dynamic discount strategy is essential, one that adapts to customer expectations. The solution lies in systematically testing various discounts to enhance revenue.

I devised a three-phase discount strategy aimed at fostering long-term growth.

#### Phase 1: Testing the Existing $6 Discount

In this phase, I compared two variations of the same discount: "$6 off your next ride" versus "$6 off your next two rides." The goal was to encourage more rides through a shift in discount perception. Customers might find a $3 discount per ride over two rides more appealing, even though the total benefit remained $6.

I prepared two versions of the newsletter—one featuring the $6 discount for a single ride and the other showcasing the $6 discount applicable over two rides. I split our audience, sending one version to half and the other to the remaining customers.

The results were clear: the $6 discount valid for two rides emerged victorious. Customers appreciated the perception of value associated with the two-ride offer, leading to increased rides and revenue.

#### Phase 2: Evaluating Discount Types

With the two-ride discount proving popular, it was time to explore a different discount type. I set up two newsletters: one offering a $6 discount valid for two rides and another providing a 20% discount for the same rides. Each half of our audience received one of these options.

The outcome? The 20% discount significantly outperformed the $6 offer, presenting a promising avenue for further revenue growth.

#### Phase 3: Focusing on the Best Performer

Armed with knowledge from the first two phases, we turned our attention to maximizing revenue through the percentage discount valid for two rides. We sent out the newsletter featuring this winning discount to our entire customer base.

This marked the culmination of our discount strategy over the course of a year. Now, let’s delve into the results.

The Results

Over a six-month period, we observed remarkable changes in revenue:

• The $6 discount for two rides doubled our initial monthly revenue.
• The 20% discount for two rides tripled our initial monthly revenue.
• Ultimately, the 20% discount for two rides led to a staggering 6X increase in revenue compared to the original monthly figures.

By implementing a systematic approach to discount testing, I was able to achieve a sixfold increase in revenue within a year. This experience underscored the importance of a strategic discount strategy consisting of three key steps. The more you experiment, the greater your potential for long-term revenue growth.

Key Takeaways

• Avoid sticking to a single discount type; past successes do not guarantee future results.
• Experiment with existing discounts by altering their structure, identifying what resonates with customers.
• After determining effective patterns, test these structures with different discount types to uncover new growth opportunities.
• Concentrate on the most successful discount after completing two rounds of testing to optimize revenue generation.
• Continue testing by introducing new discount types, as no single discount will remain effective indefinitely.

Are you ready to elevate your growth strategy? Connect with me on Substack or LinkedIn for more insights.

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