Why free stuff or lower prices don’t keep customers happy

One lazy and ineffective way to keep customers happy is to lower prices or give them more things for free. Companies that do not know their customers well, or do not want to, often respond to the question of how to increase customer satisfaction or retention by lowering prices. In free-to-play products, this tactic involves giving users more virtual currency.

The lazy answer

This response is often a knee-jerk reaction to the question of “How do we improve our customer relationships?” It demonstrates that the person/company does not want to address the true dynamics of the relationships. Everybody would rather pay less for a product or get bigger free bonuses and rewards. It does not reflect any understanding of your users, their motivations or why they use your product.

The reality of customer satisfaction

The reality is that users and players are motivated by many factors and rarely is cost the primary reason they use a product. The exception is companies that are focused solely on being a low cost provider, the Walmarts and Aldis, and for them price is the greatest lever to increase user satisfaction. In other cases people are driven by unique features or experiences that builds a bond with the product.

Does not create competitive advantage

The biggest mistake in throwing free stuff at users or players (or lowering prices) is that it does not create competitive advantage. Your competitors can easily match or beat what you are doing. If you are giving away five dollars worth of product daily and they want to steal your customers, they can give away $10. You end up with a race to the bottom in terms of pricing, and when you reach the bottom nobody has a particularly good business other than the companies built to compete on price (again, the Walmarts and Aldis).

Determining what creates satisfaction for your users

The first step is understanding what about your product or game motivates people to use it. There are several ways to build this understanding (listed in my order of preference):

1. NPS surveys. Net promoter score (NPS) surveys ask users to rate a product from 0 to 10 on likelihood to recommend and then ask why they gave that score. To avoid making this an NPS post I will abbreviate but those who answer 9 to 10 are considered promoters. If you then look at the responses to the second question, for everyone who answered 9 and 10, you can gain a good understanding of what the people who love your product love.
2. Growth hacking. Growth hacking guru Sean Ellis recommended two questions to ask all users. The first is, what is the primary benefit your received from this product/game? The second is how would you feel if you could not use the product/game? These questions will help you understand what it is about your offering that people love.
3. Focus testing. While surveys are useful, it is often more effective to have real conversations with your customers. If you want to focus on your most valuable users, organize an event and talk to them there about why and how they are using your product. If you want a broad selection of users, create a community event and speak to your customers then. You may also want to work with a focus-testing company to bring in a mix of your users and those of your competitors to understand the different factors driving customer decisions.
4. User interviews. Although very involved, possibly the strongest means to understand how your users consume your product and what they love is to go to their homes and watch them use the product. Rather than giving you responses they think you want to hear, you will see their actual activity.

All of these tools are effective at understanding your customers, there is no right answer. Ideally, you would create a combination of analytic tools to understand the player but all are better than thinking you simply have to give them a cheaper product.

How to use this information

Once you understand why your customers love your product (or why the customers who love your product do so), double down on that aspect. If it is the ease of use, make it even easier to use. If it is the serving size for a restaurant, give even larger servings. If it is the bonus games in a slot machine, make the bonus games even better. The important thing is you focus on what people love and make it better rather than just throwing free things at the customer. Then you have a product users truly love and return to using.

Although in the short term you can make users happy by giving them free stuff, it will not help you build up a long-term business. It will actually hurt, as it will cut into your profitability (and ability to invest in other aspects of the product) as well as implicitly tell your users that your value is simply price. Understand your users and build products that meet their needs and you will optimize long-term satisfaction.

Key takeaways

1. Giving free items or discounts to customers or players does not build long-term retention and satisfaction; it is a lazy way to get a short-term boost.
2. You need to understand what it is about your product users love, either through NPS analysis, surveys or interviews.
3. Once you know what they love, you should reinforce these features to increase satisfaction.