Don’t Do It! 5 Reasons to Avoid Discounting Your Renewals

Who doesn’t like a good discount?  You. Your customers may love them, but discounts don’t do your bottom line any favors and may cause more harm than good.

In my 20 years of experience in database marketing (6 in the home warranty space), my research has shown time and again that discounting negatively impacts profitability with no impact on renewal rates. With due respect to David Letterman, here are my 5 reasons to avoid discounting in your service contract renewal program.

1. Everyone Does It. Many companies offer discounted pricing as standard operating procedure. As a result, it lowers the perceived value of the contract.
2. It Sets a Bad Precedent. Contract holders getting the discount now will expect it again. Don’t be forced to discount indefinitely.
3. You’re Losing Money. Most contract holders renew within three weeks of the expiration date. Offering a discount before the actual expiration is providing a discount to those contract holders likely to renew anyway.
4. It Doesn’t Work. Contrary to popular belief, my research shows little price sensitivity in the renewal decision. Rather awareness and perceived value carry the day. What costs more is more desirable.
5. You’re Renewing the Wrong Customers. Customers with claims history (many unprofitable), renew at a much higher rate than more profitable contracts. Guess who’s getting your discount? Don’t pay unprofitable customers to stay.

 One last thing…

1. Keep It In Your Back Pocket. Your customer service team is bound to get the inevitable, “Can I get a discount?” request. Give your team the chance to be a hero. Make sure they use discounts judiciously and provide guidelines based on your comfort level. And, don’t forget to consider claims history.

If you want to increase your service contract renewal rates and more importantly, profitability, contact me.  Together, we’ll get your program on the right track.

 Bill Bear
678-327-6723
4BearsLLC@comcast.net