Increasing customer retention with discount cards in China

It had been a hectic week, and my back was not happy about it. My shoulders had locked up and my upper back was screaming. I decided to go to the spa across the street, a respectable chain with locations throughout Shanghai, for a 90 minute massage. They don’t offer the cheapest massage in the area, but it’s one of the best, isn’t shady, and is reasonably priced.

After my massage I stumbled to the front desk to pay; I was so relaxed it was hard to walk straight. With my defenses down, they decided to make the pitch I hear with surprising frequency in China: “Would you like to pay 3000 RMB today for a prepaid discount card, then we can give you 20% off this and future massages.” I gave my usual response, “Maybe next time.”

How these discount cards work

These prepaid discount cards aren’t entirely different from Starbucks cards[1] in the US, except that when you put a certain amount of money on the card, you are entitled to a discount for the remainder of the balance; though you generally can’t add money to the card until the full balance is depleted. Usually, the more you prepay, the deeper the discount. At the spa across the street from our apartment in Shanghai, if you put 3,000 RMB (roughly $480) on the card, you get a 20% discount. But if you put 6,000 RMB (roughly $960) on it, the discount increases to 25%.[2]

Innovative coffee-house punch cards

In some ways, these cards are just the old coffee-house or ice cream shop punch cards — re-imagined. Remember those punch cards that seemed to be available at every food or beverage shop in the US for a while? Back then my wallet was filled with cards from my local coffee-house, my favorite frozen yogurt shop, and even Subway. Even more annoying than the pile of punch cards were the dangling chads that would frequently litter my wallet; chads didn’t just dangle on ballots back in the day. Maybe that’s why many shops shifted to stamps instead of custom hole punches before the punch-card craze suddenly fizzled.

The old punch cards were usually free, with the establishment offering you a free item after 9 or 10 punches. These Chinese prepaid discount cards are nearly identical, except instead of giving you the 10th item free they take your money up-front and give you a 10% discount for those 10 purchases. It’s often a good investment for places you frequently visit — as long as they don’t close down before you are able to spend the full balance.

Things to consider when developing your marketing strategy

It can be difficult to get Chinese consumers to part with their money — especially where web and mobile apps are concerned. Although the prepaid discount cards may not work for every type of business, you may be able to take advantage of this comfort with prepaid discount cards when marketing in China.

If you have a service business, give the prepaid cards a try. If you have a service business you should consider offering these cards. Even if you’re not offering the cards themselves, give your customers a chance to enjoy discounts by prepaying for services. The lower margins will likely be offset by higher customer retention.

Experiment with extending this idea to other types of businesses. Even though this strategy is usually reserved for service businesses in China, that doesn’t mean you can’t extend it to other types of businesses. Chinese consumers are generally very price sensitive, so discounting is common here; offering discounts on larger purchases may serve you well. For example, if your customers spend an average of 500 RMB in your shop, or on your e-commerce site, consider offering a 10% discount for purchases over 1000 RMB. See if you can nudge your customers into increasing how much they spend on each transaction by offering this type of incentive.

Offer longer-term options with a freemium or subscription service. We recently moved to a freemium model for one of our web products. To our surprise, we found that our users were willing to prepay for much longer periods of time than we had originally anticipated. At first, we wanted to be able to adjust our pricing freely, and therefore didn’t allow users to prepay for more than three months of our service. In retrospect, however, it would have been better for us to offer longer-range options, with deeper discounts for pre-payments, for those customers who wanted to commit to our site. It would have given us more insight into our customers’ willingness to pay, informing our future pricing changes, and would have improved customer retention. If you’re launching a web or mobile product in China, give your users the option to prepay, and give them deep discounts for doing so.