Smart discounting strategies: When, why, and how to offer deals

Discounting is a prevalent strategy in consumer apps to boost sales and revenue, yet many companies underestimate its long-term costs, such as revenue cannibalization and decreased customer lifetime value (LTV). For example, a mobile app offering a 50% discount might see an increase in sales but suffer a net revenue loss due to discounted baseline sales. To mitigate such downsides, it is crucial to find a discount level that generates sufficient additional sales without eroding revenue from full-price offerings. Segmenting customers and selectively applying discounts can help minimize cannibalization, especially by excluding less price-sensitive users. Understanding price elasticity of demand and analyzing past campaign data can aid in estimating how much additional demand a discount might generate. Additionally, discounting can improve return on ad spend (ROAS) by targeting specific user cohorts, especially in competitive ad spaces. Strategic discounting can convert users during the initial high conversion window or after reaching a subscription conversion plateau, optimizing revenue from existing users. Ultimately, while discounting remains an essential part of pricing strategies, it requires careful planning and execution to avoid long-term negative impacts on revenue and growth.